Coventry Health Care, Inc. (Coventry) (NYSE: CVH) is a diversified national insurer in the United States.
Based in Bethesda, Maryland, Coventry operates health plans, insurance companies, network rental and workers’ compensation services companies. Coventry provides a full range of risk and fee-based managed care products and services to a broad cross section of individuals, employer and government-funded groups, government agencies, and other insurance carriers and administrators. It is currently ranked the third most successful prescription drug plan service in the United States.

Coventry Health Care, Inc. (Coventry), incorporated on December 17, 1997, is a diversified national managed healthcare company based in Bethesda, Maryland. The Company operates health plans, insurance companies, network rental and workers’ compensation services companies. Coventry operates in three segments: Health Plan and Medical Services, Specialized Managed Care and Workers’ Compensation. On February 1, 2010, the Company completed the acquisition of Preferred Health Systems, Inc. (PHS) On October 1, 2010, the Company acquired MHP, Inc. (MHP).
Health Plan and Medical Services Division
The Health Plan and Medical Services Division consist of its health plan commercial risk, Medicare Advantage and Medicaid businesses and products. In addition, through this Division the Company contracts with various federal employee organizations to provide health insurance benefits under the Federal Employees Health Benefits Program (FEHBP) and offers managed care and administrative products to businesses that self-insure the health care benefits of their employees. This Division also contains the dental services business. Its health plans offers commercial risk products, including health maintenance organization (HMO), preferred provider organization (PPO) and point of service (POS) products, to individuals and employer groups. It also offers consumer-directed benefit options, including health reimbursement accounts (HRA) and health savings accounts (HSA) to its commercial customers.
Coventry’s health plan HMO products provide health care benefits, including ambulatory and inpatient physician services, hospitalization, pharmacy, mental health, ancillary diagnostic and therapeutic services. Its health plan risk-based PPO and POS products provide managed health care benefits while allowing members to choose their health care providers at the time medical services are required. Its health plans offer management services and access to their provider networks to employers that self-insure their employee health benefits. The management services provided include medical claims administration, pharmacy benefits management, utilization management and quality assurance. As of December 31, 2010, Coventry’s health plans had approximately 698,000 non-risk health plan members.
As of December 31, 2010, the Company’s health plans operated Medicare Advantage Coordinated Care Plans (Medicare Advantage CCP) in 12 states. As of December 31, 2010, Coventry’s health plans offered health care coverage to Medicaid recipients in eight states, which covered 468,000 members. The Company offers a full suite of dental services, including insured and administrative plans for individuals and groups, a full-service dental third-party administrator specializing in private-label programs and a full suite of discount products. These services are offered through Group Dental Service, Inc. (GDS). Coventry operates local health plans that serve 24 markets, primarily in the Mid-Atlantic, Midwest, Mountain West and Southeast United States. Its health plans are operated under the names Altius Health Plans, Carelink Health Plans, Coventry Health Care, Coventry Health and Life, Group Health Plan, HealthAmerica, HealthAssurance, HealthCare USA, Mercy Health Plans, OmniCare, PersonalCare, Preferred Health Systems, Southern Health and WellPath.
Specialized Managed Care Division
The Specialized Managed Care Division includes the Company’s Medicare Part D, network rental and behavioral health benefits businesses. The Medicare Part D program provides beneficiaries with access to prescription drug coverage. As part of the Medicare Part D program, Medicare recipients are able to select a prescription drug plan. As of December 31, 2010, Medicare Part D business had 1.6 million members. The Medicare Part D plans are marketed under the brand names of Advantra Rx, First Health Premier and First Health Secure. The Company has established partnerships with Medicare Supplement insurance carriers and brokerage channels nationwide to distribute Medicare Part D prescription drug products to Medicare beneficiaries on its behalf. Medicare beneficiaries can also purchase its Medicare Part D products through an Internet-based Medicare Plan Finder tool.
Coventry offers its national PPO network and other managed care products to national, regional and local third-party administrators (TPAs) and insurance carriers. Network services are supplemented with a variety of product offerings, including clinical management programs. The Company operates in the managed behavioral healthcare industry and provides coordination of mental health, substance abuse treatment and employee assistance programs throughout the United States. These services are provided through MHNet Specialty Services, LLC and associated subsidiaries (MHNet) based in Austin, Texas.
Workers’ Compensation Division
The Workers’ Compensation Division consists of the Company’s workers’ compensation services businesses, which provide fee-based, managed care services, such as provider network access, bill review, care management services and pharmacy benefit management to underwriters and administrators of workers’ compensation insurance. The Company provides workers’ compensation services whereby its customers pay fees to access its national workers’ compensation provider network.

Now wealthy, Bredesen in 1986 cofounded Coventry Corporation with Joseph P. Williams, former CFO of HealthAmerica. Williams served as CEO while Bredesen held the chairmanship, although he increasingly devoted his time to politics. He stepped down as chairman in 1990 but stayed on as a director. In 1987 he lost a runoff election to become mayor of Nashville, a post he won in a landslide in 1991. He was unsuccessful in his attempt to be governor in 1991, won a second term as Nashville's mayor, then in 2002 he tried for the governorship again. This time he won, and the New York native became Tennessee's 48th governor.
As Bredesen had done with HealthAmerica, Coventry looked to grow by external means. In 1987 it paid $23 million in cash plus stock to acquire American Service Life Insurance Company; American Service Underwriters, Inc.; American Service Telemarketing, Inc.; Private Enterprise Managements, Inc.; as well as the assets of American Service underwriters. In 1988 Coventry completed two transactions. Paying nearly $1.5 million in cash, plus stock and other considerations, it acquired the Jess Jordan Agency. Coventry also picked up an 80 percent stake in Penn Group Corporation, a company newly formed to purchase Bredesen's original HMO, HealthAmerica Pennsylvania Inc., a health plan provider in Harrisburg and Pittsburgh, for $8 million. Coventry's largest deal in its early history was the 1990 $40 million cash and stock acquisition of Group Health Plan, Inc. To fund further growth Coventry made an initial public offering of stock in 1991.
Coventry adjusted its business mix in 1992 when management elected to discontinue the operations of American Service Company in order to focus on running HMOs. Coventry's plan was to view its current markets--Pittsburgh, central Pennsylvania (Harrisburg), and St. Louis--as hubs from which to expand the business. In this regard, Coventry acquired Healthpass, Inc., a provider organization affiliated with the Pennsylvania State University, located in central Pennsylvania, in a transaction valued at approximately $1.4 million. In the western part of the state, Coventry expanded through the acquisition of Riverside Health Plan, adding Beaver County, paying $3.9 million in debt and assuming liabilities in the $5 million range. From its St. Louis hub, Coventry also began to make inroads into southern Illinois. Although the company was interested in entering other markets, it was clearly focused on markets with no more than three million residents.
In the 1990s a large number of hospitals launched their own health plans and HMOs. By the middle of the decade they totaled nearly 3,300, but most proved to be money-losing ventures that hospitals were soon interested in unloading, thus providing a company like Coventry with ample acquisition targets and promising new markets to enter. In 1994 Coventry paid $50 million in cash to buy the remaining 20 percent interest it did not own of Penn Group Corporation. It also paid $3.7 million to acquire four physical group practices. In December 1994 Coventry used $75 million in stock to acquire Southern Health Management Corporation, based in Richmond, Virginia. Founded in 1984, the physician-owned HMO had 45,000 members in Richmond and central Virginia. As a result, Coventry gained a foothold in the southeastern market, with Richmond joining Pittsburgh, St. Louis, and Harrisburg as regional hubs. The company now boasted a total membership of 548,000. Coventry's balance sheet also reflected an upward trend. Revenues grew from $642 million in 1993 to nearly $777 million in 1994, with net income improving from $22 million to $29.3 million during the same period.
Coventry completed a major acquisition in July 1995 when it added Jacksonville, Florida-based HealthCare USA for $45 million in stock. HealthCare USA operated a 28,000-member Medicaid HMO in Jacksonville as well as Medicaid networks in St. Louis and Birmingham, Alabama, thereby adding the Medicaid risk product to Coventry's offerings and greatly extending the company's reach in the Southeast. Coventry began marketing its Medicaid product in the St. Louis and Missouri markets at the end of 1995 and rolled it out to western and central Pennsylvania in early 1996. By the end of 1996 Coventry had some 120,000 members enrolled in its Medicaid risk product.
Coventry suffered a major setback in 1995 when it lost two major accounts in the western Pennsylvania market and found itself saddled with excess capacity in 1996. Furthermore, in 1996 and into the early months of 1997 the company found that it had underpriced its health plans, while at the same time enrollments failed to keep pace with projections and administrative costs escalated. As a result, after barely breaking even the year before, Coventry posted a loss of more than $61.2 million in 1996, despite cracking the $1 billion mark in annual revenues. Much of the loss, some $40 million, was charges the company elected to take in order to increase its reserves and restructure its finances. The company took a number of steps to remedy the situation. It sold off a St. Louis-based dental insurance plan as well as nine medical centers in St. Louis to BJC Health System. The two parties then formed a ten-year strategic partnership that allowed Coventry to focus on marketing and management functions rather than the facilities themselves. Likewise, Coventry sold its group medical practices in Pittsburgh. Moreover, Coventry decided to close its Florida Medicaid HMO plan after attempts to sell the business proved unsuccessful. Due to its losses Coventry defaulted on some of its $90 million in debt, resulting in a restructuring of the covenants with bankers. A key to negotiating a one-year loan agreement that stabilized the company's finances was a letter of intent from investment firm E.M. Warburg, Pincus Ventures to invest $40 million in Coventry.
Coventry Merging with Principal Health Care in 1997
With its house in order, Coventry returned to profitability in 1997, earning nearly $12 million on revenues in excess of $1.22 billion. In November 1997 it merged with Principal Health Care, a managed care company that was enduring a plight similar to what Coventry had just overcome. The Bethesda, Maryland-based company, a subsidiary of Des Moines, Iowa-based Principal Financial Group, had lost more than $40 million in 1996 and during the first three quarters of 1997 lost some $15 million more. The $375 million stock swap, which closed in 1998, created a $2.4 billion company with 1.9 million members located in 18 markets. Coventry received a 60 percent ownership stake in the merged entity, which subsequently changed its name to Coventry Health Care. The company also decided to move its headquarters to Principal Health Care's offices in Bethesda. Bredesen expressed some displeasure over the change of address, although he said he understood the rationale. Because he could not spare the time to travel to Maryland for meetings he opted to resign from the Coventry board.
In 1998 Coventry completed a number of transactions to improve the company's fiscal health following the Principal


OVERALL
Beta: 1.89
Market Cap (Mil.): $4,855.25
Shares Outstanding (Mil.): 148.25
Annual Dividend: --
Yield (%): --
FINANCIALS
CVH Industry Sector
P/E (TTM): 10.74 15.94 39.90
EPS (TTM): 19.92 -- --
ROI: 7.59 8.86 1.97
ROE: 11.16 23.32 2.59
Statistics:
Public Company
Incorporated: 1986 as Coventry Corporation
Employees: 3,985
Sales: $3.6 billion (2002)
Stock Exchanges: New York
Ticker Symbol: CVH
NAIC: 621491 HMO Medical Centers

Key Dates:
1986: Coventry Corporation is founded in Nashville, Tennessee.
1988: HealthAmerica Pennsylvania Inc. is acquired.
1991: The company goes public.
1998: Coventry merges with Principal Health Care, and moves headquarters to Bethesda, Maryland.
2000: WellPath Community Health Plans is acquired.

Name Age Since Current Position
Wise, Allen 68 2009 Executive Chairman of the Board, Chief Executive Officer
Stelben, John 49 2009 Interim Chief Financial Officer, Senior Vice President, Treasurer
Young, David 46 2009 President and Chief Executive Officer of Coventry Health Care Workers Compensation, Inc
Zielinski, Thomas 59 2007 Executive Vice President, General Counsel
DeMovick, Harvey 64 2009 Executive Vice President
Bahr, Michael 52 2009 Executive Vice President - Commercial Business
Conlin, Kevin 52 2011 Executive Vice President
Ruhlmann, John 48 2006 Senior Vice President, Corporate Controller
Davis, Patrisha 55 2007 Senior Vice President, Chief Human Resources Officer
Burdick, Kenneth 52 2010 Senior Vice President - Medicaid and Behavioral Health (MHNet) businesses
Tallett, Elizabeth 61 1998 Independent Lead Director
Kugelman, Lawrence 68 1992 Independent Director
Moorhead, Rodman 67 1997 Independent Director
Ackerman, Joel 45 1999 Independent Director
Weglicki, Timothy 59 2001 Independent Director
Crandall, L. Dale 69 2004 Independent Director
Mendelson, Daniel 46 2005 Independent Director
Stocker, Michael 69 2009 Independent Director
Swedish, Joseph 59 2010 Independent Director

Address:
6705 Rockledge Drive, Suite 900
Bethesda, Maryland 20817
U.S.A.
 
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