Examworks released their Q4 and 2015 earnings report last week, while Clinical Solutions boss Ken Loffredo and several of his colleagues left the company rather abruptly, with Ken departing ten months before his contract was up.
First, key takeaways from the earnings call, followed by my take.
- organic growth in the US increased by 0.7%
ManagedCareMatters – Given work comp claim (Exam’s core source of business) frequency continues to decline, that’s not surprising. - Execs claim they’ve signed a “national account” and another will close later this year.
MCM – From talking to investors, there’s a misconception about so-called “national accounts. Namely, this just gives Exam a license to hunt; their field sales force still has to go out and beat the bushes to get adjusters to refer cases to Exam. Notably, I know of NO national payers that use ANY IME provider exclusively; most have several. - Exam execs believe that they are killing off small mom-and-pop IME firms that can’t compete w Exam on price or service
MCM – I’ve spoken with several IME firms of varying size; all claim to be competing effectively with Exam - Exam claims it has 15% of the US IME business.
MCM – Let’s dig into the math…- 2015 US revenues were $511 million.
- Estimating the clinical solutions group business accounted for, say, $60 million of the $511 million, IME revenues totaled somewhere around $400 – $450 million.
- So, EXAM believes the US IME business totals between $2.7 – $3.0 billion
- That’s around twice as high as my best estimate, which is based on actual interviews with major payers. [happy to have you check my assumptions and math]
- “We estimate that only 20% of claims require IMEs.”
MCM – Interested in hearing from folks in work comp or disability; what percentage of total claims have IMEs?
UPDATE – from a former WC Insurer CEO:
“20%? 20% of what? There is no way we ever had that volume of total claims with an IME, ever. We would have been in perpetual litigation…to have 20% of all claims in a standard carrier go to IME … just seems crazy to me.” - don’t expect many more acquisitions of IME firms
- document management firm ABI was acquired six weeks ago; execs seem to think they’ll be able to convince their IME customers to use ABI for “the vast majority of their claims”
Other observations
- Net income from operations dropped by almost half from 2014 to 2015.
- Pricing is a complex issue. Often there is a “flat” price which gets inflated with add-ons such as rush fees, documentation prep fees, nurse review fees, complexity surcharges and the like. Thus, unsophisticated buyers often think they are getting one price – and end up paying much more.
- Not sure I understand management’s thinking re ABI; almost all P&C insurers currently use a document management firm; Xerox is a major player in this business and is the industry leader. If Exam is intending to compete with Xerox for broad-based document management, that will be a big challenge.
- Sources indicate the Clinical Solutions Group (acquired about 18 months ago) isn’t doing so well. Those who follow the Medicare Set-Aside business aren’t surprised; Exam’s pricey acquisition of Gould and Lamb was seen as a head scratcher. The ASN/MedAllocators purchase a few months later may have been an attempt to fix G&L by bringing in experienced management and complementary business lines. With the departure of Loffredo, chief lieutenant Kevin Mahoney, and others the future of Exam Clinical Solutions seems rather cloudy.
Perhaps the new ABI business will turn out better than the Clinical Solutions venture. And that’s no slam against Loffredo et al; my take is they were brought in to patch a very leaky ship while sailing it in a very competitive race.
It would have required a ton of resources to patch, bail, and sail, resources which weren’t made available.
Spot on again Joe. No one I know at any local level in the areas I’m familiar with prefer to use EW.
Their pricing is not supieror to the so called “mom and pops”, in fact EW’s pricing is said to be significantly higher.
Don’t get me started on service, the “mom and pops” blow EW away in service by a long shot.
As far as the size of the IME market nationally, your estimates are again spot on, it’s sits about 2B max and declining based on newer innovative services on the rise.
Maybe Examworks is arriving at the $2-3 billion IME market number by looking beyond those evaluations provided on WC and liability claims on behalf of carriers and TPAs. There is a firm providing tens of thousands of disability evaluations annually to the VA. The revenue from that contract alone is over $100 million annually. The same firm has a contract with the DOL to provide IMEs on FECA claims and similar contracts with other government agencies.
Looking beyond the traditional WC and liability IMEs, I think it’s a safe bet the US IME business is at least $2 billion annually.
WC insurers should be careful to use IME physicians whose opinions will hold up against locally known, well-respected treating physicians who are still in practice, and practicing according to regional norms, rather than companies who use long-retired physicians who practiced across the country when they were working. I saw one whose only published paper was published back in the 70’s. With age comes wisdom, but medical knowledge should be current, and practicing physicians are almost always accorded more credibility by state boards and the medical community.
I beg to differ and would invite actual trial transcripts where a treating doctor who can’t support his/her views prevails over a well done, evidenced based assessment by a perhaps non-practicing IME doc. Fact-finders generally are more impressed with evidence over posturing.
Those who do IMEs with regularity are evaluating patients and files of many treating docs. Some treating docs may focus on their own repeating practice pattern with little care or knowledge of current standards of practice.
Lastly, publications or lack thereof is not a proxy for quality of practice or general knowledge. It may reflect an interest area or expertise.
Brian – FWIW, your comments are well-thought out and reasonable.