Irvine-based CorVel Corp. is one company that isn’t fretting over higher healthcare and other insurance costs.
Officials at CorVel, a provider of services to help insurers and businesses rein in costs, say they see rising healthcare costs as an opportunity.
“When there’s higher inflation, there’s more interest in our services,” said Gordon Clemons, CorVel’s chief executive and founder.
CorVel provides a range of healthcare management and cost-control offerings. Its primary lines of business include managing injured workers’ medical treatment, reviewing bills to find either inappropriate or excessive charges, and a preferred-provider organization for workers’ compensation-related healthcare.
Its customers mostly are insurance companies, third-party administration companies and a few large employers that take on their own insurance risks. Some of CorVel’s better-known clients include Mattel Inc., Wal-Mart Stores Inc. and Domino’s Pizza LLC.
CorVel doesn’t get a lot of attention from Wall Street, but the company has posted a rather consistent record of growth in the 10 years it has been publicly traded. CorVel’s annual revenue has risen 47.4% in the past three years to $217 million in the 12 months ended in June.
Most recently, CorVel just reported earnings of $3.6 million on revenue of $58.4 million in its fiscal second quarter ended Sept. 30. For the year-ago quarter, CorVel reported earnings of $3.3 million on revenue of $51.7 million.
CorVel’s share price has risen in tandem, steadily but not spectacularly, from the 13 range in mid-1998 to around 30 last week, giving it a market capitalization of about $333 million. Still, CorVel doesn’t attract a great deal of investor attention. Clemons said that is because it is “small and thinly traded” and doesn’t make a lot of acquisitions.
But CorVel is on the radar screen of Bear Stearns & Co., one of New York’s more established investment bankers.
“We haven’t changed (our opinion) all that much,” said Marc Postiglione, a Bear Stearns healthcare services analyst. “They’re still beating our earnings expectations.”
CorVel, which primarily operates in the workers’ compensation arena, hasn’t been heavily touched by battles over patients’ rights that have cooled investors’ interest in certain health maintenance organizations.
“They deal only in workers’ compensation, not the group health market,” Postiglione said. “Workers’ compensation cases are a different animal than the group health business.”
CorVel derives roughly 55% of its revenue from patient management services and the remainder from bill management and preferred provider organization services. Clemons said, however, that CorVel would like to see a bigger shift toward bill management and PPO, which carry higher margins.
“It’s a little easier to make a profit,” Clemons said about bill review and PPO, noting that such services are more involved with technology. “We’re largely an information management business.”
In an October research note, Postiglione addressed the issue: “With a segment gross margin at 28%, modest increases in PPO revenue can have a dramatic effect on CorVel’s bottom line.”
“The trends are more favorable in the PPO,” Postiglione said last week. “The revenues there are growing quickly; the margins are pretty strong, in the high 20s or low 30s. It offsets weakness in their case management business.”
CorVel, in its second-quarter earnings release, pointed out that market conditions in the disability insurance sector continued to improve.
“Workers’ compensation insurance premiums have increased substantially throughout the last year, and have been additionally (affected) by the insurance losses incurred in the events of Sept. 11,” the company said.
Bear Stearns also expects the Sept. 11 terrorist attacks to create “modest positives” for CorVel.
“In the near term, we expect a rise in workers’ comp claims in certain markets to account for stress-related injuries, and the absorption of claims previously with group health carriers,” Postiglione’s note said.
“Longer-term, we anticipate that higher pricing for workers’ compensation insurance will be more likely to stick, hastening the desire among employers and insurers to further manage workers’ comp claims,” the analyst said.
On the other hand, CorVel noted that productivity issues stemming from the terrorist attacks and “continued depressed pricing conditions and nursing shortages in the case management marketplace” were offsetting workers’ compensation premium hikes.
As for further growth, CorVel said in its second-quarter earnings release that investments in expanding CorCare, its PPO, and related support systems were reflected in its financial results. Officials also indicated that MedCheck and CareMC would contribute to CorVel’s growth. MedCheck is a software program that performs medical bill review. CareMC is an Internet site that is designed to link managed care companies, employers, payers and providers.
CorVel’s competitors, according to Clemons, include First Health Group Corp. of Downers Grove, Ill., and Concentra Corp. of Addison, Texas. Those companies are also involved in workers’ compensation-related healthcare management services.
CorVel employs 3,200 companywide, but only around 10 at its Main Street corporate office. The company has approximately 185 offices in 49 states.
Clemons, a former president of Caremark Corp., established Fortis Co., CorVel’s precursor company, in 1987, and took it public in 1991. CorVel took its current name, which is abbreviated French for “one heart,” when a European investment firm ponied up $4 million for the exclusive rights to the Fortis name. n
