Paduda: Consolidation in Work Comp Services: Private Equity vs. Corporate Owners

Thursday, August 19, 2021 | 0

My previous intro to the coming consolidation in workers’ comp services identified seven entities — Mitchell/Genex/Coventry (MGC), Paradigm, Conduent, Optum Workers’ Comp, OneCall, ExamWorks and MedRisk (a Health Strategies Associates consulting client) — that will be the last ones standing when the music stops.

Joe Paduda

I’ve written extensively (as in more than 60 posts) about what’s driving this, how individual companies are reacting and potential implications for the industry. While the main themes remain accurate, my views on potential impacts are evolving.

While each of these companies is unique in its own way, they can be grouped into two broad categories: multiservice providers and single-service providers.

The first group is MGC, Optum WC and OneCall; the second is Conduent, ExamWorks and MedRisk.

Another way of grouping is by ownership. Optum and Conduent are owned by much bigger corporations while the other four are private-equity-owned.

While there are multiple factors that will drive who consumes whom, ownership type may well be the biggest single influence. PE-owned firms tend to be much more focused on organic growth, cash flow and identifying potential acquisitions. Their owners are tightly focused on increasing the asset’s attractiveness to the next buyer.

In sum, that is a business that:

• Shows consistent, strong growth.
• Has a stellar management team.
• Has strong cash flow.
• Has a viable plan for future growth.

In contrast, corporate-owned entities can suffer from:

• Lack of senior management attention (that is, management at the owning corporation).
• Resource starvation (workers’ comp is often seen as a backwater, and leaders can find it difficult to get the resources and attention needed).

Aetna’s bungled initial attempt to sell Coventry Work Comp is the best evidence of both problems. Optum’s continued focus on quarterly earnings — and the attendant demand that all Optum entities deliver on their commitments regardless of market conditions — show that corporate owners often talk a good game but when push (sure, add some staff) comes to shove (how are those quarterly profits looking?), shove wins.

We older types remember Aetna’s multiple “commitments” to growing/expanding/improving the Coventry network — commitments that were never fulfilled, and for good reason. With workers’ comp representing less than 1% of total U.S. medical spend, a big health care company’s focus rightly should be on governmental and private health insurance.

OptumWC is a big player in workers' comp pharmacy and has offerings in specialty services. It is also building a network (and has been for some years). To date, Optum’s network development success has been modest at best, as has its ability to get payers to use the network. Sources indicate Optum is investing more in the PPO. If it does Coventry could have a viable competitor.

But “big” in WC is “pretty darn small” in the health care world.

WC is far less than 1% percent of UnitedHealth Care’s total revenue (UHG owns Optum). It can be difficult indeed for leaders of pretty small subsidiaries to get attention and resources from corporate overlords.

Conduent is another story. Built around Stratacare, the industry’s leading bill review company by market share seems to be caught in an endless cycle of management changes, delays in upgrades//updates/fixes, and consistently poor customer service. Conduent is, at its core, a document management business. WC bill review feeds it.

I don’t see Conduent as a buyer. If anything, it is much more likely to spin off the BR business.

What does this mean for you?

Understanding owners’ motivations and priorities helps predict the future.

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.