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Help me understand…

How an investment firm can own a physician dispensing company and a work comp program administrator.

ABRY has acquired a controlling interest in NSM, an insurance program administrator focused on, among other things, selling work comp to smaller employers.

Yawn, right?

Not if you are one of NSM’s insurance companies or insureds.

ABRY – which now controls NSM, also owns Automated Healthcare Solutions, the physician dispensing “technology” company that makes big dollars by sucking dollars out of work comp carriers, employers, and taxpayers.

So, if you’re ABRY, what’s going thru your corporate mind? You know – better than perhaps anyone in the country – how lucrative the doc dispensing business is (that may be a key reason ABRY has held on to AHCS for 6 years, way longer than most investors hold on to companies).

And you know the dollars are coming (mostly) from workers’ comp – which means insurers, employers, taxpayers.  And you know that all credible research indicates physician dispensing increases medical and indemnity costs – plus the higher cost per pill inherent in the doc dispensing model.

Now you own a controlling interest in a company that – and this is importantadministers worker’s comp programs but does not insure those programs.

So help me understand why this is not inherently a conflict of interest. As an owner, ABRY makes money when AHCS makes money from workers’ comp payors, but does not lose money when a company it owns pays AHCS’ bills.

I reached out to ABRY’s Brent Stone and NSM CEO Geof Mckernan early this morning in an effort to get their perspectives.  Here’s what I asked Mr Mckernan:

Given that NSM’s insureds and carriers expect NSM to effectively manage their workers’ compensation programs, how does that square with the business model of AHCS, which is based on generating the highest possible fees for physician dispensed drugs?

There is a conflict of interest inherent in owning a company that manages workers’ comp claims and one that profits by generating the highest possible revenues from workers’ comp claims.  How will this be addressed by NSM?


  1. How will NSM work to mitigate the additional costs including extended disability duration and medical expenses inherent in physician dispensing?
  2. Will ABRY keep AHCS and NSM entirely separate from an investment management perspective?
  3. When conflicts arise between AHCS seeking reimbursement and NSM’s claims function (both internal and via YorkRSG), how will those conflicts be addressed?
  4. Given the well-documented problems inherent in physician dispensing, how will NSM assure it’s carriers and insureds it is taking all possible steps to mitigate those risks?

I’ll keep you posted if I hear anything…

and thanks to WorkCompCentral for the tip!

7 thoughts on “Help me understand…”

  1. It’s called vertical integration, and they can do it because it makes money all around, so there is no downside as far as they are concerned. But to get to your points, do you really think they care?

  2. Don’t most TPAs utilize similar vertical delivery models? That is, they revenue share with many of their managed care vendors. Since the adjuster/TPA is the one ordering the managed care services (bill review, UR, PPO/network, PBMs, case management, etc.) from which they share revenue, isn’t that taking advantage of type of relationship as is described? For that matter, many insurers do the same thing.

    1. Steve – thanks for the question.

      The business models and the impact of those models are quite different. Yes, most TPAs do “revenue share” with their service providers – and not just managed care vendors. I’ve discussed this at length on MCM. However, these services are not predicated on increasing costs and reducing outcomes – which physician dispensing clearly is. All the research – including the excellent work by CWCI – proves that outcomes are worse and costs higher for patients treated by dispensing docs. That is incontrovertible.

      Two additional clarifications for you. Adjusters do not “order” bill review, PBM, networks, and many other services; those services are contracted and administered across the entire TPA. Insurers do not “share revenues” with managed care entities; they negotiate hard for lower prices to reduce claims costs.

  3. Your questions are very appropriate and comments about conflicts of interest are accurate. But, I need to add a statement about one role that is constantly overlooked and many times misunderstood by our industry. The TPA and insurance company goals and objectives are in direct conflict with those of employers. We cannot expect these organizations to be counted on to manage claims in ways to achieve the best outcomes for injured employee and to keep employer’s claims costs to a realistic level . I my experience, a qualified workers comp insurance broker, or claims manager, hired by an employer will be far more inclined to act in the best interests of the employer and injured worker. As one of our colleagues has said on many occasions, “there are too many pigs at the trough.” Someone needs to provide the oversight to get the best results who is not compensated by the size of the claim nor by potential profits the claims costs will generate. Let’s face it, money has a tendency to be corrupting.

    1. Tom – thanks for the comment.

      I don’t agree with your statement “The TPA and insurance company goals and objectives are in direct conflict with those of employers.”

      In fact, WC insurers and their policyholders benefit from lower frequency, reduced claims costs, quicker claims resolution, and faster return to work. As do their employees.

      For TPAs, the picture is a bit more muddled, as the sharing of vendor fees can benefit TPAs handling long-term claims. However, the per-claim fee also incentivizes TPAs to get claims closed so their claim-handling costs are minimized. Admittedly there’s much more to this, as I’ve addressed extensively.

      Specifically, insurers do NOT benefit from higher claims costs; they lose money.

      Re brokers and consultants, with some notable exceptions I’ve encountered far too little diligence on the part of many; spreadsheeting, contingent commissions, superficial understanding of cost drivers, and commission-based compensation are all far too common in the brokerage/consulting community.

Comments are closed.

Joe Paduda is the principal of Health Strategy Associates



A national consulting firm specializing in managed care for workers’ compensation, group health and auto, and health care cost containment. We serve insurers, employers and health care providers.



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