Friday, October 5, 2012

CA Medical Review is Maximus

There's always a winning vendor position in workers' compensation reforms that many don't think about when the new laws pass off the governor's desk, and in California, at least for the next two years, that winner is Maximus, Inc. (NYSE - MMS) based in Reston, Virginia.

With gross revenues of over $900 million last year, the big provider of government services ("Helping Government Serve the People") closing price on the Big Board was $58.44, down 2.34% from the day's opening price.

Over the past ten years MMS value has risen steadily. There have been the typical periods of valleys common with publicly traded stocks, but overall the company's value has increased about 10 times over the course of ten years. That's a good track record.

MAXIMUS describes itself as a health and human services administrator for governments in the United States, United Kingdom, Canada, Australia and Saudi Arabia, providing administrative "solutions" to government-sponsored benefit programs, such as Medicaid, Medicare, Children's Health Insurance Program (CHIP), Health Insurance BC (British Columbia), and welfare-to-work and child support enforcement programs. The company was founded in 1975.

11% of its $929 million in annual revenues comes from California. It has a net profit in the last fiscal year of $82.1 million.

Maximus is under contract with the Department of Managed Health Care in California to provide independent medical review (IMR) for group health, and the Division of Workers’ Compensation is currently negotiating with the company to implement IMR as required by SB 863.

It's certainly a big company that is used to dealing with big government.

It's latest SEC K-1 filing states, "We expect that demand for our core health and human services offerings will continue to increase, driven by new legislation, austerity measures and increasing caseloads as governments strive to deliver more services with fewer resources. Legislation such as the ACA in the United States and welfare reform initiatives abroad has created increased demand for our services and should continue to create increased demand over the next several years. We believe that we remain well-positioned to benefit from this increasing demand as governments look for ways to improve overall program efficiency and achieve value for funds spent on social benefits programs."

According to its fact sheet, in 2010 it had 500 reviewers and can handle more than 7,500 independent medical review cases a month, which was its average monthly client caseload in fiscal year 2009.

Some in California are questioning how workers' compensation is going to affect the volume of IMR Maximus currently handles and whether the company will be adequately staffed to handle an initial high volume of referrals.

Julius Young of Boxer & Gerson in Oakland, said at a California Society of Industrial Medicine and Surgery (CSIMS) seminar in South San Francisco on Wednesday night that he anticipates workers' comp will generate a much greater volume of requests for independent medical review than group health does.

But Richard “Jake” Jacobsmeyer, a partner with the Oakland defense firm Shaw, Jacobsmeyer, Crain & Claffey, said during the CSIMS seminar that a requirement in SB 863 that the employer or insurance carrier pay the costs of independent medical review might increase the number of treatment requests that are approved.

I think both are right. I think that the initial volume is going to be very high as claims departments versus injured workers test the waters to see how much resistance there is going to be and where the typical IMR response is going to come back at.

I also think that after a couple of years of experience that carriers will have in place some fundamental operational rules developed that minimize the number of IMR requests due to the costs of obtaining an IMR (not just the processing fee, but the ancillary costs of developing and communicating the medical record).

In other words, eventually there will be stability in the IMR process and my suspicion is that statistically the approval of requested treatment appeals through IMR is going to settle along the same frequency as general health - or about 40%.

So would I buy MMS? I don't know enough about the company to make that recommendation and, frankly, when it comes to stock picks I'm an absolute boor - ask one of my business partners for that advice... Their track record is pretty impressive though.

But I wouldn't bet against MMS in the future when the process goes up for public bid in 2014. I had heard of several individuals thinking about getting into the IMR business - they will have a very tough time competing against a company that anticipates a billion dollars in business in 2013 and lists their competition as similarly placed publicly traded companies and big organizations, including Xerox, Electronic Data Systems, etc.

MMS certainly has a vision for the future in governmental agency based health care that aligns well with the trend in workers' compensation towards managed care, stating in its K-1, "As Medicaid programs become larger, more complex and costly, states look to new models. Estimates from the Centers for Medicare and Medicaid Services (CMS) indicate that although the fee-for-service system covers less than half of the total Medicaid population, it accounts for more than 80% of all Medicaid spending. In response, several states have initiatives to reduce the current costs of Medicaid by moving beneficiaries from fixed fee for service models to managed care, which represents new growth opportunities for MAXIMUS."

This is exactly what is going on with workers' compensation.

The next component of managed care in the workers' compensation arena is the independent bill review process - the outsourced processing of billing disputes. I think that will follow a similar path as big government relies on big business to resolve big issues.

Hopefully it works.

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