Does 3M’s Acquisition of CodeRyte Represent a Defensive Strategy?

This week’s announcement that 3M has acquired CodeRyte was a surprise as much as it was completely predictable.  On one hand, 3M Health Information Systems has had enjoyed what seemed at times to be a near ubiquitous presence in the coding solutions market for years and has been noticeably absent in the M&A arena since 2006 when it acquired SoftMed Systems (note: the $230M acquisition of Attenti in 2010 sits within 3M’s Track and Trace Solutions division).  However, with the impending move to ICD-10 in October 2014 as well as a broader trend toward greater levels of clinical documentation granularity and improved data management and analytics capabilities in healthcare, it is completely understandable that 3M had to make a provocative move to both protect its market share and strengthen its ability to deliver value to its provider customers in a highly regulated, increasingly complex healthcare environment.  The fact that 3M has had a reseller arrangement with CodeRyte since 2009 is further evidence of the existing relationship and fit between the two organizations.

With that being said 3M’s move to acquire CodeRyte represents, in our opinion, a potential defensive strategy to maintain its leadership position in coding and documentation improvement.  While not conclusive, there are a host of data points that seem to support this assertion:

• Heavy reliance on legacy encoder and grouper technologies – 3M’s leading flagship products provide a lot of financial stability for the organization, but these technologies are becoming dated amid the industry’s ongoing evolution and other, more nimble solutions coming to market
• Success and momentum of Optum and A-Life – Optum’s acquisition of A-Life has been very successful in the marketplace as of late, further challenging 3M’s existing position in computer assisted coding (CAC)
• Uptake of point of care workflow tools – While 3M’s 360 Encompass System provides an intriguing bridge between customer’s financial and clinical data at the point of care, this solution is relatively new and has presumably not had the sort of uptake that meaningfully impacts the division’s top-line
• Limited success in penetrating adjacent markets – 3M has struggled to extend its solution set into growing opportunities with payers, Health Information Exchanges (HIEs), and Accountable Care Organizations (ACOs).  Payers, for one, represent a huge counter-market to the providers as the entire healthcare industry looks to neutralize the impact of the ICD-10 transition

This isn’t to say that the combination of 3M and CodeRyte isn’t innovative – in fact, the addition of CodeRyte’s Natural Language Processing (NLP) and CAC capabilities could greatly improve the workflow efficiencies at the end-user level.  However, the need of 3M to bolster and extend its coding capabilities is apparent as emerging clinical, financial, and compliance objectives increasingly require a more pervasive data management and analytics platform delivered at the point of care and throughout the healthcare ecosystem (providers, payers, EMR vendors, consumers, etc.) to solve a range of increasingly complex and intermingled challenges.

 

Seth Kneller

Seth Kneller is a Vice President at TripleTree covering the healthcare industry, specializing in revenue cycle management, clinical software solutions, geriatric care and healthcare analytics. Follow Seth on Twitter or e-mail him at skneller@triple-tree.com.

Read Full Post »

Marketers Beware: Seniors Are Far From a Typical Healthcare Consumer

The U.S. is on the verge of a dramatic demographic shift as more than 10,000 Baby Boomers turn 65 each day.  This startling demographic change has tremendous implications for our society, ranging from the availability and utilization of our healthcare resources to the staggering, uncontrollable economic cost of providing medical care and support services.

While the problem is wide-spread, the age of Health Reform has shifted the traditional health delivery model to one focused on the individual.  In our research on seniors, TripleTree has unearthed several emerging themes that introduce improved transparency, advocacy, and choice into the senior’s decision-making process regarding their health and prescription drug coverage.  As a result, the senior becomes the focal point to improved coverage that better aligns with their specific health needs as well as cuts unnecessary cost and waste out of the purchasing and enrollment process.

The following themes highlight a few examples of how an alignment around the senior has played into the strategies of large corporate entities as well as emerging innovators that specialize in combining technology with high-touch service capabilities.

Leveraging “Brand”

The new generation of seniors will be much more retail-savvy, will demand greater transparency, and will have improved information tools to help guide all aspects of their health-related spending.  Recognizing this, retailers such as Wal-Mart, Walgreens, and CVS/Caremark are strongly positioned to leverage their trusted brand within the decision-making processes of seniors.

• Wal-Mart, through a recently announced co-branded Medicare Part D prescription drug plan with Humana, is already taking advantage of this phenomenon.  The Humana Wal-Mart-Preferred Rx Plan (PDP) is being offered in over 4,000 Wal-Mart pharmacies nationwide, providing substantial cost savings for the 18 million Americans that rely on Medicare Part D for their prescriptions.
• Walgreens has made several acquisitions that place limited service, acute illness clinics in retail stores and employer settings.  These purchases – which include Whole Health Management, I-trax Health Management Solutions, and Take Care Health Systems – highlight Walgreens’ efforts to expand an already trusted relationship with their customers.
• CVS/Caremark, like Walgreens, has capitalized on an opportunity to expand its platform to include other service-line extensions.  The company’s acquisition of MinuteClinic and subsequently, its rather aggressive expansion strategy have played on the brand’s trusted, neighborhood presence as a means of providing face-to-face care and assistance for seniors and other demographics.

Unique Demands & Approaches

While the complexities of comparing and procuring health insurance are much greater than that of other day-to-day purchasing decisions, new industry dynamics are driving the demand for solutions that can address both the functional requirements of health insurance exchanges as well as the purchasing preferences of seniors.  New innovative approaches are being developed to address the emerging demands of this new healthcare marketplace.

• Transparency: Several emerging vendors – such as Connextions, Benefitfocus, and Extend Health – have established themselves as trusted sources of information within the health and prescription drug coverage procurement process.  Their solutions interface with multiple data feeds (including eligibility, subsidy, health plan, premium data, etc.) and present this data in an easy-to-use, consumer-friendly format that can be understood and relied upon by the senior.
• High-Touch Advocacy: Companies that layer personalized advocacy and support services over their core technology are a step ahead as the requisite technology-services mix comes together to enable a comprehensive yet flexible approach that caters to the personal buying habits and technological proficiency of a diverse senior population.
• Establishing Trust in the Decision-Making Process: Seniors, to an extent greater than their younger peer groups, have a more pronounced set of preferences and possible reservations when it comes to making decisions regarding their health and prescription drug coverage.  This dynamic – which is only exacerbated as the senior ages and experiences accelerated cognitive impairment – introduces greater uncertainty and the potential for mistrust within the purchasing process.  To combat any negative preconceptions, companies that wish to market successfully to seniors must be disciplined in how they incorporate an easy-to-understand decision-making framework with personalized, high-touch guidance and support.

Soon, our research team will be publishing a series of reports on the Seniors market.  A range of themes are evaluated in the context of providing seniors with greater access to resources, support, and decision-making tools as they increasingly desire to age independently in the home.   Let us know if you’d like a copy.

Have a great week.

Seth Kneller

Seth Kneller is an Associate at TripleTree covering the healthcare industry, specializing in revenue cycle management, clinical software solutions, geriatric care and healthcare analytics. Follow Seth on Twitter or e-mail him at skneller@triple-tree.com.

Read Full Post »

Big Defense Contractors Take Aim at Healthcare

The U.S. Defense Department budget experienced a $2+ trillion surge from 1998 to 2010 and was the primary driver behind the growth and sky rocketing valuations of “defense IT” contractors over the same period. Government contractor M&A activity and valuations peaked in 2007 and have since stalled pending government budget cuts and evolving spending priorities. Despite the slowdown, recent indications are that M&A activity in the sector is roaring back – here’s why:

Facing stagnant growth in their core industry, recessionary pressures, and shareholder demands for higher revenue and earnings, defense IT contractors are increasingly exploring non-traditional avenues for growth. Unlike defense spending which faces the specter of spending cuts for the next several years, U.S. federal government healthcare spending has its own projections set now at $985 billion this year, with growth only accelerating. These combined factors have led leading industry players such as CACI, CSC, and General Dynamics to see healthcare as a major opportunity for growth and a strategic imperative going forward.  Financial sponsors are becoming acquisitive too – consider the following deals:

• NCI acquired AdvanceMed for $62 million
• Vangent acquired Buccaneer Computer Systems for $70 million
• Smartronix acquired HIE firm Cogon Systems for an undisclosed amount
• SRA International acquired by Providence Equity for $1.9 billion
• Global Defense Technology and Systems acquired by Ares Management for $315 million
• General Atlantic Partners and KKR purchased TASC from Northrop Grumman for $1.65 billion
• Veritas Capital purchased the Enterprise Integration Group from Lockheed Martin for $815 million

We believe that as comfort with the changing dynamics of the federal budget and healthcare reform grows in the new post-recession environment, strategic defense and IT contractor interest fueled by cash war chests and shareholder demands will drive premium market valuations. Reuters recently announced that Veritas Capital government HCIT portfolio company Vangent has entered a process with valuation expectations north of $1 billion and significant early interest from private equity and strategic buyers.

At the same time, cross-aisle matchmaking between commercial and government healthcare players (CSC’s acquisition of iSoft Group for $188m; Harris’ acquisition of Carefx for $155m; and UnitedHealth Group’s acquisition of federal medical evaluation provider Logistics Health Inc) is being supported beyond the increasing federal involvement in healthcare. UnitedHealth Group has taken an early leadership role with respect to diversifying beyond TRICARE and we expect other payer groups to follow. Some of the macro forces we see driving growing commercial-government convergence are:

• Fewer single department or one-of-a-kind government systems and solutions
• Technology upgrades are prevalent for cost-cutting purposes and streamlined workflows
• Growing mindset around collaboration between governmental agencies
• Diversification between stable government revenue and higher-margin commercial revenue

Despite the heydays of the defense spending boom being over, the government IT/services M&A market is showing it can still generate billion dollar deal flow. With existing industry players doubling down on their investments, new entrants (including financial sponsors) will continue to pursue and capitalize on undervalued assets. Let us know what you think.

Marc Baudry

Marc Baudry is an analyst at TripleTree covering the healthcare industry specializing in government healthcare services, population health management and informatics. Follow Marc on Twitter or email him at mbaudry@triple-tree.com.

Read Full Post »

HHS Announcement Signals Start of ACO Services Race

With the proposed rule from the HHS and CMS finally released today for public comment, reactions and analysis will grow in the coming days on what it all means for healthcare providers.  We thought it made sense to offer some perspective on how we’re viewing the evolving opportunities for innovators, their investors, and their partners.

While integrated delivery networks (IDNs) and other large provider groups will have plenty to sort through to determine the tradeoffs of seeking accountable care organization (ACO) status, a number of researchers are already digging into the thorny issues surrounding ACOs to help develop standards, best practices, and collaboration between different models that are likely to spring up in the wake of health reform.  See this and this as examples.

What is most interesting to us so far is the jockeying of HIT vendors to reposition themselves as experts to the developing ACO marketplace.  While there are a number of ways to think about this – and our thinking is evolving pretty much daily – we see a few targeted areas where vendors are going to play.  None will be able to offer anything close to the end-to-end ACO functionality that several claim in their marketing materials.

Our view on the rapidly developing market for ACO services follows:

• Creating the ACO:  Provider groups will require help sorting through those 1,000 pages of regulations, and we are already seeing opportunities for large, healthcare-focused consulting and implementation firms that have the ear of the hospital CEO to help steer the design and creation of these models. Companies like Accenture, IBM, Deloitte, Dell/Perot and the Advisory Board are being asked questions every day by their clients about ACOs – and at least one have already started to work on their own solution.  Partnerships with these consulting firms will aid adoption for vendors downstream in the areas below

• Enabling the ACO:  The clinical integration of the ACO is the area of hottest focus right now – transactions in this space clearly demonstrate this.  HIE and interoperability vendors Axolotl, Medicity, and CareFX have all traded in the past 12 months.   Payers like UnitedHealth and Aetna have placed their bets on HIEs as the backbone on which clinical data will be integrated.  For provider networks looking to challenge this paradigm, the recent wave of physician practice acquisitions by hospitals and/or the subsidization of a single EMR system in an area (Minneapolis is largely an Epic market, for example) indicate that there may be another approach to achieve clinical integration.

• Optimizing the ACO:  Once an ACO is established, the network of providers will need plenty of technological capability:  decision support and evidentiary guidelines, contracting and risk tools, compliance reporting, and performance benchmarking analysis among them.  Many companies already providing these services to health insurers are sprinting to reposition themselves as experts for the provider community as well – visit the home page of any formerly payer-focused software vendor as proof.  Market interest in companies participating in this space is heating up.

• Marketing the ACO and Engaging with the Patient:  In our view, this is an overlooked area so far and will eventually be key to closing the loop on the ACO return on investment.  Vendors that will compete in this space are currently offering a range of services that can help do this, from health and wellness to member enrollment activities.  Once provider groups are operating as “mini-payers,” keeping patients healthy outside the facility walls while also keeping them happy with the level of engagement they experience with their physicians will extremely important.

Our research agenda and strategic advisory work have the ACO services space top of mind right now and our thinking is evolving constantly.  We’d love to know what you think.

Conor Green

Conor Green is a Vice President at TripleTree covering the healthcare industry, and specializing in revenue cycle management and tech-enabled business services. You can email Conor at cgreen@triple-tree.com.

Read Full Post »

Data Aggregation and M&A Activity Bookend Outlook for Health Information Exchanges

Health Information Exchanges (HIEs) have been a hot topic in healthcare IT dating back to 2009.  HIEs are so often mentioned with interoperability platforms, data exchanges and integration engines that it has been difficult to sort out the actual services performed by an HIE, much less the relevant vendors and their solutions.

TripleTree defined HIEs as aggregators of electronic patient-centric, clinical information from disparate, unconnected information systems into a common repository for translation in a common format.  HIEs eliminate the need for patients having several EMRs for their health information – in some ways it becomes the virtual master patient record.

Three measurable benefits from the ability of providers to pull patient information from an HIE for a more accurate, real-time view of the patient’s health history resulting in better patient care and reduced costs include:

• Enhanced care coordination
• Prevention of harmful drug interactions
• Elimination of redundant tests and procedures

The mixture of consumerism and reform in healthcare is forcing this inevitable shift toward HIEs – and since Q1’10 we’ve seen four market proof points:

• Harris acquires Carefx: Feb 2011 – Harris acquired Carefx for $155m to expand Harris’ capabilities in government healthcare, provide an entry into the commercial healthcare market, and strengthen its position as a provider of interoperability solutions.
• Aetna acquires Medicity: Dec 2010 – Aetna acquired Medicity for $500m as a potential counter to Ingenix’s acquisition of Axolotl and a way for Aetna to become more relevant in the provider market.
• Ingenix acquires Axolotl: Aug 2010 –  Ingenix continued its 2010 buying spree and picked up a leader in the HIE space with Axoltol.  With Ingenix’s growing portfolio of HIT assets, we’re closely watching how they integrate Axolotl with their other clinical assets.
• Lawson acquires Healthvision (Cloverleaf): Jan 2010 – Lawson made a move to expand their healthcare presence “beyond just an apps vendor” to become a more integrated HIT player.

Despite this consolidation, a number of standalone, pure play HIE vendors (Wellogic, Informatics Corporation of America (ICA), MobileMD, HealthUnity, Orion Health) offer relevant solutions.  Aggregating patient and clinical data into a common repository is (and will be) relatively simple.  Complexity will come from those vendors who begin to build new applications that leverage the patient-centric, rich clinical data to create “data assets” on the backs of HIEs – a key to feeding the insatiable appetite around Accountable Care Organizations (ACOs) and the marketplaces growing need to influence:

• Care coordination
• Decision support and evidence-based care protocols
• Real time monitoring and event-driven triggers
• Longitudinal patient reporting
• Provider quality reporting and benchmarking
• Unified patient dashboards

The winners won’t be “data plumbers” or “just integrators” but will focus on adding the applications that leverage data into new business models.  It’s still too early to tell if the consolidators can beat out the specialist pure play providers, but if you have any thoughts or would like to hear more about this sector let us know.

Thanks and have a good week.

Judd Stevens

Judd Stevens is an associate at TripleTree covering the healthcare industry, specializing in the impacts and transformation of health plans in a post-reform world.  Follow Judd on Twitter or e-mail him at jstevens@triple-tree.com.

Read Full Post »

Complex Economics in the Senior Care Continuum

It’s no secret that an unprecedented demographic shift is upon us as 77 million Baby Boomers hit retirement age.  This growing population will have to rely on fewer working age adults that support healthcare entitlement programs such as Medicare and Medicaid.  The resulting financial strain will place an increasing burden on aging adults to find (or be directed toward) creative financing avenues within a setting that optimizes both their care needs and desired lifestyle.

While it’s common for Americans to plan their retirements around a pension or 401k plan, the costs associated with long-term care are often under-estimated or over-looked.

• 70% of those aged 65+ will require some form of long-term care.
• Most will require three years of long-term care at some point in their lifetime, with 20% requiring it for more than five years.

The combination of cost and longevity creates a very expensive proposition for seniors as they consider their desired care setting.  According to Univita Health’s 2010 Cost of Care Report:

• The national average annual cost of a private room in a Medicare-certified skilled nursing facility is $90,155.
• The average annual cost for a private, single occupancy room in an assisted living facility is $39,536.

Home health costs can vary widely based on the type of care or assistance being provided.

• Twenty hours per week of companionship (non-clinical) home care will cost an average of $18,000 compared to $55,000 or more for full-time skilled nursing care.  However, it’s important to point out that these expenses do not include other costs related to transforming the home into a safe, secure place to live.
• As laid out in MetLife’s Report on Aging in Place 2.0, these costs are significant and can include activity and fall detection sensors, health and wellness monitoring devices, personal response systems as well as hand rails, lifts, ramps, and other home modification equipment.
• Adult day care costs are less varied than home care and generally range from $18,000 to $24,000 annually.  As with home care, these costs are above and beyond the senior’s daily living costs.

Seniors face a challenge in determining how to best finance the varied care settings as each has its own unique funding mix comprised of savings, private and supplemental insurance, and government programs coverage.  Within the public program category, Medicare, despite the common perception, does not cover most forms of long-term care and is limited to post-hospitalization stays in a skilled nursing facility setting or medically necessary home-based care.  Medicaid, on the other hand, is in fact the largest payer of long-term care services.  According to a report by America’s Health Insurance Plans (AHIP), Medicaid long-term care spending growth is expected to outpace total U.S. healthcare spending and account for more than $3.7 trillion between 2008 and 2028.  However, unless the economic status of a senior qualifies them for Medicaid, it’s highly probable that other forms of private and out-of-pocket financing will be required.

Another consideration seniors must weigh is whether their quality of life preferences fit with their ability to pay for such services.  The most common preference is to live in the home for as long as possible before checking into an assisted living facility – both of which are predominately paid for out-of-pocket.  After looking at these options it becomes immediately apparent that a significant amount of personal savings and long-term care insurance will be needed if the senior wishes to avoid a nursing home.

The funding dynamic becomes more complex as the aging adult transitions from one setting to another within the long-term care continuum, creating stress for the senior as well as a broader market need for greater coordination.

Current research by our team on the Seniors’ sector will culminate in publishing a report later this quarter exploring a range of companies who are effectively penetrating the market with creative benefits assessment and financial / quality comparison solutions.  It will also assess new distribution models across the financial services and retail landscapes (see our prior blog post on Health Insurance Exchanges) to better understand the strategies that global and emerging companies are employing to reach this lucrative yet elusive demographic.

Let us know if you’re interested in learning more through a tele-briefing and have a great week!

Seth Kneller

Seth Kneller is an Associate at TripleTree covering the healthcare industry, specializing in revenue cycle management, clinical software solutions, geriatric care and healthcare analytics. Follow Seth on Twitter or e-mail him at skneller@triple-tree.com.

Read Full Post »

Seven Considerations for the Impact of Open Source on Healthcare – 10/18/10

There has been much written by TripleTree and others on the influence of cloud technologies on healthcare, but what about open source as a transformative technology?

No doubt open source technologies will make their way into and have an impact on healthcare in some way, but we’re of the mindset that it will take a long time to get here, and the size of the impact could be minimal. Here are seven considerations for healthcare CIOs and their technology partners:

1. Commercial open source vendors are small and unsophisticated in the ways of healthcare IT. So with little investment and large barriers to entry (slow buying cycles, antiquated architectures, compliance, etc.), healthcare will be a hard sell. There will probably be some experiments, trial runs, and partnerships with early stage ISV’s looking to triangulate around the trend of SaaS/Cloud/Open Source; but in reality it will take a few years to get efforts ramped up into large commercially viable solutions.
2. Virtualization will have a bigger impact on HCIT operational efficiency than simply open source. Sure, where virtualization and open source intersect (specifically at the Xen hypervisor), there may be some impact, but I think open source gets overshadowed by virtualization investments.
3. The IT “master brands” vendors with expressed interest in healthcare (MSFT, IBM, HP, etc) are pushing their proprietary stacks.  Deeper pockets will prevail and the only new entrant that can make an impact is probably Google (and their HC commitment is questionable). Will they push ChromeOS into HC and make a meaningful impact?  Not likely as ChromeOS is too new and Google Health is too consumer (rather than system) focused. Plus with Oracle taking out Sun, another open source proponent will move to a proprietary stack (Fusion)
4. Workflow and process integration in HC systems are mostly manual. Before open source has a meaningful impact on data integration a process automation evolution within healthcare is needed…and process automation in healthcare is nascent.
5. Open source has had a good seven year run of enterprise acceptance. Given that healthcare is lagging about 10 years behind in IT innovation, we likely have two plus years before HC starts thinking about open source more widely. In smaller pockets, we could see early open source efforts where a few innovative vendors expose limited/departmental use cases or in public sector instances where states try to be innovative with alternative procurement (e.g.  HIE may see open source experimentation).
6. The mainstreaming of SaaS and other alternate delivery/licensing/outsourcing models from groups like Athena provide a better value proposition.  This is relevant to the likely adopters – small and mid-size doctor’s offices – who want to avoid on-premise open source systems and related complexities of specialized IT knowledge and a willingness to go-it-alone with limited vendor support.  SaaS wasn’t mainstream when enterprises began to embrace open source; but now that SaaS (and cloud) is prevalent the same drivers of open source adoption don’t exist.
7. Open source will probably have more of an impact in research/government/university settings where a healthcare focus and established open source culture (around longer running projects) can coexist.  Within healthcare, open source will emerge more readily with health plans where large data centers and processing make it an interesting operating system.

The list of technology issues confronting healthcare is considerable, and it’s unclear that open source would have impact given other innovative tools.  We’re watching the likes of Citrix and RedHat as vendors that could step forward and we’ll continue to update this blog with our latest thinking.

Thanks and have a great week!

Scott Donahue

Scott Donahue is a Vice President at TripleTree covering infrastructure and application technologies across numerous industries and specializes in assessing the “master brands” of IT and Healthcare. Follow Scott on Twitter or e-mail him at sdonahue@triple-tree.com

Read Full Post »