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Coventry Announces $3M Settlement

Zacks Equity Research

Coventry Health Care Inc. (CVH) announced a $3 million civil settlement agreement with the U.S. Attorney’s Office (:AO) for the District of Maryland, Northern Division. The settlement pertains to an investigation initiated by the AO in 2008 into the operations of First Health Priority Services. The AO was investigating the procedure for verifying the eligibility for the company’s Workers’ Compensation Medicare Set-Aside Arrangement (MSA) product.

Coventry had acquired First Health’s Workers’ Compensation business in 2005 and as a result it also received a subpoena regarding the investigation. The investigation revealed that certain employees of the company accessed the Centers for Medicare and Medicaid Services (CMS) Common Working File, thereby violating the company’s policy. The employees accessed the files to check whether Workers Compensation claimants received Medicare benefits.

Coventry has authorization to access certain CMS databases as a result of its Medicare business. Select employees of the company are allowed to access these databases to obtain data for purposes sanctioned by the CMS. However, some employees violated the company’s policy due to which Coventry had to agree to the settlement, thereby closing the matter as far as the government is concerned. The company had already set aside the required amount earlier as reserves. Moreover, the company does not sell the MSA product anymore.

While Coventry will not face any civil or criminal charges related to the matter, the company has given the pink slip to the concerned employees. It has also adopted certain new measures, controls, policies and trainings in order to avoid future breach of its policy.

Coventry’s peer WellPoint Inc. (WLP) also agreed to pay $90 million as settlement payment pertaining to a lawsuit against its subsidiary – Anthem Insurance – in June this year, according to Reuters. In 2005, former members of Anthem had filed a class-action lawsuit claiming that they did not receive adequate compensation for their ownership stake in the company during its conversion from a mutual company to a stock company in 2001.

Coventry carries a Zacks #3 Rank (short-term Hold), along with a long-term ‘Neutral’ recommendation.

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