The health and life sciences fields saw a proliferation of innovative, vertical collaborations in 2018, and we expect this trend to continue through 2019.
These collaborations were between unexpected partners looking to solve some of the hardest challenges in health care, expand service offerings, and improve operational efficiencies. This is a marked shift from 2017, when we saw mostly horizontal mergers and acquisitions that focused on expanding market share and presence.
Several factors are spurring these unique arrangements and transactions:
- Wide-spread recognition of the ever-increasing complexity of health care and the benefits of sharing risk;
- High transaction costs and purchase prices, making cost-sharing advantageous;
- Increasing need for support in running health-care operations, whether through contracts or formal joint venture partnerships;
- Regulatory pressures effecting horizontal consolidation and incentives;
- Availability of capital, as many entities held off investing in 2016 and 2017 while waiting for U.S. election results and the fate of the Affordable Care Act; and
- Consumer demand for simplified, one-stop access to a variety of health-care services.
The most successful of these innovative ventures are characterized by agility and collaboration. They feature highly collaborative leaders that communicate clearly about goals, teams willing and able to deliver practical solutions with deliberate speed, and tolerance for necessary risk. As a result, these nimble new partnerships can adapt along with—and even ahead of—the rapidly shifting market.
This trend of collaborative transformation is gaining even greater momentum throughout the rest of 2019 and into 2020, especially in data sharing, reimbursement, global deals, and nontraditional market players.
In 2019 and moving into next year, we expect the most successful collaborations will be those who thoroughly understand, combine and leverage the data of each business partner to improve care and drive down cost. Greater pools of information can lead to radically improved outcomes and patient experiences, so that effective and permissible data sharing can open up new opportunities for development.
Effective management of data rights is complicated, however. Contractual rights to data and how it is used are heavily negotiated and must take into account patient rights, the Health Insurance Portability and Accountability Act (HIPAA) and other privacy considerations.
Tracking patient data longitudinally can be difficult and expensive, and the technology for information-sharing networks is still emerging. If a patient is seen in an outpatient facility, for example, then visits an off-site pharmacy, an entity is tasked with determining how to identify and link that data as the patient travels through the system—all while navigating strict and evolving limitations on how that patient data may be used.
For example, the Office of the National Coordinator recently released a proposed rule under the 21st Century Cures Act to promote health IT interoperability that could have significant implications for how health IT developers, providers and other stakeholders facilitate access to application programming interfaces and other technology related to health information.
Alignment of reimbursement and care outcomes remains a keen focus across the industry. Health-care providers are partnering with payers to more effectively access the funds flow, while payers increasingly want to have a seat at the delivery-of-care table.
These innovative provider-payer relationships have the potential to dramatically benefit the consumer by offering the right care at the right time and place, for the right payment.
We anticipate that 2019 will continue to see more global deals, as nontraditional partners collaborate not only across industries but across borders and cultures to capitalize on this new wave of industry transformation.
Late last year the Committee on Foreign Investment in the United States (CFIUS) broadened its jurisdiction to cover investments and acquisitions of U.S. entities including biotechnology and other health-care organizations by non-U.S. investors. Accordingly, all parties involved in cross-border transactions involving U.S. biotech and pharmaceutical businesses, particularly in which critical technologies or personal data are involved, whether mere licensing arrangements, non-controlling investments or full M&A, should carefully consider all U.S. regulatory implications.
Parties to cross-border transactions should analyze whether a filing with CFIUS is triggered or warranted prior to the closing. CFIUS has the authority to order the parties to a consummated transaction to rewind the deal or divest foreign investor’s stake in the U.S. businesses in a fire sale.
Successful deals and partnerships in 2019 will require extra insight into the laws and data privacy norms of multiple jurisdictions, as well as skilled handling of cultural differences.
Nontraditional Market Players
Tech companies have been disrupting the broader economy for years, with apps and digital products that revolutionize how consumers conduct their everyday lives, from ordering food to ride sharing to grocery shopping.
In 2018, that same disruption began to hit health care, as IT developers and other tech companies took note of health care’s expanding portion of the GDP and burgeoning opportunities to add value. These disrupters are quickly transforming how traditional providers and payors operate, by offering game-changing partnership opportunities and digital solutions that improve care and reduce costs—and by ramping up competition.
Even as these new market entrants catalyze beneficial industry change, they face a steep learning curve and attendant risks. Health care is highly regulated, and these regulations and others are rapidly evolving. Tech companies entering the health field must thoroughly understand the role (and increasing scrutiny) of government policy makers and regulators, not only at the federal and state level, but on a global scale.
Innovators are wise to check their assumptions at the door: the health-care field doesn’t follow traditional rules of supply and demand, and common business concerns such cybersecurity take on a whole new level of complexity in the health arena. A tech company might be savvy about data integrity issues related to a food delivery app, for example, but those rules pale in comparison to the privacy and security requirements of a clinical trial.
For these reasons, we’re likely to see even more partnerships among disrupters and traditional providers, payers and biopharma entities, who can fill in the knowledge gaps for these new market entrants. While 2018 saw joint ventures typically between two parties—such as CVS Health Corp.’s $70 billion acquisition of Aetna Inc.—we expect the near future to feature partnerships between three or even four partners, as traditional players embrace the disrupters and vice versa.
Even as these multi-party ventures open up exciting possibilities for dynamic yet balanced market change, they require careful management, trust among partners, and, often, enterprise-wide culture changes to ensure effective collaboration.
This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.
Stephen W. Bernstein is a partner at McDermott Will & Emery in Boston and co-chair of the firm’s Life Sciences practice, and the leader of the firm’s Digital Health Practice. He provides cutting-edge advice on e-health, “big data,” deployment of EHR systems, and issues related to the internet and HIPAA, as well as the transactions that are transforming the industry.
Kristian (Krist) Werling is a partner at McDermott Will & Emery in Chicago and co-chair of the firm’s Life Sciences practice. He represents biopharmaceutical manufacturers and health care service providers in a wide variety of transactional matters. He also represents private equity and venture capital investors in investments in the life sciences and health care industries.
Eric Zimmerman is a partner at McDermott Will & Emery in Washington, D.C., the global head of McDermott’s Health Practice and co-chair of the firm’s Life Sciences practice. He is a recognized Medicare law and policy authority and registered lobbyist who represents clients before Congress and administrative agencies. He also serves as a principal of McDermott+Consulting LLC, McDermott’s integrated health-focused policy, lobbying and data analytics consultancy.
To read more from Health Law & Business News pleaseOR Request Trial