Wednesday, January 27, 2016

Suits And Ties

I'm not a very good businessman.

Sure, I have a Masters in Business Administration, but that just means I could read books and pass tests. That doesn't mean I know anything about business.

About all I really know about business could be summed up in a single sentence in my first finance class by Professor Daneise: "Cash is King."

That's it. Assets, liabilities, balance sheets, project management, financing, mergers, acquisitions - all foreign to me.

I'm a simple guy really. Have a dollar, spend ninety cents, and I get to keep the dime - that's my profit for intervening in some process or product that someone else wants.

Big business is mystifying. Scale - it's all about scale. A small transaction, that dime, turns into billions of dollars if there are enough units generating that dime.

Which is why, I believe, the workers' compensation space is attracting outside investment.

The trend started a few years ago and doesn't appear to be waning yet - health care consolidating and moving into workers' compensation.

The medical care world is talking about the purchase of Helios pharmacy benefit management company by UnitedHealth Group subsidiary OptumRx.

The transaction has been estimated to be valued in the one and a half billion dollar range.

That's quite a few dimes.

Rumors of talks between the companies had been reported by Bloomberg Business news service as early as last October. The deal was confirmed earlier this month.

Optum purportedly did about $67 billion in business last year, and Helios, formed just a couple of years ago through the merger of Progressive Medical and PMSI Group, had been owned by private equity owners, Kelso & Co. and Stone Point Capital. Obviously those equity groups made a wise investment.

I'd often thought that the logical step for group health was movement into workers' compensation, and that it would be this progression that would foster, ultimately, the consolidation of institutions: general health and workers' compensation.

I've heard all the arguments about why workers' compensation can not be a part of the overall health system in this country: health knows nothing of how to deal with disability (and I'd argue that work comp isn't much better, but that's another blog post...), there's not enough money in comp, the market sector is too small, group health has deductibles and other tools to regulate access while work comp is "first dollar," etc.

To me, none of the excuses or reasons why a universal health system for employed people present much of an obstacle.

Really, the only thing that is in the way of a "get hurt or sick and get treatment regardless of cause" type of system is just the law.

Workers' compensation was the first health care system, getting traction after the United States Supreme Court blessed it in 1917. There wasn't any medical insurance around until the Blues were taken to task for price fixing between hospitals, so they decided to become insurance instead in the 1950s. Medicare was right around the corner then too.

The two systems grew up independently because they were created, by law, independently at different times due to different facts and circumstances - certainly nothing that was logical. No one could have predicted when these institutions were created that they would become as big or as pervasive as they are now.

All of the major health companies now have occupational divisions: e.g. Anthem Blue Cross, Kaiser On the Job, etc.

If the law (i.e. our legislators) doesn't eliminate the medical silos that developed, business will. Consolidations, mergers, acquisitions - all of these will continue as the blend of work comp into the health sector moves towards a universal care system.

Henry Loubet, a former CEO of UnitedHealthcare’s Western operations and chief strategy officer at Keenan, told WorkCompCentral the Helios acquisition fits in with UnitedHealth’s strategy of diversifying outside of health insurance plans.

“They’ve been looking for a much broader reach,” said Loubet.

All health carriers are looking for a broader reach. The Affordable Care Act is pushing the growth in scale. Lots of observers think that there's bleed and shifting in services between group health and workers' compensation, though no one has yet to actually back up any claims one way or the other.

And those concerns may be irrelevant anyhow. I think that's what is really happening as the health market moves into work comp.

It really just comes down to a simple fact: sick or injured person needs care - who's going to pay?

Take the patient out of that question and everything else is a back room argument between suits and ties.

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