ExamWorks Deal Shows Cost-Containment Business is Booming

Monday, June 20, 2016 | 0

ExamWorks, a provider of independent medical examinations, is being purchased by a private-equity investment firm in a $2.2 billion deal that should dispel any doubt that there is big money in workers’ comp cost containment.

In late April, ExamWorks Group Inc. announced it had entered into a definitive agreement to be acquired by an affiliate of Leonard Green & Partners LP for $35.05 per share in cash. The private equity firm invests in established companies that have included Life Time Fitness, The Container Store, Shake Shack, Whole Foods Market, J.Crew and Petco. 

Since then, the 25-day “go shop” period, which allowed ExamWorks to entertain other offers, has ended. None of the 46 parties contacted during the go-shop period were interested in pursuing a deal, although ExamWorks entered into a confidentiality agreement with one for purposes of discussions.

In addition to independent medical exams, ExamWorks provides peer review, bill review and case-management services to workers’ comp and other insurers. The company reported revenues for the first quarter of 2016 of $226.5 million, an increase of $30.2 million, or 15.4%, from the prior-year quarter.

The ExamWorks acquisition is expected to close in the third quarter of this year.

The size of the deal raised eyebrows among some critics of workers’ comp cost containment, who feel the services deprive injured workers of needed care and benefits.

“What this means for injured workers and their loved ones is that the big business and added bureaucracy of ‘cost containment’ may translate to even more profit at the expense of injured workers,” claimants' attorney Rod Rehm of Rehm, Bennett & Moore in Lincoln, Nebraska, said in a blog post about the ExamWorks deal.

In a telephone interview, Rehm cited several points during a claim when cost containment may deprive an injured worker of benefits, starting with efforts to deny that an injury is work-related. Cost-containment companies try to declare an injured worker at maximum medical improvement as soon as possible to limit payment responsibilities, he said, and use utilization review and evidence-based medicine to deny treatment. Or providers might declare a worker ready for full work duty when light-duty work is more suitable, he said.

Claimants' attorney Leonard Jernigan in Raleigh, North Carolina, said he’s not opposed to cost containment in principal, as a method of preventing unnecessary spending in workers’ comp.

“The problem is restricting medical care,” Jernigan said. “There’s nothing wrong with saving money but don’t do it at the cost of the injured worker.”

Jernigan said he’s seen carriers contact injured workers’ physicians to ask them to cut back on drugs needed to manage the workers’ pain. He said claimants have been sent to a low-cost clinic for magnetic resonance imaging, only to have providers ask for a second MRI because the first one was performed with out-dated equipment.

And when care is disputed, attorney fees can quickly add up to thousands of dollars.

“I’m not sure how that’s cost containment,” Jernigan said.

A better approach, Jernigan suggested, would be to persuade drug companies to lower their prices.

In a blog post earlier this year, Rehm cited an investigative article that nonprofit news organization ProPublica published in late December, which described a “workers’ comp industrial complex” in which business is booming for middlemen offering an array of cost-containment services.

That’s evidenced not just by the pending Exam Works acquisition.

In January, workers’ comp pharmacy benefit manager Helios was purchased by OptumRx in a deal analysts estimated to be in the $1.5 billion range. Cost-containment company One Call Care Management was acquired for more than $2 billion in 2013, ProPublica reported.

Genex Services, another cost-containment company, announced on June 2 its acquisition of Med-Eval, described as one of the largest providers of workers’ comp independent medical exams. Terms of the deal weren’t disclosed.

Cost containment also has its advocates. Robert Hartwig, president of the Insurance Information Institute, told ProPublica that eliminating cost containment would result in a rapid escalation of claim costs as well as a rise in fraud and abuse.

When asked to respond to the criticisms of cost-containment companies, an ExamWorks spokeswoman said the company does not comment to the media as a matter of policy.

A spokesman for Genex Services said on Friday that the cost-containment company wouldn’t be able to provide comment by the deadline for this report.

A One Call Care Management spokeswoman declined comment. But in a statement quoted in the ProPublica article, One Call said the company’s focus “is to make sure that injured workers receive the best care possible, quickly and efficiently.”