Two faulty assumptions and a big change in fee schedules have combined with management missteps to make OneCall Care Management’s brief history a painful one.

The latest financials indicate things have deteriorated significantly over the last few years.

How did OneCall get here?

The original One Call was focused solely on the WC imaging space. Under Kent Spafford’s able leadership, the company was highly profitable, very creative, and pretty much without any significant competition. One Call was purchased by Apax, then merged with other companies in transactions valued at around $3 billion (some equity and a lot of debt financed the transactions).

The fee schedule change noted above was California’s switch to the CMS fee schedule in 2014, which occurred simultaneously with CMS’ significant cut in reimbursement for imaging. The result was a dramatic drop in margins in California; other states followed suit and the result was a significant decline in earnings.

Faulty assumptions

While the fee schedule change was an unpredictable event, other problems have been self-induced.

Founded in its present form 2013, OCCM struggled since its inception to validate investors’ belief that A) the whole is greater than the sum of the parts, and B) there is lots of “whitespace” open to service providers (not so much).

(I’ve written extensively about these challenges; previous posts are here.)

Fact is most payers don’t see added value in buying everything from one entity – unless each service line is itself best-in-class. Rather, most buyers want to be able to pick and choose the networks, specialty networks, UR and CM providers they work with – and change them when they find better options.

Financials

At its height, OCCM’s earnings were reported to be around $280 million. Those days are long past: sources indicate EBITDA has dropped by almost a third, and my take is it will continue to decline.

2018 has been a tough year; an investment industry source indicated Q3 EBITDA was down 15% from the prior year’s quarter, while revenues actually increased 3%. Annual EBITDA saw a smaller decrease of about 10% for the 12 months ending 9/30/18.

Reports indicate total debt is just shy of $2 billion, and debt service (the interest OCCM pays to its creditors) is about $160 million annually.

Here’s the important stat – with Pro Forma EBITDA (EBITDA increased by management adding stuff that isn’t normally accepted by accountants) of $190 million, there’s not a ton of free cash (about $30 million) available for investments in staff, marketing, and other expenses.

Reportedly total leverage is 10.3x based on total debt just shy of $2 billion.

A big chunk of expense is for Polaris, the much-anticipated platform solution that saw an initial “rollout” of what was described to me as an abbreviated version a couple months ago. Evidently, full rollout is scheduled for 2020, when the company will realize the majority of the costs of the project.

While the company is looking to Polaris to improve efficiencies and reduce costs, my opinion is Polaris is intended to address investors’ problems – not customers’.

This from a post on MedRisk’s resurgence a couple years back [MedRisk is a consulting client}:

One Call is all-in on a technology solution, investing millions in a customized application intended to deliver on the “One Call” promise (currently the seven different services offered by OCCM have separate systems and processes). “Polaris” is slated to be “fully implemented” in Q1 2018, although it’s not clear what “fully implemented” means.

I don’t believe “automating” and off-shoring key customer-facing functions is the right answer, not in a high-touch business where adjusters, therapists, physicians, and patients all are key parts of the rehabilitation process.

Cost cutting is a necessity if the firm is going to continue to invest in technology and other critical areas; a staff reduction in 2016 significantly reduced client-facing staff.  Four sales reps were let go last week, a move company representative said was in keeping with OneCall’s intention to shift account management and related functions from the field to internal staff.

So, getting more efficient may be at the cost of improved customer service. If it is, that’s the recipe for further trouble.

Investors may take heart from one very successful turnaround. PMSI was teetering on the edge of the abyss when Eileen Auen took over. Several years later it sold for about ten times what it was worth when Ms Auen started. The company then became the core of what is now OptumRx’s work comp PBM.

That said, the situations are quite different, the changes needed even more dramatic, and executives with Eileen’s talent and abilities are rare indeed.

What does this mean for you?

For investors, listen to people who actually understand the business before spending your gazillions. Many saw this coming.

This also brings to the fore the issues inherent in private equity investors’ fascination with work comp services over the last decade, chiefly what happens when things don’t go perfectly. High debt loads can choke off critical investment in customer service and product development, especially when revenues start to decline.

With sore feet, a pocket full of business cards, and an envelope stuffed with receipts, the work comp world is headed home.

My main takeaway from the NWCDC conference – Yin and Yang, black and white.

Serving patients and employees.

Congratulations to Starbucks and Noreen Olson, Claims and Risk Management for winning a Teddy Award. I met Noreen for the first time yesterday, and her passion for doing the right thing by her “partners” (that’s what Starbucks calls employees) came across loud and clear.

This from Risk and Insurance’ Autumn Heisler article on the award, quoting Steve Legg, director of risk management, Starbucks:

“We were focused on building up a program with an eye on our partner experience. Cost was at the bottom of the list. Doing a better job by our partners was at the top.” [emphasis added]

As a big Starbucks coffee fan, I like it even more now.

There was an entire track devoted to the advocacy model – which is terrific. But, we’ve got so far to go.

Let me explain…

The hall had too many vendors focused on how to reject claims, surveil patients, use tech to deny work comp benefits.  I spoke with one that touted their tech’s ability to help payers use AI to show a worker couldn’t possibly have gotten hurt at work.

Yes there are cheaters, but they represent a small fraction of patients.

Several sessions involved InsurTech/data analytics/Artificial Intelligence. Kudos to the session selection folks (I am peripherally involved, but don’t have any role in those decisions) for helping educate all of us non-techies on this.

Sedgwick’s George Furlong and Stephany Rockwell of JBS talked about using tech to improve decision making; their session provided real world examples while pointing out the dangers of relying solely on machines to assess data and come up with recommendations.

But much of this great tech isn’t focused where it should be – the customer interface. Reality is, dealing with insurance and insurers is a pain in the butt. Claimants are treated with suspicion, made to jump thru hoops, and generally not served well.

This from Gallagher Bassett SVP Jeff White’s presentation…

Contrast this with how Vegas treats visitors – everyone from cab drivers to housekeeping staff is welcoming, happy, courteous and out to make your stay a good one. The entire town knows its success – and each person’s livelihood – depends on you having a great time and telling everyone you know you did.

The contrast between the Vegas experience and how we treat “claimants” is a lesson in itself.

Opioids – progress – one patient at a time

I’m both very happy and deeply sad that opioids were the subject of several sessions. The solid attendance at these sessions speaks to the continued concern about opioids, and the focus on long-term chronic pain patients is critically important. The message – we CANNOT lose focus on this. We will be fighting this battle for years to come.

The good news is the growing recognition that we have to solve this one patient at a time. There are no general solutions, no silver bullets, but only a hard slog involving analyzing data, talking with each and every patient, designing a recovery plan specific to that patient, persisting when patients relapse.

One of the more realistic approaches is that developed by Carisk. I spoke at length with one of their customers, and came away heartened by the depth of understanding and focus on the patient.

Yes we are making real, meaningful progress; the work comp world has done so much more to reduce opioid use than every other payer system. We have much to be proud of – but there are still hundreds of thousands of patients taking way too many pills.

What does this mean for you?

Treat patients like Vegas treated you. And understand we are all individuals.

 

 

Random takes from the first day of the National WC Conference.

myMatrixx landed the party spot of the Conference; SkyFall atop the Delano last night. First class event, lots of fun people, and great way to start the week.

The Vegas venue is excellent. Everything you need is here, located close to the hall, hotel, meeting spots, and restaurants. It makes doing business at the conference easy and efficient.

Damn expensive, but easy and efficient. I just paid $4.65 for a medium cup of dark roast – but got it at 5 am. The gym is pricey indeed. And dining here is just stupid expensive. Wah Wah Wah…I know, first world problem.

Conversations with several folks highly knowledgeable about work comp pharmacy. The industry continues to consolidate, drug spend continues to drop, led by double-digit reductions in opioid spend, and the revenue model will have to change.

Paradigm announced it is rebranding it’s subsidiaries; all will carry the Paradigm name. That makes a world of sense.

• Paradigm has a strong brand name and is closely tied to catastrophic claims. When folks think cat claims, Paradigm is the name that comes to mind. Leveraging that brand awareness is just smart business.
• The company hosted a media dinner last night – a very intelligent move and one other companies would do well to consider. All the key media outlets were there – and even a few minor ones like MCM.
• Very few work comp services businesses understand the value of brand. As in almost none. Paradigm CEO John Watts does – and his company will be better off for it.

Paradigm paid very hefty prices for recent acquisitions, and itself sold for a billion dollars or so just a few months back. Watts et al will have to hit on all cylinders all the time to make that investment pay off. So far, so good. But the hard work is ahead of them.

Finally, among my many foibles is a terrible memory for names – I’m OK on faces, but can’t remember names at all. So, it’s not you – it’s me.

The annual gathering of the work comp tribes begins tomorrow – here’s a few thoughts from last year’s post.

1.  Realize you can’t be everywhere and do everything. Prioritize.

2.  Leave time for last-minute meetings and the inevitable chance encounters with old friends and colleagues.

3.  Unless you have a photographic memory, use your smartphone to take voice notes from each meeting – right after you’re done – or write down key points immediately.  Otherwise they’ll all run together and you’ll never remember what you committed to.

4.  Get the NWCDC app for your Droid or iPhone – there’s a web-based version for tablets too.  It has the schedule, exhibit hall layout, local map, and a bunch of other handy information and tools.

5.  Introduce yourself to a dozen people you’ve never met.  This business is all about relationships and networking, and no better place to do that than this conference.

6.  Wear comfortable shoes, get your exercise in, and be professional and polished.  It’s a long three days, and you’re always ‘on’.

A few sessions you may want to consider:

• Advocacy models for claims handling are gaining traction – as well they should.
• Frequency is declining, but cat claims are unpredictable and hugely expensive – but risk can be mitigated.
• Policy changes are always coming – get a sense for where things are headed.
• The more we understand about pharmacy, the better outcomes our patients will have.
• Sedgwick’s George Furlong will be talking data too – and he knows his stuff.
• Jeff White is a terrific presenter, with an ability to explain really complex things so even I can understand them. His InsurTech session is a must-go.
• Denise Algire and I will be talking about the liability aspect of opioids; who’s going to be left holding the financial bag when the bills come due.

Finally, in these day of YouTube, phone cameras, Twitter, Instachat and SnapGram, what you do is public knowledge.  That slick dance move or intense conversation with a private equity exec just might re-appear – to your dismay.

And beware the white man’s overbite!!!

 

WorkCompWire’s Leaders’ Speak column features a two-parter from Jack Bailey of Bailey Southwell.  He has worked on a lot of transactions in our space and knows a lot about deal-making.

Bailey’s point about the growing importance of technology, and specifically the need for accreditation around cyber-security is dead on. His other thoughts on the importance of execution and customer service are as well.

I do have a different perspective on one of his statements.

From WorkCompWire:

Trend Away from Monoline Vendors to Integrated Service Offerings: While this isn’t necessarily a new concept in the industry, payers increasingly emphasize the benefits of having multiple service lines handled by a single vendor in their contract decisions. As an example, see the below quote from the recent quarterly earnings call of publicly-traded industry vendor:

…singularly focused vendors are quickly becoming obsolete while payers recognize a greater efficiency and effectiveness of integrated services.

Two points here.

First, outside of the quote – which I’ll get to in a minute – I don’t see any supporting evidence for this assertion. OneCall is the best example of a diversified service provider, and we all know how that experiment has worked out.

It hasn’t.

In contrast, single-focused vendors such as bill review firm Conduent, physical medicine management company MedRisk (HSA consulting client), DME/Home Health provider HomeCare Connect, and PBMs (most of which focus almost entirely on pharmacy) are doing well. Conduent and MedRisk are the largest providers in their business sectors, HomeCare Connect is growing rapidly, and PBMs myMatrixx (HSA consulting client) and Optum now dominate the work comp pharmacy business.

There are many reasons for this – which I’ve explored in past posts in mind-numbing detail – but the core issue is the same as in any other industry – doing one thing really, really well is hard enough. Doing several things really well is damn near impossible.

As Bailey noted, payers are demanding excellence in execution and customer service, demands that have (with rare exceptions) not been met by diversified service providers.

Point two.  The quote in Bailey’s piece comes from CorVel’s CEO. 

Of course Clemons would say that integrated services are the bee’s knees;  CorVel’s business model is predicated on getting as many dollars from its customers as possible.

Supporting evidence for my contention that single-focus companies are doing well, and are very attractive to investors is everywhere.

For example, SUNZ’ purchase of case management company Ascential Care and Mitchell’s acquisition of physician adviser/peer review/IME firm MCN. Both Ascential and MCN were founder-owned and had narrowly-focused businesses; they weren’t diversified.

Then there’s Paradigm’s acquisition of Adva-Net for about $110 million, a transaction completed in the last month or so. Adva-Net was also founder-owned (with some venture capital as well) and narrowly-focused; it brings a network of pain management providers and facilities to the table.

This follows Paradigm’s purchase of Foresight Medical last year. As I said last September, “Foresight’s niche is narrow but important – the company’s core business is negotiating prices for implantable surgical devices.”

Finally, in all my conversations with larger work comp payers, the vast majority of buyers want best-in-class services – because their customers expect and demand it. SVPs of Claims, VPs of Medical Management, Chief Medical Officers – I’ve never heard one say “I’ll take mediocre service levels and results because working with one vendor makes my life easier and is less burden on my department.”

Yes, there are exceptions, primarily for smaller payers who don’t have the staff or resources to handle multiple relationships. In that case, the “multi-offering supplier” approach makes sense, and this can be an attractive niche, with vendors building attractive businesses around wide service offerings.

What does this mean for you?

Market segmentation is key; understand what your buyers’ problem is, and solve it. Larger payers want best-in-class, and many smaller payers are looking for simplicity.

 

 

The three top takeaways from HSA’s 2018 Survey of Bill Review in Workers’ Compensation and Auto are:

1. It’s all about customer service
2. Analytics are lacking
3. Medata leads the pack

We’ll dive into customer service today, and discuss the other takeaways later this week.

From the Survey’s Executive Summary:

The importance of customer service cannot be overstated. At a time when the BR industry and payer community are looking at e-billing advancements, connectivity, and predictive analytics to make BR faster and more efficient, customer service rose to the top of the list when discussing or scoring the most important aspects of BR.

Whether we were asking “are bill review vendors differentiated?”, “how important is customer service”, or how respondents ranked individual bill review vendors, customer service kept coming up. Whether respondents outsourced bill review or processed bills internally using a third-party application, whether their companies were large or small, operated in a single state or nation-wide, customer service and variations on that theme were pervasive.

For example, one may well think bill review is a commoditized business, where vendors compete on price and relationships. Fully 2/3rds of the 30 respondents believe bill review vendors are differentiated, primarily by responsiveness, customer service, and a sense of partnership.

Stepping back, this is not surprising.

In any commoditized market, the customer who believes they are being listened to, serviced promptly and competently, that their vendor/partner really cares about the relationship and is always looking to add value, will view that vendor as a partner – a key differentiator.

In non-commoditized businesses, buyers don’t care nearly as much about customer service. Think Apple; people stand in line for hours if not days to buy their latest tech because it can do all this innovative stuff, has a really great camera and screen, can store a gabillion photos…(and many of us love to show off our latest toys to jealous friends). And often that tech has bugs and costs a fortune and shatters when you drop it and battery life sucks and it is obsolete in months… (Disclosure – I’m an iPhone, Mac Air, and Mac desktop user…but I’ve never camped out at a Store)

Or Tesla.  Costs a mint, one has to wait months to get the car you want, software can be buggy, getting service is a pain in the neck, charging is NOT easy or simple or readily available in many places…Yet lots of people buy Teslas.

I know, there are deep psychological/emotional reasons we humans want to own iPhones and Teslas. That doesn’t negate the key point here – people buying highly differentiated products don’t care about customer service.

Service can be THE differentiator in a commoditized business.  

Tomorrow, data analytics.

What does this mean for you?

Much of workers’ comp – claims, medical management, insurance, related services – is pretty much commoditized. I would argue  – and the research clearly indicates – that differentiation is not only possible, but critical to your company’s survival and success.