Comprehensive Care Turns Substantial Losses Into Nice Profits

Pharmacy Management is the main driver behind Comprehensive Care's success. The Company is convinced it can substantially reduce costs in this segment, benefiting both clients and itself.

For the first time in many years Comprehensive Care (CHCR – $0.19), a behavioral health, substance abuse and psychotropic pharmacy management services provider, is profitable for two consecutive quarters.

In the second quarter, ended June 30, 2012, the Company earned $1.6 million while losing almost $4 million in the comparable quarter last year. Revenues for the quarter reached $18.2 million, compared with $18.6 million in the same period of 2011, or a slight decrease of less than 2%.

Several new profitable contracts in the behavioral healthcare segment, a strict cost containment program and a contract amendment with a major Puerto Rican client all contributed to this substantial improvement.

Additionally, the Company’s recently launched innovative pharmacy cost containment program, which is able to reduce pharmacy costs for its healthcare customers by up to 10%, is expected to start generating revenues in a few months. Considerable growth is expected from this program in the following years.

Lower Sales, Higher Profits

After seeing CompCare’s first quarter results late May, it was clear the Company was going to focus on digesting its growth from the past few years and returning to profitability. That’s exactly what is happening.

For the first six months of the year, revenues were $36.0 million, compared with $36.8 million in the first two quarters of 2011. Earnings however came in at $1.7 million for the six months ended June 30, 2012, or $0.02 per share. A strong improvement versus the loss of $3.9 million, or minus $0.07 per share, which was recorded in the first six months of 2011.

 
Three Months Ended
June 30
Six Months Ended
June 30
Amounts in $000’s
2012
2011
2012
2011
Revenues
18,214
18,557
36,014
36,839
Cost of Revenues
13,765
18,794
30,409
35,323
S, G & A Expenses
2,226
2,982
2,741
4,143
Depreciation and Amortization
60
218
156
434
Income (Loss) From Operations
2,073
(3,437)
2,708
(3,061)
Interest Expense
465
468
1,028
902
Other Non-Operating Income (Loss)
1
(29)
12
107
Income Tax Expense
2
36
5
73
Net Income (Loss)
1,607
(3,970)
1,687
(3,929)
Earnings (Loss) Per Share
0.02
(0.07)
0.02
(0.07)
Most important income statement data for the second quarter and six months ending June 30, 2012 and June 30, 2011. Source: Company Filings

Especially the three items below contributed to this solid achievement.

  • First of all, a couple of contracts for behavioral healthcare services, on which the Company lost money, were terminated. At the same time, several new profitable contracts were picked up.

    Comprehensive Care signed a new multi-service agreement with Essence Healthcare to provide services to the Medicare Advantage population in Missouri, Washington and Illinois. In February, the Company added 42,000 covered people to its existing contract with L.A. Care, the nation’s largest public health plan. This deal more than doubled the number of lives covered in the original contract which CompCare secured early 2011.

    And, in March, CompCare was retained by CHRISTUS Health Plan to provide managed behavioral health services to the Medicaid (STAR) and Children’s Health Insurance Program (CHIP) populations served in the Nueces Service area in the Coastal Bend region of Texas. CHRISTUS Spohn Health System is the region’s largest charity care provider and not-for-profit health care system. 7,000 members were added with this contract.

  • Secondly, CompCare’s bottom line benefited from a cost containment program, initiated early 2012. General and administrative costs, for example, decreased to $2,741,000 in the first six months of 2012, compared to $4,143,000 in the same period in 2011.

    Also, mid-level and senior executives have taken salary reductions and there have been some layoffs. Other items like travel expenses, are being closely monitored and cut back where possible. The Company expects this trend of reduced expenses to continue in the following quarters.

  • Next to the improved profitability with the behavioral healthcare contracts and the general cost containment program, CompCare’s results also benefited from a contract amendment with a major Puerto Rican client.

    On March 5, 2012, the contract term was extended to December 31, 2012 and the contract rate for pharmacy management services was increased by approximately 11% effective retroactively to January 1, 2012, equating to an annual revenue increase of $3.7 million.

    In addition, in June of 2012 the Company resolved a contract interpretation dispute with the same health plan. As a result, the Company received a $2.2 million, retroactive, positive cash adjustment to pharmacy prescriptions, which were originally charged to the Company. Moreover, the amendment shifted the financial responsibility for a significant number of prescriptions that were previously being charged to the Company to the client for the remainder of the contract.

    This re-alignment of expenses already results in a material reduction of the Company’s pharmacy expenses and further enhances CompCare’s profitability trend in its pharmacy operations for the remainder of 2012.

    The Puerto Rican contract, under which the Company provides mental health, substance abuse treatment, and pharmacy management services, provided approximately 76.5% of CompCare’s operating revenue during the six months ended June 30, 2012.

Segmented Financial Results

To spot trends in Comprehensive Care’s business, it’s important to look at each segment’s revenue.

Amounts in $000’s
06/30/12
06/30/11
At-Risk Behavioral Contracts
7,490
9,526
Administrative Services Only (ASO) Contracts
853
749
At-Risk Pharmacy Contracts
9,781
8,282
Total
18,124
18,557
Comprehensive Care’s revenues segregated per service category for the quarters ending June 30, 2012 and June 30, 2011. Source: Company Filings

Operating revenues from at-risk contracts decreased by 21.4%, or approximately $2.0 million, to $7.5 million for the three months ended June 30, 2012, compared to $9.5 million for the three months ended June 30, 2011. The decrease was primarily attributable to the loss of customers in Missouri, Texas and Wisconsin during the fourth quarter of 2011 that had accounted for $3.2 million of revenue for the three months ended June 30, 2011. This decrease was offset by approximately $1.2 million in additional revenues in 2012 from new and previously existing customers.

Revenue from ASO contracts increased by 13.9%, or approximately $0.1 million, to $0.9 million for the three months ended June 30, 2012, primarily consisting of additional revenue from the expansion of business of previously existing ASO customers.

Pharmacy management revenue increased by 18.1%, or approximately $1.5 million, to $9.8 million for the three months ended June 30, 2012, from approximately $8.3 million for the three months ended June 30, 2011, attributable primarily to a 6.5% increase in membership and a 11% contract rate increase effective January 1, 2012 from our major customer in Puerto Rico.

Pharmacy costs as a percentage of pharmacy revenue decreased from 104.7% for the three months ended June 30, 2011, to 63.2% for the three months ended June 30, 2012, due to an increase in the contract rate effective January 1, 2012, for the major Puerto Rican customer and the aforementioned $2.2 million contract dispute resolution.

It’s clear that Pharmacy Management more and more becomes the driver behind the Company’s success. This is also the road CompCare intents to pursue as it’s convinced it can substantially reduce costs in this segment, benefiting both clients and itself.

CompCare has even developed a new Pharmacy Management Program in alliance with PBMs, which allows health plan clients access to the lowest possible prices for both branded and generic drugs. The Program effectively reigns-in the rising costs of drugs for health plans and is offered on a capitated full-risk basis, whereby CompCare guarantees its health plan partner substantial savings. To date, CompCare has signed three new contracts for the Pharmacy Management Program with several others in the pipeline.

Conclusion

Comprehensive Care’s results for the first six months show the Company has turned the corner. Contract adjustments and cost reductions have turned substantial losses into nice profits.

Additionally, none of the profits thus far realized reflect the Company’s newly-designed, at-risk Pharmacy Management Program which has the added feature of being specifically designed to reduce the Company’s clients’ pharmacy spend by as much as 10%. The Company is looking to realize profits from this program starting in Q1 of next year.

It’s also important to note that no taxes are due on any profits in the foreseeable future because of the Company’s net operating loss carry forward of approximately $38 million.

Thus far, all of the Company’s substantial growth over the past two years has been organic in nature. However, knowing CompCare’s management aggressive growth strategy, it should not be a surprise if they started searching for some nice acquisitions now that the Company has increased its financial strength.


For important disclosures, please read our disclaimer.

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