With Apax’ just-announced acquisition of Genex, the pending Coventry transaction, and ongoing consolidation in the PBM space, the work comp services industry will look much different at the end of 2014 than it did even a year ago.
OneCall Care Management, originally a one-service firm focused solely on imaging services, has become a behemoth, including in its portfolio (and among its sister companies):
- the largest (in terms of revenue) PT network
- the largest imaging network (OCM)
- the largest case management firm (Genex)
- the largest DME/Home Health supplier (MSC)
a strong regional PPO network (MagnaCare, owned by Apax)(note – in an earlier post I said Apax didn’t have other WC experience; this was incorrect) (edited - Magnacare was sold some time ago)
- transportation and translation (Stops)
- the dominant dental network (Express Dental)
- IME and peer review
A “big” work comp services company used to have revenues in the several hundred million dollars; now, the market has stretched out – and thinned out. One huge company has revenues of the $3 billion plus, there are several in the $250-$600+ million range, and lots of small firms with revenues under $30 million. This is a bit of an oversimplification, but the market dynamic today is markedly different from we’ve seen at any time up till now.
And the market dynamic will undoubtedly change even more as OCCM consolidates. More on that later. For now, the question is, what’s the strategy?
Key to understanding the OCCM strategy is the concept of “white space”, a term used to describe untapped markets. There’s a sense among many investors that, despite the rapid growth and impressive success of OCCM (and many other companies) in capturing market share, there remains a lot more to be had. Whether it is leakage from networks due to lack of focus on direction, poor electronic connections with bill review partners, inefficient processes, or entirely new customers previously untapped, the money folks are betting growth is a given.
I’m not quite so sanguine; as a long-time executive in this business told me this morning, all the easy, pretty easy, not easy, and pretty hard stuff has been done. What remains is the really hard stuff; or, in investor parlance, the “really heavy lift.”
An example may be helpful; some payers service small mom-and-pop stores and businesses that may not have a comp claim but once in a decade. Their workers don’t know anything about work comp, much less understand claim reporting or compliance with direction. Add in states such as Illinois or New York where “direction” isn’t really possible, and the lifting becomes even more strenuous.
What does this mean for you?
I’d expect your friendly vendors to be calling a lot with helpful ideas on how to increase penetration. This isn’t a bad thing, but their priorities may not be in the same order as yours.