Aetna, Coventry and the arms race in health care

http://www.washingtonpost.com/business/aetna-coventry-and-the-arms-race-in-health-care/2012/08/31/21f622c8-f0ab-11e1-ba17-c7bb037a1d5b_story.html?hpid=z3


Brendan McDermid/Reuters - A $7.3 billion deal that is a boon to Coventry and Aetna shareholders is bad news for the rest of us, reducing the potential for greater competition in the health-care sector at the very time that the country is looking to competition to improve the quality of care and bring runaway costs under control.

Although it is a Fortune 500 company with headquarters in Bethesda, Coventry Health Care doesn’t have deep roots or much of a public profile in the Washington area. It is here because of historical accident and because its top executives like living here.

It is one of the country’s 10 largest health insurance companies, but Coventry is not very active in the national conversation about health policy, nor is it known to be on the cutting edge of industry innovation. It is not particularly well-loved by its customers, who give it below-average quality ratings. Among industry insiders, its reputation is for paying its bills late, saying “no” as much as it can get away with and offering lower-price policies in less-than-competitive secondary markets.

What Coventry Health has been superb at is caring for Wall Street, growing steadily through acquisition, posting some of the highest margins in the industry and maintaining a single-minded focus on share price through lavish, stock-based compensation for its top executives and directors.

In early 2009, after Coventry stock had fallen nearly 75 percent and net profits fell 40 percent, Chairman Allen Wise didn’t even wait for the year-end figures to be announced before forcing out his hand-picked successor, Dale Wolf, as chief executive and taking back the reins. Wise arranged a $5.5 million signing bonus for himself, while sending Wolf away with $9 million in compensation for his career-ending performance in 2008, along with a $4 million severance payment, vesting for his unvested stock options and an early retirement with full pension.