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.

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Microsoft follows Google’s Lead and Exits Healthcare

Yesterday, Microsoft announced a new joint venture with GE where both organizations would transfer significant healthcare software technology into a new company led by GE health care executive Michael Simpson. This new company will be based in the Redmond area and have more than 700 employees dedicated to HCIT solutions.

A few months back, Microsoft sold its EMR (Amalga HIS) to Orion and via this announcement,  is transferring two of its three remaining healthcare assets – Amalga and Sentillion – into the JV.. Curiously, Microsoft is hanging onto HealthVault, its personal health record (PHR) suite.

It is hard to grasp why Microsoft would jettison its “crown jewel” HCIT and clinical solutions into the JV and say goodbye to most of its healthcare team (including top exec Peter Neupert (retiring)), while apparently remaining content to simply sell its horizontal platform and servers into health care settings.  (We understand that many Microsoft employees will be transferred into the JV). Moreover, what will become of other HC initiatives underway at Microsoft such as their announced work in the insurance exchange marketplace?

A straight up comparison of Google’s complete retreat from health care to this move by Microsoft is a bit unfair, but yet another juggernaut exiting from an industry desperately in need of new ideas is puzzling.

Is this JV the type of new idea needed by the healthcare sector?  Nat McLemore, GM for Microsoft Health Solutions Group describes the GE / Microsoft JV as follows:

“… Microsoft and GE Healthcare have just announced an exciting new initiative aimed at improving healthcare quality and the patient experience. The two companies are creating a joint venture that will combine Microsoft’s deep expertise in building platforms and ecosystems with GE Healthcare’s experience in clinical and administrative workflow solutions. The new venture, which is pending regulatory approval and has yet to be named, will develop and market an open, interoperable technology platform and next-generation clinical applications that will help enable better population health management.

The joint venture’s foundational offering of an open technological platform will also enable application developers to build customized, differentiated solutions that interact to meet customers’ specific needs. By enabling independent software vendors, system integrators and healthcare IT pros to develop on a common platform, the joint venture aims to support a robust ecosystem of partners that offers customers real choice.”

For veteran watchers of technology centric alliances, it is easy to be skeptical.

The platform approach is exactly what Microsoft Amalga was about – a gigantic integration engine for healthcare. It is no surprise that Amalga will be a major foundational asset in the new company. The challenge with Amalga, and the reason why its adoption was limited in the US, is that giant footprint implementations are far from the ideal solution. Amalga required massive investments and a multi-year implementation to stand-up, and in a world where hospitals and other healthcare organizations don’t have the appetite or budget for monolithic systems and if they do…it likely orbits around an EMR.  The likes of Epic have taken up most of the bandwidth that hospitals can afford for big-iron IT projects and despite Microsoft attempt to buy market share, its ‘platform strategy’ had limited success.

If the JV platform vision is right (and what is needed for the industry) it will take a few years to get legs. Beyond integrating their HCIT suites (and apparently work has already been underway here for a few months) it will take considerable effort for the new company to ready its platform for app developers, a sometimes skeptical lot. Developers may opt to wait and see whether the JV successfully drives adoption for their platform vision given their traditionally limited resources and proclivity for aligning around the true vendor platforms where market share is known, versus jumping on board into the Microsoft/GE health care legacy.

Finally, is this big platform vision the right approach in today’s world of SaaS, Cloud, SOA, and modular app development? Healthcare already has many traditional stacks   – Epic, Cerner, McKesson, Allscrips…the list goes on. The new entrants like Aetna/Medicity, Optum/Axolotl, IBM, Oracle, and others are focused on integrating data and workflows. If the new company claims it is the ‘true path’ for data integration, the market could become confused with other mega HCIT vendor messages, given they acute need for nimble solutions that are quick to implement, solve an immediate pain point, and provide a near term ROI.

Big HCIT vendors must do more to help perpetuate a strong vision and direction for the healthcare industry and perhaps this is where this new venture can emerge as a leader. Microsoft and GE have both tried and neither was successful. Perhaps they have some new innovation and new capabilities that could create a truly differentiated solution. We’re watching closely and would like to 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

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ACO Update: A Third Horse Enters the Race

A few months ago, we noted that the release of regulations for ACOs would trigger an ACO services race across the healthcare landscape, where market participants would be sprinting to create service offerings that would help hospitals and physician practices become compliant with the CMS ACO regulations for sharing financial risk and the rewards.  So where do things stand six months later?

Just like earlier this year, the “Big Two” – Optum and Aetna – seem to be squarely in the lead of creating a turnkey ACO solution.  And in the last few weeks, we’ve seen a couple items of note from these two.  The first was an interview with Charles Kennedy, CEO of Aetna’s ACO division on HISTalk.  In the interview, Kennedy talks about how Aetna is pursuing the ACO opportunity via three go-to-market offerings:

• Clinical integration (basically an HIE via Medicity)
• A population-based approach with chronic disease management tools that typically rolls out to hospital employees as a way of deploying a light version of an ACO
• A full, private-label health plan, where a delivery system has their own health plan “powered by Aetna”

Last week, Optum announced that it has brought together its own ACO division with more than 700 people (!) focused on enabling “Sustainable Health Communities,” which is Optum’s version of the ACO concept.  Optum’s press release calls out its own five-part strategy:

• Patient and population health management
• Informatics, analytics, and technology
• Clinical integration, network development, and physician change management
• Payment model, contracting, and actuarial expertise
• Operating expertise

Interestingly, the press release also mentions that Optum is also bringing solutions to market targeted at commercial health plans and government payers – the other side of the ACO/shared risk/bundled payment equation.

The big question we have been trying to figure out here at TripleTree is who is going to follow “the Big Two” and their industry-leading ACO partnership announcements (specifically: Optum with Tuscon Medical Center and Aetna with Carilion Clinic)?  Where are the other healthcare companies that are going to pursue this mammoth opportunity?  Wellpoint’s acquisition of CareMore, McKesson’s acquisition of Portico, and Harris Corporation’s acquisition of Carefx certainly point to their interest in this market, as does Premier’s burgeoning alliance with IBM – but we have yet to see any of these or other players signal their interest in developing a broader set of provider-focused bundled payment service offerings.

This past week we think have finally seen another company unequivocally throwing its hat in the ring:  The Advisory Board Company announced the creation of a new company called Evolent Health, in partnership with the UPMC Health Plan.  Evolent intends to provide a platform for population and health plan management to leading health systems as they develop their value-based care strategies.  This follows ABCO’s earlier acquisitions of Crimson, Concuity, and Cielo MedSolutions – all earlier signals that the company was pursuing the hospital analytics, contracting, and registry marketplaces in a big way.

It makes perfect sense for The Advisory Board to do this – with nearly unparalled access to hospital c-suites across the country, it was only a matter of time before they launched a solution to address the many, many requests they must be getting to help with hospitals’ new risk-sharing strategies.  We see this as a welcome development in this space, and hope to see other HCIT players, undoubtedly facing their own questions from their healthcare clients, enter the fray as well.  Where are you, Accenture, Microsoft, and Elsevier?

Let us 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.

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Steward Takes On Insurer Role in Agreement with Tufts

Cerebrus-backed hospital operator Steward Health Care System (Steward) made news last week by launching an insurance product. This announcement marks one of the most dramatic attempts by a provider to position themselves to profit from system wide efforts to better control care delivery and distribution.

Dubbed Steward Community Choice, this new plan will see all routine care provided through Steward-affiliated doctors and facilities (although certain exceptions apply).  Despite potential access limitations, the plan is designed to appeal to small businesses as it will be priced as much as 15% to 30% below comparable products and calls for Steward to bear all the financial risk for patients’ care. Tufts Health Plan of Massachusetts will provide administrative services (running call centers staffing, card issuance, etc).

This announcement is the latest example of providers financially aligning themselves with the care they provide.  Similar models have been introduced throughout the country as well:

• Carilion Clinic through a partnership with Aetna in Virginia
• Sutter Health through a partnership with Health Net in northern California

The broader implication of this risk transfer to the provider is how the consumer has been thrust to the center of healthcare delivery and decision making processes, which is forcing payers (and providers) to re-think their distribution and retention strategies and focus on consumers.

Cost is the driver.  Employers are actively seeking solutions to better control healthcare-related costs and as they continue to shift towards high-deductible coverage (which send a significant percentage of healthcare costs towards the consumer) products like Steward’s where costs can be controlled.

Payers view this as another method to introduce performance-based risk contracting and better track the experience of a patient’s care. Several of the larger payers are trying to control the distribution of care by investing in providers as seen by Optum’s acquisition of Monarch and Humana’s acquisition of Concentra.

Providers view the potential additional revenue as a benefit too.  Given declining reimbursement rates and the increasing administrative burdens that accompany care distribution; these types of arrangements can increase revenues, cover costs and apply a stronger focus on the provision of care.

Perhaps the most affected will be consumers, who have increased demands for greater transparency, access and information to control their overall healthcare spending.  Historical efforts to introduce similar products have failed because consumers viewed them as restrictive and of poor quality, but trends around health reform are changing the playing field.

As healthcare costs continue to shift towards the consumer, these restrictive arrangements are likely to persist as the “closed” nature of provider networks offer cost relief by limiting access to certain doctors and hospitals.

Let us know what you think.

Joe Long

Joe Long is an analyst at TripleTree covering the healthcare sector, with a focus on the approaches and technologies surrounding health insurance exchanges.  You can email him at jlong@triple-tree.com.

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TripleTree, LLC Advises Connextions in Sale to OptumHealth

Year to date, we’ve used the tag “consumerism” several times to reference innovation and consolidation where health care payers and providers are yielding control to consumers regarding more control in healthcare decision making.

TripleTree research is often brought to life through our deal flow, and we were pleased last week to announce that our client Connextions, announced its acquisition by OptumHealth – a seminal illustration of why consumerism in healthcare is so relevant.

Click here to read the full press release.

Carriers, providers, employers and other healthcare stakeholders are realizing that optimizing customer experience needs to become a critical component to their service delivery platforms.

The Connextions platform and use of analytics around member behaviors have created a unique acquisition, retention and up-sell platform for top carriers in the U.S., and a growing number of public and private hosts of insurance exchanges.

Click here to learn more about TripleTree’s perspectives on the impacts of consumerism and look for future research from our team on Seniors, Informatics, ACOs, Consumer Engagement and Social Media – all topics where consumerism is a key undercurrent.

Have a great week!

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.

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Will Traditional Healthcare Providers Need to Become Consumer Friendly?

It is hard to believe that it has been more than seven years since the Medicare Prescription Drug, Improvement, and Modernization Act created health savings accounts (HSA).  In 2004, the pundits were espousing how consumer directed health plans (high deductible health plans tied to a HSA or health reimbursement account (HRA)) would put more healthcare spend into consumers’ hands and in-turn, consumers would demand more price transparency across the healthcare system.  Consumers were supposed to be able to use their new-found purchasing power to comparison shop and ultimately choose the healthcare services that provide the best value.

In a March 2005 report entitled Will Health Plans Profit from HSAs? Forrester Research projected that by 2010 there would be 15.9 million HSAs and HRAs holding $17.5 billion in assets.  Actual figures have trailed projections, but the move to HSAs and HRAs has continued to gain momentum.  Employee Benefit Research Institute® recently published that the number of HSAs and HRAs has grown from 1.2 million in 2006 to 5.7 million in 2010.  These accounts now hold $7.7 billion in assets, creating meaningful healthcare purchasing power for consumers.

Despite all of this growth however, comparison shopping for healthcare remains challenging.

• While employers have attempted to provide price transparency tools, they have struggled with getting detailed pricing information from providers that would enable informed employee (consumer) decision making.
• Health plans have been unable to provide their members with real-time adjudication capabilities that would allow them to understand in-network pricing for services.
• Services marketed directly to consumers (with features like convenience, affordable pricing for acute care, etc) tout health plan reimbursement as a secondary feature.

This last trend started with retail clinics, such as CVS Caremark’s MinuteClinic and Walgreens’ Take Care Clinic; that effectively promote the price of services prominently at their clinics and on their websites.  In a market like Minneapolis, two large healthcare organizations (UnitedHealth Group and Health Partners) are taking similar but distinct approaches via recently announced online clinic, prescriptions and doctor-patient medical consultation services.

• UnitedHealth Group’s OptumHealth has launched NowClinic, which offers 10 minute online visits with clinicians for $45.  The service is now offered in five states, and while OptumHealth is offering discounted prices to contracted employer groups, consumers must pay for all services directly as OptumHealth does not currently accept health insurance.
• HealthPartners, a regional healthcare provider and health plan has launched a competing online service called Virtuwell.  At Virtuwell, online consultations cost $40, and the service accepts insurance plans from HealthPartners and CIGNA.

Both announcements tout convenience as the key feature and could be an easy purchase decision for some consumers.  Even if not reimbursed by insurance, consumers may opt to spend $40-$45 out of pocket without having to leave their home, when comparing the alternative of driving to a doctor’s office, paying for parking, and waiting in the waiting room with other sick people.  This decision would be made even easier for consumers that do not reach their health plan deductible during the year and thus would not get reimbursed if they visit a traditional doctor.

With HealthPartners as an exception, traditional healthcare services providers have been slow to adopt both price transparency and convenience.  As healthcare delivery models change and new players enter the market, it will be interesting to watch how traditional healthcare providers evolve to accommodate increased expectations from consumers who are more informed and demand options for where, when, and how quickly they can interact with clinicians.

There is no question that as more payment responsibility is placed in consumer hands, providers will change, the question is how quickly this will occur and which firms will benefit most.

Let us know what you think.

Jason Grais

Jason Grais is a Director at TripleTree covering the healthcare industry specializing in healthcare IT, population health management and emerging services in the life sciences sector. You can email him at jgrais@triple-tree.com

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Wellness Now a Key Theme to the Healthcare Landscape Dialogue

Proactive preventive care is increasingly seen as a viable and in many cases necessary substitute to traditional reactive health care. Preventative offerings and wellness programs (including biometric screenings, care intervention, and health risk assessments) offer lower costs by addressing health issues prior to medical incidents, rather than after.

This psychological shift in our healthcare thinking has evolved around mounting healthcare costs and began entering consumer consciousness once it became apparent that we (the consumers) may soon be bearing more of our own healthcare costs.   Trends around wellness programs have shifted to a keen focus correlating healthy behavior and healthcare outcomes – all told, a broad societal “awareness shift” of the health effects of our individual behaviors.

Politicians and capital markets are taking note:

• Chicago mayoral candidate Rahm Emanuel’s recently announced that if elected he intends to implement an incentive-laden health and wellness plan for city employees projected to save Chicago $240 million over 4 years.
• 2010 saw numerous payer acquisitions of wellness companies, including OptumHealth’s acquisition of Wellness Inc., Humana’s acquisition of Hummingbird Coaching, and CIGNA’s purchase of Kronos Optimal Health, and, to name a few.

Much of this M&A activity has been driven by changing market regulations and broad government support. The Accountable Care Act of 2010 included many health and wellness provisions, including a potentially game changing provision altering prior HIPAA regulations. This provision raises the wellness incentives ceiling from 20% to 30% of the employee-only coverage portion of the plan (and includes the possibility of raising it to 50% pending review). The U.S. Department of Health and Human Services’ recently announced Healthy People 2020, a roadmap for public health and wellness that requires significant investment and utilization of wellness programs as a core component of national health goals.

This wave of public adoption is a key validation for “wellness,” a long-time healthcare “trend” that is now becoming a central theme in the broader healthcare dialogue.

Next steps? Continuing the momentum of wellness themes into effective wellness programs that capture meaningful participation from employees.

• While many U.S. employers currently offer some type of incentives, (56% according to the latest wellness survey by Buck Consultants, driving measurable wellness results means offering substantial incentives that drive meaningful participation.  Without incentives, participation in wellness programs, regardless of offerings, typically falls in an anemic range of 20-30% that fails to include the most at-risk members who are responsible for driving the majority of healthcare costs.
• Meaningful incentives drive participation increases of three to fourfold, bringing participation to 80-90% of those eligible, including engaging the top at-risk employee segment. This is a substantive increase and one that promises to shape the evolution of future wellness programs.

Our growing spate of advisory work and broadening research agenda underscore that preventative care and wellness programs are more relevant than ever. As we assess the landscape of wellness vendors, we’re most impressed by those firms pairing well-designed wellness platforms with go-to-market strategies that creatively leverage the incentives supported by health reform, and onboarding models that garner consumer/employee engagement.

Our research team is working on two reports that include “wellness” as a central theme; a Q1’11 publication focused on the Senior’s market, and a Q2’11 publication focused on healthcare informatics.  In addition, the 6^th annual Wireless-Life Sciences Alliance Convergence Summit will explore compliance, chronic care and a host of other wellness related topics.

Let us know if you’re interested in learning more, and have a great week!

Marc Baudry

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

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