The healthcare policy and payment landscape is rapidly evolving, with the move to value-based care models a driving force behind current healthcare reform efforts. Case in point: in a recent speech at the World Health Care Congress, Health and Human Services (HHS) Secretary Alex Azar laid out his agency’s overall policy strategy and cited accelerating the value-based transformation of the healthcare system as a top priority.
In this landscape, healthcare provider organizations across the country are advancing forward with population health management, accountable care organization (ACO) development, bundled payments and interoperability initiatives that require robust data and analytics capabilities.
This ongoing evolution is, in turn, fueling healthcare providers’ demands on healthcare IT vendors to provide solutions and capabilities to fit their needs for population health management and value-based care models, with core IT capabilities needed around data aggregation, data analytics, care management and patient engagement, to name a few.
Facing these health IT demands, the major electronic health record (EHR) vendors have built out their own population health and analytics capabilities, such as Cerner’s HealtheIntent platform, Epic’s Healthy Planet and athenahealth’s Population Health platform. According to many healthcare IT experts, EHR vendors are making inroads in the PHM space and are challenging some of the best-of-breed vendors.
“About five years ago, there were maybe between 15 to 20 population health tool vendors in the market, but the major EHR vendors were not interested in that space, and that has changed dramatically with the large EHR systems in the past five years, Epic in particular,” Liam Bouchier, principal at healthcare IT consulting firm Impact Advisors, says. “Epic, at this point, is Best in KLAS for their tool set that they provide. Another major competitor, Cerner, also has an incredibly powerful platform. Are these platforms perfect? No. Why? The main reason is, beyond the structured information that you get from health systems, approximately 40 percent of health outcomes are determined by your behaviors, and that’s really where the gold is in terms of data that is needed to drive some of these health outcomes in a positive fashion,” Bouchier says.
A Booming Health IT M&A Market
The evolving payment and policy landscape, shaped in many ways by the drive towards value-based care models, is also driving developments in the health IT mergers and acquisitions (M&A) landscape.
A recent white paper by Berkery Noyes, a New York City-based independent investment bank that provides M&A advisory and financial consulting services, notes that the healthcare technology industry is undergoing a rapid transformation and structural shifts due to reform, cost pressures, and shifting responsibilities between payers and providers. “Private, best-of-breed technology-enabled healthcare IT companies that effectively address market niches and have some level of scale are in high demand by both financial and strategic buyers,” the report states.
The white paper, which examines activity in the pharma and healthcare information and technology M&A trends over the past two years, notes that the breadth of acquirers for healthcare IT companies continues to expand as buyers look to capitalize on the size, rapidly evolving dynamics and growth characteristics of the healthcare market. Acquirers are aggressively looking to broaden product suites, leverage distribution channels, and realize revenue and cost synergies, according to the report, also noting that M&A-driven expansion of strategic healthcare technology platforms is a dominant trend.
According to Berkery Noyes, there were 922 industry M&A transactions from the beginning of 2016 through the end of 2017. Among these deals in the past two years, enterprise value multiples have been strong, with deals averaging about 2.1x revenues and with a median EBITDA (earnings before interest, tax, depreciation and amortization) multiple of 12.5x in 2016 and growing to 13.2x in 2017.
“There’s a boom time in healthcare IT M&A. It’s a great time to be a seller if you have a growth company of scale in healthcare today,” Thomas O’Connor, managing director, healthcare investment banking at Berkery Noyes, says. “The market right now for a recurring revenue growth business of scale is unbelievable. We’re very deep in an M&A cycle; there’s $1.2 trillion of private equity money chasing deals, they can’t find deals of scale and it’s come way downstream in the marketplace today. Most of the deals you’ll see are add-ons to the portfolio companies.”
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