As we march thru the list of big bigger and likely gonna-be-biggest WC services entities, we are now at the single service providers.

This won’t take much time.  Conduent is the leader in market share in workers’ comp bill review applications followed by Mitchell and Medata; the company claims 50% market share which sounds about right although the claimed “savings” of $16 billion is just nonsense (as it likely reflects reductions below billed charges, which we all know are not “savings”).

Back in the day there were lots more bill review applications and providers; PowerTrak, CompIQ, Smartadviser, Corporate Systems and CS Stars, (can’t remember their applications’ names). Strataware is Conduent’s application;  Stratacare – owners of Strataware – was acquired 7 years ago when Xerox bought ISG Holdings (ISG had previously acquired Stratacare)

Back in late 2018 we did a survey of bill review in workers’ compensation; (Conduent’s predecessor came out pretty well, Conduent not so much). I also conducted BR Surveys in 2009 and 2012).

There have been rumors aplenty about Conduent potentially selling its BR application. The company has suffered through staff departures, ditched the CompIQ platform, and gone thru too many senior staff of late. While still the largest player in the workers’ comp bill review application space, it is apparent Conduent has yet to figure out how to right the ship and set it on a steady and improving course. 

The problems extend beyond work comp bill review.

Overall, Conduent’s revenue declined rather precipitously from $5.4 billion in 2018 to $4.2 billion in 2020; work comp bill review is included in the “commercial healthcare solutions” category, which saw a smaller drop from $445 million to $431 million over that period (see p 73).

The CEO’s discussion of Conduent’s pretty poor results is a classic example of corporate speak…

Going forward, we will assess our diverse portfolio and apply a differentiated investment strategy to optimize, enhance and expand our solutions as necessary based on the needs of our clients. We are focused on positioning Conduent for long-term success and driving value for clients and shareholders.

Net is I don’t see Conduent adding to its workers’ comp portfolio; if anything Stratacare may be sold if/when Conduent’s Board decides it has had enough of poor results and restructures the company/changes leadership.

What does this mean for you?

Strataware’s future will be driven by larger issues – and hopefully resolution of those issues – at Conduent. 

If/when Stratacare is sold off, expect the other big players in workers’ comp services to be the likely buyers.

 

Last week we pondered Paradigm’s future, before that we mused about Mitchell’s. Today we opine about Optum.

First, a little history. Back in the Pleistocene, I worked for what was then UHC.  United Healthcare was considered the best managed care company in the country, had a massive $6 billion in revenues and was expanding everywhere.  After spending about 9 months carrying a UHC card, I departed, a lot less starry-eyed.

UHC has been in and out of workers’ comp about as often as Brad Pitt enters and exits relationships…

For those interested in digging deep into UHC’s workers’ comp history, at various times, the company owned:

• a technology business focused on bill review (Power-Trak…later sold to Mitchell);
• MetraComp, A WC PPO and managed care firm (and a former employer) and
• Focus (this last of some interest to one reader in particular :)…also,
• here is a brief note on UHC’s ill-fated entry into workers’ comp insurance back in the nineties. (spoiler alert – that damn tail will always get you.)
• much more recently UHC’s Optum got into the work comp PBM business in a very big way, buying Catamaran.

Writing about UHC’s foray into WC 6 years ago I opined that while really small potatoes compared to group health/MM, WC is attractive for a number of reasons:

In contrast (to UHC’s group health, Medicare and Medicaid (MM) business, work comp regulatory risk, while significant, is limited to what individual states do.  If one state makes a change, it has zero impact on the others, thereby minimizing regulatory risk.

There are a number of other nice things about UHCs work comp business:

• • • • • it’s a fee business, without insurance risk
        • margins are pretty healthy; a lot higher than group/governmental programs
        • it has scale; when all the dollars are combined it’s a substantial player
        • minimal investment is required as the businesses are mature and operating pretty successfully with experienced management and solid brands

Of late, UHC has stepped up its hiring in an effort to build a viable PPO competitor to Coventry.  They’ve got some smart people (and other payers have lost same) – but the challenge will be getting Optum/UHC’s other provider negotiations people to leverage their relationships and nail down great WC contracts with deep discounts.

That’s gonna be a very tough row to hoe…

Optum WC CEO David Young – we’ve crossed swords a time or two, but he does know the PPO business inside out and sideways, and is making the right moves – but WC is perhaps $1.2 billion in revenue.

that’s a LOT…right???

Well, no.

Parent company UnitedHealthGroup [I can never remember which letters are capitalized] will rake in $286 BILLION in total revenues this year.

So, workers’ comp is…what…one-half of one percent of UHG’s total revenue…

What does this mean?

UHG will keep workers comp – partially because the Board probably doesn’t even know it is in the WC business, and partially because it will continue to throw off cash.

The problem facing Young et al is UHG is a quarterly earnings-driven company – and workers’ comp is NOT a growth business. Young will have to invest in PPO, try to get support from people who don’t know how to spell – much less care about – WC – AND meet quarterly earnings growth targets.

That’s why he gets the big bucks.

 

Last week we pondered Mitchell’s future; as (perhaps) the largest WC entity outside the TPA space Mitchell/Genex/Coventry has an enviable position – albeit one that is by no means dominant.

Today our attention turns to Paradigm, a company I’ve written about…a lot.

I wrote this four years ago...

I’ll admit to wavering between being impressed with Paradigm and thinking it won’t ever become a significant force in the industry. As noted previously, the company has been around for the better part of three decades, and throughout that time has seemed to be just a year or so away from really breaking out.

Today’s no different.

While a lot has happened since then, it hasn’t changed my mind.

Paradigm was acquired by Omers, a Canadian investment firm three years ago; since then it has:

• bought up several case management companies,
• acquired some assets from Best Doctors,
• bought some network and specialty companies, but
• by no means has it become a “big player in the musculoskeletal [MSK] space.”

Becoming a big player was the plan back in 2018 according to CEO John Watts (a good guy with an impressive background), and I thought it was a good one – focus on using analytics and care management expertise to drive business to the case management and specialty assets, relieving adjusters of the hassles of managing, coordinating, and monitoring medical care for potentially expensive conditions, improving outcomes and reducing total cost.

One of their better deals was Adva-Net, a “pain management network” that reportedly has been a pretty solid earnings driver. Sources indicate Foresight – which reputedly went for 40x earnings (!!!) – has not been as profitable.

Problem is, Paradigm has not become a “big player” in MSK; rather the company is still seen as a catastrophic claim management firm, albeit one with other service offerings. MedRisk (HSA client) and OneCall dominate physical medicine. Relatively few surgeries happen outside traditional PPO networks (looking at you, Coventry).

Paradigm’s landing page focuses on cat cases, touting the company’s internal results. I’d also note it describes itself as

“an accountable care management organization focused on improving the lives of people with complex and catastrophic injuries and diagnoses.”

That description makes me think Watts et al are attempting to move Paradigm into the group health/medicare/medicaid business. Recent hires in top positions have extensive experience in those sectors, and Watts himself has deep experience in health insurance.

Work comp is tiny – less than 1% of US medical spend – so moving into the broader payer world makes sense. Problem is, I can’t recall any work comp services company that has pulled that off. Many have talked about it, done the work, hired the execs, and…crickets.

Meanwhile, Paradigm is facing serious competition in its core catastrophic risk transfer business from Carisk (HSA consulting client).

Methinks there’s a few intertwined reasons the company has not become that “big player.”

1. The core message – we can do claims better than you – is still kind of a problem.
2. Few employers care about workers’ comp, so there’s no push from big influential buyers to buy smarter.
3. Few buyers have any idea how to intelligently “buy” work comp services.
4. Few buyers want that kind of “innovation” – even if they say they do, they’re just mouthing words they haven’t thought through.
5. TPAs don’t make enough margin on Paradigm’s services – and as we all know, fee-splitting is pretty damn important.
6. Paradigm hasn’t made a compelling case.

But the real reason is #1.

Employers. do. not. care.

I just don’t see Paradigm “breaking out” and becoming a major player in worker’s comp claims management – or MSK management. Is it going to acquire more stuff?  I don’t see it – prices are too high, and Paradigm’s M&A record is mixed at best.

Meanwhile, claim counts continue to drop, making future growth in case management dependent on taking share from Genex, Corvel, and smaller CM firms. (note there are aberrations from time to time and place to place)

My guess is owner Omers  – a very patient owner indeed (it is the private equity arm of the municipal employees’ pension plan in Ontario, Canada) will stay invested until they think they can sell it for twice what they paid…or perhaps be happy with the $125 million+ of cash flow Paradigm throws off every years.

On the positive side, Paradigm was smart enough to hire Kaye Lewis to handle customer implementations. Kaye is one of – if not THE – best client management pros in the business. Her departure was a big loss for CadenceRx, her arrival is a big plus for Paradigm.

What does this mean for you?

A solution in search of a problem only works when those with the “problem” KNOW they have a problem.

Oh, and branding is super important.

And workers’ comp is NOT a growth industry.

 

Considering the landscape of service providers, one might think it easy to identify the acquirers and targets.

Reminder – the companies we are considering are Mitchell/Genex/Coventry (MGC), Paradigm, Conduent, Optum Workers’ Comp, OneCall, ExamWorks and one step down, MedRisk (HSA consulting client).

To date, ExamWorks, MGC and Paradigm have been buyers; acquisition activity has slowed appreciably as there are fewer targets and prices are at an all-time high. That said, sources indicate Paradigm continues to focus on growth through acquisition (we’ll dig into that later). I’d expect Exam to keep acquiring IME and related companies as it solidifies its dominant position in that space.

MGC is a different story; a few years ago it was an auto casualty and work comp bill review company, today it is in every work comp medical management area, with large holdings in pharmacy management, a big work comp PPO, and the largest case management/UR operation in the business.

Word is MGC is using those assets aggressively, leveraging Coventry’s network to strongly encourage/require customers use Apricus, its specialty network services. While that tactic will certainly work with some buyers, others – with long memories of Coventry’s previous owners’ heavy-handed treatment of customers. – may well rebel.

Historical diversion – after Coventry bought Concentra’s WC PPO network, Coventry used its overwhelmingly-dominant position in WC networks to get price increases and more favorable terms from most customers. This enraged buyers long used to getting their way, buyers who had pitted Coventry against Concentra in negotiations…many vowed to never again allow a “vendor” that amount of power.

While many of those buyers have exited the space, the memory lives on.  That said, given the heavy-handed, dictatorial attitude many payers display towards “vendors” I can’t fault any “vendor” responding in kind…

OK, back to buyers – as anyone with any experience in M&A knows all too well, digesting one acquisition is tough enough. Mitchell has acquired multiple companies, and the integration has not always been smooth. Eight months into:

• standing up and staffing a PPO division,
• continuing to work on integrating multiple PBM operations,
• building up a specialty network division to compete with OneCall, and
• dealing with channel conflict issues (perhaps the biggest – a bill review company owns a big network used by other bill review companies),it would be challenging indeed to add even more work to management’s day.

It’s not the consumption that’s the problem, it’s the indigestion.

What does this mean for you?

While MGC might pursue other acquisitions, it is much more likely to focus on getting the highest possible value from the deals it has already made.

Ed. note – got an email from a colleague asking “so why should I care about who owns who or what their strategy is?” Because your service providers – that you pay a shipload of dollars to and through – determine your medical and combined loss ratios. So you’d best figure out if your priorities are the same as their’s.

Okay, we’ve dug thru the differences between corporate- vs private-equity owned work comp service providers, today we focus on multi-service providers and single-service providers – and how they compare.

The first group is Mitchell Genex Coventry (MGC), Optum WC, and OneCall; the second Conduent, ExamWorks and MedRisk (HSA consulting client).

The good thing about being a multi-service entity is you’ve got flexibility, a diverse income stream, and several services/products that may interest prospects and keep customers tied down. You may also be able to leverage one line to get more business, and depending on what your services are, perhaps even apply enough pressure to force customers to use those other services.

The bad thing is your business lines are rarely all best in class; an under-performing service may de-value your other lines. The other bad thing is they can be pretty different, require different expertise, systems, processes, reporting, and network development.

Example – Imaging is one-and-done, customer value is mostly scheduling and price (yeah people talk “quality” of reads…but its almost always talk). Physical medicine is utilization-driven as price-per-service way less important than a scan that often costs 15-20x more than a PT service. PM also requires lots of data and information feeds, more clinical oversight, a different contracting strategy, and ongoing monitoring of attendance and progress. Transportation is different as well, and so is DME.

Net is it is difficult indeed to be really good at multiple services AND have scale where you can get competitive prices and deliver all services everywhere payers need them delivered.

Single-service suppliers get really really good at one thing; this affords them scale, reduces distractions, and builds a lot of corporate expertise – and if done well – a solid brand.

But – and it’s a darn big but – if a big state changes its fee schedule, or Medicare does the same, you could be screwed. Example – California adopted a Medicare-based fee schedule the same year Medicare slashed reimbursement for imaging. Imaging companies got hammered, as California has about 17% of the nation’s WC volume.

Okay, so here’s the net – Multi-line businesses are tougher to manage, but can insulate the owner from regulatory risk and provide leverage over customers.

Single-service suppliers are usually really good at what they do, but there’s that regulatory risk thing.

All that said, each of these companies is – in some very important ways – unique. with their own strengths and weaknesses, strategies and tactics.

What does this mean for you?

Are your suppliers’ priorities, successes, and growth strategies aligned with yours?

Yesterday’s intro to the coming consolidation in workers’ comp services identified 7 entities – Mitchell/Genex/Coventry (MGC), Paradigm, Conduent, Optum Workers’ Comp, OneCall, ExamWorks and MedRisk (HSA consulting client) that might will be the last one(s) – standing when the music stops.

I’ve written extensively (as in more than 60 posts) about what’s driving this, how individual companies are reacting, and potential implications for the industry. While the main themes remain accurate, my views on potential impacts are evolving.

While each of these companies is unique in its own way, they can be grouped into two broad categories – multi-service providers and single-service providers.

The first group is MGC, Optum WC, and OneCall; the second Conduent, ExamWorks and MedRisk.

Another way of grouping is by ownership; Optum and Conduent are owned by much bigger corporations while the other 4 are private equity owned.

While there are multiple factors that will drive who consumes who, ownership type may well be the biggest single influence.  PE-owned firms tend to be much more focused on organic growth, cash flow, and identifying potential acquisitions; their owners are tightly focused on increasing the asset’s attractiveness to the next buyer. In sum, that is a business that:

• shows consistent, strong growth;
• has a stellar management team;
• has strong cashflow; and
• a viable plan for future growth.

In contrast, corporate-owned entities can suffer from:

• lack of senior management attention (that is, management at the owning corporation) and
• resource starvation (workers’ comp is often seen as a backwater and leaders can find it difficult to get the resources and attention needed).

Aetna’s bungled initial attempt to sell Coventry Work Comp is the best evidence of both problems. Optum’s continued focus on quarterly earnings  – and the attendant demand that all Optum entities deliver on their commitments regardless of market conditions – shows that corporate owners often talk a good game but when push (sure, add some staff) comes to shove (how are those quarterly profits looking?), shove wins.

We older types remember Aetna’s multiple “commitments” to growing/expanding/improving the Coventry network, commitments that were never fulfilled, and for good reason. With workers’ comp representing less than 1 percent of total US medical spend, a big healthcare company’s focus rightly should be on governmental and private health insurance.

OptumWC is a big player in worker’s comp pharmacy and also has offerings in specialty services; it is also building a network (and has been for some years). To date, Optum’s network development success has been modest at best, as has its ability to get payers to use that network. Sources indicate Optum is investing more in the PPO; if it does Coventry could have a viable competitor.

But “big” in WC is “pretty darn small” in the healthcare world.

WC is far less than one percent of UnitedHealth Care’s total revenue (UHG owns Optum); it can be difficult indeed for leaders of pretty small subsidiaries to get attention and resources from corporate overlords.

Conduent is another story. Built around Stratacare, the industry’s leading bill review company by market share seems to be caught in an endless cycle of management changes, delays in upgrades//updates/fixes, and consistently poor customer service. Conduent is – at its core – a document management business; WC bill review feeds that business.

I don’t see Conduent as an acquirer…if anything it is much more likely to spin off the WC BR business.

What does this mean for you?

Understanding owners’ motivations and priorities helps predict the future.

 

 

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What’s coming is quite clear – there will be more consolidation in the work comp services industry, much of it likely in the next 12 months.

Cue Bachman-Turner Overdrive…

Workers’ comp is a shrinking industry; while there may well be occasional increases in premiums, claims counts, and spend, in general the long term trend is crystal clear – the only way to sure way to grow is to acquire other companies.

TPAs are growing in size and influence as many carriers pull back on investments and spending on technology, training, and physical assets. Many – but by no means all – carriers see significant potential benefits in moving claims services to TPAs:

• the cost of claims becomes entirely variable, replacing much of carriers’ fixed costs;
• flexibility – it is much easier to enter and exit states if you don’t have to stand up/shut down claims operations;
• regulatory compliance – specifically staying up on and complying with claim-related requirements becomes the TPA’s responsibility (sure the carrier is ultimately responsible, but it can protect itself contractually)

In turn, TPA growth is affecting medical management, technology, and other services vendors…TPAs make big dollars from revenue sharing with those vendors, with obvious implications for claim closure, claim duration, and medical, indemnity ALAE expenses.

The big players in the service sector are Mitchell/Genex/Coventry (MGC), Paradigm, Conduent, Optum Workers’ Comp, OneCall, ExamWorks and one step down, MedRisk (HSA consulting client).

I’d add Sedgwick to the list albeit with an asterisk; as the largest payer in workers’ comp (outside of the Federal government) it has the market share and negotiating leverage to do what other payers can’t…BUT this power will diminish as the number of service providers shrinks and their leverage grows.

These players are snapping up smaller service providers, broadening the depth and breadth of their offerings while simultaneously strengthening their relations with payers. Buying companies with >$75 million in revenue is helpful strategically and financially, but the bigger these companies get, the less benefit they get from adding “tuck-in” acquisitions.

This week I’ll share what I see coming, how each of these entities stacks up, and what this means for carriers such as Travelers and the Hartford that are staying the course.

What does this mean for you?

Change is coming; success, and survival, favors the prepared.