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Canadian paramedical providers catch the consolidation bug

By Marie-Josée Boucher | October 19 2005 02:35PM

Like many other insurance industry sectors, Canadian paramedical services providers have jumped on the consolidation bandwagon. Recently, major acquisitions felled two industry players.

These acquisitions may change the dynamics of the whole sector. Currently, the industry is controlled by four dominant players: Portamedics, QUS Bodimetric, Medisys and ExamOne.

These companies act as subcontractors for life insurers by administering medical exams to clients that purchase insurance policies.

American firm Quest Diagnostics accentuated its penetration of the Canadian paramedical services suppliers industry in August when it acquired nearly all of the common shares of its competitor LabOne, and its subsidiary ExamOne.

The transaction, valued at $934 million U.S., should be completed by year end. Marketing director of LabOne, Peter Wilkinson, said that it is still premature to predict the direction business will take.

Michel Hunault, regional vice-president for Canada at LabOne, noted that the news of the purchase was favourably received. “We spoke to all our clients in Canada and we received very few negative reactions. Increasingly, insurance companies have international needs,” he said. Unquestionably a behemoth, Quest has a staff of 39,000 distributed throughout 30 regional laboratories in the United States. The firm also runs facilities in the United Kingdom and Mexico.

Another sign of consolidation: Medisys reinforced its presence by taking over MDS’ corporate executive medicine division in July.

Sheldon Elman, chairman and CEO at Medisys, made it clear that this acquisition signals his intention to participate in the consolidation of an industry he describes as very fragmented. The amount of the transaction was not revealed.

On Sept. 2, Medisys also announced that it had closed a previously announced acquisition of Merit Assessment Centres Inc., a company that generated $4.2 million on revenue in its most recent financial year.
Surprising speed

Back in July, during an interview with The Insurance Journal on the future of paramedical providers, Ian Keiller, vice-president and general manager of QUS Bodimetric, predicted a wave of consolidation in this sector.

Although his prediction was bang on, Mr. Keiller admits he was surprised at how quickly the acquisitions took place. He also did not expect a dominant player, LabOne, to be swallowed by another firm.

Vice-president, insurance medical services at Medisys, Shari Gottschalk offered an even bolder forecast: The dominant paramedical services suppliers may dwindle from four to two or three in the next few years. This situation will affect paramedical services, she added.

Ms. Gottschalk explained that following mergers, insurers tend to align their procedures and rates. After joining forces, the insurers pressure suppliers of paramedical services to accept longer term contracts and generate economies of scale, the manager continued. This situation is quite a challenge for the industry, she said.

Consolidation may lead to standardization of practices of various suppliers while undermining their capacity to innovate, Ms. Gottschalk warned.

Despite the consolidation, she thinks the paramedical services market still has room for new niche players, including firms that concentrate on serving particular cultural communities.

New less costly business practices such as teleunderwriting are also fuelling this consolidation, said Mr. Keiller, of QUS Bodimetric.

Teleunderwriting is a practice whereby nurses employed by suppliers gather medical information from new insured via telephone interviews. These medical questions are part of conversations, recorded on audiotape.

This widespread trend is quickly gaining ground from the former, more time-consuming method that required nurses to travel to meet the clients in person.

The new practices are less costly for insurers, but they also erode the profit margins of paramedical service suppliers, Mr. Keiller pointed out.

Obviously, nurses still make house calls when any kind of sample is needed for the client’s medical evaluation, Mr. Keiller confirmed.

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