Coventry in Expansion Mode

Early this morning, Coventry Health Care Inc. (CVH) announced that it has agreed to acquire Preferred Health Systems, Inc. (commonly referred to as PHS), the wholly-owned health insurance subsidiary of Via Christi Health System, Inc. 

PHS is based in Wichita, Kansas. It is a commercial health plan whose beneficiaries include more than 100,000 members for whom it assumes full insurance risk, and 20,000 members for whom PHS provides administrative services. The acquisition of PHS will further widen the customer base of the diversified national managed healthcare company in the Midwestern United States. 

The transaction, expected to close in the next 90 to 120 days, will not affect Coventry ’s earnings in the first year. 

PHS was incorporated in 1993 following strong support and encouragement from area physicians, St. Francis Regional Medical Center and St. Joseph Medical Center , which merged to form Via Christi Health System. Area physicians, hospital administrators and business leaders constitute its board of directors. 

As such, Coventry is very active on mergers and acquisitions having completed over 15 acquisitions to date. The company’s growth strategy by acquisition targets small, local health plans in second-tier markets, where it can leverage its regional service centers and improve operating efficiencies, largely through economies of scale. 

Coventry operates a diversified portfolio of local market health plans serving states primarily in the Mid-Atlantic, Midwest , and Southeast regions. The plans are generally located in small to midsized metropolitan areas. The markets served by the company are characterized by strict pricing discipline, improved provider arrangements, more effective medical management techniques, and reductions in overhead costs. 

Coventry competes with players like Aetna Inc. (AET), Unitedhealth Group, Inc. (UNH) and WellPoint Inc. (WLP). 

Currently, we have a Neutral rating on the stock.

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