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2016’s M&A within Healthcare Informatics’ Top 100—Caution Emerged

May 31, 2017
by Ben Rooks and Michelle Mattson-Hamilton, ST Advisors
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Reviewing another interesting year in healthcare IT M&A

Last year, we predicted that 2016 would herald slightly muted transaction valuations and a reduction in the total number of completed healthcare IT (HCIT) transactions. Instead, after a somewhat muted first half for financings, we had another overall industry record-breaking year for both investments and M&A activity, albeit less among the top-tier vendors within the Healthcare Informatics 100. This could be regression to the mean after a torrid level of activity in 2015, or it could well be a result of some players remaining comfortably on the sidelines as they absorb past acquisitions, focus on internal growth or, perhaps wait for valuations to come down.

As we begin our annual review, let’s begin with what didn’t happen!

The Dog that Didn’t Bark

In February, 3M Health Information Systems (#20) announced that it had made the decision to “retain and further invest in” its $760 million revenue health information business (it had announced it was exploring strategic alternatives the previous September). Why the lack of buyer interest in such a quality asset? Most likely a combination of value expectations and, equally importantly, the tax impact to 3M of making so much money on selling assets it had owned for so long (and grown so much). While such a large gain would have posed a high-class problem, it’s not the first time tax planning served as the tail that wagged the dog. The company later acquired a Switzerland-based medical coding technology company called Semfinder and announced a partnership with Google’s Verily focused on population health management. According to published Wall Street research, as recently as October, NextGen Healthcare (#31) had reportedly retained a banker to explore a sale, an event that has yet to occur, and as of May 30, potential buyers are refining bids for The Advisory Board Company (# 19).

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McKesson (#4) continued shedding its HCIT-focused assets, first selling its fairly small (and typically small group/solo doc-focused) ambulatory assets to PE-backed eMDs. Much more significantly, the company also combined the majority of its technology solutions with the majority of the assets of Blackstone-backed Change Healthcare, formerly known as Emdeon (#11), into a new entity (also to be called Change Healthcare). This new company will have over $3.4 billion in revenues and be a major player in the space. The structure, valuation, and other math that this transaction required to be tax efficient (see above on 3M) is beyond the scope of this article, but it’s fair to say the lawyers earned their fees on this one!

PE + Strategic = Great Price

Speaking of interesting transaction structures, Netsmart (#46) was sold for $950 million in March 2016, in a fairly unusual fashion. The company was acquired by a joint venture of PE-firm GI Partners and Allscripts (#13), with Allscripts also contributing its homecare software business (which was always non-core, having originally been part of A4 Health Systems). This PE-backing of a strategic buyer is new to HCIT, but has worked well in other industries, as it gives the financial investor (in this case GI partners) “an edge” on buying the target (Netsmart) and the company (Allscripts) the ability to stretch on value. How much credit Allscripts investors will give over the long run, however, remains to be seen. Later in the year, Netsmart continued its acquisition pace, purchasing long-term care vendor, HealthMEDX.

Meanwhile, Investors Remain Active

Other notable private equity transactions included TPG’s purchase of Mediware (#65) from Thoma Bravo (current owner of MedeAnalytics, #83. Thoma Bravo was busy last year, as it also took Imprivata (#71) private for $544 million (a 33 percent premium to its stock price). On the liquidity side, Brightree (#79) was sold by its sponsor (Battery Ventures) to apnea-focused medical device company, ResMed, for an impressive $800 million (7x revenues and 14x EBITDA), as the CPAP manufacturer sought opportunities for growth and to get closer to its DME vendor supply chain.

Big Blue Gets Bigger Still (but will it ultimately sing the blues?)

IBM (#24) continued its binge (recall our view that “immateriality means never having to say you’re sorry”) and purchased Truven for a whopping $2.6 billion (6x revenues and 23x EBITDA – wow!). This following the aggressive prices paid for Explorys, Phytel, and Merge the prior year. We can only wonder if Watson builds its own valuation models and what it’s thinking.

Hoping that lightning will strike twice, Truven’s former PE owner, Veritas Capital, then proceeded to acquire the healthcare business (now known as Verscend Technologies #42) from Verisk Analytics for $820 million, as Verisk decided to return to its core markets while capitalizing on the on-going demand for HCIT properties.

Population Health, still Popping

Other interesting, albeit smaller, population health-related activity included HMS (#30) taking a step towards this side of the sector, as the organization moved from pure cost containment (payment integrity, fraud prevention, and other more revenue cycle-focused tools) towards patient-facing solutions with its $20 million acquisition of care management vendor, Essette. Meanwhile, publisher Wolters Kluwer (#23), best known for owning UpToDate, also moved toward patient-facing solutions with its $170 million (6x revenues) purchase of Emmi Solutions, and Teladoc (#76) expanded its patient engagement offerings by acquiring HealthiestYou for $125 million in cash and stock (12x revenues!).

Also within population health, Philips (#5) acquired Wellcentive for $165 million (8x revenues). This was one of the bigger surprises last year, given Philips’ historic focus on healthcare solutions that existed within arms’ reach of patients (such as Visicu, and its other more monitoring or imaging-type products. athenahealth (#15) also expanded its population health portfolio with its $15 million purchase of care coordination vendor, Filament Labs (dba Patient IO).  One final population health transaction of note in the Top 100: GE Healthcare (#12) purchased the balance of Caradigm (#99 in 2015) from Microsoft.

Hospitals Vendors Quieter and RCM Slows as Well

Hospital vendors were a tad quieter this past year, although Omnicell (#22) purchased pharmacy vendor Ateb, moving it outside the pure enterprise, for $41 million, and Vocera (#74) purchased clinical alarm and event management workflow vendor Extension Healthcare for $55 million.

Other than McKesson/Change Healthcare’s combo, the Top 100 vendors were less active in the revenue cycle management space than in years past, but ABILITY Networks (#75) continued its active consolidation efforts, with two small tuck-ins—analytics vendor G4 Healthsystems and long term care-focused eHealth Data Solutions for undisclosed amounts, while Availity (#50) tucked in both RevPoint Healthcare Technologies for patient access solutions and FORE Support Services for its preauthorization capabilities. nThrive (#28)—the MedAssets/Precyse combination—acquired both Equation (a financial and clinical healthcare analytics company) and Adriema (a patient access vendor).  All that said, we’re aware of multiple processes and many hungry investors all around RCM, so we’d expect this section of next year’s list to be more active.

Looking Forward

We see countervailing forces driving the level of activity in the coming year. Given legislative and reimbursement/enrollment uncertainties in the current political climate, both providers and payers seem to be slowing vendor purchasing, which means said vendors are likely to see some weaknesses in bookings (obviously, this will be extremely impactful to smaller vendors and somewhat less impactful to the Top 100 vendors we profile). While this trend could make companies more hesitant to acquire, it will also likely force smaller targets into play and on the menu.

Private equity investors remain highly active, with a tremendous amount of “dry powder” sitting in their bank accounts and in need of deployment, which will drive valuation (and hence activity) upward for the highest quality targets. This suggests 2017 will be a year resulting in a two-tailed distribution of transaction size.

Either way, it’ll be an interesting year—but they always are!

Before founding ST Advisors in 2009, Ben Rooks (ben@st-advisors.com) spent 15 years on Wall Street as both an equity research analyst and investment banker focusing on healthcare IT.

Michelle Mattson-Hamilton (michelle@st-advisors.com) spent three years in corporate strategy in the telecommunications industry before making the move to healthcare IT and joining ST Advisors six years ago.

ST Advisors is a strategic and financial advisory firm focused in healthcare IT that serves both companies and their investors (as well as, occasionally, plans and providers).  Of the companies mentioned above, ST Advisors has provided advisory services in the past three years to 3M, Caradigm, FORE Support Services, GE Healthcare IT, TPG Capital, and Vocera.


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Kaiser Creating Evidence-Based Complex Care Models

January 17, 2019
by David Raths, Contributing Editor
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Work aligns with recently published ‘Blueprint for Complex Care’

The National Center for Complex Health and Social Needs recently published a “Blueprint for Complex Care” to develop a collective strategy for promoting evidence-based complex care models. Recognizing that many patient issues have root causes that go beyond the medical, the Blueprint seeks to identify best practices for breaking down silos between the social care delivery system and healthcare.

Perhaps no health system has devoted as many resources to complex care as Kaiser Permanente. Its Care Management Institute, a joint endeavor between the Permanente Medical Groups and Kaiser Foundation Health Plan, has established Complex Needs as one of its national quality initiatives. It has named regional complex care leaders, created common quality measures across regions and established a complex need research arm called CORAL. (Kaiser Permanente has eight Permanente Medical Groups and regions, more than 12.2 million members, more than 22,000 physicians and 216,000 employees.)

In a Jan. 16 webinar presentation, Wendolyn Gozansky, M.D., vice president and chief quality officer, Colorado Permanente Medical Group and national leader for complex needs at the Care Management Institute, described Kaiser Permanente’s efforts and used some personal anecdotes to explain their goals.

She said Kaiser Permanenteis working on the concept of developing core competencies and tools to support a longitiudinal plan of care for patients with complex needs. “These are the folks for whom the usual care is not meeting their needs,” she said. “How do you recognize them and make sure their needs are being met?”

Gozansky gave an example from a patient she had just seen the previous wekend. This women had fallen and broken her hip. She had several chronic conditions, including significant asthma, yet she was not on an inhaled steroid.

“One concept I love from the Blueprint is that this field is about doing whatever it takes to meet the needs of the person in front of you,” she said. In speaking to the woman, she came to understand that singing in a church choir was the most important thing in her life, and the inhaler medication was making her hoarse and unable to sing.  She was fairly isolated socially except for church. “My goal was to get her rehabbed and leverage the patient-defined family that is supportive. Her goals are to sing, so we need to do what is possible to get her back to that. We have to capture that information, put it into a long-term plan of care. The goal is not to get her out of rehab but to get her singing in choir.”

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The health system has to work on care that is preference-aligned. The woman is not on a steroid inhaler but her care is preference-aligned. How does the health system assure that everyone knows they are doing the right thing?

Gozansky said the beauty of Permanente Medicine is that its setup involves an employed medical group focused on value, not volume. They can interact with health plan partners in delivery of new systems of care. “It is a virtuous cycle about value and person-centered care. This is what our complex needs team is trying to understand.”

She described the journey so far: In 2015 there were pockets of work being done across the eight Kaiser Permanente regions. In 2016 they established complex care as a national qualitiy iniative. “We knew we were not meeting these patients’ needs. We had to figure out the right way to do that.” They also realized that most of the previous research on the topic involved examples that were not in integrated systems such as Kaiser Permanente. “We had to figure it out in an integrated system,” she said.

 In 2017 they started working on cross-regional learning — for instance, taking a program from Colorado and trying it in Southern California. Then they sought to align quality measures. In 2018 they got funding to create CORAL, the complex needs research arm.  

The Care Management Institute has created a “community of practice” on complex care to break down silos within the organization and bring together research, operational and administrative executives. They also want to work with external stakeholders to make sure what they are developing is scalable, Gozansky said.

Mark Humowiecki, senior director of the National Center for Complex Health and Social Needs, also spoke during the webinar. He said one of the goals of the Blueprint was to get a clearer definition. Some people get confused about terms such as “hotspotting” and complex care, he said. He said there is a recognition that these patients’ needs are crossing traditional silos, so “there is a need to connect care for the individual but also at the system level.”

The goal, he added, is to create a complex care ecosystem by developing in each community system-level connections between social care delivery and healthcare, which in the past have operated too independently.  The five principles are that complex care is person-centered, equitable, team-based, cross-sector and data-driven. One of the Blueprint’s recommendations is to enhance and promote integrated cross-sector data infrastructures.

 

 


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NIH’s All of Us Program Teams with Fitbit for Data Collection

January 16, 2019
by Heather Landi, Associate Editor
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The All of Us Research Program, part of the National Institutes of Health (NIH), has launched the Fitbit Bring-Your-Own-Device (BYOD) project. Now, in addition to providing health information through surveys, electronic health records, and bio-samples, participants can choose to share data from their Fitbit accounts to help researchers make discoveries.

According to All of Us research program officials, the project is a key step for the program in integrating digital health technologies for data collection.

The All of Us Research Program, established by the White House in 2015, aims to advance precision medicine by studying the health data of 1 million diverse Americans over the next five years. One aim of the project is to include groups that have been historically underrepresented in research. As of September 2018, more than 110,000 people have registered with the program to begin the participant journey, and more than 60,000 have completed all elements of the core protocol.

The participants are sharing different types of information, including through surveys, access to their electronic health records and blood and urine samples. These data, stripped of obvious identifiers, will be accessible to researchers, whose findings may lead to more tailored treatments and prevention strategies in the future, according to program officials.

Digital health technologies, like mobile apps and wearable devices, can gather data outside of a hospital or clinic. This data includes information about physical activity, sleep, weight, heart rate, nutrition, and water intake, which can give researchers a more complete picture of participants’ health.” The All of Us Research Program is now gathering this data in addition to surveys, electronic health record information, physical measurements, and blood and urine samples, working to make the All of Us resource one of the largest and most diverse data sets of its kind for health research,” NIH officials said.

“Collecting real-world, real-time data through digital technologies will become a fundamental part of the program,” Eric Dishman, director of the All of Us Research Program, said in a statement. “This information, in combination with many other data types, will give us an unprecedented ability to better understand the impact of lifestyle and environment on health outcomes and, ultimately, develop better strategies for keeping people healthy in a very precise, individualized way.”

All of Us participants with any Fitbit device who wish to share Fitbit data with the program may log on to the All of Us participant portal at https://participant.joinallofus.org and visit the Sync Apps & Devices tab. Participants without Fitbit devices may also take part if they choose, by creating a free Fitbit account online and manually adding information to share with the program.

All of Us is developing additional plans to incorporate digital health technologies. A second project with Fitbit is expected to launch later in the year, NIH officials said, and this project will include providing devices to a limited number of All of Us participants who will be randomly invited to take part, to enable them to share wearable data with the program.

The All of Us research program plans to add connections to other devices and apps in the future to further expand data collection efforts and engage participants in new ways.

Related Insights For: Population Health

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NorthShore to Lead “Largest Primary Care-Based Genomics Program in U.S.”

January 14, 2019
by Rajiv Leventhal, Managing Editor
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The Chicago-based NorthShore University HealthSystem and genomics technology company Color are partnering on a new initiative that will aim to deliver the power of genomics to routine primary care at population scale.

Known as "DNA10K," the initiative will engage more than 10,000 patients and will be the largest known primary care-based genomics program in the U.S., according to officials who made an announcement last week.

The approach will build on NorthShore's years of experience in genomics and actionable electronic medical records (EMR) information, while providing access to Color's clinical-grade genetic testing and whole genome sequencing to inform patients about their risk for certain hereditary conditions, according to company executives.

“The knowledge will help patients learn about their genetic makeup, including risk factors for certain disease types such as common hereditary cancers and heart diseases. This insight will help NorthShore personalize care for each patient to support improved outcomes, prevention and overall health,” officials noted.

The announcement comes on the heels of a recent pilot between NorthShore and Color that looked to unlock the benefits of genetic information in routine care.

As officials explained, in less than two months, more than 1,000 patients signed up for the Color population health program as a part of their primary care visit, an adoption rate of more than 40 percent of those eligible and significantly beating expectations of the pilot program. “This is a strong indicator of patients' interest in understanding genetic factors that can influence health and the opportunity to work with NorthShore care providers to make more informed treatment or prevention decisions,” they attested.

Overall, the DNA10K initiative supports NorthShore's efforts to improve patients' health outcomes at a population level, with genomics as a foundation for informing individualized healthcare.

Patients who take advantage of the "DNA10K" offering will provide a blood sample, which is then analyzed in Color's CLIA-certified, CAP-accredited lab, and results are returned to healthcare providers and their patients. In addition to their NorthShore primary care provider, patients will also have access to board-certified genetic counselors and clinical pharmacists from Color and NorthShore, officials explained.

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