Consolidation In The Claims TPA Industry

September 7, 2023

Consolidation in the claims TPA industry continues according to this blog post by Joe Paduda. From the perspective of a single state, primarily single line workers' compensation Third Party Administrator, there are certain truths in Paduda's writings. We have written about Joe many times before. He holds a significant high level understanding of this complicated, highly regulated industry that holds a quiet but strong importance to our society and economy.

What does Paduda have correct? We can't comment upon the specific companies, he has far better contacts and resources than we do to know the inside workings of a Sedgwick or other company.

Correct item 1: Institutional investors seem to be tracking away from the large organizational purchases, and in one case seem to be moving capital away. 

Correct item 2: Workers' compensation claims handling (and the ancillary businesses that support WC TPAs) is a very mature industry. While there may be some marginal improvement available using tech, the claims industry is significantly less ripe for significant volume and scale improvements in profitability.

Correct item 3: Unclear if investors / insurers will be willing to outsource claims handling to external adjusting / TPA organizations. Our experience has been that to be true. In fact, being in a rural state with barely 1,000,000 residents (less than Sacramento County California), the costs of direct handling for insurers (staff) and using independent claims organizations are far higher than handling the majority of claims directly. The ability of cell phones as a single element has dramatically changed the number of claims available from payers to the IA segment. In most property claims, carriers simply use the property owner and disaster restoration company as the adjuster. We in Montana has seen this trend for more than a decade.

Correct item 4: Quoting "CMS’ continued lack of a coherent, consistent, and clear policy on if/when MSAs are required for what lines of insurance is nonsensical, frustrating, and a disservice to we taxpayers." Managing Medicare Set-Asides on workers' compensation claims as a TPA is like trying to draw in ink on a cloud.

Correct item 5: Buying organizations to grow top line revenue continues in the mature workers' compensation claims industry.

Midland Claims Service has be design remained wholly independent and continues as a high level issue to do business only in Montana. Montana is a difficult state for workers' compensation claims. The level of differentiation between industry best practices for employer, agent and broker involvement and what is allowed in Montana is legion. Few issues occupy more of our non-claims handling time than discussing what we can and what we cannot talk about with the employers, agents, brokers and others routinely involved in the claims process in other states.

The primary take home on this topic is that there is very little room for volume / process  improvements through scale in Montana. This is a trend that will continue to spread to first primarily more rural states, then universally. Consolidation will continue along with the process of large organizations 'buying' business. One of the companies in Paduda's blog has over the past 5 years has been marketing their claims services at procing levels far below smaller competitors. In a case that we are intimately familiar with, their cost for claims services was quoted at approximately 50% of the nearest rival bidder. Buying the business will continue so long as the larger TPA organizations continue to be driven by ROI through relationships with large institutional investors.

Midland Claims Service, Inc. and Industrial Injury Claims will continue to primarily focus upon the 'why are we here" ... which is to help employers help their injured workers recover as fully and quickly as possible ... only in Montana.  Since 2002, we're proud to have been responsible for over 34,500 workers' compensation claims outcomes. 34,500 fellow Montana residents and workers. 34,5000 human beings.

Humanizing The Workers' Compensation Claims Process.

This is what we have done on Montana since 1946.