I’ve been remiss in not congratulating Pat Sullivan on his new position as head of PMSI’s Ancillary Services Division. [opens pdf] Pat’s a long time friend and colleague, and is one of those people universally respected for his business acumen, breadth of experience, and depth of character.
PMSI had been looking for a leader for Ancillary Services for several months (if not more), had carefully considered several candidates and took pains to ensure they picked the right person to lead a business that has been described by sources as critical to the future of the organization.
Over the near term, I’d expect an important part of Pat’s new role will be to solidify PMSI’s position as the third largest provider of MSA services. With the announcement in December of the sale [opens pdf] of industry leader Crowe Paradis (for $90 million to Verisk), the MSA vendor business is once again in the spotlight. I’d expect the top companies in the space, (Crowe, PMSI, and perhaps a couple boutique firms) will push ahead of their smaller/less agile/less technically adept competitors. The business is becoming increasingly capital-demanding and reliant on strong IT, and the downside of not ‘getting it right’ is getting more painful every month.
I didn’t include Gould & Lamb in that list, as I’ve heard several times they’ve had challenges on the technical side that may have contributed to the management shakeup last fall. We’ll have to wait and see if the issues are resolved.
These are indeed interesting times in the MSA business; CMS appears to be getting the message about reporting and AWP and other lines (liability et al) are starting to think about their exposure. The insular nature of the business and many of the companies in it has led to far too much internal focus and nowhere near enough consideration of how – and where – MSAs can best ‘fit’ into the vendor/supplier.
I’m expecting that will change.
What does this mean for you?
Nice to know good guys succeed.
Disclosure – PMSI is NOT a consulting client. They – and seven other PBMs – are members of CompPharma LLC.

The good folks at NCCI just released research which focuses attention on what looks to be the fastest growing part of the work comp medical dollar – drugs dispensed by physicians.
The lead sentence in their annual update[opens pdf] on prescription drug costs puts it bluntly: “The volume of prescription drugs dispensed by physicians to workers compensation (WC) claimants has risen sharply in recent years–putting upward pressure on WC costs.” [emphasis added]
While that’s bad enough, the current situation is likely worse. Why? NCCI based their report on 2008 data. If the 2007 – 2008 trend (excluding California) continued for 2009/10, physician dispensed drugs accounted for 64% of total spend last year.
Between 07 and 08, physician dispensed drugs went from about 8% of drug spend to about 16%. Now, I don’t believe the trend continued for two more years; I also don’t believe it went down. Therefore, I’m betting physician dispensed drugs accounted for somewhere between a fifth and a quarter of drug spend in 2010.
While you’re digesting that, here are a few more factoids to ruin your lunch.
The study, authored by Barry Lipton, Chris Laws, and Linda Li and based on 2008 data, goes on to report:
– physician dispensing has increased in most states, with particularly large increases seen in southeastern and central midwestern states
– Georgia saw physician dispensed drugs hit about 30% of all drug costs, Florida hit about 45%, with Hawaii, Michigan, and Maryland all in the mid-to-upper twenties
– dispensing is increasing for new and old claims; my bet is the growth in dispensing the initial script means there will be a downstream growth in dispensed drugs.
I don’t believe all docs are just dispensing drugs to make more money. I do know the profits for docs and the dispensing companies can be enormous.
More on when, where, why, and how physician dispensing may be appropriate later this week.

My post earlier today re the changes at Aetna Workers’ Comp Access inspired several calls and emails from employers seeking information on the folks who were laid off, as they may have skills, experience, and expertise needed by work comp network and managed care firms.
I’m not – nor do I ever want to be – an employment counselor, but if anyone from AWCA wants to shoot me their resume I’ll pass it on to the interested parties.
Confidentiality assured – promise. I’ll vet the potential hirers and will pass on resumes only to those who appear ‘real’.
email me at infoAThealthstrategyassocDOTcom.

Last week several of the folks responsible for managing new business and existing clients for Aetna’s Work Comp unit were laid off. Not exactly a great way to start 2011.
This came after a year plus in which AWCA’s network customers were increasingly plagued by problems associated with poor provider data quality and provider relations issues, complicated by a lack of responsiveness from Aetna.
With that background, it’s not exactly surprising that AWCA cut its work force; without much to say to clients it didn’t make much sense to have a staff that was supposed to be doing the talking. I would note that the customer-facing staff were in the rather uncomfortable rock-and-a-hard-place position, stuck between Aetna’s networks ops staff and policies, and their work comp payer customers who weren’t getting the answers they wanted – or, quite frankly, deserved.
Originally, AWCA was set up as an individual business unit led by Pat Scullion. AWCA’s individual functions were separated out several years ago, and now reside in different operating units within mother Aetna. Furthermore, there is no one leader or advocate for the entire AWCA ‘program’ – provider relations, compliance, customer service, account management, IT – so the folks doing the work have other things to do, other things that may, or may not, be higher on the priority list.
Aetna’s work comp ‘network’ has been plagued with lousy provider data quality in several states for as long as I can recall; Pennsylvania among the most problematic. The problem manifests itself when employers post panels, or lists, of providers accepting workers comp, only to find some/many of the docs don’t take comp patients, aren’t at that address, don’t answer that phone number, and/or claim they aren’t in the AWCA network. The employer then complains to the insurer, who then calls the network – and in the case of AWCA, often to no avail.
What makes this interesting are the downstream implications for payers, other network vendors, and providers. Aetna is the defacto network – or a major part of the network – for Coventry in a couple dozen states. Many large payers – Liberty, AIG, Travelers, Sedgwick, Hartford – work with Aetna directly or through Coventry. It remains to be seen if the layoff is limited to customer-facing staff or there will be further changes at ‘AWCA’.
UPDATE – two sources called to let me know that AWCA has told some of their direct clients that they will no longer service them directly, as they are not large enough to merit a direct relationship with AWCA. Instead, these clients will have to access AWCA through another entity – usually Coventry.
That said, the termination of these professionals hasn’t been good news for AWCA’s clients. Some see this as the latest in the de-evolution of what had been a promising network alternative.
On a personal note, there’s some talent now on the street; companies looking for network ops and sales personnel may want to reach out to the (now former) AWCA people.

The investment community’s fascination with the work comp services space resulted in a half-dozen deals over the last couple of months, on top of several more earlier in 2010.
Which has led some to ask? Why this industry and why now?
The ‘macro’ answer to the ‘why now’ question has to do with the tax treatment of investments, the expiration of the Bush tax cuts, and a desire on the part of many owners to cash out before those cuts expired. While they didn’t, the work was still well under way by the time the final deal was cut so things just kept moving.
There’s also a LOT of money sloshing around in investors’ bank accounts waiting to be used, and lots of pressure on private equity firms to put that money to use.
The ‘micro’, or industry-specific answer is a little more complex.
First, private equity loves immature, technology-starved, process-heavy, decentralized businesses. By rolling up similar companies, investing in technology, standardizing processes and hiring strong leaders, owners can reap outsize rewards through increased efficiency, the removal of competitors, and lower cost structures.
Second, the comp industry has been moribund of late, stuck in the mud due to declining frequency, low claims volume, excess capacity (in insurance, claims administration, and related services) and a horrendous employment picture. But that’s about to turn. According to an analysis by JMP Securities, “For the 2010/2011 filing season, 13 states increased rates compared to 8 in the prior period. Importantly, rates are rising in some of the largest states including CA, FL, and IL (collectively 27% of nationwide workers’ comp premiums).”
Now that hiring is improving and injuries are trending up, investors expect to see significant organic growth. This growth may be somewhat artificial as it’s coming after several awful years, and will in all likelihood taper off a couple years out, but it’s growth nonetheless.
Third, many of the companies that populate the comp trade show floors were founded a couple decades ago by entrepreneurs, some of whom are now looking to take a few chips off the table. For those that have worked smart and hard, those chips have lots of zeros attached.
Fourth, over the last decade, TPAs (well, many TPAs) have changed their business model from making money from claims handling fees to making more money from managed care and claim service fees. This pumps up the top line and profits. The more aggressive TPAs have pushed beyond collecting fees and commissions from vendors to acquiring them outright, further enhancing their financials. This isn’t necessarily a bad thing, as long as their customers know where their dollars are going.
What does this mean for you?
Make sure your contracts have a survivability or change in control clause.

The investment community finished 2010 in a frenzy of deal making – Odyssey sold York Claims to ABRY, Progressive Medical was bought by Stone Point, Genex bought Intracorp from CIGNA for stock, Sedgwick is buying SRS, Humana bought Concentra – and I’m sure there are others I’m forgetting. Now, just when you thought it was time to take a breath, along comes info that another deal is done.
Word[opens pdf] is that Genex has bought PT manager Network Synergy Group.
[note release came out after initial publication of this post]
NSG will operate as a separate organization under Genex with current leader John Hanselman staying on as NSG head.
How this will work at Genex is TBD; their current PT network provider is Universal SmartComp, whose President, Chris Feeney, has strong ties to Genex’ founders. I find it hard to believe Genex will switch their business from USC to NSG, but Genex wouldn’t have bought NSG unless there was some significant financial – or strategic – benefit.
This will be interesting to watch.
This is the latest in a series of ‘recent work comp space’ deals that involve Stone Point – who owns Genex, third party biller Stone River (and soon Progressive Medical), and a chunk of Sedgwick. Less recently, Stone Point acquired TPA Cunningham Lindsey and did a joint venture with broker Lockton to purchase Alexander Forbes International Risk Services (AFIRS), an international insurance broker. Stone Point, like ABRY Partners, is staking out a major position in the work comp services business, consolidating their holdings, adding service providers and rolling up TPA business while taking out competitors.
While the Genex-NSG deal is almost certainly one of the smallest in terms of valuation, it is yet another indication of the drive to increase top line revenues that appears to be a major driver of private equity’s work comp strategy.