Specialty care is growing – in impact, popularity, valuation, attention. Meanwhile, the historically-dominant vendor, Coventry work comp, is shrinking.
Why?
I’d hazard a few guesses.
First, Coventry’s prior bosses starved the work comp unit, treating it as a cash cow but neglecting to ensure adequate feed for that cow. As a result, the bill review engine is rapidly running out of steam, the network is being overtaken by other generalists and hollowed-out by specialists, and little attention is being paid to case management, referral services, and other ancillary product lines.
A classic business situation, one that former Coventry CEO Allen Wise ordered with full understanding of the long-term consequences.
Now, it’s Aetna’s problem.
Word is the staff termination notices are starting to flow as the new owners look for ways to increase profitability. Staff reductions may well hamper Coventry WC’s efforts to remain a major player in comp – but that may not matter to the folks responsible for the business. If their marching orders are to generate cash, then that they will do.
Meanwhile, One Call Care Management and Align sold for $3.2 billion. The entire work comp medical spend in the niches served by the new company is about $7.5 billion.
I still have trouble wrapping my head around that. And everyone – and I mean EVERYONE – I’ve spoken with can’t fathom that price for those assets. By way of contrast, Aetna only paid $5.6 billion for all of Coventry – Medicaid, group health, Part D, and work comp.
Leaving aside the price paid, does this mean specialty care is much more valuable/important/useful than the old-line generalist managed care firms?
Or is it just that Coventry’s lack of investment and neglect of product development has allowed other entrants into the market, entrants who have been able to capitalize on a market need not met by what was the company best positioned to do just that.
We don’t know what Aetna’s long term plans are for work comp, but the current staff reduction is an indicator – not THE indicator but AN indicator. Meanwhile, the money is flowing into specialty care – and that’s where innovation, value, results, and progress will be.
What does this mean for you?
Work comp medical management will be fundamentally changed over the next two years. It remains to be seen if that is a good thing.
Thanks for the early warning, Joe – I believe my husband is on the chopping block for tomorrow…curious how many other senior IT staff at Coventry are losing their jobs as well?
APAX must not have done proper due diligence on this purchase or they’re smoking something as they will no doubt lose their shorts and then some on this “investment”. However, it’s somewhat encouraging to learn that private equity companies like APAX have boatloads of money to just burn.
My thoughts are that a business acquires another to maintain its position in the marketplace or to expand the business offerings. Apax’s strategy includes merging OneCall & Align, reducing it’s costs (probably with layoffs, and merged operations), which will strengthen the customer value proposition, & increase profitability – and Apax expands its healthcare portfolio in the US. And let’s not forget that there’s likely to be a considerable write-off of the acquistion cost down the line.
Hostile takeovers and acquiring companies at a discounted price is not always a successful strategy in M&A. Overpaying on the value of the business, Apax (likely) created goodwill with OneCall and Align’s management.