Category: Workers Comp

Oct
24

The deal of the century

Posted by Joe Paduda on Thursday, October 24th, 2013 | Comments

And that’s not hyperbole, this isn’t some over-heated flackery or PR nonsense.  One Call Care Management (OCCM) will be sold to investment firm Apax Partners.  But that’s just part of the deal.

Apax is also buying PT firm Align Networks from General Atlantic and Riverside.

Terms of the transaction aren’t yet available and likely will not be made public.  That said, I’d guess the whole deal is worth at least $2.25 billion.  

Work comp has made the big time.

I’d expect the new owners to combine Align’s PT operations with the rest of their product portfolio, and do that quickly.  That’s what OCCM has done in the past and indications are current CEO Joe Delaney will continue to run the new, much larger company.

Apax doesn’t have any other recent  work comp investments, so they are going to be relying on  Delaney; he’s gained extensive experience putting together what is now the largest company in the work comp services sector.  That said, the Align culture is a rather free-wheeling one, and combining that with OCCM will be an interesting project.

What he’ll have to work with is the industry’s leading imaging vendor, one of the top two DME/HHC offerings, the one of the top two PT management firms, perhaps the biggest player in transportation, and a couple much smaller ancillary lines (dental and some other stuff).

Total spend in these segments in work comp is about $7.5 billion.

Think about that.  Apax is spending something north of $2 billion to buy companies that have a total addressable market (that’s PE-speak for how much potential revenue exists in total) that is less than 4 times that price.

I don’t know the Apax folks; by all accounts they are savvy investors indeed and have done rather well in other businesses.  I’m just having a tough time wrapping my head around spending that much money to buy into a business with that low a ceiling.

Sure, they might get into group health, or auto, but many work comp companies have tried, and none have made an appreciable dent.

Regardless, the folks at Odyssey (they built OCCM) should be doing the “we won the World Series” champagne celebration thing; this transaction, and the process that led up to it, shows that they are really, really good. I’m sure General Atlantic and the Riverside folks in Cleveland are pretty happy too.

What does this mean for you?

These folks don’t invest unless they are darn sure they’re going to make a very, very good return.

 

Oct
23

Another work comp transaction is done

Posted by Joe Paduda on Wednesday, October 23rd, 2013 | Comments

The transaction count just got larger; work comp PT industry founder MedRisk has just acquired imaging company MDIA.  

The deal adds an entirely new product line to MedRisk’s existing physical medicine management offerings, one with a national network of imaging facilities utilizing a proprietary technology application. While MDIA’s network and technology are well regarded, the lack of a large sales force hindered the company’s growth.

I’d expect MedRisk’s 25+ field sales folks will be on the streets tomorrow talking with their current customers about the benefits of coupling imaging with PT – if they’re not out there already.  While some ancillary benefit businesses don’t seem to mesh too well, knowing early on if a claimant has a back problem may well increase PT referrals.

It is highly unlikely MedRisk/MDIA will be able to challenge imaging industry leader OneCall Medical for market dominance any time soon.  OneCall‘s huge field force, history of dominating their segment, and focus on capturing “leakage” are well-known. That said, MedRisk’s long-established and high-level relationships with many of the larger work comp payers, along with their deep understanding of those payers’ needs, requirements, and demands will be key to the growth of the new imaging business.

There’s another factor at play here, the belief long-held by many in the payer community that sole-sourcing any service (except pharmacy) leads to complacency while offering two or more vendors in each sector keeps them on their toes. 

While this transaction doesn’t come close to the size of other deals announced and pending, it is nonetheless indicative of the rapid pace and direction of change in the workers’ comp services industry. There is both vertical (consolidation within industry segments) and horizontal consolidation (across segments) occurring; single service or product companies are becoming fewer and fewer, while consolidation across specific segments (e.g. PBM/DME  Healthcare Solutions/Modern Medical and PMSI-Progressive) continues.

What does this mean for you?

More competition is good.

(Note MedRisk is an HSA consulting client)

Oct
22

The PMSI-Progressive deal is done.

Posted by Joe Paduda on Tuesday, October 22nd, 2013 | Comments

The deal is done, and there are certainly lots of smiles in lots of places. The merger of two of the largest workers’ comp PBMs, finalized today, has implications far beyond the two companies, their employees and customers.  But we’ll get to that later.

For now, congratulations to Eileen Auen, HIG, Tommy Young and Emry Sisson, and the folks at Stone River and PMSI.

Eileen, Jay Krueger, and their team turned around a PMSI that was perilously close to irrelevancy.  A remarkable accomplishment, and one that generated what could be a record RoI for investor HIG.  While terms weren’t disclosed, there’s no doubt HIG’s investors more than pentupled (if that’s a word) their original investment.

Young and Sisson worked diligently to move past the third party biller image/business. Their leadership of Progressive, and the excellent work done by their clinical management and operational staff has, according to well-informed sources, led to satisfaction levels at key customers that exceeded those delivered under the legendary (yep, you’re old enough now that you’re a legend) Dave Bianconi.

Sources close to PMSI indicate a number of employees will benefit from the deal, as HIG spread the equity around.  That’s as it should be; without their efforts, it never would have happened.

The work comp PBM industry has matured greatly over the last few years, and this transaction is evidence of how far things have come.  I’d be remiss if I didn’t note that other PBMs have also made remarkable strides in a relatively short period, and continue to get better.  This is one of those industries where each competitor is constantly raising their game, pushing the others to do the same, with customers benefiting greatly.

If I sound a bit exuberant, it’s because I’m really pleased to see good people do well.

Don’t spend it all in one place.

Oct
22

Investors may well keep their focus on work comp

Posted by Joe Paduda on Tuesday, October 22nd, 2013 | Comments

I’m thinking the investment community’s current obsession with workers’ comp is not going to end anytime soon.

For several months I’ve been saying investors will move away from work comp when the next new thing comes along.  As one who spends waaaay too much time perched on the bleeding edge, I’ve learned to revisit my assumptions and question my firmly-held views more often and more deeply.  Here’s what’s causing the re-think.

First, market forces.

The Affordable Care Act has already caused huge changes in the US healthcare industry; medical homes, ACOs, tech adoption, provider-payer partnerships, accelerated consolidation of health care providers and payers, new reimbursement models.  Those changes are driven in large part by the need to prepare for a very different competitive dynamic.  That different competitive dynamic, coupled with the growing influence of HHS due to the aging population (more Medicare folks) and Medicaid expansion and the rollout (deeply flawed as it is) of the mandate, makes investors very nervous.

Investors wake up in the middle of the night in a cold sweat with visions of some HHS staffer writing a regulation that kills their entire business plan/profit.  With so much riding on ACA implementation, and so much budgetary pressure on entitlements (Medicare and Medicaid specifically), entities who focus on health care investing are looking to diversify, to spread the risk into industries that, while not too different from the overall health care market, are protected from the regulatory risk present in Medicare, Medicaid, and ACA-regulated businesses.

KKR’s purchase of Mitchell International last month is evidence of just such a move.

So, that’s the logic.  What about evidence?

  • Last week I spent an hour talking with a sovereign wealth fund from a very wealthy Asian country about all things workers comp.  The capital these guys have dwarfs even the largest PE firm; just the fact that they’re looking into comp tells you a lot about the visibility of our tiny little industry.
  • A couple of very big transactions are going to close this fall, and when they do they’ll grab a lot of attention.  That will generate even more interest, and the snowball will keep rolling.
  • At least two more mid-sized transactions are in the works; while they likely won’t close – or perhaps hit any radars – for a few more months, when they do they’ll likely generate more buzz.
  • There are also several smaller deals likely to close before the comp conference; while no one outside the industry will pay any attention, the transactions will keep owners thinking about selling and potential buyers looking for acquisitions.

Which brings me to a somewhat-related topic; Aetna’s purchase of Coventry Healthcare.  Sources indicate Coventry’s work comp business was, if not an afterthought, more of a “nice to have” part of the transaction.

A few hundred million in free cash flow is very much “nice to have”.

As mother Aetna has begun to absorb Coventry, there’s a growing awareness in the huge brick headquarters that the Coventry WC business has two really nice features; it is NOT ACA-related (see above), and it is fee-based, not risk-based.

If anything, I’d expect Aetna to invest in work comp and other non-ACA business.  There are a lot of rumors circulating about potential transactions involving various work comp service/tech companies.  As of now, they’re just rumors, but I would not be surprised if CEO Mark Bertolini et al decided to get just a bit more involved in the comp space.

What does this mean for you?

Long ignored by the rest of the world, we’re now the prettiest girl at the dance.  Or, if not the prettiest, perhaps the most desirable.  

Oct
17

First Survey of Opioids in Work Comp – initial results

Posted by Joe Paduda on Thursday, October 17th, 2013 | Comments

We’re plowing thru the responses from 400 front-line and management folks who responded to HSA’s first Survey of Opioids in Workers’ Comp; thanks to CID Management for sponsoring the Survey.

Thanks also to the folks who took the time to complete the Survey; they’ll each get a detailed Survey Report (out in a couple of weeks). Fellow New Englander Andrew Burton won the drawing for the iPad mini; here’s the handsome devil himself…

andrew burton

Here are a few of the initial findings;

  • more than 80% of ALL respondents said opioids lead to addiction, increase disability duration, and increase the risk of fraud and abuse
  • more than half think the problem is getting worse or significantly worse
  • that’s not to say respondents think opioids have no place in work comp, in fact more than 90% believe there is an appropriate role for opioids
  • over 94% of both groups indicated the treating physician was their pick for “whose responsibility it it to manage opioids”
  • over 45% of both groups believe payers have been somewhat or very ineffective in addressing opioids...the cause of this is primarily due to regulatory restrictions, although internal obstacles are considered a very significant contributor as well.
  • Re solutions, about 80% listed
    • peer/physician review for claims > 90/180 days,
    • drug utilization review,
    • random drug testing, and
    • opioid agreement/contracts as components of the ideal solution.

Lots more to come as we’ve got a couple gigabytes of data to review and cross-tabulate.  There will also be a webinar on the Survey results in early November, and I’ll be at CID-M’s booth in Vegas to answer questions about the Survey as well.

Will get you more details shortly.

Oct
16

How to know what’s really happening in work comp.

Posted by Joe Paduda on Wednesday, October 16th, 2013 | Comments

Want to know what’s really happening in comp?  Spend a day sitting next to an adjuster.

Whether you’re a work comp exec, big employer, investor, or service provider, there’s no faster or better way to really understand what goes on, what works and what doesn’t, and why, then spending a day with someone at the “pointy end of the spear”.

Or, as one adjuster said, “the end of the pipe that starts at home office and ends on top of my desk.”  I won’t repeat what he said was coming out of said pipe, but it wasn’t champagne.

There’s a reason the series “Undercover Boss” is so popular; it reveals that many execs really don’t know what happens at the most important point in their organization – the customer interaction.  Execs (and consultants too) make plans, devise workflows, develop strategy, change IT platforms, often with limited or no idea of what actually happens when that pipe dumps out in front of the customer.  Sure, they may seek input from managers or survey customers, but unless the bosses understand all aspects of that customer-facing job (sorry, consultant-speak) there’s just no way to grasp the nuance, understand the implications.

I’d suggest that execs, consultants, investors, service providers spend at least a day a year sitting next to an adjuster – ideally two days.  Don’t do this with anything specific in mind. This isn’t something you should do as part of a product launch or change, but rather come in with an open mind, to watch, listen, and learn.  That way you’ll pick up a LOT more than if you’re focused on this or that specific issue/workflow/concern.

Make it a day. Promise nothing will ever get published, be shared with the office manager, or find its way back to the adjuster. Bring coffee and a couple breakfast items, have lunch delivered for you and your new colleague, take lots of notes (but do so unobtrusively and rely on memory alone if note-taking appears to concern your colleague), and send a sincere hand-written note of appreciation.

No emails; they get far too many of those.

You will leave energized and with a new and much deeper understanding of what works, what doesn’t, and most importantly why.

What does this mean for you?

If you can’t find the time to do this, you don’t have the right priorities. 

 

Oct
11

WCRI’s CompScope – quick takeaways

Posted by Joe Paduda on Friday, October 11th, 2013 | Comments

WCRI’s latest CompScope reports are out – there’s a megaton of info in the 16 state reports (I certainly have NOT read them all), but here’s what I’ve gleaned from an initial review of the reports on several large states.

Reforms often have unintended consequences – primarily increasing, rather than decreasing, medical costs.  Providers and their helpers find ways around the regs or actually use them to generate more profit, and there are a plethora of examples:

    • CA physician dispensing of drugs not on Medi-Cal fee schedule – when the drug fee schedule change drastically reduced payments for drugs, the loophole the dispensing profiteers drove thru was this; if the drug was not listed by Medi-Cal, then it was paid under the old AWP-based fee schedule.  Voila, a huge opportunity for selling repackaged drugs thru dispensing docs;
    • CA cost of compounded drugs went up after fee schedule was imposed, something predicted by several experts, yet ignored by the politicians searching for a quick and easy fix.  They got their quick and easy, but didn’t get a fix.
    • FL outpatient facility costs went up after the change to fee schedule from 75% of billed charges to 60%.  Anyone could have predicted this; all hospitals have to do is increase their billed charges, which, shockingly, they did.

Reform changes that appear to have the most real impact on costs are typically adopting an RBRVS or MS-DRG based fee schedule and adopting binding UR and strong clinical guidelines.  Ideally, both. This addresses the price and utilization issues at the same time, making it harder (not impossible, but harder) for providers seeking to game the system to succeed.

What does this mean for you?

Good reform can be effective. Bad reform is often very counter-productive – and there’s a lot of bad reform.

Oct
8

On work comp back surgery, Minnesota gets it right

Posted by Joe Paduda on Tuesday, October 8th, 2013 | Comments

Back surgery is far too common, far too risky, and far too costly – it’s also far from proven effective for most conditions.

That’s why Minnesota’s decision to educate workers’ comp claimants contemplating back surgery is a great example of legislators and regulators getting it right.  The legislature passed SB1234 which among other things called for a two-year pilot program:

“for employees with back injuries who are considering back fusion surgery. The purpose of the program is to ensure that injured workers understand their treatment options and receive treatment for their work injuries according to accepted medical standards. The services provided by the patient advocate shall be paid for from the special compensation fund.”

The program’s Patient Advocate helps claimants determine if lumbar fusion surgery is appropriate, educates them about the risks (only half get better after surgery, about a third have a “poor” result), complications, likelihood of repeat surgery (about 25% get another surgery), and poor outcomes (less than half return to work).

This makes so much sense on so many levels. The research indicates PT and anti-inflammatories deliver better outcomes than surgery for degenerative disk disease, probably the most common cause of low-back pain.  That’s not to say surgery isn’t the right treatment for some; a government research project indicates patients getting surgery for herniated disks have better outcomes in all categories except one – return to work.

Leaving aside that rather big caveat, this is exactly what the workers’ comp system needs – more science, better educated claimants, and a clear and understandable discussion of potential risks and benefits prior to aggressive treatment.

I’d be remiss if I didn’t note the State of Washington dealt with lumbar fusion some years ago, requiring conservative care before contemplating surgery and banning multiple level lumbar fusion for patients with no prior lumbar surgery.

Hat tip to WorkCompCentral for the head’s up.

What does this mean for you?

See, legislators and regulators can – and do – get it right.

Oct
7

Workers’ comp PBMs; what’s happening and why

Posted by Joe Paduda on Monday, October 7th, 2013 | Comments

The workers’ comp pharmacy benefit management (PBM) industry is consolidating, with two recent transactions accelerating a trend that started several years ago.

This trend will continue.

There are several inter-related things going on here.  Every payer uses a PBM, so market share can only be gained by taking business from a competitor or buying it by acquiring the competitor.

Competing for business puts a premium on price and service, and squeezes margins.  Now, price is important, but so is buying power (leverage over the retail chains that are suppliers), technology (especially adjuster/case manager interfaces) and, more and more, clinical expertise and the ability to make that expertise actionable.

The latest deal involves industry founder PMSI and long-time rival Progressive Solutions.  Progressive Solutions is itself the product of the acquisition of Progressive Medical (one of the other early entrants in the WC PBM business) by Stone Point Capital. Stone Point owns Stone River, the leading third party biller (they are a factor, buying workers’ comp scripts from retail pharmacies and billing the right employer or insurer). Stone River had long sought to be thought of as a true PBM; buying Progressive Medical fixed that need.

The PMSI-Progressive transaction is not as simple as Healthcare Solutions’ purchase of Modern Medical, which appears to be a straight purchase to gain share, expertise (Modern’s clinical pharmacy program is strong, as is their government affairs function), and strength in DME and home health business.

In contrast, the PMSI/Progressive deal is anything but straightforward.  Kelso and Company is in the lead position on the deal, while Stone Point “will continue to be a significant shareholder in the combined business.” Kelso’s entrance into the PBM business  is significant, as is their lead position.  While some in the industry see this as Stone River acquiring PMSI, that is clearly not the case.

Industry followers may recall Healthcare Solutions purchased ScripNet a couple years back, and industry leader Express Scripts bought rival MSC several years prior to that transaction.

When the Kelso/Stone Point deal closes, there will be six PBMs with significant market share; Express, PMSI/Progressive, HealtheSystems, myMatrixx, Coventry/FirstScript, Healthcare Solutions.  The dominant third-party network supplier is Catamaran, a position the company assured with their purchase of rival Restat.

What does this mean for you?

A fiercely competitive business is driving more value for buyers – and buyers are demanding more value. 

Sep
27

NCCI’s latest pharmacy report – the highlights

Posted by Joe Paduda on Friday, September 27th, 2013 | Comments

The good folks at NCCI just published a new study of prescription drugs in workers’ comp; here are a few highlights; the data is from 2011.

  • Narcotic usage increased significantly, from 21% of costs in 2010 to 25% in 2011.
  • Physician dispensing increased as well, along with the average cost for physician dispensed drugs.
  • NCCI estimates drugs account for 18% of all medical expenses; note that this is based on total incurred cost, or for the layperson, their estimate of what the total including already-paid and future drug costs.
  • The older the claim, the greater the percentage of total medical costs due to drugs – up to 40 percent.
  • On a cost per claim basis, NCCI indicates drug costs increased six percent in 2011.
  • Generics account for 76 percent of the scripts, but only 44 percent of the cost.

So, what does this all mean?

Couple things stand out.

First, NCCI’s numbers are based on total incurred, therefore there’s a bit of forecasting involved. I note this as the 18% figure (drug costs as a percentage of total medical spend) is significantly higher than most payers I work with; the range is around 12% – 14%.

Second, drug spend declined in 2011 according to CompPharma’s annual Survey of Prescription Drugs in Workers’ Comp.

Why the difference (NCCI indicates a 6 percent increase)?

  1. CompPharma looks at total, not per-claim cost, so claim frequency has some impact.
  2. NCCI uses incurred (there it is again), the Survey is based on actual paid amounts.
  3. CompPharma is a survey of 23 payers, all of which use PBMs.  These are generally fairly-to-very sophisticated payers.  In contrast, NCCI’s data comes from a much broader spectrum of payers, some of which don’t use PBMs, and others don’t use them effectively.

What does this mean for you?

Drug cost increases are moderating, but physician dispensing remains a big problem, and opioid usage increased almost 20% (four points) year over year.

That’s really bad.