The official announcement comes this morning; the merger of Align Networks and Universal SmartComp is done. More precisely, pending completion of due diligence, it’s done.
The new company will be the largest in the workers comp physical medicine space, with over $250 million in revenue, closely followed by industry founder MedRisk (an HSA consulting client). The merger is actually an acquisition, as USC will now be owned by Align.
There appear to be several keys to the deal.
– USC has been in Riverside’s portfolio for four years, smack in the middle of the three-to-five year horizon for most investment firms.
– the investment community’s strong and continued interest in the work comp space. Align’s owner, General Atlantic, while a bit of a late-comer to the industry, is a very large, highly competent, and well-regarded investment firm; undoubtedly they see this as a profitable business.
– those “synergies” that investors like so much; eliminate duplicative administrative costs and spread those costs across a larger revenue base. As I noted last week in a post about the pending Align-Smartcomp deal, SmartComp and Align have a lot of overlap in their provider networks.
Generally speaking, Align has deeper discounts than USC, based on Align’s prospective referral strategy (Align schedules the claimant’s appointments, and has been pretty successful convincing providers that the prospective referral merits a deeper discount). Look for the merged entity to merge their provider contracts as quickly as possible in an effort to deliver better savings for USC customers. That may be a challenge, as providers contracted with both bought off on the Align value proposition, and may well be reluctant to agree to provide the Align discount to USC patients, most of whom are not scheduled by USC.
No doubt Align/USC will be working this issue hard, as it is going to be quite the challenge. PTs who listened to the Align provider contracting pitch will now hear the same provider relations person presenting a seemingly-contradictory argument; the PT should agree to an across-the-board deep discount.
– Align has gotten good traction by selling to individual adjusters, but has had less success convincing corporate buyers to use their services. In contrast, USC has had some success with corporate buyers and TPAs where their fee sharing arrangements are financially attractive. (I have no inside knowledge) but the thinking may well be the two are mutually supportive; USC’s corporate sales married to Align’s adjuster success makes for better penetration all around.
That said, USC’s sales efforts took a hit with the sudden departure of just-hired sales chief Frank Vidrik last fall. Vidrik, along with other sales personnel, left right after the Work Comp Conference in Las Vegas, the biggest trade show in the business. The timing was unfortunate, as following up on leads and discussions at the show requires all hands on deck. In contrast, Align’s sales force has been relatively static, with long-time industry sales pro Tad Grattan leading a large, adjuster-focused sales force. Grattan et al have had good success leveraging their relationships with adjusters; Align’s adjuster focused approach drove the company’s rapid growth and their sales successes were the primary driver behind the original sale of Align at what has been widely rumored to be a very high multiple.
– In what may seem counter-intuitive, the deal may have been pushed along by Align’s biggest sales win to date – the US Postal Service contract. While the potential business is significant, there have been some significant hurdles getting any appreciable volume flowing from the USPS. Among the problems has been:
the Postal Workers’ union’s vociferous and public denunciations of the deal
Align’s inability to direct injured workers to Align providers (there’s no legal ability to direct in the USPS work comp system) coupled with the USPS union’s statement “that strongly discourages member participation.”
the need for Align to have network providers in close proximity to USPS locations (recall some post offices are located in very small towns in rural areas)
some of Align’s initial messaging and communications efforts which drew the ire of the union and a quick ‘clarification’ by the USPS.
I don’t see how the merged company is better positioned to address these issues; perhaps this is best chalked up to ‘learning experiences’ as Align seeks to better understand the corporate buyer and their often-unique needs and operating requirements.
(Note – MedRisk did compete for the USPS business. (I was not privy to the bid nor did I in any way participate in the process) As MedRisk has deep experience with this type of client their bid likely reflected the challenges inherent in delivering services to claimants in a non-employer directed, strong-union, geographically-dispersed environment.
What does this mean for you?
For insurers and TPAs that like to work with multiple vendors, the choices have been reduced.
For PT providers, get ready for some tough negotiating.
