Healthcare Solutions announced yesterday that it will acquire work comp PBM ScripNet, a transaction that will add significant share to HCS’ Cypress Care PBM business. ScripNet is particularly strong in the ‘central southwest’ market, with substantial share in the governmental entity market in Texas as well as a long-term relationship with Texas Mutual, the dominant insurer in the Lone Star State.
The deal will push HCS’ annual revenue above $400 million which includes pharmacy, ancillary services, networks, and other operations.
Both companies use the same pharmacy processing platform (SXC) and sources indicate there will be some significant “synergies” that will make the combined entity more profitable. ScripNet’s current customers will greatly benefit from Cypress Care’s strong in-house clinical management programs. (full disclosure; although I helped develop Cypress’ clinical program years ago, that program has been significantly enhanced since then)
HCS joins several other companies in the workers’ comp services business with revenues above that level:
– Coventry’s WC unit
– OneCall/MSC
– PMSI
– Express Scripts
– ExamWorks
– Concentra
– Progressive Medical/Stone River
I’d expect others to join the $400 million club. The workers’ comp services business is consolidating: smaller companies are being snapped up by their larger competitors and private equity firms and multiples look to be edging up (which will drive more privately-held companies to test the market).
Broadly speaking, there are a couple different models emerging here. The ‘vertical model’ is one in which a company seeks to add share in their current space. ESI’s purchase of MSC’s pharmacy business some years back is one example of a company seeking additional share in one sector – in this case pharmacy.
The ‘horizontal model’ is the one employed by Odyssey Investments, current owner of OneCall/MSC. They are putting together an entity with a broad product offering, delivering imaging, DME/HHC, dental, and transportation/translation services (with others likely to follow).
There are pros and cons with each approach; on balance I’m more a believer in the vertical strategy (as my consulting clients hear on a regular, if not continuous basis).
That said, any strategy can succeed – if it is executed well.
What does this mean for you?
Fewer options for services, likely better systems and reporting, opportunities for innovators to exploit slower-moving larger competitors.
Sep
6
