Medicare Set-Aside (MSA) vendor Health Advocates (HAI) has been sold to drug supplier Amerisource Bergen (ABC) for about four times projected 2006 revenues, or $83 million. Yes, that seems awfully pricey, but HAI is also quite profitable, with margins above 50%.
Based on an EBITDA multiple in the 5x – 6x range, the price doesn’t seem quite so outrageous.
It is likely that ABC purchased HAI for financial as well as strategic reasons. MSAs predict future workers comp expenditures for individual claims; a big part of those costs are for drugs. By teaming up a MSA company with a drug supplier, ABC may be able to combine the two offerings to create long-term, and highy profitable revenue streams.
ABC’s struggling workers comp PBM subsidiary PMSI-Tmesys (which has recently gone through a major management shakeup) will now be positioned to benefit from HAI’s customer base.
In my view, MSA profitability will inevitably decline due to price pressure from new entrants, and as the market becomes saturated, margins will drop. Thus, the opportunity, and the price paid for that opportunity, only makes sense if ABC can leverage HAI to drive more dollars to its other subsidiaries.
UH? could you work through your idea of the business plan in a little more detail? Medicare Set Aside work involves working out a settlement with money set aside in an acocunt. A lot of this money, as you have pointed out, goes to drugs. How wuold a drug company legally or ehtically have access to these workers preferentially over others — or is that the idea?
a PBM would co-sell along with the MSA vendor, so after the MSA was done, the report would state “here are the projected expenditures, and here’s what we based this on”, incorporating the PBM’s ability to drive patients to use mail order, or at the least use a retail pharmacy card. This delivers an ongoing revenue stream for the combined company.
Another consideration here in driving additional revenues is that the majority of claims requiring MSAs would also benefit greatly from pharmaceutical utilization reviews, a service that PMSI/Tmesys is eminently qualified and staffed to provide – the additional revenues from these PUR services, both in conjunction with an MSA and as a standalone service, effectively raise the revenue by about $500 to $1,800 per referred claim.