We offer an integrated and layered array of complementary business solutions that enable our customers to better manage their employee workers’ compensation-related healthcare administration costs. We are workers’ compensation cost containment specialists.  constantly looking for ways to expand the suite of services we can provide our customers, either through strategic acquisitions or organic development.

Our business objective is to deliver value to our clients that reducescustomers by reducing their workers’ compensation relatedcompensation-related medical claims expense in a manner that will assure that injured employees receive high quality healthcare that allows them to recover from an injury and return to gainful employment without undue delay. According to studies conducted by auditing bodies on behalf of the California Division of Workers’ Compensation, (“DWC”) the two most significant cost drivers for workers’ compensation are claims frequency and longer than average treatment duration. Our services focus on ensuring timely medical treatment to reduce the claim duration and medical treatment costs.

Our core service focusesservices focus on the reduction ofreducing medical treatment costs by enabling our client/employerscustomers to share thehave control overand oversight of the medical treatment process.of their injured employees to ensure treatment is timely and appropriate. This control is primarily obtained by participation in our HCOs or one of our medical treatment networks.  We hold several valuable government-issued licenses to operate medical treatment networks.MPNs. Through Medex, we hold two of the total of ninefour licenses issued by the Statestate of California to establish and manage a Health Care Organization (“HCO”)HCOs within the state of California. We hold several government-issued licenses to operate medical provider networks. We also hold approvals issued by the Statestate of California to act as a Medical Provider Network (“MPN”).an MPN and currently administer 21 MPNs. Our HCO and MPN programs provide our client/employerscustomers with provider networks within which the client/employercustomer has some ability to direct the administration of the claim. This is designed to decrease the incidence of fraudulent claims and disability awards and ensure injured employees receive the necessary back-to-workvocational rehabilitation and training they need.  We also offer a Nurse Case Management program that keepstraining. Our medical bill and utilization review services provide oversight of medical billing and treatment requests, and our medical case management and employee advocate services keep workers’ compensation claims progressing to a resolution and assures treatment plans are aligned from a medical perspective.  Nurse oversight is a collaborative process that assesses plans, implements, coordinates, monitors and evaluates the options and services required to meet an injured worker’s health needs.

Our clientscustomers include self-administered employers, insurers, third party administrators, municipalities, and others. Our principal clientscustomers are companies with operations located in the Statestate of California where the high cost of workers’ compensation insurance is a critical problem for employers.employers, though we process medical bill reviews, utilization reviews and provide medical case management in several other states. Our provider networks, which are located only in California, are composed of providers experienced in treating worker injuries.

Our business generally has a long sales cycle, typically eight months or more. Once we have contractedestablished a customer relationship and enrolled the employees of our employer customers, we anticipate our revenue to adjust with approximately 3,900 individualthe growth or retraction of our customers’ employee headcount. Throughout the year, we also expect to add new customers while others terminate for a variety of reasons. The reasons for termination vary but include when a customer switches to an insurance carrier or third party administrator that uses a different workers’ compensation administration vendor, or when our contract ends with state and local governments.

Key trends affecting results of operations

During the nine months ended September 30, 2023 and 2022, COVID-19 continued to impact the businesses of our customers and our results of operations. For example, in the first quarter of 2022, our customers had a relatively large increase in COVID-19 workers’ compensation claims due to the seasonality of the illness and as the economy opened back up and employees returned to their workplaces. Our HCO customers’ industries generally have a higher risk of exposure to COVID-19 and thus reported a greater number of COVID-19 claims. As a result, COVID-19 claims remained elevated in the first nine months of 2022. Our MPN customers, whose industries were at a relatively lower risk for COVID-19 exposure had a large increase in reported COVID-19 claims in the first quarter of 2022 but began to return to pre-pandemic levels during the second quarter of 2022. During the first three quarters of 2023, COVID-19 claims have remained low and we have realized minimal related revenues, as a result. We anticipate that revenues related to COVID-19 will remain low through the remainder of 2023.

During 2022, the increased volume of COVID-19 workers’ compensation claims resulted in temporary increases in our revenues generated from claim network and medical providerscase management fees, particularly during the first quarter of 2022. However, that trend began reversing during the second quarter of 2022 as the severity and clinics,frequency of the illness declined and California Sick Paid Leave “CSPSL” ended paid time off for COVID-19 related illnesses, which we believe also has contributed to lower reporting of COVID-19 claims.

The relative decline in COVID-19 workers’ compensation claims resulted in lower revenues generated from HCO and MPN claim network and medical case management fees when comparing the three- and nine-month periods of 2023 with 2022. We do not expect further material declines in COVID-19 workers’ compensation claims and related revenues as the current level of new COVID-19 claims is minimal.

During the third quarter of 2023, we saw an increase in the number of employees enrolled in our HCO and MPN programs. The enrollment numbers in our HCO and MPN programs generally correlate with economic conditions and the size and activities of our customers’ workforce. If economic conditions become challenging, including from the effects of inflationary pressures, elevated interest rates, and challenging labor market conditions, our customers may reduce their workforce, in which case we would expect a decline in the number of employees enrolled in our HCO and MPN programs in future periods and in related revenues.

During the fourth quarter of 2022 and through the first quarter of 2023, we experienced difficulties transitioning to a new software vendor for our utilization review and medical case management services. Throughout the software transition, our automated processes had to be performed manually, which caused delays in providing services and invoicing our customers, reduced productivity and resulted in additional outsourcing costs. Our net income was adversely impacted in the first quarter of 2023 as a result of the interruptions and costs associated with the software transition. However, during the third quarter of 2023 the issues were resolved. As of the date of this quarterly report, the delayed invoicing problems have been addressed and much of the related outstanding accounts receivable has decreased.

As previously disclosed in our Annual Report, Fortra, LLC, the third-party vendor that provides the GoAnywhere managed file transfer as a service system (MFTaaS), experienced a data security incident that affected many of Fortra’s customers, including the Company. As of the date of this quarterly report, this incident has not caused a material interruption of our business operations. We are in the process of providing appropriate notifications to the individuals affected by the incident, as well as hospitals, pharmacies, rehabilitation centersto various State Attorneys General. We have incurred expenses, and may incur in the future expenses and losses, related to this incident, some of which may not be covered by cyber liability insurance. Further, because of the ongoing nature of the effects of this incident and current unknowns, an estimate of the impact on our business, results of operations and other ancillary services enabling our networks to provide comprehensive medical services throughout California.  Our provider networks are composedpotential liabilities cannot be made.

Revenue

We derive revenue from fees charged for access to our HCO and MPN clients a number of claims-related services that bring efficiencies toprovider networks, claim processing and management that further reduce the overall burden of workers’ compensation claims resolution.  These services include various back office type functions that assure cost efficiency and accuracy in claim processing, claim reimbursement and claim dispute resolution.

HCO

HCO revenue is generated from fees charged to our employer customers for claim network fees to access our HCO networks, employee enrollment into our HCO program, program administration, custom network fees, annual and new hire notifications, and fees for other ancillary services they may select.

MPN

Like HCO revenue, MPN revenue is generated from fees charged to our employer customers for claim network fees to access our MPN networks, custom network fees, MPN notifications, and program administration. Unlike HCOs, from which we derive revenues from annual and new hire notification fees, MPNs do not require annual and new hire notifications and as such we do not generate related revenues. Rather, MPN notification revenues are limited to the required notices to an injured employee at the time the employer is notified by the injured employee that an injury occurred.

Medical Bill Reviewbill review

California and many other states have established fee schedules for the maximum allowable fees decreased by 3%, 22% and 34%, respectively.  Other revenues consisted of revenues derived primarily from network claims repricing services, lien representation services, legal support services,payable under workers’ compensation carve out revenues and Medicare set aside revenues.

Medical case management

Medical case management oversees the injured employees’ medical treatment to ensure that it progresses to a resolution and assures treatment plans are aligned from a medical perspective. Medical oversight is a collaborative process that assesses, evaluates, coordinates, implements and monitors medical treatment plans and the options and services required to meet an injured worker’s health needs. Our medical case management services are performed by nurses who are credentialed by the state and have expertise in various clinical areas and backgrounds in workers’ compensation matters. We work to manage the number of nurses in our program to maintain our ratio of claims per nurse at a level that ensures timely and appropriate medical care is given to the injured worker and facilitates faster claim closures for our customers. We also offer employee advocate services, which is similar to medical case management in that it utilizes our medical case managers who provide similar services; however, the medical case manager is an advocate of the employee. We generate revenue from these services when we receive a workers’ compensation claim and a medical case manager is assigned to oversee the injured workers’ medical treatment, with billing based on the number of hours a medical case manager works on the claim.

Utilization review

Utilization review is the review of medical treatment requests by providers to provide a safeguard for employers and injured employees against unnecessary or inappropriate medical treatment from the perspective of medical necessity, quality of care, appropriateness of decision-making, and timeliness of treatment. Its purpose is to reduce employer liability for medical costs that are not medically appropriate or approved by the relevant medical and legal authorities and the payor. We generate revenue when we receive a referral for a request for authorization of treatment from a claims adjuster. We bill by the number of treatment requests and the level of expertise of the reviewer required to approve, modify, or deny the request.

Other