In what has to go down as the worst-kept secret in the investment community ‘EH-ver’ (say out loud like a 14 year old female), Genex announced today that they will buy Intracorp’s workers comp business from CIGNA.
I’m particularly pleased as I predicted this as an addendum to my annual ‘Hope I don’t Make a Fool of Myself with these Predictions’ post, and time was running short.
So what’s the deal.
Well, Intracorp has some pretty solid management folks who may be looking for jobs soon. Despite a notable lack of investment (and attention) from mother CIGNA, they’ve managed to keep body and soul together, won back a bit of business, and done some pretty innovative things in the network area. If you’re looking for talent…
Genex has to grow – or its private equity owners will be very unhappy – and buying a competitor is a time-honored – and pretty effective – way to do that in what is an overly-mature market dealing with declining claims volume and too many vendors chasing too many of those claims.
There’s a larger lesson to be learned here, one straight out of ‘The Innovator’s Dilemma’ (as long time readers know, my favorite business book).
This more-than-a-theory holds that companies that are very successful in their fields keep improving their products, believing that what their customers want is more and better versions of the same. What these companies don’t do is think up new ways of meeting their customers’ needs; ways that are cheaper/faster/easier. Instead, they work diligently on making their existing product a tiny bit better every year. And in the process, they don’t pay attention to what their customers actually need – the problem they are trying to solve.
Intracorp dominated the managed care world in the mid-eighties, believing its business was nurse case management. It owned the space for at least a decade afterwards. Upper management made a couple ill-fated attempts to get into the network business, neither of which had adequate commitment or resources behind it. As the comp managed care business became increasingly network-centric, IC was relegated to renting other vendors’ networks.
At first that was fine. But as time went on, the networks got more powerful, and the case management companies (which was really what IC was) woke up one day and found out they were no longer driving the bus.
Intracorp also failed to commit to a serious upgrade of their original, in-house, homegrown bill review system, patching it together and struggling along until the wheels finally came off and they had to switch to a third-party system. By then, it was too late. Several large customers had left, and when ACE/ESIS started to move away, the writing was on the wall.
Why?
I’d posit that Intracorp didn’t understand its real business was managing medical costs. It thought it was in the case management and bill processing business – a typical product/service centric mistake made every day – probably by most of the companies in this space.
What does this mean for you?
What business are you in? If you just said something about what you do, you’re wrong. You are in the business of solving a customer’s problem. And there may well be other products and services out there, or in development, that also attack that problem.

A source in the Lone Star State indicated that Commissioner Bordelon will shortly release a statement concerning the use of voluntary networks after 1/1/11.
Loyal readers will recall a post a few days ago that encouraged all to NOT implement any voluntary networks – or continue with their current ones – unless and until they carefully think thru the potential implications.
I’d suggest that is still good advice.

The next Governor of Florida will be Rick Scott. Democratic candidate, and current state CFO Alex Sink just conceded defeat, and her loss bodes ill for Florida’s workers comp insurers and employers.
Recall that Sink was a major supporter of a bill to prevent price-gouging by physicians dispensing drugs to workers comp claimants, a practice that has added millions to work comp loss costs. Departing Gov. Charlie Crist veto’ed the bill after a flurry of last minute lobbying by a variety of interested parties, including my nemesis, Automated Healthcare Solutions.
AHCS and its principals Paul Zimmerman and Gerald Glass donated hundreds of thousands to Crist and his supporters, donations that occurred around the time Crist was considering whether or not to sign the anti-physician dispensing bill. Let’s not miss the key issue here; AHCS makes enough profit from billing employers and insurers for physician dispensing to donate over $1.6 million to politicians.
Now news reports indicate that AHCS, Zimmerman, Glass, et al got behind Rick Scott in a major way:
“Automated Healthcare Solutions, a Miramar company headed by a pair of doctors, Paul Zimmerman and Gerald Glass, steered $605,000 to the party after also helping finance some of the primary’s fiercest attacks on McCollum.
The doctors, who played a central role in fighting legislation supported by Sink that would have reduced the cost of prescription drugs in workers’ compensation cases [emphasis added] – a measure vetoed by Crist — donated $1 million through companies they lead to political spending committees controlled by incoming legislative leaders Sen. Mike Haridopolos, R-Merritt Island, and Rep. Dean Cannon, R-Winter Park. The money was used to air TV ads during the primary against Scott.”
So, after their initial efforts to help Crist didn’t pan out, AHCS threw its financial muscle behind Rick Scott. Who will be the new Governor.
And will likely have the opportunity to sign, or veto, a bill to eliminate the loophole that enables physician dispensers to charge much more than retail pharmacies for the same drugs. Insurers and employers in the Sunshine State would likely favor such a bill; According to the Workers Compensation Research Institute, physician dispensed drugs are the main reason Florida’s prescription drug costs were 38% higher than a 16-state average.
But somehow I don’t see future Gov. Scott signing a bill bitterly opposed by donors who gave his campaign over six hundred thousand dollars.
Even if it would help reduce employers’ workers comp premiums, and improve the business climate in Florida.
What does this mean for you?
Higher workers comp costs in Florida.
(BTW, I finally got an official copy of AHCS’ suit against me, my attorneys have filed a response, and I’ll provide a more detailed update shortly.)

Yes, it’s true. And if he wasn’t a half-bubble off plumb when he started, he certainly was after spending a few years behind his desk at a workers comp insurer.
Franz Kafka worked for the Workers Accident Insurance Company, and is credited by no less a personage than Peter Drucker with invention of the hard hat. (with perhaps little support for that assertion)

For anyone who slept thru, or has been trying to forget those weird, more-than-slightly bizarre stories of man-waking-up-as-a-cockroach, or Trials held in low-ceilinged-rooms with death as the inevitable result, it may be time to dust off the college English anthology and revisit once again Kafka’s world.
Why?
Kafka can’t be any stranger (sorry, Camus fans) than today’s work comp world.
Kafka’s literary ‘angle’ has been discussed and debated for decades. Some think his work focuses on people’s tendency to invent their own struggles. Others interpret Kafka differently, believing much of his work describes the futility of existence, the hopelessness that comes from a complete lack of control over one’s own future.
Perhaps most believe Kafka was more interested in the absurdity of bureaucracy and law, the overwhelming focus on process and following rules, no matter how ridiculous or pointless, and the primary importance of the process over the outcome, the proveeding over the result. Several of his writings centered on, or included significant reference to, legal proceedings – the Trial the most obvious.
Today, we have workers comp – supposedly designed to remove lawyers from occupational injury and reimbursement for same – heavily influenced by lawyers for plaintiffs, defendants, and myriad other legal hangers-on.
– We have lawyers, for reasons known only to themselves, pushing drugs on their clients.
– We have employers neglecting to, or actively discouraging – the reporting of occupational injuries.
– We have medical fee schedules that discourage certain types of treatment while wildly overpaying for others.
– We have court hearings that drag on, and on, and on, marked by discussions seemingly unrelated if not completely foreign to the subject at hand.
– We have judges deciding that contracts signed by providers aren’t legal, even though the language was clear and the providers didn’t have any guns pointed at them at the time of signing.
– We have managed care contracts that reward managed care vendors, and managed care execs for sending injured workers to providers that bill a lot – and often.
– We have payers arbitrarily denying coverage for procedures one day, and approving the same procedure, for a claimant with similar injury the next.
And that’s just what I can think of in a few quick minutes; there are many more instances that amplify the absurdity inherent in this industry.
But, if nothing else, we can thank workers comp for helping Franz Kafka become one of the last century’s most creative fiction writers. Yet one has to wonder, who in the industry will become the next great author? Who has both the literary talent and has experienced enough career-provided absurdity to become the ‘next’ Franz Kafka?

I’ve been tracking the spinal implant business for several years now, watching with interest – and growing dismay – as more and more patients have been getting more and more hardware implanted into their backs.
Why dismay?
Well, there have been problems with implants corroding, poor outcomes for a number of patients, inconsistent results, and unacceptable infection rates [opens pdf], much of this may be due to a basic problem – we don’t know much about why spines degenerate, are injured, cause pain, and/or ‘fail’, and thus solutions may well not address underlying problems.
This from the AMA:
“The lack of basic science understanding of spine degeneration, such as knowledge about genetics and biochemical and biophysical causes of pain, may be one reason why engineering structural principles alone have not led to success.”
Nonetheless, innovation marches forward, at an annual rate of better than 7%.
This from research firm GlobalData’s new report, “Spinal Implants – Global Pipeline Analysis, Opportunity Assessment and Market Forecasts to 2016”. [emphasis is mine]
“The global market for spinal implants is forecast to grow from $6.5 billion in 2009 to about $10.3 billion by 2016, with a Compound Annual Growth Rate (CAGR) of 7%. The global spinal fusion implants market is expected to reach a size of $9 billion by 2016. The market size in 2009 was $5.9 billion and is expected to grow at a CAGR of 6%. The global market for spinal non-fusion implants is expected to grow to $1.2 billion by 2016 from $606m in 2009 with a CAGR of 11%. The spinal fusion implants segment is the biggest in terms of market size, contributing about 90% of the revenue for the spinal implants market category.
…the other major factor driving growth in the market for spinal implants is the introduction of many new innovative products by various device manufacturers. More than 200 products are currently in different stages of development and are expected to be introduced in the market soon. By the end of the calendar year 2012, more than 150 products which are currently in different stages of clinical development are expected to get the necessary approvals and be ready for market launch. These products have various applications such as dynamic stabilization, artificial disc replacement, disc nucleus replacement and orthobiologics. The arrival of these products in the market is expected to drive the demand for spinal implants in the future.
The US is the Biggest Market for Spinal Implants and is expected to be driven by High Patient Awareness
The US is the biggest market for spinal implants. The market size for spinal implants within the US was about $3.8 billion in 2009 and is expected to reach $5 billion by 2016, with a CAGR of 7% in this period…
Medtronic, Inc. is the Leader in the Global Spinal Implants Market
Medtronic is the leader in the global spinal implants market with a share of 32%. The revenue of the company from spinal implants is about $2.1 billion. Medtronic has a large product portfolio in the spinal implants category and includes products such as the Prestiege Cervical Disc, CD Horizon Legacy Spinal System, Infuse Bone Graft and LT-Cage Device, Kyphon Balloon Kyphoplasty, and X-Stop Spacer. The other major players in this market are DePuy Inc., Synthes Inc., Stryker Corporation, NuVasive Inc., and Biomet Inc. There are also a growing number of start-ups which are expected to enter the market in the near future, and are predicted to flood the market with a slew of innovative and advanced products for the treatment of various spine problems.”
What does this mean for you?
For payers, probably higher loss costs, and for patients, questionable outcomes.

Had an interesting series of conversations with a client regarding the impending ‘sunset’ of the Texas voluntary workers comp provider networks.
It seems one of the network vendors is claiming the sunset is much ado about nothing; that the expiration of the Texas voluntary network statute on January 1, 2010 does not prohibit the use of network discounts outside the certified Workers’ Compensation Network mechanism.
My initial reaction was, rather embarrassingly, a profound “huh?…wha?…”
Allow me to defend my inability to respond intelligibly.
The demise of voluntary networks in the Lone Star State has been well-publicized, widely-discussed, and much lamented. All – and I mean ALL – of the large payers in Texas are darned upset about this, as it means the end of pharmacy, DME, home health, and other non-HCN provider ‘networks’ – along with the millions in savings below fee schedule resulting from those networks.
Apparently, the vendor’s argument is that, like Pennsylvania, the Texas Department of Insurance (and perhaps others with regulatory authority) will ignore the post-1-1-11 network discounts, responding to provider complaints only to decline to enforce provider contract discounts in administrative fee disputes. Sure, the payer will lose the benefit of the discounted provider payments as they will be ‘bumped up’ to fee schedule if providers contest these payments, but, according to this unnamed vendor, there will be no other adverse effect, except perhaps for interest payments on the unpaid balance.
Really? Does the vendor actually, really, believe that? And if so, who at the vendor is willing to hold the payer harmless if things don’t work out quite so neatly?
I asked a colleague of the legal persuasion for their interpretation.
Here’s my colleague’s response.
“I believe that this network’s analogy to Pennsylvania law is inapt. The relevant Pennsylvania statute, 77 P.S. § 531, has been interpreted by the Pennsylvania BWC as a provision entitling providers to receive payment at fee schedule, except under the defunct CCO model. In contrast, the Texas Department of Insurance has promulgated 28 TAC §134.201, which requires insurance carriers to pay providers according to the Medical Fee Guideline except for payment arrangements contracted under the protections of the WCN statutes and regulations. In other words, in Pennsylvania, providers can reject payments below fee schedule (except under a CCO), but in Texas, payers are required to pay at fee schedule (except under a WCN).
This distinction may be lost on some, but it really isn’t as subtle as it might seem. Subsection (b) of 28 TAC §134.201 specifically addresses intentional violations of the payment provisions by carriers and providers, and the penalty provisions are pretty ugly:
Texas Labor Code §415.021 – $25,000 per day per occurrence and
Texas Labor Code §415.023 – revocation of license.”
But, hey, s/he is just a lawyer, right? And they’re all too conservative and risk averse, right?
Maybe.
But the consequences of screwing this up are pretty no, very, no, really nasty.
If the vendor is willing to compensate the client for:
a.) the loss of their license to write insurance in Texas, and
b.) Twenty-five grand per day per occurrence;
then I say, hell, go for it!
If the vendor isn’t willing to obligate themselves thusly, then perhaps they either finally read the law, or they didn’t understand it in the first place, or their sales folk are a wee bit more, well, ‘aggressive’ than they oughta be.
Ed. note – this business never ceases to amaze me.
What does this mean for you?
There’s this thing in business called ‘the Stupid Line’. Those who cross it rarely make it back safely.