Coventry Health Care reports $2.9 billion total operating revenues for second-quarter 2010

Coventry Health Care, Inc. (NYSE:CVH) today reported consolidated operating results for the quarter ended June 30, 2010. Operating revenues totaled $2.9 billion for the quarter with net earnings of $1.0 million, or $0.01 earnings per diluted share (EPS). These results include a favorable impact from the Medicare Advantage Private Fee-for-Service (MA-PFFS) product of $0.18 EPS and an unfavorable impact related to the previously announced provider class action litigation in Louisiana of $1.18 EPS. Excluding the impact of MA-PFFS results and the provider class action charge, earnings for the quarter were $149.2 million, or $1.01 EPS. Additionally, the Company has increased guidance for full year 2010 as detailed on page 3.

“Our diversified portfolio of risk and fee-based businesses combined with a relentless emphasis on driving a low cost structure throughout the organization positions us well for continued success in the long term.”

"The outstanding second quarter fundamentals that Coventry reported today are a result of the sharper focus and execution that have returned to the organization with all seven of our core businesses performing at or above expectations," said Allen F. Wise, chairman and chief executive officer of Coventry. "Our diversified portfolio of risk and fee-based businesses combined with a relentless emphasis on driving a low cost structure throughout the organization positions us well for continued success in the long term."

Consolidated Highlights

• Commercial risk membership of 1,522,000, an organic increase of 21,000 members sequentially
• Sequential membership growth in Medicare Advantage Coordinated Care Plans (MA-CCP), Medicare Part D, and Medicaid
• Announced an agreement to acquire Mercy Health Plans, a diversified health plan with approximately 180,000 members throughout Missouri and northwest Arkansas
• GAAP cash flows from operations were $120.9 million
• Approximately $670 million of deployable free cash at the parent at quarter-end

Selected Second Quarter 2010 Highlights

• Health Plan Commercial Group Risk. Reported commercial group risk premium yields rose to $313.92 per member per month (PMPM) in the quarter, an increase of 4.7% from the prior year quarter. Reported commercial group risk premium yields rose to $313.00 PMPM year-to-date, an increase of 5.0% from the prior year-to-date. The health plan commercial group risk MLR was 78.3% in the quarter, a decrease of 340 basis points from the prior year quarter.
• Medicare Advantage. As of June 30, 2010, MA-CCP membership was 192,000, an increase of 10,000 members from the prior year quarter. The MA-CCP MLR was 81.2% in the quarter. During the second quarter, the MA-PFFS product line contributed $0.18 EPS largely due to favorable medical cost experience during the claims run-out process. When combined with the $0.17 EPS contribution reported in the first quarter, the total year-to-date contribution from the MA-PFFS product line was $0.35 EPS. As previously announced, the Company did not renew this product line effective January 1, 2010.
• Medicare Part D. As of June 30, 2010, Medicare Part D membership was 1,631,000, an increase of 76,000 members from the prior year quarter. The Medicare Part D MLR was 90.7% in the quarter, an increase of 80 basis points from the prior year quarter. The Medicare Part D MLR was 93.1% year-to-date, a decrease of 330 basis points from the prior year-to-date.
• Medicaid. As of June 30, 2010, Medicaid membership was 413,000, an increase of 28,000 members from the prior year quarter. Coventry commenced operations in Pennsylvania during the second quarter which contributed 5,000 new members. The Medicaid MLR was 84.2% in the quarter, a decrease of 600 basis points from the prior year quarter.

2010 Full Year Guidance

• Risk revenue of $10.10 billion to $10.33 billion
• Management services revenue of $1.15 billion to $1.17 billion
• Consolidated revenue of $11.25 billion to $11.50 billion
• Consolidated MLR of 81.3% to 81.9%
• Cost of sales expense of $245.0 million to $250.0 million
• Selling, general, and administrative expense (SG&A) of $1.92 billion to $1.96 billion
• Charge for provider class action of $278.0 million
• Depreciation and amortization expense of $137.0 million to $145.0 million
• Other income of $72.0 million to $78.0 million
• Interest expense of $80.0 million to $86.0 million
• Tax rate of 37.0% to 38.0%
• Diluted share count of 146.5 million to 148.0 million
• EPS of $1.72 to $1.87