So, you want to invest in workers' comp managed care?

Wednesday, February 27, 2008 | 0

--By Joe Paduda

The private equity and venture capital folks have been prowling around the WC managed care world for a couple of years now, looking for opportunities to invest their hard-solicited cash. Firms have invested in pharmacy benefit managers (MSC and Cypress Care), bill review firms (StrataCare), case management providers (Genex), and specialty firms (OneCall Medical). And the interest is not waning.

I've had more than a few conversations with everyone from freshly-minted MBAs to grey-haired veterans, and they always seem to start with the same set of questions.

So here, at the risk of giving away information that I (and others) could charge for, are the answers to that first round of questions.

Market size -- The WC medical market was about $27 billion in 2007 and is increasing at around 8% per year.

Segments (percentage of total spend by category)
(Actual results may vary depending on location and definitional differences.)

•     Hospital and facility -- 30%
•     Physician services -- 22%
•     Pharmacy -- 15%
•     Physical medicine (PT and Chiro) -- 21%
•     Imaging -- 6%
•     DME, home health, lab, other -- 6%

•   Coventry (includes Focus, First Health, and Aetna networks marketed by Coventry) -- $700+ million
•   CorVel -- $300 million
•   Genex -- $200 million
•   Intracorp -- $200 million
  

•   Fee schedules -- a majority of states control prices paid to providers via fee schedules, others use UCR as basis for reimbursement
•  Managed care regulations -- different states have very different regulatory environments, with some favoring strong programs with lots of employer control eg FL and NJ, while others are much more employee focused eg NY, and others seem to favor providers eg IL
•   Claims frequency is declining, meaning the annual number of claims has decreased for the last 15 years by over 50%...and this trend is continuing
•  Group health players occasionally dip their toes in the murky waters of WC, but in the last ten years, the only one to stick it out has been Aetna

• Frequency (see above)
• Consolidation - Coventry is looking to make this a big part of its business, and is investing heavily in acquisitions and absorption thereof to generate top line, and secondarily bottom line.
• The rise of the specialists - Specialty managed care companies are eating the generalist PPO's lunch (and stealing their lunch money too) - companies such as MedRisk (physical medicine management and HSA client) and FairPay Solutions (facility bill review and also HSA client) and OneCall Medical (imaging) are 'hollowing out' the generalist PPOs' revenue stream by doing a much better job of managing their niche businesses
• Drive to outcomes - yes, after 12 years of talking about it, I'm finally starting to see some real movement from payers towards attempting to identify and direct claimants to the best providers.