Author: Joe Paduda

Oct
25

Align – OneCall, it’s even bigger than I thought

Posted by Joe Paduda on Friday, October 25th, 2013 | Comments

I reported last night that OCCM and Align will be purchased by private equity firm Apax for around $2.3 billion.

I was wrong.

OCCM alone will go for $2.3 billion, and Apax will also pay somewhere north of $750 million for Align Networks.

The $3.2 billion company will service a space that in its entirety, totals about $7.5 billion.

I’m sure the bathtubs in Jacksonville are filling with Dom Perignon even as you read this, as well they should.  That’s nothing short of amazing.  Kudos to Align, the founders, and the folks at Riverside and General Atlantic.

Now, how in the heck will Apax get a good return on a company on which they spent more than the entire annual GDP of some decent-sized African countries?

They have to grow, and they have to generate higher profits. Growing requires landing new deals with new and old customers, and making sure those corporate deals actually turn in to transactions.  In work comp, we call that the “wholesale sale” (to the exec) and the “retail sale” (to the desk-level folks, who actually do a lot of the service ordering.)

If you reduce staff, you run the risk of losing desk-level retail sales.  But if you don’t, you have all those expensive folks increasing your SG&A costs.  Now, there’s certainly less of that going on these days than in times past, but the desk-level sale is by no means a thing of the past.

There’s another issue here as well; payers like to have alternatives.  I’ve spoken with several work comp execs today who said they were not terribly happy about the deal, as it put more of their eggs into a very large basket.

For OCCM to deliver the returns Apax most certainly wants, they’ll have to overcome this long-standing and deeply-entrenched policy/practice/ethos.  Sure, they might diversify into other insurance lines, but that’s a very, very tough row to hoe.

What does this mean for you?

They didn’t buy these companies to reduce revenues.

Oct
24

The deal of the century

Posted by Joe Paduda on Thursday, October 24th, 2013 | Comments

And that’s not hyperbole, this isn’t some over-heated flackery or PR nonsense.  One Call Care Management (OCCM) will be sold to investment firm Apax Partners.  But that’s just part of the deal.

Apax is also buying PT firm Align Networks from General Atlantic and Riverside.

Terms of the transaction aren’t yet available and likely will not be made public.  That said, I’d guess the whole deal is worth at least $2.25 billion.  

Work comp has made the big time.

I’d expect the new owners to combine Align’s PT operations with the rest of their product portfolio, and do that quickly.  That’s what OCCM has done in the past and indications are current CEO Joe Delaney will continue to run the new, much larger company.

Apax doesn’t have any other recent  work comp investments, so they are going to be relying on  Delaney; he’s gained extensive experience putting together what is now the largest company in the work comp services sector.  That said, the Align culture is a rather free-wheeling one, and combining that with OCCM will be an interesting project.

What he’ll have to work with is the industry’s leading imaging vendor, one of the top two DME/HHC offerings, the one of the top two PT management firms, perhaps the biggest player in transportation, and a couple much smaller ancillary lines (dental and some other stuff).

Total spend in these segments in work comp is about $7.5 billion.

Think about that.  Apax is spending something north of $2 billion to buy companies that have a total addressable market (that’s PE-speak for how much potential revenue exists in total) that is less than 4 times that price.

I don’t know the Apax folks; by all accounts they are savvy investors indeed and have done rather well in other businesses.  I’m just having a tough time wrapping my head around spending that much money to buy into a business with that low a ceiling.

Sure, they might get into group health, or auto, but many work comp companies have tried, and none have made an appreciable dent.

Regardless, the folks at Odyssey (they built OCCM) should be doing the “we won the World Series” champagne celebration thing; this transaction, and the process that led up to it, shows that they are really, really good. I’m sure General Atlantic and the Riverside folks in Cleveland are pretty happy too.

What does this mean for you?

These folks don’t invest unless they are darn sure they’re going to make a very, very good return.

 

Oct
24

Medicaid coverage expansion – status update

Posted by Joe Paduda on Thursday, October 24th, 2013 | Comments

The fine folks at the Kaiser Foundation held a webinar on Medicaid expansion today; here are a few of the highlights I picked up…

WA and MN showing significant increases in enrollment

AR IL WV are enrolling via SNAP – facilitates enrollment

Estimate total enrollment COULD go up as much as 21 million but that’s including everyone who is currently eligible and those in all states that could participate by 2022.

As of now, there are 26 states moving forward w Medicaid, with  Ohio just joining this week. (here’s the map showing state status) Among the states that may consider expansion in the future; NH may do this in November in a special legislative session, PA may be moving in this direction as well.  Interestingly, the map looks just like it did in 1965 when states originally could decide to adopt Medicaid or not. About half adopted Medicaid that first year, and most of the rest did within a few years.

In the states that are not expanding Medicaid, the median eligibility level for parents is 47% of poverty level, or $9400 a day for family of three. In almost all non-expansionary states, there is no coverage for individuals.

Nationally 4.8 million individuals are in the coverage gap due to states not deciding to expand, 22% of these are in Texas, 16% in FL. The vast majority are NOT eligible for those states’ current Medicaid program.

Currently enrollment via state exchanges seems to be heavily Medicaid focused.

Hospital uncompensated care payments will be reduced for DISH payments; the feds are reducing the amount of funds they are transferring to hospitals that provide a lot of uncompensated care and Medicaid services. The federal DISH allotments are established, HHS has formula in place for rolling out those changes but that formula doesn’t account for states that don’t decide to use expansion. Thus states that don’t expand Medicaid will see a reduction in these payments, and no increase in Medicaid, leaving the hospitals in a financial bind.  

What does this mean for you?

I’d expect more states to accept Medicaid expansion over the next few years.

Oct
23

Another work comp transaction is done

Posted by Joe Paduda on Wednesday, October 23rd, 2013 | Comments

The transaction count just got larger; work comp PT industry founder MedRisk has just acquired imaging company MDIA.  

The deal adds an entirely new product line to MedRisk’s existing physical medicine management offerings, one with a national network of imaging facilities utilizing a proprietary technology application. While MDIA’s network and technology are well regarded, the lack of a large sales force hindered the company’s growth.

I’d expect MedRisk’s 25+ field sales folks will be on the streets tomorrow talking with their current customers about the benefits of coupling imaging with PT – if they’re not out there already.  While some ancillary benefit businesses don’t seem to mesh too well, knowing early on if a claimant has a back problem may well increase PT referrals.

It is highly unlikely MedRisk/MDIA will be able to challenge imaging industry leader OneCall Medical for market dominance any time soon.  OneCall‘s huge field force, history of dominating their segment, and focus on capturing “leakage” are well-known. That said, MedRisk’s long-established and high-level relationships with many of the larger work comp payers, along with their deep understanding of those payers’ needs, requirements, and demands will be key to the growth of the new imaging business.

There’s another factor at play here, the belief long-held by many in the payer community that sole-sourcing any service (except pharmacy) leads to complacency while offering two or more vendors in each sector keeps them on their toes. 

While this transaction doesn’t come close to the size of other deals announced and pending, it is nonetheless indicative of the rapid pace and direction of change in the workers’ comp services industry. There is both vertical (consolidation within industry segments) and horizontal consolidation (across segments) occurring; single service or product companies are becoming fewer and fewer, while consolidation across specific segments (e.g. PBM/DME  Healthcare Solutions/Modern Medical and PMSI-Progressive) continues.

What does this mean for you?

More competition is good.

(Note MedRisk is an HSA consulting client)

Oct
22

The PMSI-Progressive deal is done.

Posted by Joe Paduda on Tuesday, October 22nd, 2013 | Comments

The deal is done, and there are certainly lots of smiles in lots of places. The merger of two of the largest workers’ comp PBMs, finalized today, has implications far beyond the two companies, their employees and customers.  But we’ll get to that later.

For now, congratulations to Eileen Auen, HIG, Tommy Young and Emry Sisson, and the folks at Stone River and PMSI.

Eileen, Jay Krueger, and their team turned around a PMSI that was perilously close to irrelevancy.  A remarkable accomplishment, and one that generated what could be a record RoI for investor HIG.  While terms weren’t disclosed, there’s no doubt HIG’s investors more than pentupled (if that’s a word) their original investment.

Young and Sisson worked diligently to move past the third party biller image/business. Their leadership of Progressive, and the excellent work done by their clinical management and operational staff has, according to well-informed sources, led to satisfaction levels at key customers that exceeded those delivered under the legendary (yep, you’re old enough now that you’re a legend) Dave Bianconi.

Sources close to PMSI indicate a number of employees will benefit from the deal, as HIG spread the equity around.  That’s as it should be; without their efforts, it never would have happened.

The work comp PBM industry has matured greatly over the last few years, and this transaction is evidence of how far things have come.  I’d be remiss if I didn’t note that other PBMs have also made remarkable strides in a relatively short period, and continue to get better.  This is one of those industries where each competitor is constantly raising their game, pushing the others to do the same, with customers benefiting greatly.

If I sound a bit exuberant, it’s because I’m really pleased to see good people do well.

Don’t spend it all in one place.

Oct
22

Investors may well keep their focus on work comp

Posted by Joe Paduda on Tuesday, October 22nd, 2013 | Comments

I’m thinking the investment community’s current obsession with workers’ comp is not going to end anytime soon.

For several months I’ve been saying investors will move away from work comp when the next new thing comes along.  As one who spends waaaay too much time perched on the bleeding edge, I’ve learned to revisit my assumptions and question my firmly-held views more often and more deeply.  Here’s what’s causing the re-think.

First, market forces.

The Affordable Care Act has already caused huge changes in the US healthcare industry; medical homes, ACOs, tech adoption, provider-payer partnerships, accelerated consolidation of health care providers and payers, new reimbursement models.  Those changes are driven in large part by the need to prepare for a very different competitive dynamic.  That different competitive dynamic, coupled with the growing influence of HHS due to the aging population (more Medicare folks) and Medicaid expansion and the rollout (deeply flawed as it is) of the mandate, makes investors very nervous.

Investors wake up in the middle of the night in a cold sweat with visions of some HHS staffer writing a regulation that kills their entire business plan/profit.  With so much riding on ACA implementation, and so much budgetary pressure on entitlements (Medicare and Medicaid specifically), entities who focus on health care investing are looking to diversify, to spread the risk into industries that, while not too different from the overall health care market, are protected from the regulatory risk present in Medicare, Medicaid, and ACA-regulated businesses.

KKR’s purchase of Mitchell International last month is evidence of just such a move.

So, that’s the logic.  What about evidence?

  • Last week I spent an hour talking with a sovereign wealth fund from a very wealthy Asian country about all things workers comp.  The capital these guys have dwarfs even the largest PE firm; just the fact that they’re looking into comp tells you a lot about the visibility of our tiny little industry.
  • A couple of very big transactions are going to close this fall, and when they do they’ll grab a lot of attention.  That will generate even more interest, and the snowball will keep rolling.
  • At least two more mid-sized transactions are in the works; while they likely won’t close – or perhaps hit any radars – for a few more months, when they do they’ll likely generate more buzz.
  • There are also several smaller deals likely to close before the comp conference; while no one outside the industry will pay any attention, the transactions will keep owners thinking about selling and potential buyers looking for acquisitions.

Which brings me to a somewhat-related topic; Aetna’s purchase of Coventry Healthcare.  Sources indicate Coventry’s work comp business was, if not an afterthought, more of a “nice to have” part of the transaction.

A few hundred million in free cash flow is very much “nice to have”.

As mother Aetna has begun to absorb Coventry, there’s a growing awareness in the huge brick headquarters that the Coventry WC business has two really nice features; it is NOT ACA-related (see above), and it is fee-based, not risk-based.

If anything, I’d expect Aetna to invest in work comp and other non-ACA business.  There are a lot of rumors circulating about potential transactions involving various work comp service/tech companies.  As of now, they’re just rumors, but I would not be surprised if CEO Mark Bertolini et al decided to get just a bit more involved in the comp space.

What does this mean for you?

Long ignored by the rest of the world, we’re now the prettiest girl at the dance.  Or, if not the prettiest, perhaps the most desirable.  

Oct
18

The time to fix the federal Exchange is now

Posted by Joe Paduda on Friday, October 18th, 2013 | Comments

The rollout of the federal Exchanges has been a disaster.

There’s no way to sugar coat it; whether it’s a design, technology, or communications problem (more likely all three), they are NOT working. And yes, there’s a clear management/leadership failure here; the Obama Administration failed twice;

  • first – designing the right development process (it appears that among other things, political decisions caused them to hold back on issuing detailed guidance to key stakeholders, i.e. health insurers)
  • second – encouraging Americans to use the Exchanges on day One, when they should have known they were not ready.

While the feds and their contractors are working feverishly to fix things on the fly, I’m hearing from my tech expert colleagues that they’d be far better off taking the Exchange off line, fixing the problems, then re-starting it.

Among the issues/problems, there’s:

  • a requirement that enrollees enter all their personal info before they can look at and compare plans
  • a lack of server capacity to handle the traffic volume
  • a lack of communication between the Exchange and the various health plans (this may be the most critical problem over the next few months as folks get cancellation notices from their current insurers and are required to sign up via the Exchanges)
  • erstwhile enrollees can’t find out if their doctors are in any of the plans available to them.

HHS bears a lot of responsibility for this, and perhaps Sec. Sibelius should be fired.  However, that would require the President to nominate a new Secretary, and given the hyper-partisan approval process, any new Secretary would face uncertain-at best-chances of approval by the Senate. And yes, President Obama is ultimately responsible, and therefore it is incumbent upon him that this gets fixed now, and gets fixed correctly.

Better to shut down the Exchanges now, get them fixed, test the heck out of them using feedback from early users, and get them back up when they are really ready..

If that requires delaying the mandate for a few months, so be it.

What does this mean for you?

A very big, and very painful, lesson on how not to do big IT projects, and an equally big and painful lesson on the perils of allowing politics to trump common sense.

 

 

Oct
17

First Survey of Opioids in Work Comp – initial results

Posted by Joe Paduda on Thursday, October 17th, 2013 | Comments

We’re plowing thru the responses from 400 front-line and management folks who responded to HSA’s first Survey of Opioids in Workers’ Comp; thanks to CID Management for sponsoring the Survey.

Thanks also to the folks who took the time to complete the Survey; they’ll each get a detailed Survey Report (out in a couple of weeks). Fellow New Englander Andrew Burton won the drawing for the iPad mini; here’s the handsome devil himself…

andrew burton

Here are a few of the initial findings;

  • more than 80% of ALL respondents said opioids lead to addiction, increase disability duration, and increase the risk of fraud and abuse
  • more than half think the problem is getting worse or significantly worse
  • that’s not to say respondents think opioids have no place in work comp, in fact more than 90% believe there is an appropriate role for opioids
  • over 94% of both groups indicated the treating physician was their pick for “whose responsibility it it to manage opioids”
  • over 45% of both groups believe payers have been somewhat or very ineffective in addressing opioids...the cause of this is primarily due to regulatory restrictions, although internal obstacles are considered a very significant contributor as well.
  • Re solutions, about 80% listed
    • peer/physician review for claims > 90/180 days,
    • drug utilization review,
    • random drug testing, and
    • opioid agreement/contracts as components of the ideal solution.

Lots more to come as we’ve got a couple gigabytes of data to review and cross-tabulate.  There will also be a webinar on the Survey results in early November, and I’ll be at CID-M’s booth in Vegas to answer questions about the Survey as well.

Will get you more details shortly.

Oct
16

How to know what’s really happening in work comp.

Posted by Joe Paduda on Wednesday, October 16th, 2013 | Comments

Want to know what’s really happening in comp?  Spend a day sitting next to an adjuster.

Whether you’re a work comp exec, big employer, investor, or service provider, there’s no faster or better way to really understand what goes on, what works and what doesn’t, and why, then spending a day with someone at the “pointy end of the spear”.

Or, as one adjuster said, “the end of the pipe that starts at home office and ends on top of my desk.”  I won’t repeat what he said was coming out of said pipe, but it wasn’t champagne.

There’s a reason the series “Undercover Boss” is so popular; it reveals that many execs really don’t know what happens at the most important point in their organization – the customer interaction.  Execs (and consultants too) make plans, devise workflows, develop strategy, change IT platforms, often with limited or no idea of what actually happens when that pipe dumps out in front of the customer.  Sure, they may seek input from managers or survey customers, but unless the bosses understand all aspects of that customer-facing job (sorry, consultant-speak) there’s just no way to grasp the nuance, understand the implications.

I’d suggest that execs, consultants, investors, service providers spend at least a day a year sitting next to an adjuster – ideally two days.  Don’t do this with anything specific in mind. This isn’t something you should do as part of a product launch or change, but rather come in with an open mind, to watch, listen, and learn.  That way you’ll pick up a LOT more than if you’re focused on this or that specific issue/workflow/concern.

Make it a day. Promise nothing will ever get published, be shared with the office manager, or find its way back to the adjuster. Bring coffee and a couple breakfast items, have lunch delivered for you and your new colleague, take lots of notes (but do so unobtrusively and rely on memory alone if note-taking appears to concern your colleague), and send a sincere hand-written note of appreciation.

No emails; they get far too many of those.

You will leave energized and with a new and much deeper understanding of what works, what doesn’t, and most importantly why.

What does this mean for you?

If you can’t find the time to do this, you don’t have the right priorities.