The health information technology sector is poised to become the next big thing for investors in the health-care industry.
The health-care industry continues to evolve to keep pace with quality- and performance-based reimbursement changes and health IT is playing a critical role for providers trying to keep up. Transaction activity in the health IT area is hot, reflecting providers’ efforts to evolve, health-care attorneys and investment bankers told Bloomberg Law.
Health-care spending reached $3.3 trillion or $10,348 per person, in the latest figures released by the Centers for Medicare & Medicaid Services last December. It follows naturally that health-care consolidations, mergers, acquisitions, and even private equity investments have been booming. Established companies are seeking a bigger share of the pie, while new entrants want to grab a piece.
Established entities looking to grow their businesses through transactions announced or closed in July included Boston Scientific Corp., Humana Inc., ProMedica, and Walgreens Boots Alliance Inc. Private equity firms like Veritas Capital Inc. and Century Park Capital Partners appear on the list as well.
Big Increase in HIT
The number of transactions in the health IT sector is expected to increase precipitously in the coming 12 to 24 months, Gary W. Herschman, of Epstein Becker & Green in Newark, N.J., told Bloomberg Law. Herschman, who counsels health-care providers and health industry companies on transactional matters, is a Bloomberg Law advisory board member and a member of the transactions editorial advisory team.
The health IT sector was one of the most active in July, with 12 deals announced or closed during the month, according to a list compiled by investment bankers on the editorial advisory team. That put it in third position, behind only the physician practice and long-term care sectors. It narrowly beat out the hospital and health system sector for the month.
Health IT drives innovation in health-care provider policies and protocols, data analytics, clinical integration, patient engagement, and overall population health, Herschman said. There is a huge demand and need for platforms that allow providers to analyze real-time data to better inform their clinical care decision-making, leading to quicker, less-expensive, and higher-quality care, he said.
Products that improve patient engagement, or the ways doctors and patients communicate and share information, also will be receiving more attention from the investor community, Herschman predicted. Software programs and wearables like smart watches and fitness trackers that allow for instantaneous data transfer and communication already are helping to improve population health, including medication compliance, preventive care and monitoring of patients with chronic illnesses, and pre- and post-surgical care, he said.
IT platforms are—and will continue to be—one of the leading tools in changing the way patients are kept healthy and receive treatment, and this is accelerating the otherwise slow transformation to value-based care, Herschman said. “As more health-care IT platforms are introduced in the coming months, the rate of this acceleration will continue to grow, he said. “It is like comparing the speed of internet access five years ago versus today,” he said.
Health IT is especially helpful in analyzing big data sets associated with population health initiatives in real time, and thereby enhancing quality of care and clinical integration, he said. Clinical integration, according to the American Medical Association, is a means of facilitating patient care coordination “across conditions, providers, settings, and time in order to achieve care that is safe, timely, effective, efficient, equitable, and patient-focused.”
Mammoth Growth Sector
Long-term care sector growth dwarfed the other sectors in July, as it has for most of 2018, according to the investment bankers’ year-to-date list. Adding the month’s nine announced or closed deals in the home health and hospice sector to the long-term care deals makes it clear that July was the top month of the year for deals involving providers in the continuum of long-term care, Herschman said. This is no surprise as baby boomers continue to age through retirement and into their 70s and 80s.
Long-term care, home health, and hospice are all post-acute care services. Post-acute care is care received after, or in some cases instead of, a hospital stay. Depending on the intensity of the services required, post-acute care can be provided in or outside of an institution.
Post-acute care sector consolidation “will continue to accelerate as providers seek to build market relevance across a broad continuum” of the sector, Paul D. Gilbert, of Epstein Becker & Green’s Nashville, Tenn., office, told Bloomberg Law. Gilbert represents a broad range of rapidly growing health-care providers.
Hospitals appear to be jumping into the sector, but they are “developing post-acute service models through partnerships and other contractual relationships with preferred providers, rather than directly owning and operating post-acute providers,” Gilbert said.
“As a result, it feels like an arms race of sorts is developing among post-acute providers to build the most attractive and comprehensive networks,” Gilbert said. “As with hospital systems, it seems that post-acute providers and investors have decided that scale, in addition to a broad range of service offerings, will best position them to attract and negotiate contracts with large hospital systems, employers, and payers.”
Hospital, Health System Deals
The velocity of hospital and health system deals will continue to pick up, Gilbert said. Smaller systems and stand-alone hospitals will be looking to join larger organizations to help them in an increasingly difficult operating environment, he said.
Larger systems will continue growing their “networks in their most strategically important geographies, while at the same time shedding operations in less important markets,” Gilbert said. “Large health systems able to focus their operations in their chosen strategic geographies, while avoiding the costs and distractions of operations in less important markets or geographies, will be best able to drive important financial results and care outcomes going forward.”
The physician practices sector experienced the second-highest growth in July, with an emphasis on certain medical practice areas.
“Eye care remains one of the hottest sub-sectors within physician services,” Robert Aprill told Bloomberg Law. Aprill is an analyst with Provident Healthcare Partners LLC, a leading middle market investment bank, in Boston.
“With the mix of ophthalmology and retail optical shops, eye care has provided a perfect revenue mix for private equity- backed platforms to be successful,” Aprill said. Cataract surgeries and Lasik are on the rise, so the “industry outlook for ophthalmology remains bullish,” he said, adding that he expects to see a continued increase in deal volume for the rest of 2018.
Pharmacy Steps Up
Some big deals in the pharmacy sector, like the one between CVS Health and Aetna, have taken center stage in 2018, but sector as a whole “experienced a significant uptick in deal volume this month,” Aprill said.
Deal growth in both the retail and specialty pharmacy sectors is largely being driven “by recent reimbursement pressures on the specialty side that have forced groups to seek greater patient populations to counterbalance shrinking margins,” Aprill said. These reimbursement pressures will “stick around and continue to drive deal volume for the foreseeable future,” he said.
The lists of select transactions involving health-care providers, managed care, and services companies for July 2018 and the year to date were compiled by health-care investment bankers using publicly available information, including articles, websites, and press releases.
The list of transactions announced or closed in July is at http://src.bna.com/BeA.
The list of transactions year-to-date is at http://src.bna.com/BeB.
Bloomberg Law’s Health Care Transactions Editorial Committee contributed editorial guidance for this report. Members include Gary W.Herschman, of Epstein, Becker & Green PC, Newark (firstname.lastname@example.org); Paul D. Gilbert, of Epstein, Becker & Green PC, Nashville (email@example.com); Yulian Shtern, of Epstein, Becker & Green PC, in Newark, N.J. (firstname.lastname@example.org); Robert Aprill, of Provident Healthcare Partners LLC, Boston (email@example.com); Hector M. Torres, of ECG Management Consultants, Chicago (firstname.lastname@example.org); and Aaron T. Newman, of ECG Management Consultants, Chicago (email@example.com).
Epstein, Becker & Green PC did not comment on any particular transaction or party discussed or listed in this article.