I’ve heard from several folks contending that Aetna will sell Coventry’s workers comp business, all making essentially the same points.
1. Aetna already has exited comp twice – once when they sold their workers comp insurance business to the Travelers, and then when they shut down AWCA, their comp PPO and PBM.
– True. However what this has to do with future plans is unknown.
2. Aetna bought Coventry for reasons other than work comp.
– True – that doesn’t mean they don’t like the $250 million in free cash flow from the comp business.
3. The CFO at Aetna doesn’t want anything to do with comp.
– Not having knowledge of the CFO’s perspective I can’t address this. I’d hazard a guess that the cash flow is kinda nice.
4. Comp revenues at <$800 million annually are small potatoes.
– But cash flow of $250 million is anything but.
5. Comp is a potential distraction.
– As are dental, life, disability, PPOs…
6. Aetna needs the cash from a sale to pay down Coventry’s debt.
– I don’t see it. With debt service costs at an historical low (and likely to decrease with Aetna’s lower interest rates, and Aetna needing cash to pay for preparations for health reform, selling an asset and using the cash to pay down debt doesn’t make sense.
Finally, as I said yesterday, despite my carefully reasoned arguments to the contrary, Aetna may want to sell the work comp business. To do that, they would have to uncouple the workers’ comp provider contracts in such a way that the buyer would get perpetual access to those providers at current discount rates.
That’s just not going to happen. No provider is going to agree to that.
And without the network, the value of the business goes way, way down.
I’d be remiss if I didn’t make the following statement (thanks to a heads up from a confidential source). Despite losing the ACE/ESIS business early this year, Coventry WC’s top line only decreased $2.2 million for the first half of 2012, driven by increased sales to new and existing customers.

That’s a question I’ve been asked a couple dozen times over the last two weeks.
For several reasons I don’t see Aetna selling the Coventry workers comp business.
1. It generates a ton of cash.
While the financials are a bit murky, the workers comp business almost certainly generates more than a quarter billion dollars in cash flow. Cash is king in the run-up to 2014, as health plans desperately need funds to prepare for the post-reform world. Acquisitions, investments in IT and care management, and free funds to deploy in as-yet-unknown areas are all going to require plans have lots of cash on hand.
2. It requires no time energy or thought
While senior management at Aetna is focused on reform, the work comp business requires little attention. President David Young and his staff have shown themselves quite capable of keeping things moving along, despite almost no investment into the business. While it is unlikely they’ll be able to keep all their clients without that investment, for now the WC business is the epitome of low maintenance.
3. They can’t sell the most profitable piece – the network
The network generates the lion’s share of the margin; if Aetna wanted to sell the WC business it is hard to see how it could transfer the network’s provider contracts to the new owner as most are a combined WC/group/governmental contract. Sure, Aetna could guarantee access to their contracts going forward for some period certain, but given Aetna’s history with workers comp, any buyer would be very reluctant to bet the future of their investment on that guarantee.
4. Coventry’s WC business has been losing customers
With ACE/ESIS the latest to move from Coventry to other entities for most managed care services (Progressive Medical for PBM, ACS/CompIQ for bill review, multiple networks for PPO), a sale would likely not generate near enough cash to make the transaction worthwhile (compared to the ongoing cash flow). Yes, it’s possible Aetna would want to sell it before more customers depart, but the multiple would likely be insufficient as any buyer would discount future earnings based on projected customer losses.
(while I’m no fan of Coventry WC, there’s no question the lack of investment on the part of Coventry WC’s parent company has made it quite difficult for management to continue improving services and product offerings)
That said, it is possible Aetna will explore selling the unit off – and given the private equity industry’s newfound passion for workers comp services, it is certain Aetna CEO Mark Bertolini’s voice mail is stuffed with friendly just-touching-base messages from PE execs.
Those PE execs will likely be waiting a long while for a return call.
What does this mean for you?
Business as usual for Coventry WC.

Many payers’ bill review systems are still not electronically connected to medical management applications; bill review prices are lower than they were three years ago, and payers are increasingly interested in bill review applications’ rules engines.
Those are three of the key findings from the latest Survey of Bill Review in Workers Compensation, and result from answers provided by 24 respondents from payers large and small.
We last conducted the survey back in 2009, and waited three years to see how quickly the industry would evolve. In some ways there’s been a good deal of change; in others, not so much.
The connectivity issue is perhaps the most visible. While there’s no doubt more payers have done a lot to tie bill review to medical management systems, many are still relying on “manual” processes to ensure bills for unauthorized or denied care are not paid or otherwise handled correctly. This greatly increases the chance for error, thereby increasing costs and wasting the time and money spent in the UR process.
Prices have declined, both for outsourced bill review and for payers leasing vendors’ systems, this despite the consolidation among application vendors that’s removed several once-significant players from the industry.
What has changed is the focus on auto-adjudication and interest in rules engines, driven – according to respondents – by a quest for greater efficiency and consistency.
With prices for bill review coming down, it’s not surprising interest in efficiency and automation is up; the soft market and pressure on admin expense is certainly a factor as well along with the desire to more consistently – and accurately – pay medical bills.
I expect the Survey report will be available by the end of next week. More to come.

With a weekend to recover, here are the quick takes from the WCI Conference in Orlando.
The ‘Headline’ keynote – Kathleen Madigan – was terrific. Glad I didn’t have to follow her; my “Industry Keynote” didn’t inspire many grins or guffaws, but did generate some outright hostility from the physician dispensing/repackaging folks.
Good.
Liberty’s physician meeting was very well attended; word is there were almost a hundred physicians at the get-together, a credit to Jean Feldman, their local Florida managed care exec. Kudos to Liberty for reaching out to treating physicians to strengthen relationships.
Saw an interesting piece of technology from CORA rehab – an iPad-based tool that serves as a teaching tool, enables patients to record and document their home exercise, and communicates w the PT and others involved in the case. Will be in use in January; they’ve invested a great deal of thought into the app and it looks promising.
The emphasis on broadening the conference’s appeal to a national audience looks to be paying off. There were attendees from everywhere, including Hawai’i, and topics of interest to people from all around the country.
Progressive Medical’s analytics capabilities are pretty impressive – that’s the report from a couple folks who attended their luncheon.
One of the strengths of WCI is a bit of a shortcoming as well; the plethora of audience-specific tracks (regulators, judges, medical issues, claims, etc) means there are not nearly enough “cross-stakeholder sessions” where judges hear from doctors and regulators and vice versa. This is a medical-legal system, and the more perspective we have on the various pieces and parts of the “system”, the better.
Definitely a younger and hipper crowd than at other conferences, but that’s to be expected when adjusters make up a big percentage of the audience. I have no idea how women walk in those five inch heels, but there were lots who somehow managed. And what’s with all the shirt tails out?
I know, showing my (advanced) age…
Overall – a LOT of information available, many excellent sessions, plenty of opportunities to party in the suites; need more cross-stakeholder discussion and better attendance at some really solid presentations.

The Hartford wants to pay for what works, not pay for stuff that doesn’t and doesn’t want to argue.
That was the one-line statement from Medical Director Rob Bonner in his talk at the just-concluded WCI.
Bonner went on to discuss how the Hartford defines “what works” and how they evaluate treatment plans that deviate from generally-accepted standards of care/Evidence Based Medicine (EBM).
I reviewed my notes from Dr Bonner’s talk after several comments on yesterday’s posts lamented/complained/squawked/expressed outrage that insurers had any right to determine the medical necessity of treatments much less not pay for treatments deemed not effective.
When you consider the wide variation in practice patterns reported by WCRI’s Dr Rick Victor yesterday, the weakness of the commenters’ arguments become crystal clear.
Notably, Dr Bonner said guidelines don’t work for all patients in all situations; treatment outside of guidelines may be appropriate but only if treatment within guidelines has failed.
Bonner concluded with a very interesting discussion of how payers should – and the Hartford does – look at guidelines and the interaction with providers based on guidelines. It is clear they are central to the way the Hartford medically manages WC claims, and that the use of guidelines is based on driving to better outcomes. It is equally clear that the onus is on the treating doc to develop a treatment plan that gets to a defined result if and only if standard EBM guidelines don’t work, with “work” defined as functional improvement.
I’d add that insurers have this thing called “fiduciary responsibility” that requires them to pay only for services that are deemed appropriate and necessary. That doesn’t include procedures that have been demonstrated to show no positive impact on outcomes; examples may include some cold therapy devices, passive motion machines; certain drugs and surgical procedures.
I’d also add that some insurers are “bad actors”; denying treatments arbitrarily, losing documentation, and generally doing whatever they can to avoid paying as much as possible. That said, in my experience these crappy companies are in the minority.
What does this mean for you?
Practice within guidelines, and if you don’t, be prepared to show why it makes sense to do something different and describe where the treatment is headed.

While there have been a plethora of deals in the work comp services industry of late, the pending acquisition of MSC by OneCall Medical has surprised many. The rumored size of the transaction, the buyer, and the level of interest in MSC among investors and strategic buyers are causing folks to re-examine long-held views of the business as slow-moving, stodgy, and insular.
The success of MSC, who chose to sell its pharmacy management business several years ago to concentrate on durable medical equipment and home health care, has been remarkable. This was a bit of a contrarian play, as most services firms were looking to diversify, adding additional service lines in an effort to capture more revenue from their existing customer base. PBMs and other vendors added DME and HHC, diversified into PT, imaging, and other lines as they sought to be all things to their customers.
For most suppliers, this wasn’t terrible successful. The additional lines added some revenue, but the time, energy, and resources invested in the diversification effort took away from the focus on their core business. Moreover, it was hard for most suppliers to build much credibility or differentiate their offerings in these new service lines; their level of expertise and experience just weren’t that impressive.
In contrast, after spinning off their PBM to Express Scripts, MSC invested heavily in systems and sales staff, seeking to deeply penetrate its existing customer base and add as many new customers as possible. By all accounts it was quite successful, taking share from competitors through a coordinated effort targeting both home office buyers and individual adjusters and case managers.
MSC will be added to OneCall’s product portfolio, not as another product line but as the leading supplier in the DME and HHC sectors. Combining MSC’s transportation and translation business with that of OneCall consolidates their position as the leading T&T provider. Adding their leadership position in the small but rumored-to-be-highly profitable work comp dental space gives OneCall a rather interesting combination of products and services.
Equally, if not more important, is the combined companies’ sales and service footprint. While there will almost certainly be some reduction in the total number of staff, there’s no question OneCall will have more “feet on the street” than any other vendor in the business. The ability of OneCall to stay in front of adjusters and case managers, service national accounts, stay in touch with market trends and competitive dynamics, and measure and track what’s selling where and to whom for how much will be unparalleled.
Make no mistake, the MSC-OneCall deal is a watershed moment in the workers comp services industry. For decades this has been a cottage, mom-and-pop business, with most suppliers either small, local vendors or entities that grew up from those mom-and-pops. The industry will mature:
– Expect the pace of consolidation to continue, if not accelerate, as local suppliers – of all service types – fear their ability to compete with the big national suppliers decreases with each deal.
– New entrants will emerge, focusing on ever-more-tightly-defined niches, seeking to carve out and “own” a space where their expertise and capabilities are enough of an advantage to convince payers that adding one more vendor is worth the hassles.
– More investors – private equity funds in particular – are focusing on this space. They will likely drive up the price of deals (somewhat), although the tough credit markets will help keep multiples down.
What does this mean for you?
Opportunities to be sure, at the top end, and in newly-defined niches – for smart, creative, and, most importantly, disciplined entrepreneurs and managers.

With Washington seemingly frozen in place, unable to agree on anything except it’s the other side’s fault, the awful specter of the Fiscal Cliff looks more and more possible. But unlike any other fall from a great height, we’re already getting hurt.
The “Fiscal Cliff” is shorthand for the automatic government spending cuts and tax increases that will go into effect January 1, 2013 – less than five months from today – if Congress fails to reach agreement on a plan to reduce the deficit. The CBO projects the cuts and tax increases will reduce the deficit by over a half-trillion dollars, but they will also cut four points from GDP and trigger another recession.
The CBO also projected that a failure to reach agreement early in 2012 would negatively affect the economy, leading households and businesses to cut spending and thereby reducing 20123 GDP by a half-point.
That projection appears to be prescient.
Manufacturers are already cutting back on orders. Some companies are holding off on hiring new workers. The hospitality industry is watching occupancy rates decline. Failure to address the Cliff will mean infrastructure construction and maintenance projects are in jeopardy
All this at a time when workers comp insurers are finally seeing some consistent premium rate increases, increases desperately needed to build up deficient reserves and cover rising medical expenses.
Employment drives workers comp, and employment in manufacturing and construction has a disproportionate effect. Although forecasts are still positive for hiring (particularly in non-residential construction), the closer we get to 12/31/12 the more dicey things will get.
What does this mean for you?
Watch what happens in DC; A resolution to the deficit crisis bodes well for work comp; no resolution would be bad news indeed.

The results for the second quarter are in, and Coventry’s doing well.
For now, we’ll focus on the work comp sector; if you are looking for any insights into Chariman Allen Wise’ views on comp, you won’t find them in his comments or the transcript of the earnings call. Both the Coventry folks and the analysts were entirely focused on preparations for reform, Medicaid, Part D, and expansion plans.
Despair not, as there’s enough other info out there that we can discern some trends with their work comp sector.
Fortunately Coventry has been reporting the work comp sector’s revenues on a separate line for a couple of quarters. The data indicates essentially flat sales with a slight dip this quarter (2.5 percent) compared to the same quarter in 2011. That’s a solid accomplishment, as its came despite the loss of significant PBM revenue with the move of ACE’s pharmacy business to rival Progressive Medical.
Pharmacy drives Coventry’s work comp top line. Coventry’s PBM, First Script, (and all PBMs) count pass-thru pharmacy transaction revenue as Coventry revenue. Contrast this to other service lines such as bill review and networks, where only Coventry’s portion of the spend hits their top line, and the importance of pharmacy to top line becomes evident.
Those other lines are under pressure as well. ACE reportedly is moving other business away from Coventry, including provider networks. Macro factors, such as the continued soft employment picture and fewer workers comp claims are also dragging down performance, reducing case management, bill review, and network business.
A factor that is getting almost no attention is the impact of physician dispensing on First Script’s revenue. With almost two-thirds of work comp pharmacy spend in Illinois and Florida and over a third of national spend from dispensing physicians , First Script’s top line is about a third lower than it would be if this practice was limited — as well it should be.
Best guess is Coventry’s work comp revenues would be about a hundred million dollars greater if not for dispensing docs.
To keep expenses down, management has been reducing staff; sources indicated several analysts from the reporting group were let go a few months back.