Friend and colleague Bob Wilson has penned a piece essentially dismissing my claim that pay-to-play exists in the work comp services world.  Responding to my series and a great column from WorkCompCentral’s Dave DePaolo, Bob said:

my impression is that major, blatant “payola” in workers’ compensation is rare. At least it has not existed within my personal experience.

In fact, my impression has been completely the opposite.

Bob’s a lucky man, fortunate indeed to not have encountered this sleaze.

I do know of several instances where it has occurred, and Dave described one in detail. And I am convinced there’s a lot more of this than the few instances Dave and I have heard of.

The fact that someone doesn’t know about them isn’t a surprise; by their nature they are entirely secret. If and when these transgressions are discovered by the payor, there is no reason for the payor to publicize the finding and every reason to cover it up. Such is the nature of white collar crime.

I’ve had several conversations with vendors after my series of posts where they described veiled and not-so-veiled requests for services, trips, and other consideration from buyers. It’s real, it exists, and the examples I cited are from conversations with individuals with direct knowledge of these events.

Some have asked why I don’t name names.  It is NOT my responsibility to do so. The entities paying these bribes are well aware of the practice yet choose to pay. I am not going to pit my meager resources against those of corporations with hundreds of millions in revenue and legions of lawyers at their beck and call.

That’s part of my disagreement with Bob’s column.  The other is that his piece doesn’t address the far more common practice of corporate pay-to-play.

Bob didn’t address the TPA industry’s common practice of charging fees to service companies to do business. That is ubiquitous, and was the subject of a rather contentious debate between Sedgwick CEO Dave North and I at the NWCDC several years ago. At the end of that debate, Mr North a) said Sedgwick doesn’t take much in the way of fees from vendors and b) agreed to share all his vendor contracts with his customers.

I lauded Mr North from the stage and in a blog post for his willingness to publicly offer to share those contracts with customers.  I don’t know that any contracts have been shared or any fee-sharing arrangements acknowledged.  I certainly haven’t heard about any such disclosure.

To be clear, I’d reiterate a key point made in one of my pay-to-play posts:

What’s not fine is not disclosing the fee-splitting arrangements between the TPA and service providers.  Actually, let me refine that – what’s not fine is telling employers no such splitting occurs when it does.  Some TPAs tell their customers that they get paid by vendors, and aren’t going to disclose those payments.  Again, that’s OK – employers know they are paying “extra” to the TPA for claims and related services, and they know they won’t find out how much “extra” that is.  Caveat emptor.

Based on his experience, Bob notes “Are we rife with corruption, with executives on the take and intentional efforts to defraud millions?
Of course not. ”

I suppose it depends on how you define “corruption” and “intentional efforts”.

What does this mean for you?

Employers, are you absolutely, positively, 100 percent certain you know what you are paying for claim-related services?

There are plenty of candidates – work comp TPAs who solicit fees from service vendors, vendors who offer to pay fees to get on a “preferred” vendor list, individual buyers with their hands out.

But when you get right down to it, the folks that are most at fault are also the ones most affected – employers.

Employers are the ones who demand ever-lower per-claim fees from TPAs, and TPAs who want their business have to play that game.  Truth is, it is impossible for any claims organization to deliver professional, solid, responsible claims handling for $1200 per lost time claim. They have to make their money somewhere, and that “somewhere” is with more fungible, less visible, claim-specific services.

Case management, utilization review, bill review/network access are just a few of the categories that escape close scrutiny yet add up quickly.  Many of these services are categorized as medical services and thus hit the file as non-administrative.  That category is almost always all but ignored during audits or file reviews, and thus is ripe for…margin making.

Before you start yelling about the dastardly TPAs and their evil ways, stop and consider why they do this.  It’s pretty simple; if your core service is commoditized and you’re constantly under rate pressur, you’ve got to do something to stay in business.  So, you find other ways to generate the dollars needed to deliver the level of service your customers demand.

I place the blame squarely at the feet of employers and their brokers and consultants.  There’s just not enough effort to really understand how TPAs differ, why one costs more and what their value propositions are.  It’s too easy to plug all the numbers into the spreadsheet and not try to figure out why TPA A does things this way, and TPA B does it this other way.

Nope, claims is claims.

There’s another reason employers have to accept a big chunk of the blame.  Many know fee splitting occurs, but don’t have the energy/motivation/ability/professionalism to pursue it.

What does this mean for you?

Is this acceptable?

Note – I heard from more than one colleague who wants me to “name names”.  It is NOT my responsibility to do that.  I’m not harmed by nor do I benefit from the practice of fee splitting.  Moreover, don’t act like this is “new news”; this is hardly a revelation.  It has been going on for years, and everyone knows it.

I will admit to being quite frustrated with stakeholders who somehow feel I – and others – need to try to fix problems with the work comp world, problems neither of our making nor solvable by anyone other than those affected by them.

As our son’s high school lacrosse coach often said – you’re either a finger or a thumb. The finger assigns blame to someone else, while the thumb points back to you.

Are you a finger, or are you a thumb?

Pay to Play – charging work comp service vendors to do business with payers – was a big part of the industry a couple decades ago.

It still is.

Way back when, bagel boys and babes looking for files to service would bring goodies to claims offices; food, trinkets, tickets to the Red Wings game, you name it. Anything transportable was fair game. Didn’t matter if they were repping drugs, DME/HHC, case management, or investigation services, the boys and babes would load up their cars each morning before heading out to do their rounds.

There was also some pretty smarmy activity back then – big parties with lots of booze and entertainment at local/regional claims meetings, even envelopes left on adjusters’ and claims managers’ desks.

Most of the really obvious activity has gone the way of the green screens. Now that work comp payers have limited access to claims offices – and many have home-based their adjusters – the “retail sales” folks have a much tougher time getting access.

Alas, pay to play persists, its just moved up the corporate ladder.  That’s not to say there weren’t unethical practices in past years – there most certainly were.  What’s changed is awareness and top-down vendor management.  There is much more control of many vended services from payer HQ, allowing payer execs more insight into what’s happening at the adjuster level.  As a result, the locus of decision making has (partially) shifted from the desk level up the corporate ladder.

Now, we see P2P occurring in two ways – overt fee sharing, where vendors pay commissions/rebates/fees to the payer, and the much-less-talked-about, but nonetheless far-too-common direct payment to decision makers.

We will discuss the payer payments later this week…for now, the focus is on the decision maker payments.  Note I’m NOT talking about social events – golf outings, dinners and the like, relationship-building events long accepted, commonly practiced, and openly acknowledged. No, this is about highly unethical if not outright illegal payments and practices, such as:

• untraceable gift cards, bought with cash, given to payer decision makers.  One decision maker demanded cards to “help his boys with their college expenses.” He asked (and likely still does) for cards for specific retailers as the price to get a meeting with him to even discuss a vendor’s services.
• consulting fees paid to the decision maker’s significant other.  This is happening today, with the vendor forced to keep the cash flowing to keep the referrals coming.

I don’t believe work comp is any better or any worse than any other industry – there are always going to be scummy sleazebags with their hands out, creatively enriching themselves at the expense of their company, their claimants, their employer and/or taxpayers.

I do believe we need to do a much better job ferreting this out, and payers bear a big part of the responsibility.  When a payer discovers a decision-making exec has been lining their pockets at the expense of vendors they rarely (actually never) make this discovery public.  In hiding their embarrassment, the payer abrogates their societal responsibility – and ensures they will get screwed again.  Until and unless payers prosecute and/or publicly discipline these sleazebags we aren’t going to see it stop.

In fact, given what’s been going on over the last two years, it looks like it’s more widespread than ever.

What does this mean for you?

Time to stand up to sleaze.

Way back in January I posted my 10 predictions for work comp in 2015.  Usually I do a mid-year review how things are going; it was such a busy summer I haven’t had time till now.

So, here we go…

1.  Aetna will NOT be able to sell the Coventry work comp services division.  In fairness, doesn’t look like the huge healthplan has tried.

2.  Work comp premiums will grow nicely. There’s been some states where premiums have increased and a few have seen reductions, but bigger states seem to be experiencing more of the increases.

3.  Additional research will be published showing just how costly, ill-advised, and expensive physician dispensing of drugs. Yes indeed.  WCRI has continued to help regulators and others understand just how costly and damaging this practice is.

4.  Expect more mergers and acquisitions; there will be several $250 million+ transactions in the work comp services space.

5.  A bill renewing TRIA will be passed. Yes.

6.  Liberty Mutual will continue to de-emphasize workers’ comp. Yes again.

7.  After a pretty busy 2014, regulators will be even more active on the medical management front.  Work comp regulators in several more states will adopt drug formularies and/or allow payers/PBMs to more tightly restrict the use of Scheduled drugs. Yes times three.

8. There will be at least two new work comp medical management companies with significant mindshare by the end of 2015.  Well, not quite yet.

9. Outcomes-based networks will continue to produce much heat and little real activity.  Actually, haven’t seen much of either this year.

10.  Medical marijuana will be a non-event. So far, not much smoke or light here!  (sorry, that’s a terrible pun)

We’ve got about a hundred days till the ball drops and I have to deliver the final verdict.

We shall see!

Reuters reported Friday that Apax partners, owners of One Call Care Management and Genex, is “preparing to bid close to $2 billion for peer Helios, people familiar with the matter said, in what would be one of the workers’ compensation sector’s biggest mergers.”

The story indicated private equity firms Hellman & Friedman and TPG Capital are also looking at Helios.  Word is there is quite a bit of interest in the big PBM.

Leaving aside the Reuters reporters’ confusion about ACA and workers’ comp, what’s notable is the timing – the bid will be in later this month – and the valuation – a very hefty price indeed.

Helios, the product of a merger between Progressive Medical and PMSI, is the largest workers’ comp PBM.  The company also has ancillary businesses in MSAs and DME/HHC; in total revenues are likely above a billion dollars.  That makes for perhaps a two-times revenues valuation.  Of course, that might not be “high” at all; valuations are based not on top line but on earnings, and Helios is a very well run firm in a profitable space.

Given PMSI was bought by H.I.G. Capital some years back for about $40 million, then purchased for probably 8-10 times that figure a couple years ago and merged with Progressive, that’s a truly remarkable accomplishment.  Kudos to Executive Chair Eileen Auen and co-CEOS Tommy Young and Emry Sisson – and their very talented and focused staff.

Before anyone jumps to any conclusions, let’s recall that Apax is reportedly “preparing” a bid – and other investment firms are also very much in the running.  This is a very attractive asset, so do not be surprised if the process takes a bit longer than expected, and a different firm comes out on top.

What does this mean for you?

perhaps more industry consolidation.  perhaps not.