Court Consents Coventry's Payment - Analyst Blog
June 01 2011 - 5:15AM
Zacks
The Third Circuit Court of Appeals
in Louisiana has approved its final settlement of $150.5 million
against First Health Group Corp. Inc., a wholly owned subsidiary of
Coventry Health Care Inc. (CVH), for providing
lower medical reimbursements to the injured workers.
As per the initial judgment in July
2010, Coventry was accused of paying $262 million along with
additional accruals for legal fees and interest related to this
settlement. Later in February 2011, First Health planned to pay
$150.5 million from its escrow fund.
Consequently, Coventry will record
a favorable non-recurring pre-tax adjustment to earnings of $159.3
million, or 68 cents per share after tax, in the second quarter of
2011.
The legal action was initiated in
April 2004, which involved allegations by certain health providers
including Southwest Louisiana Hospital Association against First
Health for violating the notice provisions of Louisiana’s Any
Willing Provider Act for the treatment of injured workers with
compensation claims.
According to the health providers,
First Health kept the workers uninformed and reimbursed them for
the damages at the lower preferred provider organization contracted
rates, instead of the mandated workers’ compensation rates, which
are higher.
First Health denied the claims and
filed a motion citing that all the workers were paid as per the
guidelines issued by the US District Court for the Western District
of Louisiana. However, the motion was rejected.
Nevertheless, Coventry maintains a
solid fundamental business and has continued to grow with all seven
core businesses performing at or above internal expectations.
Coventry’s lawsuit did not impact the profitability of the company.
Recently, it posted strong first-quarter adjusted earnings of 66
cents per share, exceeding the Zacks Consensus Estimate of 53
cents.
The improved result was
attributable to solid performance across all lines of its
businesses. Besides, continued emphasis on cost containment
throughout the organization and excellent liquidity position
resulted in positive results.
Following the impressive
first-quarter earnings results and improved 2011 earnings outlook
of Coventry, the rating agency Moody's Investors Service has kept
its debt ratings under review. Moody’s will seek Coventry's ability
to sustain and grow its profit margins and membership to upgrade
its rating.
Currently, Coventry's senior
unsecured debt, senior unsecured credit facility and corporate
family debt, which are rated "Ba1," including approximately $1.6
billion in debt, are under review. In addition, Moody's is
reviewing ratings on Coventry health care plans including
HealthAssurance Pennsylvania Inc., HealthAmerica Pennsylvania Inc.
and Group Health Plan Inc., which are currently rated as
"Baa1."
Besides, Moody’s, the rating agency
A.M. Best Co. had also revised its outlook to stable from negative.
It is same for all debt ratings and the majority of the health care
subsidiaries of Coventry as of March 2011, while reiterating the
financial strength and issuer credit ratings of Coventry's
subsidiaries and also debt ratings.
Further, we believe that Coventry
is also growing on the acquisition front, as it is making
continuous efforts to expand its footprint in Missouri and
Arkansas.
Additionally, Coventry’s
acquisition of Mercy Health Plans and its subsidiaries is expected
to be slightly accretive to its 2011 earnings and will serve more
than 1.2 million members in its six-state Midwest region.
We believe that Coventry’s
acquisitive growth strategy will help it to leverage its regional
service centers and improve operating efficiencies, largely through
economies of scale. Major competitors of Coventry are
Unitedhealth Group Inc. (UNH), Aetna
Inc. (AET) and WellPoint Inc. (WLP).
AETNA INC-NEW (AET): Free Stock Analysis Report
COVENTRY HLTHCR (CVH): Free Stock Analysis Report
UNITEDHEALTH GP (UNH): Free Stock Analysis Report
WELLPOINT INC (WLP): Free Stock Analysis Report
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