Paduda: Consolidation in Work Comp Services: You Ain't Seen Nothing Yet

Tuesday, August 17, 2021 | 0

What’s coming is quite clear: There will be more consolidation in the work comp services industry, much of it likely in the next 12 months.

Joe Paduda

Cue Bachman-Turner Overdrive.

Workers’ comp is a shrinking industry. While there may well be occasional increases in premiums, claims counts and spend, in general, the long-term trend is crystal clear: The only sure way to grow is to acquire other companies.

Third-party administrators are growing in size and influence as many carriers pull back on investments and spending on technology, training and physical assets. Many carriers, but by no means all, see significant potential benefits in moving claims services to TPAs.

• The cost of claims becomes entirely variable, replacing much of carriers’ fixed costs.
• Flexibility: It is much easier to enter and exit states if you don’t have to stand up/shut down claims operations.
• Regulatory compliance: Specifically staying up on and complying with claim-related requirements becomes the TPA’s responsibility (sure, the carrier is ultimately responsible, but it can protect itself contractually).

In turn, TPA growth is affecting medical management, technology and other service vendors. TPAs make big dollars from revenue sharing with those vendors, with obvious implications for claim closure, claim duration and medical, indemnity ALAE expenses.

The big players in the service sector are Mitchell/Genex/Coventry (MGC), Paradigm, Conduent, Optum Workers’ Comp, OneCall, ExamWorks and, one step down, MedRisk (a Health Strategies Associates consulting client).

I’d add Sedgwick to the list, albeit with an asterisk. As the largest payer in workers’ comp (outside of the federal government), it has the market share and negotiating leverage to do what other payers can’t. But this power will diminish as the number of service providers shrinks and their leverage grows.

These players are snapping up smaller service providers, broadening the depth and breadth of their offerings while simultaneously strengthening their relations with payers. Buying companies with more than $75 million in revenue is helpful strategically and financially, but the bigger these companies get, the less benefit they get from adding “tuck-in” acquisitions.

This week I’ll share what I see coming, how each of these entities stacks up and what this means for carriers such as Travelers and Hartford that are staying the course.

What does this mean for you?

Change is coming. Success and survival favor the prepared.

Joseph Paduda is co-owner of CompPharma, a consulting firm focused on improving pharmacy programs in workers’ compensation. This column is republished with his permission from his Managed Care Matters blog.