As corporate addresses go, there's no better in the Washington area than Bethesda's Rockledge Drive. Lockheed Martin. Marriott. Coventry Health Care.

Never heard of Coventry? You're not alone. This company has operated under the radar for many years, running HMOs and health insurance plans under a variety of names. The presence of its 220-person headquarters in Bethesda is an accidental legacy of a long-ago merger. Its top executives are some of the highest-paid in the region but are virtual unknowns, rarely taking visible roles in civic affairs or even industry conferences. And Coventry's idea of corporate media relations is to refuse to respond to reporters' inquiries.

Where Coventry is well known, however, is on Wall Street, where it has become a darling of analysts and institutional investors. Over the past five years, while an investment in the S&P 500 index would have lost 7 percent, investors in Coventry enjoyed a total return of 753.1 percent, making it one of the market's top performers among large companies.

Coventry's financial performance has been equally spectacular. Since 1996, when industry veteran Allen Wise was hired to turn the company around, annual revenue has grown from $1.2 billion to an estimated $6.6 billion this year, largely through acquisition, while profit has gone from essentially zero to an expected $500 million this year. Its administrative costs and medical "loss ratio" (the percentage of premiums spent on medical care) are among the lowest in the industry, giving Coventry some of the highest margins.

Coventry's MO has been to buy up underperforming health plans -- 20 since 1988 -- at discount prices in regions where it can win enough market share to raise premiums and demand good rates from doctors and hospitals. By integrating the plans' back-office functions -- such as claims processing, customer service and health management -- Coventry realizes economies of scale. At the same time, it leaves each plan to do its own sales and marketing under an established local brand name. And by focusing on providing insurance to small and medium-size firms in secondary markets where price competition is not too fierce and customers are not too demanding, Coventry has hit the sweet spot of industry profitability.

The way insurance companies keep premiums competitive while improving profits is by cherry-picking the healthiest customers, limiting service to the most cost-efficient providers, steering patients toward lower-priced drugs and withholding approval for expensive procedures unless absolutely necessary. Coventry has a reputation for mastering these skills.

Coventry's rankings on consumer surveys, not surprisingly, are less than spectacular, running from slightly above average in western Pennsylvania to slightly below in Kansas City. That is a good indication that Coventry has learned to squeeze costs and limit coverage without going too far.

For a long time, I assumed Wise was setting up Coventry to be sold to one of the bigger national players like Aetna or UnitedHealth. But last year's purchase of First Health for $1.8 billion suggested that Coventry aims to be one of the big survivors in the coming industry shakeout. That challenge now falls to Dale Wolf, Wise's handpicked successor, who has options on 1.5 million shares of Coventry stock riding on the outcome.

Wolf's strategy, it appears, is to make First Health -- with its national provider network and disease-management capabilities -- a platform for expanding Coventry's Medicare and Medicaid business, which have provided most of its growth in the past two years. Coventry, along with pharmacy partner Rite Aid, was chosen as one of a handful of firms to provide the new stand-alone drug benefit nationwide when the program begins next year. And while that business may have smaller margins than Coventry is used to, it offers the opportunity of eventually selling those customers a more comprehensive (and profitable) managed-care plan that covers physician services and drugs not covered by the basic Medicare plan.

In the meantime, Coventry faces stiffer competition on its commercial business from the recently reinvigorated BlueCross BlueShield plans, and from Humana, which has jumped to the lead in a hot new area of health insurance -- consumer choice plans that combine health savings accounts with catastrophic insurance. If Wolf can't catch up with a competitive product, look for him to use Coventry's premium-priced stock to shop for a company that already has.

Steven Pearlstein can be reached at