Work comp’s new Coventry?

The work comp services market is consolidating – at a very rapid rate.  At this pace, pretty soon there will be relatively few entities providing a broad range of claims-related services.

And that scares insurers and employers.  A lot.

Work comp execs like to have control over their vendors; whenever possible they seek to have two (or more) vendors providing the same service, to “keep them on their toes.” Most execs (and desk-level folks too) want to dictate terms to their vendors, or if not “dictate” than at least “determine”.  That’s for two reasons; a) they’ve always been this way and aren’t likely to change; and b) a few years back Coventry work comp got very powerful and turned the tables on buyers.

A bit of history is helpful here.

Coventry Work Comp was built by combining the “old” OUCH network with Healthcare Compare, followed by an acquisition of Concentra’s WC services division, which had acquired NHR, which had acquired MetraComp, plus the acquisition of a few other bits and pieces.  Along the way, the company became the dominant work comp PPO.  A few years ago, it was the “must have” network for workers’ comp payers as it was the largest, had the best discounts, and had the most coverage in the most states. While other vendors may have had better networks in one or a couple of states, Coventry’s was the best (defined as largest number of providers and deepest discounts) and broadest.

Coventry’s management (since departed) used this market leader position very effectively.  They forced (yes, that’s the right term) payers to use their network – and other services – by raising their fees for payers who carved out specific states where another network was stronger.  In addition, they discounted other services (notably PBM) if the payer bought their network and bill review services.

This put payers in a tough position.  Try as they might to seek out the best-in-class network, PBM, or bill review offerings, insurers would have to pay a LOT more for Coventry’s network if they didn’t buy everything.

For Coventry’s erstwhile competitors, the playing field was anything but level.  If they built a great network in a state or two, one that far exceeded the depth, effectiveness, and discounts of Coventry, they’d often find the big buyers would tell them they’d won their business, only to learn a bit later that the deal had been undone and Coventry was going to keep it, having told the buyer that their fees were going to go up – often way up – if the state/s were awarded to the competitor.

Things got even more one-sided after Coventry bought Concentra’s work comp services business.

Coventry actually raised their prices, telling customers that the larger network delivered more value, and therefore a higher price was warranted.  Never mind that the larger network would deliver more revenue just by virtue of including more providers; Coventry management very successfully leveraged their all-but-monopolistic status to increase prices and beat out competitors.

According to several colleagues who worked with Coventry at the time (remember this was a few years ago), Coventry knew they had the leverage, weren’t afraid to use it, and was only too happy to let their customers know it.  Even more troubling, customer service and responsiveness got steadily worse.  Managed care execs used words like “arrogant”, “uncooperative”, and “dictatorial” when describing their interactions; many were very surprised, if not shocked, by the tone and tenor of discussions and negotiations.

Fast forward to today.

Coventry’s power has diminished markedly, the ancillary services are likely to be sold off soon, bill review is losing customers, and insurers and TPAs are only too happy to turn the tables as Coventry’s leverage has greatly diminished.  

Which brings us to the current state of the market; it is highly likely a very few vendors will hold leverage akin to that enjoyed by Coventry back in the late 2000’s.  Managed care execs at insurers, TPAs, and large employers are apprehensive/concerned that this may well mark a return to the “bad old days.”

Many of the private equity folks who are doing the consolidating don’t fully grasp this issue.  They say that their efforts will lead to lower costs, better service, improved outcomes, and are somewhat bewildered by payers’ concerns.  Make no mistake; that concern is real, it is pervasive, and it will definitely affect payers’ decisions about which vendors to use for what services.

What does this mean for you?

Insurers, TPAs, and large employers have been there, done that, and aren’t going back.