The latest deal in workers’ comp services

Paradigm announced it is purchasing Adva-Net, a Florida-based company with a network of pain management providers. While terms weren’t disclosed, word is the price was north of $105 million, a very healthy multiple of earnings.

I interviewed Paradigm CEO John Watts a few weeks back, but decided to hold off on publishing it until this deal was done. Watts, who has an impressive resume including multiple leadership roles in the “real world” (outside of work comp) is impressive; he has a clear strategic vision for the company, knows what he doesn’t know, and appears to understand the critical importance of branding. Quotes are from Watts

We talked about his strategy for Paradigm and the acquisitions the company made over the past year plus – specifically Foresight Medical and two case management firms – Alaris and Encore. In addition, Paradigm just acquired several ‘advisory solutions’ focused on pain management, catastrophic claims, and back care from Best Doctors.

Frankly I’ve long been somewhat puzzled by these acquisitions; NCM is old school, Foresight is anything but (and was wicked expensive).

Before those additions to the company, Paradigm had “a nice longstanding business doing pretty much one thing” – managing a carefully selected inventory of catastrophic claims, and doing so quite well.  Management realized that a sole focus on cat claims wasn’t enough and the company needed to diversify.  Acquiring case management assets, a business that Watt noted is “way more traditional than the cat claim business”, gave that cat claim “operation access to about 500 +/- employed nurse case managers.” Not only did this expand Paradigm’s ability to handle cat cases, it increased it’s customer footprint, provided a training ground for cat nurses, and added some “synergies” – management speak for reducing overhead expenses like management, finance, and HR.

Going forward, Paradigm “wants to stitch together assets with the ability to take risk in complex acute situations to manage clinical outcomes…[the company will likely handle] more types of catastrophic conditions while also moving into lower severity claims.” Alaris and Encore (Paradigm’s NCM firms) help them do that.

Foresight was another acquisition; I asked how these services align with Foresight.

Foresight stands on it’s own. According to Watts, it has a “Strong focus on implants, cost and quality…Foresight is also building a high performance orthopedic network using data analytics.”

In the near future, expect Paradigm to be a “big player in the musculoskeletal space.” The company (again this was several weeks ago) was “in an acquisitive place now.”  Going forward, the plan is to focus on becoming known as expert in managing ortho surgery care…first, couple [Foresight’s ortho network] services with NCM, then add catastrophic services.”

At the end state, expect Paradigm to handle a defined bundle from point of injury to back to work.

Future expansion will likely include a “front end solution on musculoskeletal condition to help clients avoid unnecessary surgeries” and the tools to do that.

So, Paradigm is focused on adding depth and breadth to the solutions it provides work comp payers – adding services to help with less acute claims, and broadening its capabilities to handle more of the claim medical service spectrum.

In this context, Adva-net will add a pain management provider network. After a rather prolonged development period, the company’s earnings recently ramped up significantly. The business model is primarily a traditional percentage of savings arrangement – the more services delivered, the more dollars earned.

The acquisition brings another specialty-focused business, some additional customers, and a provider network to the Paradigm portfolio.

The acquisition was expensive, but as the company has shown with Foresight, it isn’t afraid to pony up the bucks when it sets its sights on a deal.

My take.

Paradigm is intelligently diversifying and has a coherent and promising strategy. That said, I still don’t understand the prices paid.