With Apax’ just-announced acquisition of Genex, the pending Coventry transaction, and ongoing consolidation in the PBM space, the work comp services industry will look much different at the end of 2014 than it did even a year ago.

OneCall Care Management, originally a one-service firm focused solely on imaging services, has become a behemoth, including in its portfolio (and among its sister companies):

• the largest (in terms of revenue) PT network
• the largest imaging network (OCM)
• the largest case management firm (Genex)
• the largest DME/Home Health supplier (MSC)
• a strong regional PPO network (MagnaCare, owned by Apax) (note – in an earlier post I said Apax didn’t have other WC experience; this was incorrect) (edited  – Magnacare was sold some time ago)
• transportation and translation (Stops)
• the dominant dental network (Express Dental)
• IME and peer review

A “big” work comp services company used to have revenues in the several hundred million dollars; now, the market has stretched out – and thinned out. One huge company has revenues of the $3 billion plus, there are several in the $250-$600+ million range, and lots of small firms with revenues under $30 million.  This is a bit of an oversimplification, but the market dynamic today is markedly different from we’ve seen at any time up till now.

And the market dynamic will undoubtedly change even more as OCCM consolidates. More on that later.  For now, the question is, what’s the strategy?

Key to understanding the OCCM strategy is the concept of “white space”, a term used to describe untapped markets.  There’s a sense among many investors that, despite the rapid growth and impressive success of OCCM (and many other companies) in capturing market share, there remains a lot more to be had.  Whether it is leakage from networks due to lack of focus on direction, poor electronic connections with bill review partners, inefficient processes, or entirely new customers previously untapped, the money folks are betting growth is a given.

I’m not quite so sanguine;  as a long-time executive in this business told me this morning, all the  easy, pretty easy, not easy, and pretty hard stuff has been done.  What remains is the really hard stuff; or, in investor parlance, the “really heavy lift.”

An example may be helpful; some payers service small mom-and-pop stores and businesses that may not have a comp claim but once in a decade. Their workers don’t know anything about work comp, much less understand claim reporting or compliance with direction. Add in states such as Illinois or New York where “direction” isn’t really possible, and the lifting becomes even more strenuous.

What does this mean for you?

I’d expect your friendly vendors to be calling a lot with helpful ideas on how to increase penetration.  This isn’t a bad thing, but their priorities may not be in the same order as yours.

In a long-rumored-but-just-verified deal, OneCall Care Management is buying specialty managed care businesses Network Synergy and MDN from Genex.

Meanwhile, Apax, which also owns OCCM, is buying the rest of Genex.

Current Genex owner Stone Point Capital had been looking to sell the entire company, and they have succeeded, albeit in a deal that looks a bit convoluted at first blush.

The vast majority of Genex’ revenue comes from case management, and some from bill review.  The valuation on these traditional, relatively low (or no) growth businesses is much lower than we’ve been seeing for specialty businesses.  That said, at the proverbial end of the day, Apax is the one writing the check to buy Genex and its component pieces however different Apax funds may be funding the two deals.

Regardless, the transaction removes a competitor from the market, and prevents an erstwhile OCCM competitor from acquiring two quite small but nonetheless functional entry points into the PT and imaging sectors.

The question is why split CM and bill review off from specialty?

Allow me to theorize. Genex has a thousand or more case managers out there who can be distribution channels for the Align/Network Synergy and OneCall Imaging/MDN product lines.  Sounds great, right?  Who wouldn’t want a thousand WC field case management (CM) nurses doing that directing for them?

Well, not so fast.

First, field CM is a shrinking industry, with most CM handled telephonically – something Genex does little of.  Second, field CMs take direction from the adjuster and/or telephonic CM, and in most cases those in-house folks are the ones directing to specific provider networks.

Third, many payers have picked specific specialty vendors which are not tied to OCCM, and these payers may not want to use CMs that are directly linked to OCCM and their family of specialty network products.  The separation of Genex CM from the specialty products gives at least the appearance of neutrality and objectivity, possibly mollifying concerns of payers who don’t want their claimants directed to OCCM providers.

Finally, there’s also a significant-if-not-huge bill review business as well, which provides potential opportunities for retrospective discounting of imaging and PT via the BR process.  This is a bit more complicated and may require re-contracting of some or all providers, but retro discounting is hugely profitable for vendors.

All this sounds good, and while complex, do-able. However, the difficulties inherent in the real world make for a somewhat different picture.

First, OCCM is by no means integrated today; some of the companies that were merged into One Call several years ago are still not integrated for billing, sales, or service.  This deal adds yet two MORE companies and their different product offerings, operational flows, contracting processes, and reimbursement rules – as well as state regulatory approval and oversight burdens.

For a conglomerate that industry wags sometimes refer to as “Five Call”, the additional work of integrating two more companies while completing work on the current efforts may well be a challenge.

What does this mean for you?

Apax is moving up and down the claim process chain as it looks to get traction both earlier and later in the life of the claim.

But it’s all about execution.