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Aug
17

Consolidation in work comp services – PE vs Corporate owners

Yesterday’s intro to the coming consolidation in workers’ comp services identified 7 entities – Mitchell/Genex/Coventry (MGC), Paradigm, Conduent, Optum Workers’ Comp, OneCall, ExamWorks and MedRisk (HSA consulting client) that might will be the last one(s) – standing when the music stops.

I’ve written extensively (as in more than 60 posts) about what’s driving this, how individual companies are reacting, and potential implications for the industry. While the main themes remain accurate, my views on potential impacts are evolving.

While each of these companies is unique in its own way, they can be grouped into two broad categories – multi-service providers and single-service providers.

The first group is MGC, Optum WC, and OneCall; the second Conduent, ExamWorks and MedRisk.

Another way of grouping is by ownership; Optum and Conduent are owned by much bigger corporations while the other 4 are private equity owned.

While there are multiple factors that will drive who consumes who, ownership type may well be the biggest single influence.  PE-owned firms tend to be much more focused on organic growth, cash flow, and identifying potential acquisitions; their owners are tightly focused on increasing the asset’s attractiveness to the next buyer. In sum, that is a business that:

  • shows consistent, strong growth;
  • has a stellar management team;
  • has strong cashflow; and
  • a viable plan for future growth.

In contrast, corporate-owned entities can suffer from:

  • lack of senior management attention (that is, management at the owning corporation) and
  • resource starvation (workers’ comp is often seen as a backwater and leaders can find it difficult to get the resources and attention needed).

Aetna’s bungled initial attempt to sell Coventry Work Comp is the best evidence of both problems. Optum’s continued focus on quarterly earnings  – and the attendant demand that all Optum entities deliver on their commitments regardless of market conditions – shows that corporate owners often talk a good game but when push (sure, add some staff) comes to shove (how are those quarterly profits looking?), shove wins.

We older types remember Aetna’s multiple “commitments” to growing/expanding/improving the Coventry network, commitments that were never fulfilled, and for good reason. With workers’ comp representing less than 1 percent of total US medical spend, a big healthcare company’s focus rightly should be on governmental and private health insurance.

OptumWC is a big player in worker’s comp pharmacy and also has offerings in specialty services; it is also building a network (and has been for some years). To date, Optum’s network development success has been modest at best, as has its ability to get payers to use that network. Sources indicate Optum is investing more in the PPO; if it does Coventry could have a viable competitor.

But “big” in WC is “pretty darn small” in the healthcare world.

WC is far less than one percent of UnitedHealth Care’s total revenue (UHG owns Optum); it can be difficult indeed for leaders of pretty small subsidiaries to get attention and resources from corporate overlords.

Conduent is another story. Built around Stratacare, the industry’s leading bill review company by market share seems to be caught in an endless cycle of management changes, delays in upgrades//updates/fixes, and consistently poor customer service. Conduent is – at its core – a document management business; WC bill review feeds that business.

I don’t see Conduent as an acquirer…if anything it is much more likely to spin off the WC BR business.

What does this mean for you?

Understanding owners’ motivations and priorities helps predict the future.

 

 

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Joe Paduda is the principal of Health Strategy Associates

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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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