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Taking a Deep Dive into the Healthcare Informatics 100—and the Health IT Market, Broadly

June 14, 2018
by Michelle Mattson-Hamilton and Ben Rooks, ST Advisors
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Two industry experts break down this year’s list and what’s happening in the market at this current moment

Editor's note: Rather than our typical review of mergers and acquisitions in the prior calendar year, this year, in an effort to capture and portray the breadth, acceleration, and impact of consolidation and M&A on the entire healthcare arena (e.g., payers, PBMs, providers, healthcare IT vendors, etc.), we’re going to look from Jan 2017 through year-to-date 2018 (i.e., May 2018).

For the last 18 months, bigger has (generally) been better, but in the mergers and acquisitions realm, the gambit has been run: from vertical integration to smaller strategic acquisitions (and it didn’t hurt that changes to tax policy, along with low interest rates, left a few extra coins in the couch cushions in Dec 2017). Let’s dissect some of this “deal mania” behavior from the last six quarters and consider the potential ramifications for healthcare technology vendors in 2018 and beyond.

Note: The 2018 Healthcare Informatics 100 list in full can be viewed here.

Payers Buy PBMs and Vice Versa! In our view, one of the most interesting, and potentially transformational, deals in healthcare this past year was CVS Health’s planned acquisition of leading health insurer, Aetna (which saw its attempt to acquire Humana thwarted by regulators). This will give CVS a host of assets to arrange in the healthcare sandbox including, a major PBM, a leading retail presence, nurse clinics, and now the full ability to underwrite risk and manage care. Meanwhile, Cigna announced its intentions to purchase Express Scripts for $68.4 billion in March ‘18.  (recall that Express Scripts had acquired eviCore in Dec 2017 for $3.6 billion.) Assuming these deals close successfully, the nation’s largest PBMs will all be aligned with the three largest payers, creating impressive, vertically-integrated healthcare entities. No doubt Amazon’s abandoned (for now) exploration of this space also got these companies’ attention!

Payers Buy Providers: Insurers continue to blur the line between payer and provider as they push further into the provision of patient care. In a move to expand the organization’s outpatient care services, in Dec 2017, United (Optum, #1) reached an agreement to acquire DaVita’s medical unit for $4.9 billion. Optum also acquired Surgical Care Affiliates in Jan 2017 and gained 210 ambulatory surgery centers performing ~1 million procedures annually and is now one of the largest owners of physician practices. Similarly, Humana made a big bet in home health when it spent $800 million on a 40 percent stake in Kindred at Home through a joint venture with TPG and Welsh, Carson, Anderson & Stowe in April 2018. Not to be outdone, Anthem secured HealthSun (Sept 2017), an integrated Medicare Advantage plan and healthcare delivery network in Florida, and Centene bought Community Medical Group, an at-risk primary care provider, in Mar 2018.

Payer Consolidation: No year would be complete without additional payer consolidation. In 2017, Centene’s acquired Fidelis Care (Sept 2017) and Anthem acquired America’s 1st Choice (Oct 2017).

Provider Mega-Mergers: In the face of continued vertical integration from payers, movement towards cheaper settings of care, and expanding financial pressures (e.g., high technology and staff expenses, reduced reimbursement, rising bad debt from increased consumer financial responsibility), providers have been seeking alternatives to remain competitive (and, in our view, materially increase their pricing power). This movement led to some massive provider deal announcements at the end of 2017, including:

  • December 5 - Illinois’ Advocate Health Care and Wisconsin’s Aurora Health Care (new system to be known as “Advocate Aurora Health Care” – catchy!). Serving 3 million patients annually, the combined entity would encompass 27 hospitals with annual revenues of ~$11 billion
  • December 7 - Catholic Health Initiatives and Dignity Health, where the combined organization would include 139 hospitals with operations in 28 states and combined revenue of $28.4 billion
  • December 10 - Merger of Ascension Health and Providence St. Joseph Health, where the resulting entity would have 191 hospitals in 27 states with annual revenue of $44.8 billion. (Although, reports indicate talks halted in March ‘18 due to the organization’s differing priorities.)

What about Healthcare IT Vendors?

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