Here’s the second half of my predictions – and how they panned out…

6. The growing impact of global warming will force changes in risk assessment, management and mitigation; technology adoption; and claims.
The predicted (heat injuries, wildfires, hurricane intensity, sea level rise) and unforeseen (atmospheric river-driven flooding, landslides, and destruction and others) changes in climate and weather will lead to more and different injuries and illnesses, higher risks for fire fighters and public safety workers, and unpredictable problems related to polluted storm water runoff, water-borne disease and perhaps invasive species.
Expect revisions to both federal and state OSHA regulations especially around heat and outside workers along with calls for better planning to prepare for severe weather events.

False – regulatory changes take way longer than they should. California is poised to mandate heat standards for indoor workers; the Golden State has had outdoor worker standards in place for almost two decades. Oregon instituted indoor and outdoor heat regulations in 2022 and Colorado, Minnesota and Washington also have regulations in place.

And the Feds are still dillydallying damn it.

source NRDC

But there were no other changes in 2023…

 7. Payers and perhaps regulators will make significant efforts to address rising facility costs.
As for-profit healthcare systems look to pad record profits and not-for-profits seek to survive, payers will be looking for better cost control answers than simply doing more of the same stuff they’ve been doing for the last two decades. Network discounts (NOT THE SAME AS SAVINGS) are declining as facilities wise up to most payers’ lackadaisical/ineffective attempts at employee direction and unsophisticated contracting strategies.
Smarter payers will deploy multiple payment integrity layers  – both pre- and post-payment. All should demand more – much more – from their bill review vendors/technology suppliers, all of whom have long refused to entertain the thought that they could do better – much better.

False. Complacency reigns supreme.

8. Premiums will increase – mostly late in the year.
As infrastructure, green energy, re-shoring of chip manufacturing and EV incentives ramp up in the fall so will employment. While there’s disagreement among economists (yeah, who woulda thought??) expect big hiring in categories from archeologists and bridge builders to wireless broadband construction workers.  Manufacturing, heavy construction, trades, logistics will all be hiring…as these tend to be higher frequency (more claims than average) and higher severity (claims are more severe and costly) this means higher premiums and more claims.

Good news indeed for my friends in Cincinnati!

Oh, and mark me down for one who does not see a significant recession in our near future.  I know, I’m no economist (who disagree a lot about this) but hiring is too strong, these major investments are on the horizon, and inflation is coming under control  – all indications that a “soft landing” is more likely than not.

Verdict – True. A soft landing appears far more likely than not, hiring remained solid in the last months of 2023.

And, WCIRB just reported premiums in California were up 2% for the first there quarters of 2023 over the same period in 2022…

Employment in manufacturing construction jumped bigly last year…

9. SB1127 – aka the CAFE Act (California Attorney Full Employment Act) will cause heartburn and consternation among Golden State employers and tax payers.
SB1127 shortens the time period for employers to determine the compensability of claims, a change which will lead to – among other problems – more initial denials and less time for injured workers to receive medical care while their employer researches the claim. Further, AB1127 appears to allow for penalties of up to $50,000 for claims that are “unreasonably rejected” by the employer – but the bill a) doesn’t define what constitutes an “unreasonable rejection” and b) doesn’t exclude claims that are already closed.

Expect attorneys to look for the Golden Ticket case – one that they think will establish precedence – and pursue it like a starving person at a Vegas buffet (or Cafe’).

There’s good news too…I don’t see much else on the regulatory horizon that is cause for concern.

Verdict — TBD. Awaiting input from folks more on top of this than I am.

10. More consolidation among payers and service providers.

Despite a major drop-off in financial investors’ interest in work comp, we’ll see  more consolidation as “strategics” aka TPAs and service providers acquire smaller TPAs and service providers. This is classic mature industry…scale is key, significant growth will mostly be driven by acquiring competitors or companies in complementary or related service and margins are in peril.

The bad news is 2023 prices will likely be a good deal less than in the recent past. Fewer potential buyers, less interest from PE firms, and a growing recognition that workers comp is a declining business (what took these people so long to see this?!) are all contributors.

Verdict – Well…deals that closed were few indeed…those that did close were all strategic not financial buyers – while I got the strategic buyer thing right, I over-estimated deal volume…so… false.

Enlyte bought Therapy Direct.

Sedgwick tried and failed to do a recap..sources indicate valuation was a major sticking point. The giant TPA wasn’t alone, as at least two other attempted sales didn’t materialize.

Ametros sold for a ton of money – but that wasn’t a “work comp services” transaction per se.

accuro Solutions acquired Splashlight, adding to accuro’s service portfolio.

The drivers noted above – fewer buyers, lower prices, less interest from PE firms were major factors – along with interest rates.

Notably, as predicted international M&A activity dropped by about 20%… with private equity and venture capital deals down almost twice that. And, prices declined as well due to the factors listed above.

Overall – 5 True, 4 False, 1 to be determined.

Reflecting on these results, it’s clear my optimism overtook my cynicism (and experience); expecting regulators and work comp payers to get their acts together and do something meaningful about worker exposure to heat and widely-acknowledged rising facility costs was just…dumb.

Ametros just sold for $350 million in cash, a rather stunning haul for the MSA administrators’ owners.  There’s a lot detail on how and why Ametros’ value was that high in the interview below,

Along with the Carisk recap, this was one of the (very) few recently-attempted sales in the industry that came to fruition. In the parlance of private equity Ametros may be a unicorn – from here it looks like its valuation wasn’t based on an earnings multiple, rather the company’s massive bank deposits and growth potential.

I spoke with CEO Porter Leslie earlier this week – he was refreshingly open and candid; I didn’t have to dig through gobs of corporate-speak to get to the real stuff.  Here’s our conversation.

Questions for Porter Leslie

MCM – Talk about how Ametros has grown to over $800 million in [bank] deposits.

Leslie – It has been a long grind, we identified something that the market needed, to take care of Injured Workers [IW] after settlements, over time a lot of large payers and attorneys came around… CMS highly recommends it, it helps IWs, and helps settlements happen – it all makes sense – it took time to scale and to get story out there, nothing fancy, just focused on building strong relationships

MCM – One aspect of Ametros I’ve been consistently impressed with is your marketing – talk about how leadership thinks about marketing and investing in brand.

Leslie – what we do is pretty complicated, no one understands WC or MSAs or professional admin of MSA – [so we’re at a] third level of complication – thrust has been to make it simple – mission is to make healthcare easy for IW, everything we do is thru lens of making it simple and practical – if IW can get it, then the expert that advises them can understand it

[we have] great people on the marketing side – Melissa [Coleman] works well with Helen [Knight of KingKnight]– we give them room to run, there are a lot of ideas and creativity across social media, websites, wherever they see opportunity to connect. We focus a lot on telling the stories of IWs that go through a settlement and how we can alleviate burden for them.

We do play in a lot of traditional publications, if you go to our website we highlight members. Few organizations really emphasize the human element and story around it – that’s what people care about – our people understand the space, we don’t spend on conferences so much as getting to people that matter to them and share story – message is around why do they give a darn about this and why should they – service is beneficial to all involved.

MCM – Has CMS done anything recently to increase payer interest in MSAs and professional administration?

Leslie – [recently there’s been a] Steady drumbeat from CMS on tightening up oversight and MSAs and professional admin…for instance, a few years ago with CMS’ electronic portal to submit reporting – we worked hard with CMS to make it work. Last year CMS put out messaging re MSAs in an attempt to move the market towards submitting MSAs for CMS’ approval– CMS did a webinar last month saying that in 2025, CMS will mandate that when you settle a case you have to put a $ figure for moneys that were set aside to protect Medicare …now the payer has to tell CMS when they settled the case, even if the MSA was not formally submitted to CMS for approval, the payer has to tell CMS [explicitly] the amount that was set aside to protect them. All this effort to drive extra visibility shows CMS is watching settlements and wants to make sure the injured workers’ medical funds are properly set aside and administered after settlement.

MCM – Unusual for a bank to acquire a workers’ comp services entity; talk about the rationale.

Leslie – Don’t think of ourselves as WC services business – receive business from WC but once injured workers land with us, the individual is a cash pay member of the healthcare system – in the [sale] process we did not want to be typecast into WC business – we do fair number of general liability and accident claims as well

Webster is top 25 bank and the largest bank-run administrator of HSA [Health Savings Accounts]. Webster acquired an HSA admin company that was tiny, now it is close to $13 billion in deposits…Webster held majority of Ametros’ deposits and made a loan to the business, knew Ametros well and was accustomed to investing and growing this type of business. The deal really was the natural evolution of a partnership that was years in the making.

MCM – While there haven’t been many transactions of late, in general valuations have declined from those a few years ago…this transaction bucks that trend. Valuation of $350MM was quite impressive, as was the all-cash purchase.

Context is Webster is a [recent] combination of Sterling Bank and Webster [which] doubled its size…they have been pretty active looking for differentiated source of deposits…Webster is not trying to be expert in WC…know Ametros has a team of experts that do that know that.

MCM – How will Ametros operate going forward?

Leslie – No team changes or system changes or tech changes – vision from W is to remain independent similar to HSABank – questions Webster is asking [of management] are how to grow faster; need people, systems, etc? – Ametros administers 8-9% of MSAs that are settled today, and we should be handling 80-90%…[expect we will] put forth budgets to really propel the business.

MCM – What changes will customers see?

Leslie – Keep same brand, same products, invest in making them better, no changes to staff

[There is] Not a workers’ comp dedicated bank out there, so may be other opportunities for Webster in WC.

[There are] Other entities [in MSA administration] that are 1/5^th the size of them that could be acquisition candidates

What does this mean for you?

Great business ideas with great marketing executed very well can be very lucrative. 

You need all three.

Private equity firms Lee Equity Partners and Elements Health Investors completed a recap of Carisk Partners last week, marking one of the very few deals to be done over the last many months.

While this may be an indication that things may be moving, there are several reasons we aren’t likely to see a return to the halcyon days of a decade ago.

First, over the last two years Carisk is one of the very few companies to actually get a deal done. Several others tried and failed, mostly because:

a) sellers’ expectations were out of whack with what buyers would pay;

b) due diligence revealed softness in numbers &/or growth plans &/or management depth;

c) current debt service costs made a deal too costly; and/or

d) the property is/was too large (more at the mercy of industry trends than smaller entities, very hard to grow share when you are already huge)

Carisk has very experienced and quite effective management, terrific marketing, some of the best sales people in the industry, a strong culture and a coherent strategy for growth and expansion.

Second the structural issues inherent in workers’ comp, namely it is a highly mature, consolidating/consolidated industry with very low to negative growth make it less attractive than, say, generative AI.

Third, debt – which makes up most of the purchase price of pretty much every sale – is still expensive compared to rates over the last decade or so. Investors will eventually get over mid-to-high single digit interest rates, but haven’t yet.

Lastly, reality is work comp is just not that interesting: many execs are highly risk-averse if not downright lazy; innovation is frowned upon if not actively avoided; and complacency is rampant as is chronic under-investment in IT and human capital.

The few transactions that have closed – HomeCare Connect and now Carisk most prominent- are really solid companies with great management teams, solid track records and a clear path to substantial growth. The ones that didn’t close were…not.

That’s not to say some companies won’t test the waters, but don’t get caught up in rumors about this or that company getting sold or preparing for a sale or going to market or talking to investment bankers.

Bankers are ALWAYS talking up potential deals…it is how they gin up business – and the work comp rumor mill loves to help ’em out.

What does this mean for you?

A great company will always be valuable. 

disclosure – I have a (very small) financial interest in Carisk.