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Aug
25

Consolidation in work comp services – speculating on Mitchell’s future

Considering the landscape of service providers, one might think it easy to identify the acquirers and targets.

Reminder – the companies we are considering are Mitchell/Genex/Coventry (MGC), Paradigm, Conduent, Optum Workers’ Comp, OneCall, ExamWorks and one step down, MedRisk (HSA consulting client).

To date, ExamWorks, MGC and Paradigm have been buyers; acquisition activity has slowed appreciably as there are fewer targets and prices are at an all-time high. That said, sources indicate Paradigm continues to focus on growth through acquisition (we’ll dig into that later). I’d expect Exam to keep acquiring IME and related companies as it solidifies its dominant position in that space.

MGC is a different story; a few years ago it was an auto casualty and work comp bill review company, today it is in every work comp medical management area, with large holdings in pharmacy management, a big work comp PPO, and the largest case management/UR operation in the business.

Word is MGC is using those assets aggressively, leveraging Coventry’s network to strongly encourage/require customers use Apricus, its specialty network services. While that tactic will certainly work with some buyers, others – with long memories of Coventry’s previous owners’ heavy-handed treatment of customers. – may well rebel.

Historical diversion – after Coventry bought Concentra’s WC PPO network, Coventry used its overwhelmingly-dominant position in WC networks to get price increases and more favorable terms from most customers. This enraged buyers long used to getting their way, buyers who had pitted Coventry against Concentra in negotiations…many vowed to never again allow a “vendor” that amount of power.

While many of those buyers have exited the space, the memory lives on.  That said, given the heavy-handed, dictatorial attitude many payers display towards “vendors” I can’t fault any “vendor” responding in kind…

OK, back to buyers – as anyone with any experience in M&A knows all too well, digesting one acquisition is tough enough. Mitchell has acquired multiple companies, and the integration has not always been smooth. Eight months into:

  • standing up and staffing a PPO division,
  • continuing to work on integrating multiple PBM operations,
  • building up a specialty network division to compete with OneCall, and
  • dealing with channel conflict issues (perhaps the biggest – a bill review company owns a big network used by other bill review companies),it would be challenging indeed to add even more work to management’s day.

It’s not the consumption that’s the problem, it’s the indigestion.

What does this mean for you?

While MGC might pursue other acquisitions, it is much more likely to focus on getting the highest possible value from the deals it has already made.


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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