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Fingerprints of Value-Based Care Revealed in Much of 2015’s M&A Activity

May 17, 2016
by Michelle Mattson-Hamilton and Ben Rooks, ST Advisors
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It’s that time of year again; time to sit back and reflect/opine on another year of mergers and acquisitions (M&A)—and what a year it was. Last year saw M&A at record levels (328 HCIT deals in all, up from 308 in 2014*)—not to mention a solid number of IPOs (four in core healthcare IT) and a tremendous amount of venture and private equity investment (more than $9 billion invested through 420 transactions, excluding buyouts*).

As of the end of 2015, healthcare IT (broadly defined) even had several “unicorn” investments in its ranks (companies valued at more than $1 billion)—Proteus Digital Health, NantHealth, and Zocdoc. Strategic buyers (companies) led in the number of overall deals last year, vs. private equity firms—almost 3 to 1, and looking at disclosed transaction values (recalling that smaller deals don’t have to be disclosed), we learned that 2015 was a year of large ($50, $100, and $multi-hundred million) M&A deals. All in all – a rather glorious (aka active) year for institutional investors, companies looking to be acquired, companies seeking outside investment, and companies wishing to make acquisitions.

Michelle Mattson-Hamilton

Ben Rooks

As we took a deeper look at the year’s most significant transactions (both for companies on and off our Healthcare Informatics 100 list), it became clear that many of the year’s acquisitions fell within a few key themes: (a) transformation to value-based care, (b) payer and provider consolidation, (c) electronic health records, (d) interoperability, (f) population health, and (g) revenue cycle.  Let us briefly touch on each category and highlight a few of the relevant transactions before sharing our predictions for 2016 and sending you on your way.

Transformation to Value-Based Care

While perhaps a tad over-hyped at this point, the transformation of healthcare reimbursement from “volume to value” has finally begun to logically align stakeholders throughout the healthcare landscape, and during 2015, we saw evidence of the industry progressing further along the value-based care continuum. In January, several of the nation's largest health systems and insurers joined together with the goal of shifting 75 percent of their business to value-oriented contracts. A May evaluation of Medicare's payment reform efforts found that 42 percent of each program dollar was flowing to value-oriented payment methods. Then, in December, reports showed that accountable care organizations (ACOs) had increased their total U.S. coverage population to 23 million people (up from 7 million in March).

The transformation from volume to value is the underlying foundation of most of the other trends we’re shortly going to discuss. In addition, three relevant acquisitions bear mentioning as key HCIT companies made direct value-oriented investments in 2015. In April, Quality Systems, Inc. (#27) acquired Gennius, a provider of outcomes-based analytics for addressing value-based care requirements. In November, GE Healthcare (#9) acquired The Camden Group, an advisory firm focused on helping organizations through the changing healthcare environment, and finally, Cardinal Health acquired the majority of NaviHealth for $290 million in August; NaviHealth provides management of post-acute utilization, networks, and management of bundled payments for risk-bearing entities.

Payer and Provider Consolidation

Citing the need to integrate and align more effectively for the universe of value-based care, this past year witnessed heavy sector-specific consolidation for payers and providers. While the reasoning may be sound, there is also the risk of fewer options for consumers, reduced competition, and eventually increased prices both for consumers and the system as a whole.  While not directly related to our Healthcare Informatics 100 list, these acquisitions are worthy of mention as they notably reduce the number of available customers for our vendors and lead to increased customer buying power.

On the payer consolidation front, while the Aetna / Humana ($37 billion) and Anthem / Cigna ($54 billion) transactions got the most attention, 2015 also saw Cigna agree to buy New Jersey’s QualCare Alliance Networks, Centene announce its acquisition of Health Net ($7.8 billion), and Kaiser announce plans to acquire Group Health Cooperative for $1.8 billion.  With 112 transactions (compared to 95 in 2014 and 66 in 2010), providers had a likewise active year, and 2015’s largest announced provider deal was the merger of two not-for-profit, Catholic healthcare systems: Renton, WA-based Providence Health & Services ($12 billion in revenue) and Irvine, CA-based St. Joseph Health System ($5.6 billion in revenue).