MSC was sold last year to Monitor Clipper. Brazos invested in Cypress Care (a client). Genex was jsut sold to an investment firm, and another has bought up a big chunk of MSC’s debt. Injured Workers’ Pharmacy is on the block (and close to a deal), Bank of America is asking several hundred million for Third Party Solutions, and WorkingRx is for sale as well. Health Advocates was just purchased by PMSI/Tmesys, and P2P was recently sold to Fiserv. And execs at good managed care firms are besieged by investors seeking to “be helpful”.
Lots of smart money is looking hard at workers comp managed care and related services.
Why?
Investment firms look at a broad spectrum of investment opportunities to find the ones that have the most promise. And right now, the WC services space looks better than a lot of others.
“Better” because there is a potentially greater return on investment.
The investment community’s view is the WC services space is inefficient, poorly managed, and ripe for consolidation. There are a plethora of niches, ranging from DME to medicare set aside allocations to networks to bill review to loss prevention, and within each niche there may be a dozen or more companies providing services in a state, region, or across the country.
There is little effective automation. Many bills are touched by at least three humans – in the mail room, at bill review, and by the adjuster. There is a nascent movement to automate this process, a movement hampered by TPA business models, legacy systems, and a lack of strategic thinking on the part of WC payers. Managed care efforts are largely driven by the profit motive, with vendors and claims payers paid for processes, not results.
Medical trend rates in workers comp are increasing twice as fast as overall medical inflation; Medical management, at least the type of medical management delivered by most vendors, has been proven to be largely ineffective.
The entrance of large group health players (Aetna, CIGNA, UHG) into the space has had little impact to date.
And profits are decent to excellent; margins in the MSA business are above 35%, network profits the same or better, bill review companies are in the 20-30% range, DME at 30% and WC PBM at 20% +. Case management is hurting, but then again it has been for years.
There you have it. A cottage, “artisan” industry using old technology delivering poor results while generating substantial margins.
Any other questions?
Good Day, Joe:
In keeping with your usual insightful observations, the 1-29-07 MCM entry “Work Comp is Hot” accurately portrays WC services as significantly under-automated. On the other hand, legislative stimuli (e-billing and prompt pay mandates; EDI reporting)are playing an active role in motivating WC payers to explore bill cycle automation. Associated ULAE reduction, which ranges up to 75%, should be enough to prompt paper conversion of bills and payments; but sometimes the savings resulting from paper conversion are not fully appreciated. Seamless “Artisan” solutions, aka specialized technology services, not only are a cost effective strategy to meet compliance challenges, they improve ROI as a welcome by-product.
Joe – agree with this posting. Looking back to previous notes, on Nov 30 you suggested Stratacare was a potential acquisition – any updates?
Who bought MSC’s debt? And why? They haven’t been doing too well of late.
Great Post! Joe
Hopefully you will continue covering WC/investment topic. Who are the most active VC and private equity firms in the space?