Coventry's earnings disappoint as medical costs eat into profit

The healthcare sector has experienced robust growth over the past decade, but it is not immune from surging costs. Coventry Health Care reported its third quarter earnings this week, disappointing investors as its profit dropped significantly from last year.

Officials from Coventry said this week that its third quarter profit plummeted 35 percent. Executives from the firm said surging medical costs eroded its profit margin, but they were optimistic that its yearly earnings would be less affected by the uptick in expenditures.

In its latest fiscal quarter, Coventry's operating revenues totaled $3 billion, with net earnings registering $122.7 million. Moreover, the company said medical costs climbed 11 percent to hit $2.19 billion in the quarter, outpacing the rise logged in revenue.

Compared to the same period in 2010, Coventry's medical membership edged up 3 percent in the three months ending September 30, with 3.4 million people now counted among its ranks. The rise was slightly higher than the rate at which it added customers in the second quarter as well, according to company officials.

Coventry chief executive Allen F. Wise said he was pleased with the quarterly results, and was optimistic the company would surpass expectations when it unveils its full year earnings in January.

"I am pleased with the progress the Company has made and the performance of the businesses, such that we can increase 2011 full year guidance for the third time this year," he said. "More importantly, I am optimistic about the growth opportunities for our Company. Recent examples include the pending Family Health Partners acquisition, the Kentucky Medicaid contract, and our new preferred network Part D product that was approved for 2012."

Healthcare providers have struggled under the weight of soaring business costs. Though demand in the U.S. for healthcare services has climbed precipitously over the past 10 years, healthcare companies are continuing to struggle with rising medical costs, which consistently outpace inflation.

The Associated Press reports some analysts were disappointed not only with Coventry's earnings, but also with its full-year outlook. For example, Goldman Sachs analyst Matthew Borsch said in a research note the company's quarterly report and outlook were not as strong as expected, according to The AP.