Expanding Services Portfolios and M&A Defining Payer Landscape in Government Healthcare

The third generation of TRICARE contract RFPs celebrated turning four years old and the contracting process is still ongoing. While the initial contract awards were announced in 2009, heated negotiations are underway for the last remaining TRICARE contract. The last two weeks saw the five year $20B TRICARE West Region contract awarded to UnitedHealth Group – which was promptly counter protested from the incumbent, TriWest. Contract awards and protests are common, and to better understand the driving forces behind the highly combative and contentious atmosphere around TRICARE contracts, it is important to look at the broader market.

The Military Health System (MHS), which includes the TRICARE contracts, and the Veterans Health Administration (VHA) – represent the two largest opportunities for commercial health payers to expand their presence outside of Medicare and Medicaid. Unlike CMS, the MHS and VHA are relatively protected from government budget turmoil and political scapegoating. A decade of global military campaigns and higher combat survival rates have increased demands on DoD and VA care programs and driven combined spending to over $100 billion and counting, while persistent reimbursement challenges and healthcare reform uncertainties have spurred some payers to look elsewhere for diversification.

In order to better align with and pursue future opportunities in the government healthcare space, and recognizing the volatility of the TRICARE contracting process, commercial payers have revisited their government healthcare strategies and developed road maps for expansion going forward . With the most recent award to UnitedHealth Group, the three TRICARE contracts are all expected to be operated by large public commercial health plans, each with markedly different strategies for pursuing government healthcare expansion.

• Health Net operates a small portfolio of VA community-based outpatient clinics and has been a TRICARE North Region contractor since 2004.  It is also the contractor for the Military & Family Life Consultant Program, providing behavioral health and counseling services to youth and adults.  It wasn’t until this year that the Company identified the VA as a key opportunity and separate area of strategic focus going forward as it tries to diversify and expand beyond its TRICARE contract and grow its VA footprint.
• Humana has served as the TRICARE South Region contractor since 1996. Its MHS presence beyond that extends mostly to patient scheduling for some military treatment facilities. Within the VA, Humana has been a frontrunner in leveraging its expansive network of commercial providers to treat veterans through VA pilot programs Project HERO and Project ARCH.
  • Project ARCH (Access Received Closer to Home) is a VA care initiative designed to facilitate healthcare access for eligible Veterans by connecting them with care services closer to home.
  • Through Project HERO (Healthcare Effectiveness through Resource Optimization), Humana provides the VA with pre-screened networks of health care providers who meet VA standards for quality care when specific medical expertise or technology is not available inside the VA health care system. Critical for Humana in expanding its government presence will be continuing to find innovative ways to deploy its commercial expertise, and that of recent acquisitions Concentra and SeniorBridge, into government patient populations.
• While UnitedHealth Group may be the new kid on the block (its military and veterans services division was formed in 2007 to pursue the TRICARE opportunity), it has not spared expenses in clawing out a footprint. The recent TRICARE announcement was a massive strategic uplift for United, which had invested considerable time and resources since 2007 aimed at wresting a TRICARE contract from an incumbent.
  • UnitedHealth Group’s acquisition of Logistics Health Incorporated, a national provider of medical services to the federal government, instantly positioned the company as a government health leader.
  • At the time of LHI’s acquisition in June of last year, LHI’s operations were largely concentrated around the Reserve Health Readiness Program, providing medical evaluation and readiness exams to the military.
  • The contract win in March of last year to provide clinical disability exams to 31 VHA sites had a first year contract value of $120 million and a five year ceiling of $635 million.
  • With a substantial presence across the DoD and VA, a final decision on the TRICARE win would establish UnitedHealth Group as the undisputed government healthcare heavyweight.

The numerous program opportunities expected to enter the government health RFP pipeline in the next 6-12 months provide an impetus for commercial payers to aggressively expand their capabilities in the sector. Given the critical importance of past performance and quality of care in RFP processes, acquiring companies with government contract experience and a track record of superior results will be essential in expanding a government contract footprint in the healthcare sector.

TripleTree is closely watching a range of upcoming contracts to underscore any possible trend including:

• TRICARE for Life: $29B program providing supplemental coverage for two million TRICARE/Medicare dual eligible military/veterans projected to grow to $48B by 2021.
• TRICARE Overseas: TRICARE services for overseas personnel
• Military OneSource, a telephonic employee assistance program
• Reserve Health Readiness Program (RHRP), providing medical and dental readiness services to all Reserve forces

The competition for government contracts will increase in pace with government healthcare spending as more large-scale public players enters the market (i.e. Lockheed Martin’s acquisition of QTC) and the scarcity of independent quality assets with scale becomes more acute. The earlier and more meaningfully a payer is able to carve out a platform in the government healthcare services area, the more defensible such a position becomes down the road. We fully expect that in addition to the proactive interest defense contractors are displaying in expanding their healthcare presence, commercial players will continue to become more active and aggressive buyers as well.  Let us know what you think-

Marc Baudry

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

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Can a New Approach to a Healthcare Claims Database Help Control Costs?

As congressmen and stakeholders across the country continue to debate the best methods for quality improvement and cost containment in the U.S. healthcare system, four of the nation’s largest health insurers have come together to provide access to data that has the potential to significantly bend the cost curve.

A long awaited announcement came last week from  Aetna, Humana, Kaiser Permanente and UnitedHealth Group  revealing that they will be providing access to over 5 billion de-identified claims from over 5,000 U.S. hospitals totaling $1 trillion of healthcare costs incurred since 2000. This data will be made available to researchers and distinguished healthcare economists via the newly formed nonprofit group, Health Care Cost Institute (HCCI).

According to the HCCI web site, its mission is to promote independent research and analysis on the causes of rising US health spending, to provide policy makers, consumers, and researchers with better, more transparent information on what is driving health care costs, to help ensure that, over time, the nation is able to get greater value from its health spending.

Last week I spoke with Dr. Stephen T. Parente, PhD., Professor in the Carlson School of Management at the University of Minnesota and member of the governing board of HCCI. He described the multi-stage approach of the HCCI which includes collecting and aggregating data from the participating private insurers and establishing a database for entities interested in getting a handle on health care costs and utilization.  The HCCI is also designing “rules of the road” related to research protocols, access and review..

Until now, claims data has been limited to federally provided data on Medicare. But with over half of healthcare expenditures coming from private pay insurers, this restricted view hasn’t been broad enough to draw meaningful conclusions.   As its content evolves, the HCCI will publish a bi-annual scorecard to help researchers identify trending information at levels of detail rarely (if ever) seen before.

We’re actively working with healthcare innovators, many of which are working toward the same healthcare cost-saving goal,, and thought it would be useful to list our view of where  we predict the HCCI could (in the near term) positively impact payers, providers and patients related to healthcare cost and quality:

• Develop evidence-based care recommendations and best practices (Providers and patients)
• Design multi-payer quality improvement strategies and evaluate their effectiveness (Payers and patients)
• Understand key bottlenecks along the care continuum where patients spend the most time and dollars (Payers and patients)
• Determine specific diseases, conditions and treatments that are driving the largest cost trends (Payers and patients)
• Identify the most cost-effective providers and medical procedures as well as geographical variations (Payers and patients)
• Isolate cost variances between Medicare/Medicaid and private health plans and help appropriately align pricing with private pay (Taxpayers)
• Analyze healthcare cost trends over time at an heightened level of specificity (Everyone)
• Evaluate the effectiveness and draw comparisons between different types of disease management programs and treatment procedures(Payers, providers and patients)

Our long term outlook on the value of this data is that it can create new metrics of clinical and care performance standards based largely on historical and real-time reporting on claims. We’re hopeful that as such analyses are developed and recognized on a broader stage, they will be used to inform policy on a much more direct basis and make a huge impact on the costs of healthcare.

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.

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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.

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Does Highmark’s Move Portend a Payers’ Path to Financial Health?

The  recent acquisition by Highmark, Inc. of the five-hospital West Penn Allegheny Health System brings into focus an emerging healthcare provider model in which payers are assuming direct control of medical facilities. Payers, seeking to curb costs amid U.S. health reform are motivated by numerous factors, including:

• Gaining an early leadership positioning in developing a self-sufficient ACO model that can be leveraged nationwide.
• Providing direct insight into best practices they can use in contracting with other medical groups.
• Allowing the capture of new efficiencies in the healthcare system by accruing part of the costs that would have gone to providers

Over the years, payers have attempted a number of different cost control mechanisms ranging from preferred drug lists to performance incentives – but have had minimal success. This feet-on-the-street approach is their most direct attempt to control spending through managing the doctors directly. The thought is that the Payer-Provider Facility strategy will truly “incentivize” doctors to control spending as it affects their direct employer; as opposed to other historical financial incentive arrangements that have failed to hold ground.

In the mid ‘90s managed care failed in its attempt to take a greater role in the care delivery as consumers rebuffed limits on provider choice and treatment options. This time around (and as depicted the graphic below), insurers adopting this strategy appear to be focused on the controlling the provision of services and owning providers as opposed to network or treatment restrictions.

Source: TripleTree, LLC

A recent Washington Post article analyzes the ongoing transition of the major managed care players – namely UnitedHealthcare, WellPoint, CIGNA and Humana – into the provider space.  Further analysis by TripleTree underscores that the strategy appears to be driven by the insurers’ desire diminish the financial pressure of health reform, however, this could also viewed as a long-term strategic move by insurers to position themselves as the central hub of future ACOs.

Source: TripleTree, LLC

Highmark’s acquisition is unique in that it is one of the only significant payer-hospital acquisitions to occur in well over a decade.  Payers (such as Humana and Wellpoint) have routinely purchased clinics in recent years in an effort to push care further outside of the hospital towards more efficient, less costly outpatient settings. The acquisition represents a bold strategy to align Highmark with their hospital provider base. However, the move also poses the risk of competitive backlash from competitors who choose to not use West Penn and withdrawal from customers fearing provider choice and location limitations.

In the coming months, TripleTree will be spending a considerable amount of time monitoring the movement of payers to reposition themselves as “clinical” and “provider-focused” as ACOs develop.   In addition, we will also be analyzing how each payer’s provider strategy aligns with their efforts to expand their clinical technology platforms into the provider market.

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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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.

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Wanted: Smart investors, smart developers & smart policy makers

Ahead of his keynote address at the upcoming Wireless-Life Sciences Alliance Convergence Summit in San Diego next month, Bill McGuire, M.D., recently sat with mobihealthnews (MHN) editor Brian Dolan for an interview on the efficacy of technology in healthcare and the road ahead.

(MHN) How do you characterize the opportunity for wireless health? Could you also provide us with some sense of the current investment climate — a lot of activity? A lot of interest but not a lot of activity?

I like to position it as: How can we build products, services, and systems that facilitate the eventual appropriate health and wellbeing for the people in this country and elsewhere. In pursuit of that and in consideration of all that has been done — both good and bad — and all that is yet to be done, which is significant and formidable, I think the whole area of technology enabled healthcare or mHealth or any term you’d like to apply, offers significant opportunity to meet that end. It still remains to be seen obviously what the most appropriate areas and most beneficial areas will be to accomplishing that. When it comes to investments, of course, there will be a lot of investments in things that don’t make any difference or are not contributory to the kind of outcomes I am describing.

(MHN) What kind of things?

If you look at what has happened in last several years particularly with reform: These huge expenditures that have been directed at technology applications in healthcare. I’m afraid we will see that we have spent an enormous amount of money for marginal or no gain. It’s very indiscriminate. That’s classic healthcare, though and classic investing: ‘Let’s just throw money at things.’

You have the whole idea of applications on cell phones for example. Embedded among [the thousands] of health apps out there are probably a few that will make a difference in the lives of some people. Those apps should theoretically lower costs and improve outcomes, but most of these apps exist because we happen to like apps, it’s a nice story, so we chase them. Discerning what is ultimately going to make a difference and result in the kind of outcomes we are looking for, which is differentiated from just investing money, is the critical issue. The smart investors, smart developers, smart policy makers and so on will benefit from that. The land grab that is going on right now — just throwing money at it — is a little bit misguided.

Another issue is the lack of interactivity among these technology applications. The fragmentation and silos continue. Rather than determining how to piece a number of necessary components together, we have a lot of independent efforts out there to chase after something. We ask for electronic medical records (EMRs) but we don’t necessarily put out standards of performance and interactivity between them. So when someone comes along and asks to gather data or information we know that we can’t get it from each and every one of them.

(MHN) So EMR efforts are misguided?

The amount of money that is being thrown at this stuff relative to the value that it is going to return to us is ridiculous and it will not prove to offer up the kind of end gains that we are touting. Those are health outcomes gains and financial gains in terms of lowering costs. I see nothing that suggests this is going to dramatically improve outcomes, improve access to care for people who had heretofore not had access to care and certainly nothing that suggests that it is going to lower the costs of healthcare in America. People are rushing to do various EMRs simply because the government says we will pay you to install it. If you talk to people who try to extract data from various EMRs they would tell you that there is no consistency in the expectation to do it from many different systems and yet we are spending billions of dollars on this.

(MHN) Let’s switch gears back to wireless health. Are any companies on the right path? If you aren’t comfortable naming companies, what are some specific use cases that you think are promising?

I will be necessarily cautious about the specifics because I don’t want to come across as endorsing or refuting things that I know relatively little about specifically. Let’s start with a concept. What I think we are talking about in some way parallels what we are seeing from efforts in education. As we confront challenges around resource availability and the spacial relationship between the users (the someone in need) and the resource. The ability to take content out to individuals — which is what mHealth or various mobile technologies have done — becomes a substitution for asking those people to go to the content source in a different way.

It’s sort of like: If the cost of gas goes up and bus costs go up, how do we really expect kids to learn about the arts when they used to get on a bus and go on a field trip to a museum? Museums are beginning to take their content to the students where they live. The Metropolitan Opera says we can’t expect everyone to come to the Met, but opera is an important cultural element for society. So they started filming it and showing it at theaters around the country, which has been wildly successful. In these cases we are looking for ways to bring content out to touch people when we can’t in essence do it physically.

In healthcare the same principle exists. People who live in remote sites do not have access to care — primary care to say nothing of secondary or specialized care. How do we help them manage their health and wellness and help deliver services that might be beneficial to acute but relatively everyday problems? That is the kind of application opportunity that the technology provides. Whether that includes telehealth, applications, gaming… that’s the huge opportunity.

(MHN) Any closing thoughts?

I think healthcare might be unique in that it is a space where technological advance has not positively influenced efficiency or cost reduction. Just across the aboard it has not happened. Costs keep going up year after year after year. Why is that? The discussion we hope to have at the WLSA Summit is around how the companies presenting are in fact going to accomplish the needs of both enhancing efficiencies and lowering costs while achieving improved health outcomes for people. I expect it will be a lively discussion about disruption and how mobile will play into that.

Dr. McGuire is widely respected for his uncensored clarity about what has, hasn’t and can work relative to advancing the health of our nation.  This interview offers a sneak peak at the keynote remarks he will deliver during the WLSA Convergence Summit on May 11, 2011.  Click here to register.

Bill McGuire, M.D. is the former CEO of UnitedHealth Group and current Vice Chairman of TripleTree Holding Company.

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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.

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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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B to C Marketing, Sales and Service: The New Battlefield for Health Plans – 09/17/10

Historically, commercial health plans have leveraged a traditional “B to B to C” model for marketing, selling and servicing health insurance products to their members. The breakdown for this distribution model is as follows – Health plans “B” create a product catalog for their broker network “B”; and brokers in turn sell to employers or groups “C”.

The pressures of a post-reform world are forcing a shift in the sales strategies of payers. Medical Loss Ratio compliance rules for example, are pinching the income statements of health plans so significantly that getting closer to the member (i.e. eliminating the broker) will be table stakes if they choose to remain competitive. Net result? The traditional model will fade and be replaced by a direct-to-consumer (“B to C”) strategy.

This threat to the broker-driven sales model is compounded by consumer “connectedness” (everywhere-WiFi + prolific mobile devices + social applications) where empowered individuals are becoming engaged relative to researching, monitoring, communicating and paying for their own health care.

Around our shop, we’re referring to this shift as ‘consumer engagement’; a concept pioneered by a few BlueCross organizations who successfully cultivated direct-to-consumer messages via TV, radio, print and online media for some time. Early on these consumer-direct campaigns were an anomaly, but we’re now seeing this approach take hold more broadly. This is more than simply educating potential members about “the right health plan” – it’s a 1:1 marketing approach with messaging the places the health plan in a new light as an entity capable of tailoring health and wellness services (bundled inside of health insurance) to individuals.

Consider what UnitedHealth Group did during this summers’ PGA Masters Tournament. The health plan behemoth aired variations of its “Heath in Numbers” television spots to showcase an optimized health experience for their members thanks to uniquely intelligent tools and services.

If Cigna, Aetna, Wellpoint and others haven’t taken note, they will – and rest assured the big ad agencies will be quick to offer them ideas honed from decades long slugfests in industries like consumer retailing and banking. These health plans are stepping onto a new competitive battlefield, and will likely find themselves trying to out-market the likes of Walmart and Target.

TripleTree is way out in front of other strategic advisors on this topic and has strong viewpoints on where the next set of industry inflection points will occur. Principally, we’re convinced that the health plans can’t go it alone successfully – they lack the internal resources and specialized skills to tackle consumerism, much less the turn-key solutions need to support the state health insurance exchanges.

We’d like to know what you think, and have a great week!

We’d also like to invite you to participate in our one question survey:
Given the momentum around consumer engagement, prioritize the five initiatives below relative to your experience as a member of a health plan.

Chris Hoffmann & Michael Boardman

Chris Hoffmann is Research 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.

Michael Boardman is an associate at TripleTree covering the healthcare and technology industries, specializing in clinical software solutions.  Follow Michael on Twitter or e-mail him at mboardman@triple-tree.com.

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Medical Necessity Compliance Emerges as High Priority for Ingenix – 08/05/10

Within the past twenty-four hours, wire services and Wall Street analyst have been buzzing about the announced acquisition of Executive Health Resources (EHR) by Ingenix.  We’re proud of our colleagues who acted as the financial advisors on the deal, which is testimony to our focus on the growth areas of the healthcare sector and long-standing relationship with the EHR management team and private equity investor ABRY Partners (Disclosure: TripleTree was the exclusive advisor to EHR on its transaction with ABRY in 2007).

Followers of TripleTree appreciate our focus and understanding of healthcare compliance and related market pressures.  This deal in particular underscores how physician advisor teams with technology-supported services are needed by hospitals and health systems to assist them in managing necessity compliance with Centers for Medicare & Medicaid Services and state-directed medical necessity rules and regulations. Executive Health Resources serves more than 1,100 hospital and health system clients, which include for-profit and non-profit systems, academic medical centers, community hospitals and specialty centers.

If you’re interested in learning more about this seminal transaction for the healthcare industry, we’d be happy to schedule a briefing.

Have a great week!

Chris Hoffmann

Chris Hoffmann is Research 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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