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Obamacare and the Health IT Opportunity with Christopher McCord


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Obamacare and the Health IT Opportunity with Christopher McCord

  1. 1. HIT Market Perspective October 2013 CONFIDENTIAL Healthcare Growth Partners, LLC 2013 All Rights Reserved
  2. 2. About HGP  HGP is focused exclusively on healthcare technology and services. Investment Bank M&A Transactions since 2008 Buyside Sellside Total HGP Firm A Firm B Firm C Firm D Firm E Firm F Firm G Firm H Firm I  HGP’s HIT domain expertise is unmatched.  HGP has deep relationships with decision makers across the industry.  HGP has experience across a range of technologies, in terms of SaaS, web-based, and client server, as well as software-enabled services.  26 25 21 10 10 6 7 3 2 0 40 29 22 13 12 9 7 6 6 2 All engagements are driven by the senior team- no “hand-offs” to junior staff.  14 4 1 3 2 3 0 3 4 2 Results speak for themselves:  Over 50 transactions completed since inception, all in healthcare technology and services;  Most active firm in the healthcare IT and services sectors;  Over 70% completion rate for sale assignments;  Numerous repeat engagements by clients.  HGP is passionate about our clients and their businesses.  HGP named to Inc. 5000 for two consecutive years (2012 & 2013) with 400%+ growth. HEALTHCARE GROWTH PARTNERS CONFIDENTIAL 2
  3. 3. Sector Focus Technology Services Providers Hospitals Physicians Others • • • • • • Departmental Systems Enterprise Systems Revenue Cycle Patient Throughput Patient Access Business Intelligence • • • • Payers Insurance MCOs Employers • • • • • • Claims Systems Case Management Credentialing Population Management Predictive Analytics Enrollment • Marketing • Others • Pharmacy Benefit Management • Radiology Benefit Management • Disease Management • Business Office Outsourcing • Benefit Portals • Others Suppliers Pharma Devices Biotech • • • • • • Clinical Trial Management EDC ePRO Site Management Regulatory Management Quality Assurance • LIMS • eDetailing • Others • Contract Research Organizations • Site Management Organizations • Outsourced Sales • R&D Services • Specialized Staffing • Others • • • • Personal Health Records DTC Software Content Providers Others Consumers Patients Members Families HEALTHCARE GROWTH PARTNERS Specialty Systems Transaction Processors Content Providers Others • • • • • • • • • CONFIDENTIAL Management Consulting IT Consulting Operational Consulting IT Staff Augmentation Staffing • • • • Business Office Outsourcing Administrative Services Case Management Others Care Advocacy Benefit Portals Care Management Others 3
  4. 4. HGP Recent Transaction Experience Not Disclosed Not Disclosed Not Disclosed Not Disclosed Not Disclosed Not Disclosed Not Disclosed Has been acquired by Has been acquired by Has been acquired by Has acquired Has acquired Has acquired Has been acquired by 2012 2012 2012 Not Disclosed Not Disclosed Not Disclosed Has been acquired by OptiLink Division has been acquired by Has been acquired by 2013 2013 2012 2012 Not Disclosed Not Disclosed $12 Million Not Disclosed Clinical Mobility Vendor Has been recapitalized by Has been acquired by Received funding from Has been acquired by Undisclosed 2012 2012 2012 2012 2012 2012 2011 Not Disclosed Not Disclosed Has acquired Not Disclosed Not Disclosed Not Disclosed Not Disclosed $36 Million Has been acquired by Has acquired Has acquired Has been acquired by Has been acquired by Has acquired 2011 2011 2011 2011 2011 2011 2011 Not Disclosed $4 Million Not Disclosed Not Disclosed $105 Million Not Disclosed Not Disclosed Has been acquired by Received funding from Has been recapitalized by Has acquired Has acquired Strategic advisor in recapitalization by Has been acquired by 2010 2010 2010 & 2011 2011 HEALTHCARE GROWTH PARTNERS AssuranceRx, LLC 2011 2010 CONFIDENTIAL 4
  5. 5. HGP Historical Transaction Experience Not Disclosed Not Disclosed Fairness Opinion Not Disclosed Not Disclosed Not Disclosed $26 Million Has partnered with Has been funded by Has acquired Has acquired Imaging Division of Has been acquired by Has been acquired by Has been acquired by 2010 2010 2010 2010 2010 2010 2010 Not Disclosed $4 Million Not Disclosed Not Disclosed Not Disclosed Not Disclosed Not Disclosed Has been acquired by Received funding from Has acquired certain assets from Has been acquired by Has been acquired by Has acquired Has acquired the Navicare Product Line of 2010 2009 2009 2009 2009 2009 2009 Not Disclosed Not Disclosed Not Disclosed Not Disclosed Not Disclosed Not Disclosed $41 Million Has been acquired by Has acquired Has been acquired by Has been acquired by Has been acquired by Has been acquired by Financial Advisor for its sale to Management 2009 2008 2008 2008 2008 2008 2008 $142 Million Not Disclosed Not Disclosed Not Disclosed $12 Million Fairness Opinion Not Disclosed Has acquired Has been acquired by Has been acquired by Has been acquired by Cardiology Division has been acquired by Has been acquired by Has been acquired by 2008 2008 2008 2007 2007 2007 2006 HEALTHCARE GROWTH PARTNERS CONFIDENTIAL 5
  6. 6. HGP Leadership  Christopher McCord, CFA, Managing Director (  Consultant for Mercury Ventures  CFO of Marval Biosciences  Healthcare strategy consulting and financial advisory at VMG Health  Technology corporate finance at KPMG  MBA, Kellogg School of Management | BS Engineering, Vanderbilt University  Jon Phillips, Managing Director (  Founder of Healthcare Growth Partners in 2005  Healthcare investment banking at William Blair  Healthcare strategic and operational consulting at Deloitte Consulting  Chairman of Streamline Health (Nasdaq: STRM)  Charitable board memberships with Kick off for Kids (vice chair) and the Ray Graham Association  MBA, Kellogg School of Management | BA Economics, DePauw University  Amit Aysola, Vice President (  Investment banking at Demeter Financial Group, Robert W. Baird and Banc of America Securities  Product and Account Manager at Plan Data Management (acquired by The TriZetto Group)  Systems Analyst with the Healthcare Practice at Deloitte Consulting.  MBA, Fuqua School of Business at Duke University | MS Biomedical Engineering, University of Michigan | BS Industrial and Operations Engineering, University of Michigan HEALTHCARE GROWTH PARTNERS CONFIDENTIAL 6
  7. 7. Where are we? We are here. Phase I (2010-2015) Phase II (2012-2016) (HITECH): Install and ensure the usage of Phase III (2016+) (ACA Implementation): electronic medical Lay the foundation for records with the Phase IV: 20?? capability of collecting reform with pilot risk- (ACO/Bundled and aggregating data across care settings based reimbursement models that are dependent on outcomes, quality and efficiency rather than the volume of service HEALTHCARE GROWTH PARTNERS Payment): Execute on a streamlined system of robust care coordination and population health to maximize quality as well as efficiency with the goal of delivering higher value CONFIDENTIAL (Personalized Medicine): Using big data, quality reporting, and genetic analytics, optimize care and medicine based on individualized characteristics and genomics 7
  8. 8. Healthcare Stakeholders React to Cost, Access, and Quality Initiatives Providers •Direct Impact •Risk-based pilots •Readmission penalties •Fraud scrutiny •Quality reporting •ICD-10 (non-ACA) •Indirect •Resource constraints •Consolidation •Focus on care continuum Payers •Direct Impact •Public HIX •Private HIX •Rate hike caps •MLR caps •Medicaid expansion •Coverage requirements •Indirect •Expanding capabilities Employers •Direct Impact •Insurance requirements (min employees/ hours) •Indirect •Defined contribution •Private HIX •Wellness initiatives Med-Pharm •Direct Impact •Higher taxes •Comparative effectiveness •Sunshine Act Patients •Direct Impact •Greater protections (preexisting conditions, denials, caps) •Greater coverage •More choice •Non-discrimination •Indirect •Greater Responsibility •Indirect •Care management •Big data •Genomics •Personalized medicine Information Technology – Quality & Cost (aka, Value) HEALTHCARE GROWTH PARTNERS CONFIDENTIAL 8
  9. 9. Payers Pivot Provider organizations assume risk that was previously borne by carriers • By design, insurance organizations manage risk across populations • Continued need to manage large patient populations beyond the ACO • Rapidly acquiring/developing new tools ACO formation requires know-how, data, tools, and collaboration • Can leverage employer relationships, patient populations, provider networks, access to data, and balance sheets to lend support to ACO formation • Increasing the need for hospital-physician alignment and referral management HIX’s change the distribution landscape and touchpoint with members • Benefits brokers and administrators getting in the HIT game due to broad employer distribution • Beneficiaries will need help navigating • Enables entry point for patient engagement (25mm more insured by 2023, 31mm uninsured) Lack of transparency mitigates trust ? • Quality and pricing remains an issue that the insurance industry has never addressed • Start-ups like Oscar Health and MedImpact can change the game, but face challenging incumbents Blurring lines between providers and payers • As providers manage risk, both payers and providers see opportunity to crossover • Examples such as Wellpoint acquiring CareMore, Cigna acquiring Alegis Care, providers with captive insurance programs HEALTHCARE GROWTH PARTNERS CONFIDENTIAL 9
  10. 10. Providers Pivot The number of insured is going to increase by 25 million by 2023 • Demand for healthcare will inevitably go up, particularly among under-served populations • Managed Medicaid will require more “management” • Care will need to be managed and delivered in cost-effective settings (home, mid-levels, etc) Utilization management is trending to real-time clinical decision support • Retrospective utilization management is getting closer to the point-of-care • Requires integration between big data, EMR and CDS system • Pulling data from disparate sources and putting proven intelligence around that data Intensive focus on care coordination and care management • Care coordination involves managing the patient (and data and referrals) across care settings • Care management involves actively engaging with patients throughout the care episode • Demographic-specific: A pediatric case is very different from geriatric (care keepers, etc) Readmission penalties put the spotlight on post-acute care • Acute care facilities have rapidly responded to readmission penalties (proving penalties work) • Enhancing discharge process and post-acute follow-up, as well as providing an entry point for provider organizations to get into home monitoring and linking to care management Quality and pricing transparency is still lacking • Without patient advocates, the market is opaque • Given the shift toward greater patient responsibility (given health plan design), favorable quality and transparency measures are likely to be rewarded, hence investment in data HEALTHCARE GROWTH PARTNERS CONFIDENTIAL 10
  11. 11. Patients Pivot React The Affordable Care Act put in place a number of patient protections… • Elimination of pre-existing limitations • Structural changes to insurance caps and denials • Protections against premium rate hikes • Expanded coverage (children up to age 26, Medicaid expansion, employer requirements, etc) • Broader coverage (mental health, etc) • Greater choice (insurance exchanges) • Non-discrimination (no premium variability for higher-risk vs lower-risk patients – cuts at the heart of the insurance model) • Sunshine Act (reduce the risk of clinical decisions based on kick-backs) • Readmission penalties and never-events (increase quality and reduce error) …only to result in market forces driving toward patient responsibility • Health plan selection through insurance exchanges (public and private) • Trending toward higher deductible plans as beneficiaries opt in to these plans by choice, aided by employers steering employees toward higher deductible policies • Readmission penalties are resulting in more non-acute care management • Mobile technology and information-connectivity is a patient engagement macro tailwind • Patients are faced with the conundrum of rising costs, greater choice, more responsibility, and access, but lack the information transparency to make informed decisions HEALTHCARE GROWTH PARTNERS CONFIDENTIAL 11
  12. 12. A Common Goal  Lines are blurring because providers, employers, and payers are working toward variations of a common goal – alignment that has historically been elusive Goal: Engage the patient to take greater responsibility • Employer Interpretation: Shift the benefits burden to patients through private HIX defined contribution plans, which indirectly result in lower coverage plans that decrease options and increase patient responsibility, and also incorporate other tools that improve workforce health and productivity to help manage that additional burden assumed by employees • Payer/Provider Interpretation: Ensure patients are proactively monitoring the health of themselves and their dependents, to preempt health complications and utilize efficient care settings, and not to overlook the consequential benefit of consumer marketing • Result: The ACA on its own didn’t engage the patient – stakeholders and market forces are aligning to engage patients in ways that have a demonstrable ROI Goal: Create risk-based systems that align providers across the care continuum • Provider Interpretation: Align with key referring providers and give them the technology and care management tools to ensure seamless care transitions • Payer Interpretation: Land grab as many ACO’s as possible, and deliver value through knowhow, data, and provider and patient networks • Result: Hospitals and payers are acquiring and partnering across the entire care continuum in ways that require data exchange, patient engagement, and care management as well as creating new forces that enable collaboration and competition that previously didn’t exist HEALTHCARE GROWTH PARTNERS CONFIDENTIAL 12
  13. 13. Trending Investment Verticals Employer Wellness ACO-Oriented RCM Benefits Management Guiding Theses • Transparency • ACO Tools Cost & Quality • Risk-Management • Health Consumers Employer & Provider (& increasingly patient) vs Ins Carrier • Patient vs Consumer Engagement • Informed, connected patient • Utilization Management Remote Care • Real-time CDS • Care Coordination • Non-Acute care focus PM & EMR HEALTHCARE GROWTH PARTNERS Patient Engagement Big Data CONFIDENTIAL 13
  14. 14. Market Moving HIT Investment Activity in 2012 and YTD 2013 Sector Thesis Employee Wellness Closely related to patient engagement, geared toward self-funded employers with incentive-based programs to reduce healthcare costs. Benefits Management Geared toward employers and consumers, businesses that aggregate data with an eye toward transparency in quality and pricing (aka, value). Includes health insurance exchanges (HIX). ACO Tools These vendors promise everything from population health management, care coordination, analytics, engagement, and referral management, yet actual capabilities tend to be narrower. HEALTHCARE GROWTH PARTNERS Notable Investment Activity Oscar Health CONFIDENTIAL 14
  15. 15. Market Moving HIT Investment Activity in 2012 and YTD 2013 Sector Thesis Health Consumers Consumer-oriented health content and products that generally bypass the healthcare system. Patient Communications View the patient as “connected consumers”, solutions that aim to engage patients on behalf of markets served (employers, payers, providers, etc) Data – Clinical Decision Support & Population Health Offer tools that not only aggregate and warehouse data sets, but build intelligence that enable data to better manage large populations and enable realtime clinical decision support. HEALTHCARE GROWTH PARTNERS Notable Investment Activity CONFIDENTIAL 15
  16. 16. Market Moving HIT Investment Activity in 2012 and YTD 2013 Sector Thesis Notable Investment Activity PM & EMR Still going strong, PM & EMR has concentrated down to SaaS solutions with large distribution networks, vendors focused on physician specialties, and vendors serving the postacute market. eHealth Solutions ACO-Oriented RCM Includes RCM vendors who engage in patient access, bundled payments, and hospital-physician alignment. Remote Care Enabling Platforms Technology-enabled care models that strive to manage the patient in the home environment, a reflection of HIT intersecting with healthcare services/care delivery. HEALTHCARE GROWTH PARTNERS Consulting MD CONFIDENTIAL 16
  17. 17. Technology-Enabled Healthcare Delivery – Who to watch? Humedica (2013), Connextions (2011), Ventures Group Coventry (2012), Healthagen (2011), Prodigy (2011), Medicity (2010) Linkwell (2013), Amerigroup (2012), SoloHealth (2012), Bloom (2011), CareMore (2011), HealthyCare Solutions Certify Data (2012), Anvita (2011), Concentra (2010) PureWellness (2013), Clairvia (2011), Resource Systems (2011), IMC Health (2009) Medical Referral (2013), 360Fresh (2012), Pivot Health & Cielo Med (2011), Southwind (2010), Crimson (2008) Array (2013), $11mm Carnegie Mellon Partnership, $100mm Medical Mall Data warehouse initiative, UPMC Health Plan CardioCom (2013) Health Catalyst, Telcare, AssureRx, Airstrip Navihealth, Hello Health, Patientco, change:healt hcare, Essence Group, Bloom Health, Phreesia Quantros, Navihealth, Vivify, GetWellNetwork, BodyMedia, Phreesia Competitive Dynamics Oscar Health Aviacode, Vivify, Awarepoint, S hareable Ink HEALTHCARE GROWTH PARTNERS Transparent Insurance ($40mm investment in July ‘13) CONFIDENTIAL 35mm member “transparent” PBM 17
  18. 18. Technology-Enabled Healthcare Delivery – Key Takeaways Healthcare IT is on the front-end of a long-term growth cycle (see slide 8)  Putting $20mm+ to work is challenging in pure HIT, but it’s happening with greater frequency given long-term plays on big data (see slides 14-16)  Generally requires $200mm+ exit – few $200mm+ HIT exits are VC-backed (2012 & 2013) and reflect a mix of high-growth and turnaround scenarios: Target Acquiror Seller Target Acquiror Seller Target Acquiror Seller Epocrates Athena VC, Public Transcend Nuance Public Aeroscout Stanley VC dbMotion Allscripts VC Mediconnect Verisk VC M*Modal One Equity Public Mgd Health Roper PE Coderyte 3M VC MaxIT SAIC PE Med Man Zotec Public Sub eResearch Genstar Public Sunquest Roper PE CardioCom Medtronic NA Truven Veritas Public Sub Quantim Nuance PE APS Univ Amcn Public Extend Twrs Wat VC JA Thomas Nuance NA eScreen Alere VC DRG Piramal VC Milliman Hearst Private Sub  In healthcare, sometimes you want to think BIG and small  A big risk is getting too far ahead of the innovation curve despite the temptation  External Sensitivities: Regulatory swings, workflow challenges, stakeholder politics  Scalable HIT investment models historically enable <$100mm exits without compromising IRR (smaller capital base) – larger exits are fewer, and today’s big plays are yet to-be-proven wins HEALTHCARE GROWTH PARTNERS CONFIDENTIAL 18
  19. 19. HIT Challenges and Opportunities The rising HIT tide will not lift all boats Operating Characteristics • Distribution Models: Successful HIT companies win on execution (“we have a great product but lack the sales channel” is a message often heard). • Workflow, Utilization and Adoption: Whether selling to providers or payers, vendors need to ensure utilization of their products, particularly when selling into a PMPM model, and minimizing workflow disruptions for providers to ensure clinical and administrative adoption. • Sales Cycle: Sales cycles of 9-18 months are not atypical. Investment Characteristics • Competition for Investment: There’s no shortage of funds claiming to be HIT experts – using various forms of differentiation: Strategic LPs (health systems, health plans), Advisory Boards (comprising thought leaders across the industry), Synergy Across the Portfolio (cross-sell, potential customers, know-how), Marketing the Big Wins. • Opportunistic vs Investment Thesis Strategies: Investors act on a mix of opportunism and investment thesis. The latter can be challenging given the scarcity of viable assets that can play into an investment thesis. • Valuation: There is a sharp inflection point for businesses that show momentum in “hot” sectors, resulting in high subsequent financing valuations. HEALTHCARE GROWTH PARTNERS CONFIDENTIAL 19
  20. 20. HIT Valuation Characteristics Deal activity has deviated away from the typical normal distribution toward a more “bi-modal” distribution Revenue Multiple Range1.0x 0.0x - 1.0x - 3.0x >3.0x HEALTHCARE GROWTH PARTNERS CONFIDENTIAL Characteristics of Business Commoditized offering Product and capability gaps Low or negative gross and EBITDA margins High customer attrition Distressed transaction Technology scalability Significant growth prospects Strategic synergy Competitive sale process License model Expense synergy Prior relationship with buyer Rights to data High revenue synergy Platform investment New market entrant Sustainable business model Addresses healthcare structural challenges 20
  21. 21. HIT Valuation Outliers The Long Tail Number of Transactions Typical Distribution  Size  Data Rights  Growth  Market (see below)  Recurring Revenue  Accountable Care  Profitability  Supply/Demand  SaaS/Web 0.5x 1.5x 3.0x Revenue Multiple >4.0x Number of Transactions The Long Tail HIT Platforms Interoperability Select EMR Post-Acute 2.5x HEALTHCARE GROWTH PARTNERS 3.0x Analytics Care Coordination Patient Engagement 4.0x Revenue Multiple CONFIDENTIAL 5.0x >5.0x 21
  22. 22. Characteristics of Outliers SaaS Architecture and Delivery • Single database enabling robust analytics • Delivery model that creates scale on the cost side, and recurring revenue on the top line Pricing Alignment with ROI • Pricing methodology that aligns with customer ROI – the vendor wins when the customer wins Scalable Distribution Model • Efficient distribution model (eg, customer acquisition cost < customer value) Reform-Centric Value Proposition • Addresses healthcare structural flaws rather than take advantage of them in an effort to deliver sustainable change in a post-ACA environment Data Rights • Contract structures that contain explicit rights to data General Considerations • Market leadership (or opportunity to lead) = Favorable supply/demand characteristics at exit • Large and growing market opportunity, strong financial characteristics = recurring revenue & growth, inherent scalability if not profitability, strong management, size HEALTHCARE GROWTH PARTNERS CONFIDENTIAL 22
  23. 23. HIT M&A (Including Buyout) Trends  Annualized 2013 as of June 30  Note deals announced in Q1 2013 likely include a number of Q4 2012 transactions  2013 activity 30% lower than 2012 HEALTHCARE GROWTH PARTNERS CONFIDENTIAL 23
  24. 24. HIT Capital Raise (Non-Buyout) Trends  Note deals announced in Q1 2013 likely include a number of Q4 2012 transactions  2013 activity 22% higher than 2012  Investment valuations tend to be superior to M&A valuations HEALTHCARE GROWTH PARTNERS CONFIDENTIAL 24