Had an interesting series of conversations with a client regarding the impending ‘sunset’ of the Texas voluntary workers comp provider networks.
It seems one of the network vendors is claiming the sunset is much ado about nothing; that the expiration of the Texas voluntary network statute on January 1, 2010 does not prohibit the use of network discounts outside the certified Workers’ Compensation Network mechanism.
My initial reaction was, rather embarrassingly, a profound “huh?…wha?…”
Allow me to defend my inability to respond intelligibly.
The demise of voluntary networks in the Lone Star State has been well-publicized, widely-discussed, and much lamented. All – and I mean ALL – of the large payers in Texas are darned upset about this, as it means the end of pharmacy, DME, home health, and other non-HCN provider ‘networks’ – along with the millions in savings below fee schedule resulting from those networks.
Apparently, the vendor’s argument is that, like Pennsylvania, the Texas Department of Insurance (and perhaps others with regulatory authority) will ignore the post-1-1-11 network discounts, responding to provider complaints only to decline to enforce provider contract discounts in administrative fee disputes. Sure, the payer will lose the benefit of the discounted provider payments as they will be ‘bumped up’ to fee schedule if providers contest these payments, but, according to this unnamed vendor, there will be no other adverse effect, except perhaps for interest payments on the unpaid balance.
Really? Does the vendor actually, really, believe that? And if so, who at the vendor is willing to hold the payer harmless if things don’t work out quite so neatly?
I asked a colleague of the legal persuasion for their interpretation.
Here’s my colleague’s response.
“I believe that this network’s analogy to Pennsylvania law is inapt. The relevant Pennsylvania statute, 77 P.S. § 531, has been interpreted by the Pennsylvania BWC as a provision entitling providers to receive payment at fee schedule, except under the defunct CCO model. In contrast, the Texas Department of Insurance has promulgated 28 TAC §134.201, which requires insurance carriers to pay providers according to the Medical Fee Guideline except for payment arrangements contracted under the protections of the WCN statutes and regulations. In other words, in Pennsylvania, providers can reject payments below fee schedule (except under a CCO), but in Texas, payers are required to pay at fee schedule (except under a WCN).
This distinction may be lost on some, but it really isn’t as subtle as it might seem. Subsection (b) of 28 TAC §134.201 specifically addresses intentional violations of the payment provisions by carriers and providers, and the penalty provisions are pretty ugly:
Texas Labor Code §415.021 – $25,000 per day per occurrence and
Texas Labor Code §415.023 – revocation of license.”
But, hey, s/he is just a lawyer, right? And they’re all too conservative and risk averse, right?
Maybe.
But the consequences of screwing this up are pretty no, very, no, really nasty.
If the vendor is willing to compensate the client for:
a.) the loss of their license to write insurance in Texas, and
b.) Twenty-five grand per day per occurrence;
then I say, hell, go for it!
If the vendor isn’t willing to obligate themselves thusly, then perhaps they either finally read the law, or they didn’t understand it in the first place, or their sales folk are a wee bit more, well, ‘aggressive’ than they oughta be.
Ed. note – this business never ceases to amaze me.
What does this mean for you?
There’s this thing in business called ‘the Stupid Line’. Those who cross it rarely make it back safely.

Now that the Mitchell – Ingenix deal is in the open, the rumor mill – and the fact mill as well – is rife with discussion of pending acquisitions, investments, and mergers in the work comp managed care business.
Tops on the list is the pending Intracorp – Genex deal. This has been in the works for some time (fingers crossed, as I predicted CIGNA would sell IntraCorp months ago and I’m running out of time), but word is things are still progressing. That’s not to say it couldn’t fall apart, but at this point that doesn’t look likely. Genex, owned by a private equity firm, would certainly benefit from the additional scale added by an acquisition of competitor Intracorp. And now that forme CIGNA Chairman Ed Hanway is retired, there’s no one in the executive suite at the big healthplan preventing a deal.
Here’s hoping this one gets resolved soon; this has been dragging on so long it has to be exhausting for all parties.
Specialty managed care firm Universal SmartComp was on the block as well, with sources indicating there were two fairly serious potential buyers – one strategic and the other financial. Evidently things are at a standstill after one potential investor went deep into the due diligence process. This is always a tricky part of the deal, as the seller’s optimistic forecasts and desire for a high multiple come up against the potential buyer’s motivation to buy the property at a price that will make for big profits at sale.
While they may not be announced before the National Work Comp and Disability Conference, there are a couple of others in process, one a ‘platform’ type deal and the other an addition to a current business. These are a bit more iffy, but with the tax laws turning them into pumpkins at the end of the year (which is looking increasingly likely), owners may be anxious to get them done.
And that’s just what I know; I’m sure there are others out there yet to hit my radar.
Which brings up the question – why?
No clear answer, except work comp services is still very much a techno-phobic, mom-and-pop, decentralized industry, one that smart financial and strategic buyers believe will generate big profits through consolidation.
Perhaps.
It is also a hidebound, relationship-based and relationship-driven industry, a model that doesn’t ‘scale’ well, if at all. It is highly affected by regulatory risk, and subject to external influences beyond the ken of most in the industry, let alone outsiders evaluating a business model.
So yes, there are big opportunities. There are also big risks.

The official announcement was released a bit ago, and there aren’t many more details than we shared yesterday.
I would note that there are several allusions to the new entity being the ‘market share leader‘; in a subsequent conversation with Nina Smith-Garmon, senior vice president and general manager of the bill review business, she opined that Mitchell will be the market leader with “thirty percent plus” share after the deal closes in thirty days.
This may well be the case, although my sense is Coventry is not far behind – and may be about the same in terms of bill volume. That, and Medata is coming up fast after adding PMA, TriStar, Healthcare Solutions (Procura, not Indiana), and BerkshireHathaway HomeState to their client roster – and more than a couple of ex-FairIsaac staffers as well over the last twelve months.
Paul Glover et al are pushing hard with Stratacare; their acquisition of Bunch will likely lead to at least one current Ingenix customer switching to their platform.
Just before I was about to post this, I got a call from Nina Smith-Garmon, of SmartAdviser, who mentioned several times the strategic aspects of the deal. Here are the top takeaways.
1. Mitchell will attempt to convert all current PowerTrak customers to SmartAdviser.
2. Ingenix’ new IMBR platform is history; neither Ingenix nor Mitchell will continue development of IMBR.
3. Mitchell bought the First Notice business as well as the bill review business; contrary to earlier speculation (mine and others’) the state fee schedule development business did not change hands.
4. Most of the PowerTrak employees will ‘come over’ to Mitchell, Smith-Garmon said only a handful will not make the transition. (no indication on whether they’ll end up back at UHG or on the street)
Ms Smith-Garmon’s comments notwithstanding, I don’t know exactly why Mitchell made the acquisition (beyond the press release), but can make a pretty educated guess. And yes, it has to do with top line growth, adding share, and the strategic importance of the business. But at a more granular level, it really comes down to the struggle for new business.
First, a little history. Mitchell Medical has long been the dominant player in the auto claims IT systems business. Back in April of 2008, they bought FairIsaac’s bill review business, a deal that pushed Mitchell into the work comp business (FI also has technology for the auto claims industry).
FairIsaac had purchased the bill review business unit some years before from HNC (formerly CompReview). Mitchell’s current workcomp bill review application, SmartAdvisor (SA) is the latest version of the ‘old’ HNC platform, which in turn was based on the ‘older’ CompReview technology, acquired by HNC in 1999. SA’s rules engine, Capstone, is reputed to be pretty user-friendly in that it can be manipulated and ‘programmed’ at the business analyst level. This capability enables clients to modify rules instead of relying on programmers at the vendor, speeding up the process and possibly reducing cost as well.
Mitchell has had some modest success in growing the business, but of late has not been able to win its ‘fair share’ of deals. The only publicly-announced sale this year was a deal with Rhode Island’s Beacon Mutual in April; Smith-Garmon also noted Mitchell also closed American Family.
Companies have to grow organically (by selling more services to new and existing customers) or through acquisition (buying competitors that come with a ready list of existing revenue-generating customers). If sales aren’t coming, and you want to hold onto that sector, then you’ve got to buy a competitor.
It’s a smart move, as it not only generates instant revenue, but it also eliminates a competitor.
What does this mean for you?
Fewer bill review IT providers is actually a good thing. There isn’t enough revenue to go around, at least not if you want to develop and refine a solid, comprehensive, well-designed and stable application. This will help Mitchell, and Mitchell’s competitors as well.

Tomorrow morning Mitchell Medical will announce it has acquired the Ingenix medical bill bill review systems business from United HealthGroup. The deal, which has been tightly held, may also include the assets employed in developing state workers comp fee schedules, although that was not clear as of this afternoon.
This marks yet another step in the consolidation of an industry long in need of just such a change.
When the deal is completed, there will be four dominant firms in workers comp bill review; Coventry, Mitchell, Medata and Stratacare. MCMC also provides bill review services but is not an IT vendor.
Ingenix has been challenged of late as it is in the midst of transitioning their customers from the PowerTrak application to IMBR, a switch that reportedly requires quite a bit of effort and resource on the part of current clients. This has led some current users to test the market and look at other vendors, as they might as well see what’s out there if they have to go through the hassle of conversion regardless.
No word on who, or what, or where, or how many, and I wouldn’t expect much tomorrow.
Stay tuned…

What happens when uniquely unqualified people run workers comp insurers?
Nothing good.
Exhibit One, the disaster in North Dakota, as their IT systems overhaul is now well over budget, behind schedule, and so obviously mismanaged that there’s no date certain when the much-needed and long-delayed conversion will be completed.
After former Director Sandy Blunt was forced out on trumped-up charges, a former State Trooper with zero experience in workers comp was named Director. While Bryan Klipfel may (or may not) be a decent guy, his complete ignorance of anything comp-related didn’t seem to phase the politicians who appointed him to oversee the state agency. And Klipfel didn’t think it was going to be that difficult, saying:
“I’m going to work with Bruce (Furness) [former interim Director] for a couple of weeks, and I’ll just have to learn some of that information as time goes on,” Klipfel said. “My strong points are that I have leadership ability, and I understand human resources, how to deal with people. And I think that’s the big part (of the job) right now.”
As I said a year-and-a-half ago, “He’s going to learn on the job? While getting mentoring for a ‘couple of weeks”? In a business that is incredibly complex? At a time when investments and reserving practices are critically important?
And his qualifications are his understanding of human resources and leadership ability?”
Now we have solid evidence of just how much damage the North Dakota witch hunt has done. Not only has it destroyed the life of one of the finest people I’ve ever had the honor of meeting (Sandy Blunt), it is costing NoDak’s taxpayers and employers millions due to the incompetence of the new Director. And that’s just what’s hit the press.
Specifically, the delay is now projected at two plus years, with cost overruns – so far – at $3.6 million. The Legislature has to approve the funds, leading some to ask ‘what happens if they don’t.
According to the article, “WSI CEO Bryan Klipfel said they were going to remain positive as many contracts are signed under such circumstances.
“We need the system,” Klipfel said. “If we don’t get the money… well, hopefully that doesn’t happen.”
Now THAT’s a forward-thinking CEO, one with enough experience to always have a Plan B – just in case.
There are a lot of good folks at North Dakota’s work comp fund; unfortunately they are being led by a guy who is in way over his head.

Those of us who spend a good deal of time buried in the world of work comp sometimes need to look up and out, to see where we ‘fit’ in the larger world. There’s so much to do, and so few resources to do it, and even less time, that it’s far too easy to keep the head down and just keep plowing forward.
While that’s understandable, it is also a problem – in some cases, a big problem.
Understand that workers’ comp is just the fourth largest line of property and casualty insurance, with just about 10% of total premiums flowing to comp. New capital can flow into, and out of, insurance lines pretty readily. If and when a major catastrophic event hits, comp will be quickly, and dramatically, affected with premiums headed up and capacity down.
Work comp will spend about $31 billion this year on medical expense; the national health care budget is about $2.4 trillion. Comp is less than 1.5% of total medical cost.
Pharmacy expense in comp is about $4.5 billion, that’s about two percent of total pharma costs in the US.
When one considers there will be another thirty million (30,000,000) Americans covered by group health and Medicaid programs in just over three years, at an average cost of about $7500, the relative significance of comp on the national medical scene becomes even more apparent.

What does this mean?
Comp is the flea on the tail of the dog. We can’t tell the dog where to go, or whether to be happy or run or jump, but we sure better be ready for any of its moves.