The official announcement comes this morning; the merger of Align Networks and Universal SmartComp is done. More precisely, pending completion of due diligence, it’s done.
The new company will be the largest in the workers comp physical medicine space, with over $250 million in revenue, closely followed by industry founder MedRisk (an HSA consulting client). The merger is actually an acquisition, as USC will now be owned by Align.
There appear to be several keys to the deal.
– USC has been in Riverside’s portfolio for four years, smack in the middle of the three-to-five year horizon for most investment firms.
– the investment community’s strong and continued interest in the work comp space. Align’s owner, General Atlantic, while a bit of a late-comer to the industry, is a very large, highly competent, and well-regarded investment firm; undoubtedly they see this as a profitable business.
– those “synergies” that investors like so much; eliminate duplicative administrative costs and spread those costs across a larger revenue base. As I noted last week in a post about the pending Align-Smartcomp deal, SmartComp and Align have a lot of overlap in their provider networks.
Generally speaking, Align has deeper discounts than USC, based on Align’s prospective referral strategy (Align schedules the claimant’s appointments, and has been pretty successful convincing providers that the prospective referral merits a deeper discount). Look for the merged entity to merge their provider contracts as quickly as possible in an effort to deliver better savings for USC customers. That may be a challenge, as providers contracted with both bought off on the Align value proposition, and may well be reluctant to agree to provide the Align discount to USC patients, most of whom are not scheduled by USC.
No doubt Align/USC will be working this issue hard, as it is going to be quite the challenge. PTs who listened to the Align provider contracting pitch will now hear the same provider relations person presenting a seemingly-contradictory argument; the PT should agree to an across-the-board deep discount.
– Align has gotten good traction by selling to individual adjusters, but has had less success convincing corporate buyers to use their services. In contrast, USC has had some success with corporate buyers and TPAs where their fee sharing arrangements are financially attractive. (I have no inside knowledge) but the thinking may well be the two are mutually supportive; USC’s corporate sales married to Align’s adjuster success makes for better penetration all around.
That said, USC’s sales efforts took a hit with the sudden departure of just-hired sales chief Frank Vidrik last fall. Vidrik, along with other sales personnel, left right after the Work Comp Conference in Las Vegas, the biggest trade show in the business. The timing was unfortunate, as following up on leads and discussions at the show requires all hands on deck. In contrast, Align’s sales force has been relatively static, with long-time industry sales pro Tad Grattan leading a large, adjuster-focused sales force. Grattan et al have had good success leveraging their relationships with adjusters; Align’s adjuster focused approach drove the company’s rapid growth and their sales successes were the primary driver behind the original sale of Align at what has been widely rumored to be a very high multiple.
– In what may seem counter-intuitive, the deal may have been pushed along by Align’s biggest sales win to date – the US Postal Service contract. While the potential business is significant, there have been some significant hurdles getting any appreciable volume flowing from the USPS. Among the problems has been:

the Postal Workers’ union’s vociferous and public denunciations of the deal
Align’s inability to direct injured workers to Align providers (there’s no legal ability to direct in the USPS work comp system) coupled with the USPS union’s statement “that strongly discourages member participation.”
the need for Align to have network providers in close proximity to USPS locations (recall some post offices are located in very small towns in rural areas)
some of Align’s initial messaging and communications efforts which drew the ire of the union and a quick ‘clarification’ by the USPS.

I don’t see how the merged company is better positioned to address these issues; perhaps this is best chalked up to ‘learning experiences’ as Align seeks to better understand the corporate buyer and their often-unique needs and operating requirements.
(Note – MedRisk did compete for the USPS business. (I was not privy to the bid nor did I in any way participate in the process) As MedRisk has deep experience with this type of client their bid likely reflected the challenges inherent in delivering services to claimants in a non-employer directed, strong-union, geographically-dispersed environment.
What does this mean for you?
For insurers and TPAs that like to work with multiple vendors, the choices have been reduced.
For PT providers, get ready for some tough negotiating.

While it’s not a done deal, it’s all but done.
Two workers comp physical therapy network companies – Align Networks and Universal SmartComp – are close to merging.
Industry followers may recall Align was purchased last fall by General Atlantic, a Connecticut-based private equity firm; SmartComp has been owned by Riverside, a Cleveland-based PE firm, for about five years. Industry founder MedRisk (an HSA consulting client) is the largest and oldest company in the space.
The merger, when completed, will make the combined company the largest in the space in terms of revenue dollars. There may well be some of those “synergies” investors like so much as well; SmartComp and Align have a lot of overlap in their provider networks. This, along with the usual SG&A savings, will likely make for a richer bottom line for the merged entity compared to the two individual companies.
It is safe to assume that the customer face of the merged entity will have a distinctly Align flavor. SmartComp hired a sales chief last fall, a relationship that lasted a matter of weeks. Soon after the departure of the sales chief several other sales personnel also were gone. In contrast, Align’s remarkable growth was largely driven by the company’s strength in sales, especially on a local, adjuster-by-adjuster level.
The merger isn’t surprising. The five-year horizon on Riverside’s investment in SmartComp is here. General Atlantic (Align’s owner) paid a steep multiple for Align, and wants to dominate the space as quickly as possible. Align did have a recent win, landing the US Postal Service “contract” (the Postal Service can’t direct claimants to specific providers, and the union’s voiced its displeasure), but organic growth takes time, investment, and an ability to land national accounts. MedRisk enjoys a dominant position in the large payer sector, with long-term relationships at most of the larger payers.
What does this mean for you?
More evidence of private equity’s strong and continued interest in workers comp services.
Consolidation in this sector demonstrates this – and other services sectors – is a maturing industry.

The bill to stop outrageous markups on physician-dispensed drugs is all but dead, a victim of a highly effective, and very well-coordinated lobbying and public relations campaign financed by wealthy opponents who used employers’ own dollars to kill the bill.
Dispensing companies make tens of millions of profit charging employers twice to six times more for drugs than they would pay a retail pharmacist. A small portion of that money – only about $3.4 million – has been spent currying political favor, with several hundred thousand dollars finding its way into the coffers of the current Florida Senate President. Mike Haridopolos is using his powers to prevent the bill from coming to the floor, knowing if it does, it has the votes to pass.
This is a big defeat for employers, who will see higher workers comp costs, and tax payers, who are paying for inflated costs for drugs used by injured state workers.
One has to admire the effectiveness of the physician dispensing companies; confronted with an existential threat, they spent whatever they needed to, put together a very impressive dis-information campaign, convinced several probably well-intentioned physicians to take their side, and duped enough legislators to allow Haridopolos to ride off into the sunset retiring with hundreds of thousands of dollars in their contributions still at his disposal.
A colleague recently pointed out that Florida has tried to stop this outrageous profiteering on the backs of employers and taxpayers for three years running, and each year the result has been worse than the year before. Then-Governor Charlie Crist vetoed a cost cap unanimously passed by both houses three sessions ago, and this year we won’t even get a vote in the Senate.
For employers and insurers, it is crystal clear that bringing a knife to a gun fight produces an inevitable result.
In what looks to be the very definition of “too little, too late”, the Florida Chamber of Commerce is asking its members to email Haridopolos in what looks to be a rather pointless and somewhat pathetic effort to undo what is clearly a done deal.
For now, it’s over. Employers lost. Taxpayers lost. Good government lost.
The question is, will the Chamber, insurers, employers, tax payers, and decent politicians learn the lesson, or will we – all of us – fail again next year.

Every year any number of states change their workers comp regulations, sometimes a lot, sometimes just a minor tweak. This year there’s some of both.
Illinois has to be on the top of anyone’s list – the changes passed last summer are going to be working their way thru the regulatory – and judicial – systems for some time to come (more on Illinois workers comp reforms here).
This year, the Workers’Compensation Research Institute and IAIABC have collaborated on the annual compendium of state workers comp regs. I asked IAIABC Executive Director Jennifer Wolf Horejsh about the major changes over 2011: she reported “a few states experienced significant reforms in 2011 (KS, IL, MT, MI) that impacted the laws as of 2012.”
Montana’s had high costs for some time, and there were some relatively minor changes in the Big Sky state. Costs appear to be the factor in changes this year; again, Wolf Horejsh
“I would surmise that the major driver of change was system cost of one kind or another. High premiums in Montana and Illinois had been a source of frustration for several years. Of course, medical cost containment is an area that is still discussed frequently among the workers’ compensation regulatory community. The issue of physician-dispensing…is on the radar in some states and I anticipate it will still be an area of continuing reform in the next few years.”
Several states did take action to limit costs on physician-dispensed drugs; Alabama, Georgia, and Mississippi are all among those addressing the problem via regulation. (note the report doesn’t include details on reimbursement)

Well, when you falsely accuse a (very) competent public servant of malfeasance and get rid of him, you get what you deserve.
That’s exactly what’s happening in North Dakota. The state workers comp fund (WSI) is dealing with two separate scandals, one involving alleged illegal removal of a nurse’s entry from a claim file, and the other alleged efforts by management to manipulate WSI’s Medical Director to change his medical opinions.
You would think that the current CEO, Bryan Klipfel, would be on this like white on rice. Alas, Klipfel stumbled into this job, with a grand total of zero prior experience in workers comp, insurance, medical care, rehab, finance, or customer service. But he was a “good listener…”
According to press reports, WSI’s “chief doctor who reviews injured North Dakota workers’ compensation claims said he twice resisted efforts by agency managers to alter his medical opinion.
Dr. Luis Vilella, the medical director for Workforce Safety and Insurance, said he refused to change his medical opinions when asked to do so on two occasions in February or March of 2010.”
I don’t know if the recent effort by WSI management to establish more control over their medical directors is related to those two earlier attempts to get Viella to alter his opinion, but the coincidence is certainly worthy of investigation.
Reading Klipfel’s comments on these issues, it is easy to see just how big a screw up the powers that be made in ousting Sandy Blunt and putting Klipfel, a complete newcomer to business, let alone insurance, never mind workers comp, in charge. Evidently WSI was working on this “policy”, but only submitted it to the state board of medical examiners after Viella asked for the Board’s help. According to press reports, Kilpfel said: “This is a draft policy…We were going to have some work done on it. We want to make sure the policy we have reflects the longstanding policy that legal never drives medical in handling our claims.”
As anyone who knows anything about comp learns on day one, you do NOT mess with medical opinions, and you most certainly do NOT try to get your medical director to alter his or hers’. Yet WSI was in the process of reviewing a policy that would “dictate how medical opinions are to be transcribed, documented, or recorded.”
That’s not all. A WSI nurse case manager found that her entry in a claim file was deleted by a claims manager who didn’t like that the case manager’s statement strengthened the claimant’s case.
Well, folks, you get what you deserve. The real reason Sandy Blunt was prosecuted was because he was working his butt off to reform a dysfunctional state agency that had long been subject to political manipulation; Blunt didn’t stand for that. Now he’s out, a complete incompetent is running the place, and the citizens of North Dakota are paying the price.
The chickens are coming home to roost. Someone is going to have a big job shoveling out the coop after Klipfel et al move out.
Or, as Bob Wilson notes, the dodos are the ones doing the roosting..

I received an email from an individual who attended a “hearing” on a workers comp bill in Hawai’i. It’s compelling for two reasons – it clearly illustrates the comp system’s vulnerability to manipulation by those seeking ever-greater profits and ever-lesser oversight, and the weakness and inadequacy of employers’ and insurers’ efforts to prevent that manipulation.
Here’s the perspective of Charlie Donovan – and no, Mr Donovan is not an insurance guy; in fact he works for a group of physicians that serve workers comp claimants.
“I was bothered by the fact that one of the biggest supporters of the [IME] bill, and from my understanding one of the most active participants in fundraising for Senator [Josh] Green [orthopedic surgeon and drug dispensing physician], was not only given the chance to testify, but was called upon again to answer questions in front of the committee.
I was incensed that there were 2 orthopedic surgeons with over 50 years of combined experience treating patients, performing surgery, and conducting IMEs sitting 10 feet in front of Sen. Green who were not given the time of day.
And it seemed so blatantly unfair that an injured worker who had driven in “all the way from Waianae” was given a chance to testify, but that a neurologist with over 30 years of experience who flew in from Maui to give testimony was not afforded the chance to speak.
But when testimony was closed, I looked at my watch and saw that barely 40 minutes had expired since the hearing was gaveled to order. With easily 2 dozen more people anxiously waiting to have their opinions heard, it was over.
Epiphany!!! The entire hearing had been a charade. The members of the committees who graced us with their presence (all 6 of them) were not interested at all in being educated, or in hearing what the “public” had to say. Passage of that bill was a “done deal” before anyone walked into the room, and the hearing was nothing more than an inconvenience for the committee members.
I suppose that I was naïve for thinking that “public testimony” really mattered, that years of experience, statistical data, and the opinions of other professionals would trump fundraising donations. I suppose that somewhere down deep I knew that politics was a dirty business, and that “public service” was a catch-phrase of absolutely no significance. But part of me didn’t want to admit it, until it was rammed down my throat in the most transparent piece of kabuki I have ever seen.
So while facts comes before fundraising in the dictionary, I must now begrudgingly admit something that I probably already knew – that the order is obviously quite different in the world of politics.
Like wandering behind a horse and getting kicked, this is a lesson that will not have to be taught twice.”
What does this mean for you?
Insurers and employers better get real, and fast. You are going to get your heads handed to you if you don’t stop dissembling and focus on these issues.
Workers comp is a very, very soft target for profiteering physicians and the various businesses that have sprung up to suck money out of employers’ premium checks. They are organized, very well-funded, and aggressive.
Meanwhile, insurers and employers are sitting idly by while these bad actors use your dollars to buy political influence.

After posting last week on the politicization of the physician dispensing issue in Hawai’i, I heard from a number of stakeholders alarmed by that – and other issues.
Chris Brigham, MD, has been following what can only be described as an effort to eviscerate Hawaii’s workers comp system. He contributes these observations to MCM.
The Aloha State has been friendly to physician dispensing and to certain legislative officials, including Senator Clayton Hee, Chairman of the Senate Judiciary and Labor Committee, receiving funding from individuals and entities associated with physician dispensing companies [Hee’s contributors were identified in MCM last week; last week I referenced a physician dispensing cost control bill that would take steps to deal with this issue, however the bill is likely to end up in the Committee and die.]
Physician practices involved in physician dispensing lobbied very actively for another bill, a bill that would effectively thwart the independent medical evaluation process in Hawaii.
HB 466 was passed this week by the State’s Joint Committee on Judiciary and Labor and the Committee on Health (chaired by Senator Josh Green, MD, who has also been the recipient of fund raising by interests aligned with physician dispensing companies.) This bill would require independent medical evaluations (IMEs) to be performed upon mutual agreement of the injured employee and the employer. The attitude and behavior of the treating physician heavily influences the patient; if the treating physician feels threatened by the IME physician, it’s likely the treating doc will advise the patient to reject the evaluation. Thus, what this bill really means is the treating doctor and employer have to agree on an IME. If there is no agreement, the evaluation is assigned by the director to a doctor from a list of qualified physicians maintained by the state.
At the hearing, a physician who heads up a large practice involved in physician dispensing stated he would be pleased to provide names of physicians qualified to be on the “list”. Interestingly, documents reveal that certain physicians charge a fee of $3500 for an IME for one of their own patients and the resulting five page report. Curious how a doctor could perform an “independent” evaluation on his own patient…
This bill also limits IMEs to one per case, unless valid reasons exist with regard to treatment. How does this deal with various issues that occur during a life of a claim and to multiple problems? What is the rationale or need for this legislation? No studies have been performed to demonstrate a problem. Hawaii has been known for high quality IME reports and, according to data published in the AMA Guides Newsletter March / April 2010; Hawaii has the highest degree of accuracy in impairment ratings in the country.
How is this state going to deal with changes that are likely to dramatically increase costs and result in delayed case closure? This is particularly problematic given Hawaii’s state budget shortfall. This legislation appears to be responding to a non-existent problem, rather than addressing any issue of questionable care. If decision makers are rational, recognize the true issues, understand there is no money to pay for the proposed needless changes, and do not make decisions influenced by who sponsors their campaigns, there is still a slim opportunity for defeat. I’m not optimistic.
In terms of thwarting bad care, could it get worst for Hawaii? Yes.
The same parties are advocating passage of a bill to allow the Director to approve treatment plans without a hearing if they are disputed by the employer, a bill to permit the Director or claimant to reopen cases even years after they are resolved by settlement if a question arises concerning undue influence or the injured worker’s mental competence, and a bill to allow attorney’s fees to be awarded if a claim is prosecuted or defended without good cause. Attempts to bring evidence-based medicine to Hawaii have been thwarted.
What does this mean for you?
Beware of strategies by certain stakeholders who are attempting to alter the workers’ compensation system through legislation to be more “friendly” to them – even if it results in increased costs (human and financial).
Recognize that some of these stakeholders may well be seeking influence through contributions to key legislative decision makers; Money talks. Recognize despite its beauty, not all is perfect in Hawaii – it is a wonderful place to visit, however you probably would not want to have a business or be injured there.

Florida appears poised to restrict overcharging for physician dispensing of repackaged drugs to workers comp patients, so dispensing companies are looking for greener pastures.
One that looks promising indeed is Hawai’i, where physician dispensing exploded onto the scene last year, with several physician offices jumping into the business. And these docs didn’t start out slowly; no, they enthusiastically entered into this new opportunity to “improve patient care and increase compliance” by prescribing and dispensing drugs to large numbers of workers comp patients. It is unclear whether this desire to improve patient care and increase compliance led these physicians to dispense drugs to their Medicare and group health patients; hopefully some enterprising legislators or reporters in the Aloha State will find out.
Outside of the palm trees, sandy beaches, and salutary climate, there are some eerie parallels between Florida and Hawai’i, specifically the early and aggressive lobbying – and political contributions – of companies and individuals profiting from physician dispensing.
We’ll focus on one individual in particular – Sen. Clayton Hee, a Democrat. Sen Hee happens to be Senate Judiciary and Labor Committee Chairman. That would be the Committee where a bill intended to cap the costs of physician dispensed drugs was tabled (and effectively killed for that session).
Hee raised more money than any of his colleagues during the six-month filing period ended Dec. 31, raking in $68,800.
More than half ($38 grand +/-) came from individuals and entities affiliated with, related to, employed by, or clients of “physician dispensing technology company” Automated Healthcare Solutions.
You’ve got to admire AHCS’ bipartisanship; Hee is an avowedly liberal Democrat, while AHCS’ contributions in Florida have gone to very conservative Republicans.
The $38 grand is peanuts compared to the $3 million spent by AHCS et al in an effort to keep their Florida business alive and prospering.
The bill has been “carried over” to this year’s session, and is currently making progress through the various committees. Unfortunately, it will end up before Senator Hee’s committee, where, in all likelihood, it will die for lack of attention. You can track the bill’s progress – or lack thereof — here.
What does this mean for you?
Physician dispensing of repackaged drugs is coming to your state, or more likely, is already there. If Florida caps the cost, you can be assured physician dispensing in your state is about to increase – by a lot.