The pace of activity in the private equity world has picked up – dramatically.  Driven by lots of dollars sitting in investment funds ready to be deployed, the wind-down of multiple current investment funds, likely changes to the tax code, more private equity firms digging into the workers comp services sector, and the desire of current owners to cash in, there is more activity today than I’ve seen in 20+ years.

I’m not just talking about recent deals – Healthcare Solutions’ acquisition of ScripNet; Odyssey’s purchase of MSC (they already own OneCall Medical), the Align Networks/Universal Smartcomp ‘merger’.  There are more on the way, deals large and small currently “in the process’ with at least one likely to rival the MSC acquisition – any that’s only the ones I’m aware of.

There is a larger, ‘macro’ factor driving the activity.

There will be some wrenching changes in the broader health care sector coming in the next two to three years.  It is very, very difficult to predict what’s going to fall out, much less who’s got the right business model to flourish in the brave new world of post-reform health care.

In contrast, workers comp is a pretty stable, solid, non-dynamic business.  Sure there are state-specific changes – rates up and down, coverage changes, revised fee schedules and the like.  But even a big change in the largest state (California) only affects 15% of the market.  Contrast that with the fallout from Medicare’s refusal to continue paying for hospital readmissions  – a change estimated to result in billions in savings for taxpayers and lower revenues for hospitals – and the inherent stability of workers comp becomes apparent.

Investors like stable environments, and if they’ve got to invest somewhere, they’d prefer a sector that’s stable to one that is most definitely not.

And work comp is stable.

I’d expect the level of interest in the comp services industry to stay pretty high for the next couple of quarters – if not longer.  Not only will these external and macro-factors drive activity, the very level of activity will beget more interest from more investors, all looking to find out if they’re missing something.

After all, if lots of smart folks are buying into comp, there must be something to it.

For refusing to pay the massive markups on physician-dispensed repackaged drugs for workers comp claimants.

The move saved MD over half a million dollars, money desperately needed for teachers and teaching aides.

The news was reported in this morning’s WorkCompCentral by Mike Whiteley.  Whiteley also cited a new report by NCCI that indicates employers’ moves to refuse to pay the inflated costs have helped reduce their costs significantly.  Taking advantage of a statutory provision, payers are able to reprice the bills to the same amount they would have paid had the script come from a retail pharmacy.

This strategy has dramatically reduced drug costs for employers, and was deemed by NCCI to be a significant reason for the reduction in cost from NCCI’s estimate based on 2009 data.

Of course, AHCS (the large and strident proponent of physician dispensing) said they were looking at the report, but “the numbers are jumping around and don’t represent the $62 million in savings that NCCI had predicted.”

I suppose it would be too much to expect AHCS would be able to understand that things change from year to year and the outrageous costs of physician dispensing have forced employers to take actions into their own hands when legislators would not do the right thing.

Understanding data appears to be an issue there; in a meeting at IAIABC’s annual meeting this morning in Newport RI, Gary Kelman MD, an AHCS employee, claimed he treated 500,000 patients over his 30 year career.

I’ll save you the calculation – that’s 83 patients per workday, 52 weeks a year for 30 years.  83 NEW patients…

Busy man. 

A report on TPA transparency from the New Jersey Office of the State Comptroller (OSC) on transparency “found that workers’ compensation third party administrators (“TPAs”) may be utilizing undisclosed side agreements with third party vendors which require payments back to the TPA, resulting in hidden (and potentially increased) costs to public entities.” [emphasis added]

The report, issued in August, 2012, should be required reading for any risk manager, especially those working for governmental entities.  An extensive quote from the report reveals why.