Yesterday we dove into the Paradigm-HomeCare Connect transaction and opined on the whats and whys. Today the TRISTAR-Risico deal is up for discussion.

Background

TRISTAR is a mid-tier national TPA, known for its work with employers and public entities. TRISTAR focused on workers’ comp for most of the time I’ve known the company, although of late it has grown its non-work comp services; Auto and liability now account for almost 30% of TRISTAR’s business.

Q&A

I caught up with President Tom Veale via email, here’s our Q&A…

1. MCM – there’s a lot of overlap in the companies’ target industries of ag and public entities; is TRISTAR looking to strengthen its presence in these markets?
   Tom – We like both industries and have a significant presence in both, especially in the west.
2. MCM – I noted the emphasis on geography; how does adding more business in California’s Central Valley tie into TRISTAR’s strategy?
   Tom – The central valley is the breadbasket of America.  We love doing business there.  The Ross & Castillo firm gave us a great base to build from sixteen years ago.
3. MCM – Re managed care offerings, what and how does RISICO managed care services add to TRISTAR’s capabilities?
   Tom – Risico has a great team of case management and bill review professionals that will strengthen our team in California.  They also have a team of network developers and managers who will significantly expand our capabilities.  Total Managed Care will be integrated into TRISTAR Managed Care.
4. MCM – You noted the cultural fit.  Can you provide more color around that?
   Tom – Bill and Steve built a company that operates like an extended family in many ways.  They take care of each other and in doing so, take care of their clients injured workers.  We strive to do the same at TRISTAR.  Being privately held, both of us can make the long-term investments required in our industry today – not having to worry about quarterly earnings, borrowing covenants and the like.

We then got into a discussion of what’s happening with TPAs, which look to me to be one of the only sectors of the work comp industry that is growing.

Tom’s views on what’s happening with TPAs and why…

• I think WC TPAs are consolidating.
• The number of claims keeps dropping for most employers – and has for twenty years. Improved safety practices and automation are the two big culprits. A while ago you talked about the industry shrinking – I think it was 2 to 3% a year. We have seen that as our average client with stable operations has less new and less open claims today than five years ago.
• The increasing cost of operating a TPA is becoming painful for many. Real SOC1 and 2’s, carrier oversight, IT costs, staff costs lead the way. Your (and others) shining the light on some predatory TPA practices has been painful for many bad actors. The industry will be smaller, and hopefully better in the long run.

The net

TRISTAR is a consolidator, and this latest transaction is strategically sensible. It adds depth in a key market sector and a key geographic area for TRISTAR, while also building TRISTAR’s internal managed care operation.

Tomorrow – other big doings in the TPA space.

What does this mean for you?

Watch what the smart people are doing. 

Two recent acquisitions and one possible transaction provide insight into investors’ views of the workers’ comp services sector.

Spoiler takeaway – Size is good; a) up to a point, b) as long as the additions strengthen management, add solid revenue and are strategic.

Paradigm acquires HomeCare Connect and TRISTAR acquires Risico.

Paradigm Outcomes’ acquisition of HomeCare Connect makes a ton of sense – as does TRISTAR’s purchase of Risico. We’ll dive into the first today, the second tomorrow, and the possible transaction later this week.

HomeCare Connect provides home care, DME, prosthetics and other services to workers with significant injuries…a population exactly the same as Paradigm’s. By internalizing these services, Paradigm:

• gains control over a key part of the care continuum, thereby streamlining communications and service delivery;
• adds strong management talent (I’m a big fan of HCC leaders Vonesa Wenzel, Teresa Williams and Tim Rametta);
• increases HomeCare Connect’s revenue by funneling Paradigm cases through HCC; and
• adds significant revenues (my guess is $60 million+…but that’s just a guess) to its top line and earnings to the bottom line.

I spoke with Paradigm CEO John Watts, here are a few quotes from that conversation, takeaways that point to Paradigm’s evolution and strategy.

• • “almost every case we manage involves durable medical equipment and home healthcare”
  • With (those services managed in-house, “it is seamless to the injured worker and provides more continuity as we are able to stay on the case longer.”
  • “HCC has very strong leadership that is already thinking about other opportunities…they have a really interesting solutions for prosthetics…”
  • Paradigm has “historically has dealt with high-severity claims, usually in the $1.5 to $2 million range.We are expanding the types of claims we work with to include lower-severity cases including those that need DME and HHC…HomeCare Connect’s solutions are a key part of our  service set…”
  • “As we continue to evolve our value-based solutions, we will extend our focus to events that are more episodic in nature…shoulder injuries for example…where our focus on return to work and reducing cost are essential value drivers for the market.”

Paradigm is clearly focused on capturing more of the services delivered to its current patient population, while moving “down the severity ladder” to handle less severely injured patients.

And…the final quote is pretty interesting as it implies expanding beyond fee-for-service into value-based care and financial models. 

I’d be remiss if I didn’t add what I see as one of the bigger benefits of the acquisition for Paradigm – HCC execs and staff get workers’ comp, understand the critical nuances and needs of front-line adjusters and case managers, and also know what drives decision makers.

From Vonesa Wenzel:

• • “It is all about the integrity of your organization and that you can be trusted by your clients to do the right thing for them, and also for the injured worker. You have to earn your client’s trust.”
  • “It’s important to understand that expectations of what folks need at the desk level may be different than corporate level decision makers.”

 What does this mean for you?

Focusing on your end users’ needs, wants, problems, and foibles = success.