The pending acquisition of Coventry Workers’ Comp Services by APAX will consolidate a very big chunk of the work comp managed care services market. The potential impact bears careful consideration.
I’ve taken the liberty of quoting below from a piece I wrote back in April of this year, long before this was on the horizon. I believe it is even more relevant today, as payers consider how the aggregation of market power under ACOG (APAX-Coventry-OneCall-Genex) may affect them.
Without further ado…
Coventry Work Comp was built by combining the “old” OUCH network with Healthcare Compare, followed by an acquisition of Concentra’s WC services division, which had acquired NHR, which had acquired MetraComp, plus the acquisition of a few other bits and pieces. Along the way, the company became the dominant work comp PPO. A few years ago, it was the “must have” network for workers’ comp payers as it was the largest, had the best discounts, and had the most coverage in the most states. While other vendors may have had better networks in one or a couple of states, Coventry’s was the best (defined as largest number of providers and deepest discounts) and broadest.
Coventry’s management (since departed) used this market leader position very effectively. They forced (yes, that’s the right term) payers to use their network – and other services – by raising their fees for payers who carved out specific states where another network was stronger. In addition, they discounted other services (notably PBM) if the payer bought their network and bill review services.
This put payers in a tough position. Try as they might to seek out the best-in-class network, PBM, or bill review offerings, insurers would have to pay a LOT more for Coventry’s network if they didn’t buy everything.
For Coventry’s erstwhile competitors, the playing field was anything but level. If they built a great network in a state or two, one that far exceeded the depth, effectiveness, and discounts of Coventry, they’d often find the big buyers would tell them they’d won their business, only to learn a bit later that the deal had been undone and Coventry was going to keep it, having told the buyer that their fees were going to go up – often way up – if the state/s were awarded to the competitor.
Things got even more one-sided after Coventry bought Concentra’s work comp services business.
Coventry actually raised their prices, telling customers that the larger network delivered more value, and therefore a higher price was warranted. Never mind that the larger network would deliver more revenue just by virtue of including more providers; Coventry management very successfully leveraged their all-but-monopolistic status to increase prices and beat out competitors.
According to several colleagues who worked with Coventry at the time (remember this was a few years ago), Coventry knew they had the leverage, weren’t afraid to use it, and was only too happy to let their customers know it. Even more troubling, customer service and responsiveness got steadily worse. Managed care execs used words like “arrogant”, “uncooperative”, and “dictatorial” when describing their interactions; many were very surprised, if not shocked, by the tone and tenor of discussions and negotiations.
Which brings us to the current state of the market; it is highly likely a very few vendors will hold leverage akin to that enjoyed by Coventry back in the late 2000′s. Managed care execs at insurers, TPAs, and large employers are apprehensive/concerned that this may well mark a return to the “bad old days.”
Tomorrow, ACOG will own the largest PPO, one of the largest bill review enterprises, the largest imaging, PT, DME/HHC network, case management vendor, and lots of other stuff. They will undoubtedly promote the benefits of one-stop shopping, data integration, leakage prevention, and consolidated IT interfaces, and streamlined vendor relations and billing, all of which, to the extent they are valid, are excellent selling points.
If I were them, I’d encourage customers to see the benefit of using ACOG, specifically using my dominant position to reward payers who bought all my services, and dis-incent payers thinking about using my competitors. But that’s just me…
This isn’t bad or good, it is the nature of business. And this approach worked very, very well a few years back – primarily because only one major customer - Broadspire – was ready and able to tell Coventry “no thanks” when informed about the price increase.
The rest, well, they had no other plan.
What does this mean for you?
You may want to think about a Plan B. Just in case.