Two top positions in the work comp industry will be occupied by new people this spring. Ken Martino, long-time CEO of TPA Broadspire is resigning to take a new position in his home state of Connecticut, and CorVel CEO Dan Starck is departing the company to assume the role of CEO of Apria Healthcare. Starck’s new job, announced earlier this month, takes effect mid-April.
No public announcement from CorVel on succession plans, and no information on their website either. Notably they did file an 8-K with the SEC noting that former CEO Gordon Clemons Sr will be assuming the role. (that notice is not on CorVel’s website as of today). That’s a bit unusual as CorVel is a publicly traded company and one would expect they’d let the market and investors know that a) the CEO is out and b) who’s taking over long-term, or at least that they’re working on it. I did email Clemons to get his comments, as usual he’s been non-responsive.
Martino’s been a very effective leader for Broadspire, navigating the TPA through a very difficult market. After a tough 2010, they’ve had notable sales growth over the last few quarters, landing several large self-insured employers. Martino repositioned Broadspire as a TPA focused on medical management; they broke away from the usual “national contract with Coventry plus a few other networks” model to identify, contract with, and build connections to a multitude of networks; their pharmacy program is solid and internally managed, and they’ve developed medical management applications inhouse as well.
This continues with Danielle Lisenbey’s appointment as Martino’s successor; her years of experience in medical management is a clear indication that Broadspire sees leadership in this key area as critical to the company’s continued growth. She may well be the only TPA CEO with a degree in industrial engineering; this has served her well as Broadspire has re-engineered the medical management and claims processes.
CorVel, the work comp managed care services and TPA company, is likely searching for a more permanent successor to Starck; Clemons is probably not in the seat for the long-term. Gordon junior may be on the list, but the delay in announcing a new boss may indicate an intention to look outside for more experience, particularly in leading a publicly-traded company.
Starck et al have been able to keep the company’s P/E ratio right around 20 for quite some time; this may prove a challenge for his successor, as their most recent report indicates CorVel earnings tumbled in the last quarter. The company’s gross margin declined by 410 basis points while operating margin (down by 320 basis points) and net margin (180 basis points decrease) also worsened.
While the somewhat-hardening comp market may help CorVel’s TPA business, the company’s recent loss of a significant managed care services account has yet to be fully felt on the books.

The official announcement comes this morning; the merger of Align Networks and Universal SmartComp is done. More precisely, pending completion of due diligence, it’s done.
The new company will be the largest in the workers comp physical medicine space, with over $250 million in revenue, closely followed by industry founder MedRisk (an HSA consulting client). The merger is actually an acquisition, as USC will now be owned by Align.
There appear to be several keys to the deal.
– USC has been in Riverside’s portfolio for four years, smack in the middle of the three-to-five year horizon for most investment firms.
– the investment community’s strong and continued interest in the work comp space. Align’s owner, General Atlantic, while a bit of a late-comer to the industry, is a very large, highly competent, and well-regarded investment firm; undoubtedly they see this as a profitable business.
– those “synergies” that investors like so much; eliminate duplicative administrative costs and spread those costs across a larger revenue base. As I noted last week in a post about the pending Align-Smartcomp deal, SmartComp and Align have a lot of overlap in their provider networks.
Generally speaking, Align has deeper discounts than USC, based on Align’s prospective referral strategy (Align schedules the claimant’s appointments, and has been pretty successful convincing providers that the prospective referral merits a deeper discount). Look for the merged entity to merge their provider contracts as quickly as possible in an effort to deliver better savings for USC customers. That may be a challenge, as providers contracted with both bought off on the Align value proposition, and may well be reluctant to agree to provide the Align discount to USC patients, most of whom are not scheduled by USC.
No doubt Align/USC will be working this issue hard, as it is going to be quite the challenge. PTs who listened to the Align provider contracting pitch will now hear the same provider relations person presenting a seemingly-contradictory argument; the PT should agree to an across-the-board deep discount.
– Align has gotten good traction by selling to individual adjusters, but has had less success convincing corporate buyers to use their services. In contrast, USC has had some success with corporate buyers and TPAs where their fee sharing arrangements are financially attractive. (I have no inside knowledge) but the thinking may well be the two are mutually supportive; USC’s corporate sales married to Align’s adjuster success makes for better penetration all around.
That said, USC’s sales efforts took a hit with the sudden departure of just-hired sales chief Frank Vidrik last fall. Vidrik, along with other sales personnel, left right after the Work Comp Conference in Las Vegas, the biggest trade show in the business. The timing was unfortunate, as following up on leads and discussions at the show requires all hands on deck. In contrast, Align’s sales force has been relatively static, with long-time industry sales pro Tad Grattan leading a large, adjuster-focused sales force. Grattan et al have had good success leveraging their relationships with adjusters; Align’s adjuster focused approach drove the company’s rapid growth and their sales successes were the primary driver behind the original sale of Align at what has been widely rumored to be a very high multiple.
– In what may seem counter-intuitive, the deal may have been pushed along by Align’s biggest sales win to date – the US Postal Service contract. While the potential business is significant, there have been some significant hurdles getting any appreciable volume flowing from the USPS. Among the problems has been:

the Postal Workers’ union’s vociferous and public denunciations of the deal
Align’s inability to direct injured workers to Align providers (there’s no legal ability to direct in the USPS work comp system) coupled with the USPS union’s statement “that strongly discourages member participation.”
the need for Align to have network providers in close proximity to USPS locations (recall some post offices are located in very small towns in rural areas)
some of Align’s initial messaging and communications efforts which drew the ire of the union and a quick ‘clarification’ by the USPS.

I don’t see how the merged company is better positioned to address these issues; perhaps this is best chalked up to ‘learning experiences’ as Align seeks to better understand the corporate buyer and their often-unique needs and operating requirements.
(Note – MedRisk did compete for the USPS business. (I was not privy to the bid nor did I in any way participate in the process) As MedRisk has deep experience with this type of client their bid likely reflected the challenges inherent in delivering services to claimants in a non-employer directed, strong-union, geographically-dispersed environment.
What does this mean for you?
For insurers and TPAs that like to work with multiple vendors, the choices have been reduced.
For PT providers, get ready for some tough negotiating.

While it’s not a done deal, it’s all but done.
Two workers comp physical therapy network companies – Align Networks and Universal SmartComp – are close to merging.
Industry followers may recall Align was purchased last fall by General Atlantic, a Connecticut-based private equity firm; SmartComp has been owned by Riverside, a Cleveland-based PE firm, for about five years. Industry founder MedRisk (an HSA consulting client) is the largest and oldest company in the space.
The merger, when completed, will make the combined company the largest in the space in terms of revenue dollars. There may well be some of those “synergies” investors like so much as well; SmartComp and Align have a lot of overlap in their provider networks. This, along with the usual SG&A savings, will likely make for a richer bottom line for the merged entity compared to the two individual companies.
It is safe to assume that the customer face of the merged entity will have a distinctly Align flavor. SmartComp hired a sales chief last fall, a relationship that lasted a matter of weeks. Soon after the departure of the sales chief several other sales personnel also were gone. In contrast, Align’s remarkable growth was largely driven by the company’s strength in sales, especially on a local, adjuster-by-adjuster level.
The merger isn’t surprising. The five-year horizon on Riverside’s investment in SmartComp is here. General Atlantic (Align’s owner) paid a steep multiple for Align, and wants to dominate the space as quickly as possible. Align did have a recent win, landing the US Postal Service “contract” (the Postal Service can’t direct claimants to specific providers, and the union’s voiced its displeasure), but organic growth takes time, investment, and an ability to land national accounts. MedRisk enjoys a dominant position in the large payer sector, with long-term relationships at most of the larger payers.
What does this mean for you?
More evidence of private equity’s strong and continued interest in workers comp services.
Consolidation in this sector demonstrates this – and other services sectors – is a maturing industry.