Linking ICD-10 and the future of HCIT

With only 18 months left until the Centers for Medicare & Medicaid Services (CMS) ICD-10 implementation deadline, pressure to comply is mounting for a vast array of healthcare constituents.  ICD-10, or International Statistical Classification of Diseases and Related Health Problems 10^th Revision, is a medical code set used to standardize both diagnoses (ICD-10-CM) and procedures (ICD-10-PCS).  Mandated to replace the existing ICD-9 standards on October 1, 2013, its been well documented that ICD-10 will provide a level of clinical granularity far exceeding that of its predecessor; and as shown below a vast increase in the sheer number of codes.

The implementation deadline has spurred some debate.  James Madard, Executive Vice President and CEO of the American Medical Association (AMA), recently wrote a letter to HHS Secretary Kathleen Sebelius asking her to halt the ICD-10 implementation process.  “The timing of the ICD-10 transition…,” Madard wrote, “… could not be worse as many physicians are currently spending significant time and resources implementing electronic health records into their practices.”

Madard alludes to an issue that is central to both payers and providers which are that multiple Healthcare IT guidelines (ICD-10, HITECH, etc.) will need to be smoothly and quickly implemented to ensure proper reimbursement and avoid heavy government penalties.  The ICD-10 concerns for providers are becoming a boon to vendors, as solutions ranging from data analytics and terminology management to consumer focused solutions are enjoying strong demand.

In our view, vendors need not worry that an extended deadline will curb this demand.  As the healthcare universe shifts from fee-for-service to capitation and bundled-care reimbursement models, innovative technology will be a chief driver in achieving cost reduction.  In addition, we’re recommending that vendors align their business strategy and product offerings around three initiatives:

1. Effectively working with Channel partners to provide bundled “end-to-end” solutions that satisfy reporting requirements for multiple federal mandates
2. Creating flexible product platforms that can be easily integrated into legacy systems (and updated as necessary)
3. Stay out ahead of government regulation and build organizational agility that can meet changing client demands

Let us know what you think.

Jeff Farnell

Jeff Farnell is an Analyst at TripleTree covering the healthcare industry, with a specialization in revenue cycle management, compliance and tech-enabled business solutions. You can email him at jfarnell@triple-tree.com.

Read Full Post »

HHS Reform Timelines…Wiggle Room In Sight?

Aggressive IT deadlines have left the healthcare industry scrambling to meet a host of regulatory mandates spanning HIT adoption, payment transaction methodologies, coding standards, and state-run health insurance exchanges.  Hundreds of new regulations have been implemented over the past couple of years, leaving the industry torn in how limited time and resources are utilized among care delivery, quality and cost reduction initiatives, process/infrastructure modernization, and increasingly stringent regulatory reporting requirements.

Hospitals and doctors have been especially overwhelmed with regulations and have been reprioritizing investments to support EMR implementation, Meaningful Use qualification, and what is expected to be a tidal wave of new entrants into the system once the 2014 health reform mandates become effective.

The American Medical Association (AMA) set newswires and the blogosphere abuzz last week when they publically voiced opposition to the transition to ICD-10 coding stating “the implementation of ICD-10 will create significant burdens on the practice of medicine with no direct benefit to individual patients’ care.”  Some dispute the AMA’s move as self-serving given their interests in maintaining the stature and importance of the Current Procedural Terminology (CPT) code set.  Nevertheless, whether the AMA’s move was defensive or not is irrelevant – the vast majority of providers and a meaningful cross-section of payers are ill-prepared to meet the ICD-10 transition deadlines that CMS currently has in place.

To the relief of payers, providers, vendors, and states, the department of Health and Human Services (HHS) and the Center for Medicare and Medicaid Services (CMS) have recently backed off from a few key deadlines.  While these announcements by no means cancel any existing mandates, at a minimum they buy the industry some time to comply with the overarching legislative intent of increasing coverage among the uninsured population, incentivizing IT adoption, and driving improved levels of care delivery.  Of note:

1. HIPAA 5010– CMS announced that it would hold off enforcing the HIPAA 5010 transaction sets until March 31, 2012, a 90-day extension to the original enforcement date. While the compliance date will technically remain intact, relaxing the enforcement date “encourages all covered entities to continue working with their trading partners to become compliant with the new HIPAA standards and to determine their readiness to accept the new standards as of Jan. 1, 2012,” as stated in a release by CMS’ Office of E-Health Standards and Services (OESS).HIPAA 5010 is widely viewed as a precursor to the impending transition to ICD-10 in October 2013. The enormity of that effort will dwarf HIPAA 5010. This week’s announcement foreshadows further delays yet to come.
2. Stage 2 Meaningful Use– HHS announced this week that it would delay its compliance date for Stage 2 Meaningful Use from 2013 to 2014. The extension specifically impacts eligible providers that qualified for Stage 1 Meaningful Use in 2011. Providers, vendors, and government work groups alike have noted the timing issues and inherent disincentive posed on early adopters attempting to adhere to criteria that have yet to be finalized. The Health IT Policy Committee, a federally-chartered advisory panel to HHS, recommended these changes earlier this year to the endorsement of Farzad Mostashari, M.D., ONC’s National Coordinator for Health Information Technology.HHS Secretary Kathleen Sebelius acknowledged the progress to date, referring to the reported doubling of HIT adoption over the past two years. In its move to extend the Stage 2 deadline HHS has smartly protected its initial success by attentively listening and responding to the needs of an overwhelmed provider community.
3. Health Insurance Exchanges – HHS (though the Center for Consumer Information and Insurance Oversight – CCIIO) has seemingly relaxed (or at least clarified) a critical deadline for the states to stand-up their Insurance Exchanges. This week, CCIIO extended a grant deadline by six months until June 2012 from December 2011. Also CCIIO has committed funding for the establishment exchanges beyond the previous January 1, 2014 deadline. Now states have until December 2014 to apply for grants for continued exchange development provided that at least a portion of the exchange is operational by January 1, 2014.

While it is not entirely clear why these significant changes coincided in timing – perhaps it had to do with the resignation of controversial CMS chief Don Berwick – these reprieves are no doubt welcomed within the industry. The extra time will give payers, providers, and states some extra time to meet their compliance mandates.

This extra time should not be squandered. Industry participants must continue to plan for and implement systems that support new EDI standards within 5010, the reporting requirements of Stage 2 Meaningful Use, and the complexities of insurance exchanges. Furthermore, the real value in any of these mandates is not meeting the minimum requirements of the mandate itself, but rather the powerful and compelling capabilities that each enables in terms of improved communication and workflow automation that will enable entirely new quality and cost initiatives.

We’re optimistic that the timeline flexibility of HHS regarding timelines will promote more thoughtful approaches, investments and implementations across all impacted organizations, let us know what you think.

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

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 »

M&A Activity and Hospital Priorities Seek a Groove as ICD-10 Looms

While the deadline for ICD-10 implementation is not until October 2013, the new clinical documentation code set expands over 8x from 24,000 to > 200,000 and with enterprise-wide effects will be one of the most impactful mandates in the history of medical coding.

According to studies from HIMSS and AHIMA, the majority of provider organizations are lagging in their ICD-10 preparedness. Emdeon also mentioned in their Q1 earnings release that their hospital customers have only recently started to focus on remediating their systems in anticipation of ICD-10.

Under the ICD-10 environment, hospitals will quickly find that their current levels of physician documentation will not support the new mandates, which could pose risks to reimbursement rates. Our significant work in healthcare IT and compliance are underscoring the importance of hospitals aligning now with their physicians so that improved documentation protocols can ease the pain of transitioning to ICD-10.

M&A activity in healthcare IT has been robust as my colleague Seth Kneller illustrated in a recent post.  The clinical documentation space in particular was invigorated with the recent announcement of two notable deals:

• Nuance Communications acquired Webmedx:  Both Nuance and Webmedx offer transcription services with speech recognition capabilities and natural language processing (NLP) technology. Webmedx proprietary data mining technology, QualityAnalytics™ will enhance Nuance’s clinical language understanding which will allow more clinically intelligent speech-driven conversion of clinical information.
• MedQuist acquires M*Modal:  Medquist, a leader in integrated clinical documentation solutions, advanced its opportunity to penetrate the transcription market segment with the acquisition of M*Modal’s advanced speech and natural language processing technologies. M*Modal reported an annual revenue run rate of $24m, and with TEV on the deal reported at $130m, a healthy 5.2x revenue multiple bodes well for the sector.

These two trades are indicative of the market’s anticipation of an increasing focus on clinical documentation due both to meaningful use requirements as well as the likely needs under ICD-10. To the defense of hospital administrators who have seemingly ignored ICD-10 to-date, the funding demands associated with health reform present tremendous challenges; and these executives likely have a few other priorities competing with ICD-10 conversions in their queue including:

• EHR and Meaningful Use:  While providers are focusing on EHR templates and spending millions meeting meaningful use guidelines, they would be well served to incorporate ICD-10 into these projects in order to enable documentation now with the specificity necessary for the future.
• HIPAA 5010 compliance:  With a deadline of January 2012, crunch time is approaching to meet (yet another) new transaction standard associated with the HIPAA 5010 upgrade (which relates to increased transaction uniformity, pay for performance support, and streamlined reimbursement).   AHIMA published a Top 10 list for phase two of ICD-10 preparation which includes step-by-step processes designed to encourage organizations to prepare for ICD-10 in parallel to the migration to 5010.

U.S. hospitals are busy toeing the line on a range of mandates, and if not addressed in parallel with more pressing needs, ICD-10 will by pushed to the bottom of most priority lists.

We believe the most successful provider organizations (e.g. hospitals) will optimize reimbursement levels under ICD-10 and their core business processes around the revenue cycle.  As this occurs jointly all boats will rise – enabling higher levels of reimbursement, analytics, quality, efficiency and coordination of healthcare.

Let us know what you think.

Emma Daugherty

Emma Daugherty is a Senior Analyst at TripleTree covering the life sciences sector with a focus on provider technologies and patient safety.  You can contact her at edaugherty@triple-tree.com.

Read Full Post »

Dispelling the Myths of a Healthcare IT Investment ‘Bubble’

The U.S. healthcare industry is undoubtedly going through one of the most pronounced transformations in its history.  At the most fundamental level, the means and methods by which patients, providers, and payers interact is changing dramatically.

• Consumers (patients) are increasingly at the epicenter of the healthcare delivery and decision making processes.
• Providers (hospitals, clinics) are mobilizing to take advantage of new delivery models that assume the accountability for the quality and cost of healthcare for a defined population, the long-term goal of the ARRA legislation (health reform).
• Payers (health plans) are expanding their focus beyond a traditional coverage and benefits orientation to include advanced health management and decision support capabilities.

For innovators and investors, these structural changes in conjunction with the ongoing trend toward more granular clinical documentation and code sets (i.e., the new HIPAA 5010 standards and transition from ICD-9 to ICD-10) as well as the lure of billions in financial incentives related to complying with HITECH/Meaningful Use rules are creating brittle calculus for valuing technological advancement and innovation.

In many respects the U.S. health system has been caught flat-footed by a wave of long-overdue regulatory mandates aimed at dragging an industry long resistant to change into the twenty-first century.  The impending need for innovative healthcare IT solutions has created substantial demand for forward-looking vendors with the capability to provide greater efficiency and quality within the care delivery continuum and/or improve transparency within healthcare’s convoluted reimbursement system.  Companies with these general characteristics are rare and truly valuable.

When taken together, the combination of pent-up demand and a scarcity of viable alternatives create a “bubble-like” atmosphere where valuations have crept well outside their historical bounds.  Leading healthcare IT vendors are experiencing unprecedented interest from a range of potential acquirers that fall into three broad categories:

• Traditional Healthcare-Focused Companiesare uncharacteristically entering new, adjacent domains and paying high prices for healthcare assets deemed strategically significant in the context of a long-term strategy.  Here are a few examples of firms that are paying up to remain innovative, out-front, and relevant to their healthcare constituency:
  • Aetna’s acquisition of Medicity
  • UnitedHealth’s acquisition of Axolotl
  • McKesson’s acquisition of Portico
  • IMS Health’s acquisition of Med-Vantage
  • Verisk Health’s acquisition of Bloodhound Technologies
  • Wolter Kluwer’s acquisition of Lexi-Comp and Pharmacy OneSource
  • TriZetto’s acquisition of GatewayEDI

• A host of New Global Entrantsview healthcare as a big opportunity and are aggressively pursuing the best-in-class assets that provide a platform for growth or fill out their existing, complementary capabilities.  The following new entrants have made aggressive moves in the past few months:
  • Experian’s acquisition of Medical Present Value – complementing its existing investment in SearchAmerica
  • ADP’s acquisition of AdvancedMD
  • Harris Corp’s acquisition of CareFx
  • Stanley Black & Decker’s acquisition of Infologix – extending Stanley’s alerts and tracking capabilities
  • Capgemini’s recent announcement that it is looking to build out a significant presence in the U.S. healthcare IT market via a string of acquisitions

• Meanwhile, Private Equity Firms have begun to reemerge following an ’08-’10 hiatus to compete aggressively against strategic acquirers for some of healthcare’s best positioned assets.  Generous option programs and new operating partner structures comprised of experts with decades of experience are viewed as highly attractive by business owners/founders.  Additionally, due to a stockpile of committed and uncalled capital as well as a preponderance of cheap debt, private equity firms are eager and willing to compete aggressively on M&A opportunities:
  • Parthenon’s investment in Eliza
  • Founders Fund series B investment in Practice Fusion
  • Golden Gate’s and Infor’s acquisition of Lawson Software
  • JMI Equity’s investment in PointClickCare
  • Norwest Equity Partner’s investment in Surgical Information Systems

The flurry of activity has resulted in a sellers’ market in which revenue multiples (computed as enterprise value divided by trailing twelve months revenue) have exceeded 8-9x.  This begs the question: is healthcare IT in a bubble?  The answer would be unequivocally “yes” if it weren’t for a range of trends that will persist for the next 10-20 years:

• 78 million Baby Boomers are reaching retirement age
• Over-utilization and high cost prescription drugs and medical procedures are not proving to be cost-effective
• Increasing incidence and complexity of chronic and co-morbid conditions.
• Healthcare, as compared to most other industries is in infancy in terms of technology adoption – creating a long-standing demand for IT implementation, integration, and optimization
• Need for new and creative approaches to funding the rising cost of healthcare in light of the strain put on the Medicare and Medicaid entitlement programs
• Prevalence of fraud, waste, and abuse within the administration and reimbursement processes

A constantly replenishing pipeline of new, entrepreneurial companies is fueling the pioneering spirit and innovation required to advance and redefine the U.S. healthcare system.  Any resemblance to a “bubble” is snuffed out by the sustainability of the current demand and expanding interest from the nation’s leading entrepreneurs, business builders, investors, and advisors that will continue to be attracted to solving healthcare’s complex, long-standing problems.  All in all, it’s a great time to be an innovator in healthcare.

Let us know what you think.

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 »

A Simplified View Of The Healthcare Informatics Landscape

Our team is closely watching the most recent moves in Washington D.C. regarding the healthcare overhauls destined to impact healthcare business operations and related software applications.

Specifically, we’re focused on the investments being made in technologies that bring payers and providers closer to better care via informatics and analytics.  The applications for informatics in healthcare are vast and will profoundly impact care delivery – as such, its the central theme to a research effort we recently launched and which will culminate in a report scheduled for publication in Q2.  Looking at technologies in the healthcare provider sector alone, significant opportunities exist for operational efficiencies that touch areas like:

• Patient Identification: The ability to appropriately integrate healthcare data into a master data management / enterprise master patient index (EMPI) is mandatory for making data meaningful and actionable.
• Patient Surveillance: Drug safety, infection control and real-time patient monitoring are only possible with advanced data collection and processing against mass databases of content.
• Predictive Analytics:  Predictive analytics applied throughout the administrative and clinical functions within a hospital (care coordination, A/R management, and revenue cycle) enables clinical decision support that can increase staff productivity and enhanced care.
• Computer Assisted Coding:  Incorrect medical coding and billing costs millions of revenue dollars to healthcare providers. Using sophisticated technology, such as computer assisted coding, to help manage clinical information and allow hospitals and clinics to appropriately code treatment will become increasingly important as the industry transitions from ICD-9 to ICD-10.

As analytic capabilities continue to evolve, a full spectrum of valuation metrics have been achieved spanning from 8x (TEV/EBITDA) to 75x multiples via recent M&A transactions.  Content centric global acquirers made the first bets – Elsevier acquired MEDai, a predictive analytics and data mining company in 2008, and last year ThomsonReuters acquired Healthcare Data Management (a healthcare data analytics for self-insurance health benefits plans) and ProfSoft (a physician and hospital performance analytics provider to payers).  Additionally Wolters Kluwer acquired PharmacyOne Source at the end of last year.   Traditional healthcare players like Ingenix, Cardinal Health, and Medco all made similar moves in 2010.

As the proliferation of value-based purchasing continues across CMS and the private sector (just last week CMS issued a proposed rule that would establish a federal value-based purchasing program), the demand for informatics to better manage healthcare will continue to grow.

As TripleTree assesses the market and builds out our perspectives for the upcoming report, let us know what you think. Thanks and have a great week!

Emma Daugherty

Emma Daugherty is a Senior Analyst at TripleTree covering the life sciences sector with a focus on provider technologies and patient safety.  You can contact her at edaugherty@triple-tree.com.

Read Full Post »

Sentiment 2010: Consolidation, Platforms and Compliance

Our team of analysts and senior bankers are taking stock of the past few quarters as we look ahead to 2011.  As such, we thought it might be useful to quickly summarize of our most popular posts below:

TripleTree’s Top 10 Posts – 2010

1. Humana’s Acquisition of Concentra Is A Multi-Pronged Move
2. Tech Platform Innovations in Healthcare Will Rely on “hCloud”
3. Understanding the Transition From ICD-9 to ICD-10
4. An Acute Focus on the CFO is Feeding IBM’s Appetite for Analytics
5. Risk Adjusted Payment Models for Medicare Advantage – New Markets and Business Opportunities
6. Health Plans & Provider Networks Seek Optimized “Channel to the Chart”
7. Prospective Payment Review: The MLR “Silver Bullet” for Health Plans
8. Seven Considerations for the Impact of Open Source on Healthcare
9. Is a Healthy Workforce a Competitive Advantage?
10. Reading the Tea Leaves: The HITECH Act & Health Reform in the Wake of the Election

Our research agenda and current sell-side mandates have taken shape, and include assessments of where best in class businesses can take advantage of opportunities in the Senior’s market, the growth of consumerism, content management, decision analytics and compliance platforms.  As expected, we’ll stay laser focused on delivery models like cloud, outsourcing and mobile.

We look forward to reconnecting and wish you a prosperous New Year!

Chris Hoffmann

Chris Hoffmann is a Senior Director at TripleTree covering Cloud, SaaS and enterprise applications and specializes in CRM, loyalty and collaboration solutions across numerous industries. Follow Chris on Twitter or e-mail him at choffmann@triple-tree.com.

Read Full Post »

Understanding the Transition From ICD-9 to ICD-10 – 9/10/10

In 2008, the Centers for Medicare & Medicaid Service (CMS) issued a notice that an industry wide migration from ICD-9 code sets to an expanded ICD-10 framework would go into effect on October 1, 2013.

ICD is the International Classification of Diseases – a set of codes for identification and tracking.  The shift in standards moves the industry from ~17,000 medical codes to over 155,000.  The rationale for this migration is that the current ICD-9 classification set has maxed out its capacity for new diagnoses.  More impactful is that the new ICD-10 code set will allow for increased data analytics, trending of outcomes, real-time transparency, and smarter delivery of care – all of which inherently take costs out of the system. This new set of codes will also give the government tools for establishing financial incentives (and penalties) for payers and providers with the underlying goal of maximizing every dollar of healthcare spend.

Along with the numerous benefits of the transition, a new set of challenges will arise for all constituents including a significant cost to migrate (estimated to be more than $1.6B spread across health plans and care providers).  Beyond these costs, the transition is predicted to cause an initial spike in the number of claim errors.  While this is a seemingly short term concern, it will cause headaches for an industry dealing with many other issues thanks to health reform.

With problems come solutions; and we’re already beginning to see a number of new business models hitting the marketplace to help organizations through this transition and take advantage of the benefits of ICD-10’s enhanced data set.  Some include:

• Middleware:  Applications to perform much of the translation services required to enable payers, providers, and other healthcare constituents to manage this massive expansion in medical code sets and clinical documentation
• Pay-for-Performance (P4P): A long time concept whose time may have finally come as payers have may finally be able to leverage richer data sets to establish a more optimized reimbursement model
• Outcome Based Care Regimens:  The richer data sets from ICD-10 will allow health plans to better track patient outcomes and link them to specific care regimens – the result will be a better understanding of care and disease management program efficacy.

Our team is following the transition to ICD-10 with great interest as a new era of accountability in healthcare maximizes the value of every healthcare dollar via improved efficiencies and reduced fraud, waste and abuse.  Let us know what you’re seeing in the market as new business models emerge and innovative programs are launched to effectively link data, analytics and services throughout the transition to ICD-10.

Have a great 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 »