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Nov
27

Work comp services: Specialize or Generalize?

WorkCompWire’s Leaders’ Speak column features a two-parter from Jack Bailey of Bailey Southwell.  He has worked on a lot of transactions in our space and knows a lot about deal-making.

Bailey’s point about the growing importance of technology, and specifically the need for accreditation around cyber-security is dead on. His other thoughts on the importance of execution and customer service are as well.

I do have a different perspective on one of his statements.

From WorkCompWire:

Trend Away from Monoline Vendors to Integrated Service Offerings: While this isn’t necessarily a new concept in the industry, payers increasingly emphasize the benefits of having multiple service lines handled by a single vendor in their contract decisions. As an example, see the below quote from the recent quarterly earnings call of publicly-traded industry vendor:

…singularly focused vendors are quickly becoming obsolete while payers recognize a greater efficiency and effectiveness of integrated services.

Two points here.

First, outside of the quote – which I’ll get to in a minute – I don’t see any supporting evidence for this assertion. OneCall is the best example of a diversified service provider, and we all know how that experiment has worked out.

It hasn’t.

In contrast, single-focused vendors such as bill review firm Conduent, physical medicine management company MedRisk (HSA consulting client), DME/Home Health provider HomeCare Connect, and PBMs (most of which focus almost entirely on pharmacy) are doing well. Conduent and MedRisk are the largest providers in their business sectors, HomeCare Connect is growing rapidly, and PBMs myMatrixx (HSA consulting client) and Optum now dominate the work comp pharmacy business.

There are many reasons for this – which I’ve explored in past posts in mind-numbing detail – but the core issue is the same as in any other industry – doing one thing really, really well is hard enough. Doing several things really well is damn near impossible.

As Bailey noted, payers are demanding excellence in execution and customer service, demands that have (with rare exceptions) not been met by diversified service providers.

Point two.  The quote in Bailey’s piece comes from CorVel’s CEO. 

Of course Clemons would say that integrated services are the bee’s knees;  CorVel’s business model is predicated on getting as many dollars from its customers as possible.

Supporting evidence for my contention that single-focus companies are doing well, and are very attractive to investors is everywhere.

For example, SUNZ’ purchase of case management company Ascential Care and Mitchell’s acquisition of physician adviser/peer review/IME firm MCN. Both Ascential and MCN were founder-owned and had narrowly-focused businesses; they weren’t diversified.

Then there’s Paradigm’s acquisition of Adva-Net for about $110 million, a transaction completed in the last month or so. Adva-Net was also founder-owned (with some venture capital as well) and narrowly-focused; it brings a network of pain management providers and facilities to the table.

This follows Paradigm’s purchase of Foresight Medical last year. As I said last September, “Foresight’s niche is narrow but important – the company’s core business is negotiating prices for implantable surgical devices.”

Finally, in all my conversations with larger work comp payers, the vast majority of buyers want best-in-class services – because their customers expect and demand it. SVPs of Claims, VPs of Medical Management, Chief Medical Officers – I’ve never heard one say “I’ll take mediocre service levels and results because working with one vendor makes my life easier and is less burden on my department.”

Yes, there are exceptions, primarily for smaller payers who don’t have the staff or resources to handle multiple relationships. In that case, the “multi-offering supplier” approach makes sense, and this can be an attractive niche, with vendors building attractive businesses around wide service offerings.

What does this mean for you?

Market segmentation is key; understand what your buyers’ problem is, and solve it. Larger payers want best-in-class, and many smaller payers are looking for simplicity.

 

 


4 thoughts on “Work comp services: Specialize or Generalize?”

  1. Joe, One ought to agree with your statement about OCCM for a number of reasons. However, doesn’t MedRisk ascribe to OCCM’s contracting and delivery platform for physical therapy? I know you will correct me if I am wrong, but if true, how does MedRisk avoid the issues that OCCM has encountered in that space?

    1. Hello Steve – thanks for the question.
      MedRisk does not use OCCM’s platform, nor do they use OCCM’s provider direction methodology.

      MedRisk focuses on customer service, OCCM’s issues are myriad and documented here in several posts. They are trying to be all things to all people and are not succeeding, can’t hold onto customers and are losing providers.

  2. Joe, I really appreciated your comment that “doing one thing really really well is hard enough.” I could not agree more!

    I have been at the helm of my company since I started Company Nurse in 1997. Over the years, there have been many “seductive” opportunities to deviate from our core service offering. Thankfully, I resisted those opportunities. We have found that by being a specialist in our narrow niche, we are best able to help our clients achieve the results they desire.

    Yes, there are bundled service offerings that compete with us. And, yes, we lose some deals to the bundled providers. It is a convenience for some risk managers to buy bundled services, and I appreciate that. What we have realized is that those who seek a bundled solution are not our target clients. That realization saves us time and energy.

    Final thought: A few months ago, I and my key management team had the pleasure of seeing Morten Hansen speak at a conference in Denver. The principle that he focused on in his presentation was “Do Less, Then Obsess”. He covers this and other topics in his book Great at Work, which focuses on top performers who do less and accomplish more. At my company, we believe doing less and then obsessing is our path forward.

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Joe Paduda is the principal of Health Strategy Associates

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