8 January 2020 Equity Research Americas | United States
Healthcare Technology 2020 Outlook: From “Hype & Hope” to a Potential Healthcare Transformation
Healthcare Technology | Sector Forecast
In this note, we discuss trends we believe are likely to drive digital health growth and healthcare Research Analysts innovations in 2020, updates from unconventional players entering or expanding in healthcare, 4Q earnings and 2020 outlook expectations for our HCIT covered names, and key takeaways Jailendra Singh from our surveys of investors and industry stakeholders on expectations around various 212 325 8121 developments in digital health and healthcare IT heading into 2020. (See our video here). [email protected] Several Themes, but One Goal – Make Healthcare More Accessible & Affordable. In Jermaine Brown 2019, we saw significant progress in several digital health areas with a primary goal of 212 325 8125 making healthcare either more accessible or more affordable with the industry continuing to [email protected] shift away from just curing disease in the short term (focusing on 5% of population) toward disease prevention & overall well-being in the LT (focus on total population). Heading into 2020, the key trends likely to drive digital health growth include acceleration in employer activists, further virtual care & AI adoption, continuing focus on social determinants, primary care reinvention, a need to address $1 trillion waste in the U.S. Healthcare system etc. Our Surveys Suggest Both Industry Stakeholders and Investors Bullish on Virtual Care/Telemedicine. We surveyed 237 HC industry stakeholders (42% C-Level execs) & 45 institutional investors on expectations around various developments in digital health and HCIT heading into 2020. Virtual Care & Data analytics were the top two technologies investors were most excited about, while industry stakeholders picked Virtual Care and AI/Machine Learning. Application of Blockchain & Augmented Reality/Virtual Reality were technologies both investors and industry stakeholders were least excited about. Finally, both groups see a slow transition from FFS to Value-Based Care and the lack of reimbursement clarity as biggest hurdles for the adoption/awareness of Digital Health/HC Innovations. 4Q19/2020 Outlook Expectations for Our Covered Names. We believe expectations for both EHTH and TDOC are for strong beats in 4Q. EHTH should benefit from a continuing growth in MA and recent investments, increase in online order fulfillment etc. TDOC should benefit from a full quarter benefit from the UNH contract, and an above- average flu season. Expectations are relatively modest for HMSY, PINC, CHNG, & TVTY. With respect to 2020 outlook, we see EHTH’s rev growth guidance exceeding cons growth expectation of 25% (though our survey indicates buy-side expectations are closer to 30%). For TDOC, we see organic rev growth guidance of 23-25% (cons: 25%). TVTY & HMSY are also expected to issue guidance. For HMSY, in particular, we see guidance coming in ahead of cons primarily driven by the Accent acq (closed late Dec & not reflected in cons). Reviewing Models Heading Into 4Q Earnings. We are reinstating coverage of HMSY following the recently closed acquisition of Accent. Specifically, we are raising our 2020 revenue, EBITDA, and EPS estimates by $50 mln, $10 mln, and $0.05, respectively. We are also updating our EHTH model to reflect more gradual improvement in EBITDA margins than we previously expected in 2020 and beyond. Specifically, our 2020 EBITDA estimate is now $113.8 mln vs $150.7 mln previously and 2020 EPS estimate is $2.92 vs $3.82, prev. Our 2020 revenue estimate remains unchanged at $530 mln.
DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, LEGAL ENTITY DISCLOSURE AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.
8 January 2020
Investor Survey Indicated TDOC and EHTH Most Preferred Names Heading Into 2020. According to our investor survey referenced above, TDOC, EHTH and HCAT were the most preferred HCIT names heading into 2020. Long-only investors picked TDOC as their most preferred HCIT name, while hedge-funds picked EHTH. Further, LVGO, TDOC and CHNG were the least preferred HCIT names heading into 2020. Long-only investors picked LVGO and CHNG as their least preferred HCIT names heading into 2020, while hedge-funds picked TDOC. Overall, heading into 2020, around 41% of investor respondents are bullish, 14% bearish, and 45% are neutral on the HCIT space. Among Long-only investors, 46% of respondents are bullish on the HCIT space, while among hedge-funds, only 29% of investor respondents are bullish. Views from Survey Respondents on Private Digital Health/HCIT Companies. When asked about the private Healthcare IT & Digital Health companies they are most excited about, investor respondents selected One Medical, followed by American Well and CityMD. Our industry stakeholders also picked American Well as the number one choice, followed by Iora Health and One Medical. Finally, Amazon was selected by both investors and industry stakeholders as their top pick when asked about a non-traditional company most likely to make a significant progress in healthcare in 2020.
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Table of Contents
4Q19/2020 Outlook for Our Covered Names 5 eHealth (EHTH) ...... 5 Change Healthcare (CHNG) ...... 6 HMS Holdings (HMSY) ...... 8 Tivity Health (TVTY) ...... 10 Teladoc Health (TDOC) ...... 11 Premier (PINC) ...... 14
Investor Outlook Survey - Most Preferred and Least Preferred Publicly Traded HCIT Companies Heading Into 2020 16
Key Takeaways from Our 2020 Digital Health Outlook Survey of Investor & Industry Stakeholders 19 Excitement Around Virtual Care Across the Board ...... 19 Not Much Love for Blockchain and AR/VR for Now ...... 19 Slow Transition to Value-Based Care, Lack of Customer Awareness, & Reimbursement Clarity Seen As Major Hurdles for Digital Health Adoption ...... 20 Private Companies Respondents Are Most Excited About ...... 21 Expectations Around Non-Traditional Companies Entering or Expanding in Healthcare ...... 22
Trends to Drive Digital Health Growth and Healthcare Innovations in 2020 24 Acceleration in Employer Activists ...... 24 Increasing Focus on Virtual Care ...... 25 Artificial Intelligence Applications Continue to Rise ...... 30 Technologies/Innovations Focused on Social Determinants Continue to Gain Traction ...... 31 Primary Care Reinvention Gaining Momentum ...... 33 5G - The Next Generation of Cellular Technology ...... 33 Waste in the US Health Care System Approaching $1 Trillion ...... 33 The Long March Towards Value-based Care to Continue ...... 34 Increasing Reliance on Technology & Data Implies Vulnerability to Cyberattacks ...... 36 Use of Blockchain in Healthcare ...... 37
Updates from Unconventional Players Entering Healthcare Market 39 Alphabet/Google ...... 39 Amazon ...... 39 Apple ...... 41 Best Buy ...... 41 Facebook ...... 42 IBM ...... 42 Lyft & Uber ...... 43
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Microsoft ...... 43 Walmart ...... 45
Digital Health Funding, IPOs, & M&As 46 Digital Health Venture Funding ...... 46 HCIT IPOs ...... 47 M&A Involving Digital Health/HCIT Companies ...... 47
Price Performance and Valuation 49
Our Most Popular Reports in 2019 50
Appendix 51 Catalysts in 2020 For Our Covered HCIT Names ...... 51 Hospitals/Health Systems That Launched Telehealth Services in 2019 ...... 52 Health Systems That Implemented EHR Systems in 2019 ...... 56 Largest Data Breaches In 2019 ...... 58 Digital Health M&A Deals In 2019 ...... 59 Survey Respondents Mix ...... 61 eHealth 63
HMS Holdings Corp 67
Other Financial Models 71
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4Q19/2020 Outlook for Our Covered Names eHealth (EHTH) 4Q19 Expectations EHTH is not presenting at the JPMorgan Healthcare conference but is likely to preannounce its 4Q results in the 2H of January. However, the company does not plan to issue a formal 2020 outlook until its 4Q19 detailed earnings results in February. Based on our investor conversations and the survey results from our EHTH Bull/Bear lunch debate in New York City in mid-Dec, we believe investors already expect EHTH to post 4Q revenue well ahead of the company’s implied outlook “at or above” $181 mln and consensus of $195 mln. Our Bull/Bear debate survey results indicated expectations for 2019 revenues at $414 mln, on average, implying 4Q19 revenues of $210 mln. Likewise, our survey results indicated expectations for 2019 EBITDA at $79 mln, on average, implying 4Q19 EBITDA of $88 mln (vs consensus of $82 mln and the implied 4Q outlook of $74-$79 mln). We hosted EHTH management for investor meetings in Europe in the second week of December (see our note: Plenty of Runway for Growth; Management Meeting Takeaways). EHTH did not provide any significant update on its Annual Enrollment Period (AEP) during the NDR. However, management then noted that, based on trends the company saw in the last two weeks of AEP, the company had increased confidence in its outlook of at or above the high end of its revenue guidance of $365-$385 mln. We expect EHTH’s results to exceed the current consensus and at least track current investor expectations on both revenue and EBITDA. 2020 & LT Outlook As noted, eHealth does not plan to issue a formal 2020 outlook until its 4Q19 detailed earnings results in February. With respect to Y/Y revenue growth guidance expectations for 2020, our bull/bear survey suggested investor expectations of around 30% growth, on average. Assuming EHTH posts 2019 revenues of $415 mln, a 30% Y/Y growth would imply 2020 revenue outlook of $540 mln. Even if the company puts the 30% growth at the high end of its revenue growth outlook and issues the guidance with a typical $20 mln range, the implied 2020 revenue outlook of $520-$540 mln would still be ahead of the current consensus of $499 mln. With 2019 baseline results trending higher, underlying industry trends remaining favorable, improving returns on the company’s recent investments, and another step-up in peak agent count in 2020, we remain comfortable with our above consensus 2020 revenue estimate of $530 mln. With respect to its LT tailwind outlook of $1 bln in revenue and $350 mln of EBITDA (35% EBITDA margin), EHTH has indicated multiple times over the past few months that its revenue projections are trending ahead of its tailwind revenue outlook. The company does not plan to host its investor day in 2020 but will update its LT outlook at some point during 2Q19. 2019 Share Price Performance Despite reporting better than expected results, EHTH shares were volatile during 2019. The shares were affected by “Medicare For All” regaining some focus in August/September as poll results suggested former Vice President Joe Biden losing some ground relative to Senators Bernie Sanders and Elizabeth Warren. However, shares have seen a strong recovery since hitting around mid-$50s in mid-October. We believe this strong bounce back in EHTH shares has been driven by “Medicare for All” noise fading, strong outlook from the CMS on 2020 MA enrollment, EHTH’s strong 3Q19 results, and its bullish commentary around 4Q19. Like the other Democratic contenders, Senator Warren somewhat softened her position on Medicare for All by noting in November that she would not pursue Medicare-for-all legislation until her third year in the White House.
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Figure 1: EHTH’s Price Performance in 2019 Figure 2: EHTH’s Short Interest Trends in 2019
$120 25.0%
$105 20.0%
$90 15.0% $75 10.0% $60
5.0% $45
$30 0.0%
Source: FactSet Source: FactSet Model & PT Updates With this note, we are updating our model and refining our EBITDA margin assumptions to reflect more gradual improvement than what we previously anticipated. While we remain comfortable with our $530 mln revenue estimate for 2020, we are lowering our EBITDA margin estimate for 2020 through 2023. As a result, our 2020 EBITDA estimate is now $113.8 mln vs vs $150.7 mln, previously, and our 2021 EBITDA estimate is $167.5 mln vs $217.8 mln, previously. Our 2020 EPS estimate is now $2.92 vs $3.82 previously and 2021 EPS estimate is now $4.00 vs $5.20 previously. With our revenue estimates and our PT basis of 5x our 2021 revenue estimate largely unchanged, our price target remains $134. Our Reports on EHTH in 2019 Plenty of Runway for Growth; Management Meeting Takeaways Continuing Challenges with Plan Finder Could Present an Opportunity Bullish on Both Near-Term and Long-Term Growth Prospects; Dinner Meeting Takeaways Positive AEP Trends Mean the Company Sees Its 2019 Results “At or Above” the Outlook Q&A Our Way: Stage is Set for a Strong AEP 3Q19 Ahead on Better Than Expected Tail Revenue; Implied 4Q Likely Conservative 2019 Revenue Seen at the High End of Outlook; Feeling Good About the Trends Narrowing Down the Concerns; Risk-Reward Attractive At Current Levels CMS’ Update on MA Trends in 2020 Generating Some Investor Questions; Our Quick Thoughts Perspective on CMS Plan Finder Announcement Asking the Right Questions A Growth Story Shielded from Market Turbulence & Macro Noise Q&A Our Way: This Train Continues to Pick-Up Steam Solid 2Q19, Above Heightened Expectations Skating To Where the Puck is Going; Initiate with an Outperform Change Healthcare (CHNG) 4QCY19/3QFY20 Expectations CHNG’s current fiscal year (FY20) ends March 31, 20120. We expect CHNG 3QFY20 solutions revenue and EBITDA to track our expectations of $810.6 mln and $231 mln, respectively, which compares with the current consensus of $810 mln and Healthcare Technology 6
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$232 mln, respectively. We expect the company’s Software and Analytics segment revenue to grow modestly at up 0.5% Y/Y in the quarter as the segment’s revenue growth continues to be impacted by the initial phase for enterprise imaging solution, product combinations/eliminations to reduce overlap, and rationalization of connected analytics business. We are expecting a 1% Y/Y revenue growth in the company’s network solutions segment, and a 5% Y/Y revenue decline in the company’s technology enabled services segment. The company’s TES segment revenue trend is expected to be unfavorably impacted by the impact of ASC 606 accounting standard getting pulled forward from FY3Q to FY2Q. We expect CHNG’s EBITDA margins improving from 30.6% in 3QFY19 to 30.8% in 3QFY20. We do not expect CHNG to preannounce or provide any update to its FY20/FY21 outlooks. FY21 Outlook CHNG has already issued its FY21 outlook of revenue growth at 4-6% and EBITDA growth at 6-8%, versus 1-2% revenue and up 6-8% EBITDA growth in FY20. The company has been architecting the entire organization to hit its 4-6% revenue growth target in FY21 by focusing on imaging, services business, and exiting some of its underperforming assets such as connected analytics, etc. Overall, while the revenue growth in FY20 is expected to be subdued, management remains confident and has a clear line of sight for its 4-6% revenue growth outlook for FY21. In fact, excluding some of the company’s restructuring and initiatives, the company is already at 4-6% revenue growth. In the long-run, we believe there are several potential upside opportunities relative to the company’s current revenue and EBITDA outlooks. Specifically, there still remains significant cross-selling opportunities within its businesses. In fact, as part of its process of merging with MCK’s assets, the company conducted an evaluation which concluded that full penetration (in terms of all the services the combined company would sell or provide) of its top 50 providers and top 50 payors would yield incremental annual revenue of $2.5 bln. Some of the recent wins the company highlighted on the FY2Q20 earnings call were the result of those cross-selling and/or up-selling opportunities. Additionally, in the long-run, there are opportunities with the pricing in the company’s businesses (which would be additive to 4-6% revenue growth). The company should also benefit from all the innovations it is bringing to the market. CHNG has an internal 5-year LT target. Once the company has delivered on its short-term commitment of going from 1-2% top-line growth in FY20 to 4-6% growth in FY21, it might consider setting out the LT growth objectives for the company (at some point during FY21). With respect to its EBITDA growth outlook of 6-8% Y/Y in FY20 and FY21, management notes that synergies are one of the key growth drivers in FY20. However, in FY21, the company plans to reinvest some of these synergies back into the business. 2019 Share Price Performance CHNG shares were volatile in 2019 post its IPO (priced at $13 below its original range of $16- $19) in late June primarily on three concerns: a) Lack of visibility for FY21 growth targets given the subdued revenue growth in FY20; b) High leverage; and c) Liquidity event related to MCK’s and PE’s ownerships. With the company reporting two strong quarters and management’s consistent positive tone related to FY20, investors have gotten more comfortable with the company’s FY21 growth targets. In fact, we hosted CHNG management for a series of investor meetings in San Francisco in mid-November (see our note: Clear Line of Sight for Growth in FY21 & Beyond; Management Meetings Takeaways). We walked away from the meetings feeling incrementally positive about the acceleration in the company’s top-line growth in both the short-term and long-term as well as the company’s ability to de-lever. With 6-8% EBITDA growth, no working capital drag, Y/Y decline in integration expenses, and steady CapEx ratio, management sees its FCF improving significantly Y/Y in FY21. CHNG is committed to its leverage target of around 4.0x and deleveraging target of 0.5x annually. Once the company hits its leverage target, it would reassess its next plan of action in terms of deleveraging further or focusing more on M&A opportunities. However, the liquidity event related to MCK’s ownership sale continues to remain a near-term overhang for shares.
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Figure 3: CHNG’s Price Performance in 2019 Figure 4: CHNG’s Short Interest Trends in 2019
$18 25.0%
20.0% $16
15.0% $14
10.0% $12 5.0%
$10 0.0%
Source: FactSet Source: FactSet Model & PT Updates With this note, we are maintaining our revenue, EBITDA, and EPS estimates for FY20 and FY21. Our PT remains $18, which is based on 9.5x our CY21 EBITDA estimate. Our Reports on CHNG in 2019 Contracts Wins Further Solidify Management’s Growth Objectives Clear Line of Sight for Growth in FY21 & Beyond; Management Meetings Takeaways Q&A Our Way: Investments Yielding Results; New Business Wins Bode Well for FY21 Outlook A Clean Beat Across the Board; FY2Q20 Revenues and EBITDA Ahead Q&A Our Way: Moving in the Right Direction There Is No Second Chance to Make a First Impression; Strong First Quarter Post IPO CHNG Cautions Against Trying to Read Too Much into MCK’s Results; Our Thoughts Investments Today Pave the Way for a Bright Future; Initiating with an Outperform, $18 TP HMS Holdings (HMSY) 4Q19 Expectations Two of the large PBMs HMSY sends eligibility PBMs claims or eligibility data to process had some technical challenges in 3Q19. As a result, the work which HMSY management thought was likely to get done in the quarter got pushed out. The company expects a pretty strong rebound in its COB business in 4Q, and still expects its COB business to be up low to mid- single digit for 2019 (in-line with the original guidance). Overall, we estimate the COB revenue in 4Q to grow 12.5% Y/Y. The Payment Integrity (PI) segment was up nicely (22.5% Y/Y) in 3Q19. However, the Population Health Management (PHM) segment’s YTD performance has been below the company’s expectations as the company’s go-to market strategy has not been as effective. Thus, the company has pivoted and shifted the strategy and is now adding a new salesforce dedicated to the PHM segment. While the company expects some PHM segment revenue shortfall in 3Q to be recovered in future quarters, HMSY reduced its 2019 guidance by the same amount as the miss in the quarter. The company notes that the guidance reduction reflects the fact that it could take more time to collect the revenue. Additionally, there are always capacity issues in terms of how many claims can be processed. We are estimating a 20% Y/Y growth in the PI segment and a 1% Y/Y growth in PHM segment in 4Q19.
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Overall, we expect the company to meet our 4Q19 revenue estimate of $170 mln (Cons: $170.7 mln), which compares with the implied guidance of $167-$177 mln and our EBITDA estimate of $48 mln (Cons: $48.7 mln), which compares with the implied guidance of $47-$52 mln. 2020 Outlook On December 23rd, HMS Holdings announced the acquisition of Accent, a payment accuracy and cost containment business, from Intrado Corporation for $155 million. Accent generated $50 mln of revenues on a TTM basis, and its margins are comparable to HMSY’s margins. The company’s release also noted that Accent has a solid history of positive operating profitability and cash flows. The company will pay for the acquisition using cash on hand. The transaction price implies 3.1x Accent’s TTM revenues. Assuming Accent’s margins are similar to 26.4% YTD core EBITDA margin (excluding reserve releases and 3Q19 Gain on Investment), the transaction price implies 10.7x our estimated TTM EBITDA. As discussed below, our estimates including the Accent deal are $720 mln, $205 mln, and $1.36 for revenue, EBITDA and EPS for 2020, respectively. We expect the company’s outlook to bracket our expectations. The current consensus excludes the Accent deal as of now. 2019 Share Price Performance HMSY shares generally had a stable year until its disappointing 3Q19 results. After the company missed its revenue and earnings expectations and cut its full year outlook, HMSY shares declined close to 19%. Shares saw some recovery in November but again came under modest pressure after there were some discussions around UNH moving some of the COB business away from HMSY to Performant Financial. HMSY management did clarify that the UNH-HMSY contract transition for the Medicaid reclamation in COB happened prior to 2Q19. While HMSY did not talk about the revenue loss related to the contract, the company highlighted its strong 1H19 results for its COB business (up 15.5% Y/Y in 1Q and up 4.3% Y/Y in 2Q) despite the contract transition. Management also notes that the underperformance in the COB business in 3Q19 was not related to this contract loss.
Figure 5: HMSY’s Price Performance in 2019 Figure 6: HMSY’s Short Interest Trends in 2019
$45 4.5% 4.0% $40 3.5% 3.0% $35 2.5% 2.0% $30 1.5% 1.0% $25 0.5%
$20 0.0%
Source: FactSet Source: FactSet Model & PT Updates We are updating our model to reflect the Accent deal. We are raising our 2020 revenue estimates by roughly $50 mln (80% PI and 20% COB) to $720 mln. We are also raising our EBITDA estimates by $10 mln to $205 mln and EPS by $0.05 to $1.36. Our $34 PT is based on 14x our 2021 EBITDA estimates. Our Reports on HMSY in 2019 Management Offers Some Clarifying Comments on the UNH Contract Dinner Meeting Takeaways: No Fundamental Change in the Biz, 3Q Blip Temporary
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Q&A Our Way: 3Q a Setback, but LT Outlook Remains Intact 3Q Below, Guidance Reduced; A Quarter With More Questions Than Answers A Strategic Deal To Enhance PHM Positioning Management Offers Perspective on RAC Revenue Related Disclosures in 10-Q Q&A Our Way: Strong End to 1H, Feeling Good About 2H Steady Trends at COB + Rebound in PI + RAC Reserve Benefit = Strong “Beat & Raise” Q2 Well Positioned to Address Industry Trends; Assuming Coverage with Outperform Tivity Health (TVTY) 4Q19 Expectations We initiated coverage on Tivity Health last week (see our note: Bullish on Healthcare Segment, but Nutrisystem Deal Yet to Prove Its Worth; Initiating with a Neutral Rating). TVTY is presenting at the JPMorgan Healthcare conference but is unlikely to preannounce its 4Q results (or issue its 2020 outlook) since the company won’t have enough data from the 2020 diet season. However, the company could provide some update on SilverSneakers eligible lives (post the AEP) and might make some qualitative commentary around the preliminary results TVTY is seeing around the diet season. We expect TVTY to meet or exceed its implied healthcare segment 4Q revenue guidance of $151.3-$156.3 mln (CSe/Cons: $154/$157 mln). We conservatively estimate a 0.9% Y/Y revenue growth in SilverSneakers (vs 1.6% in 3Q19 and 0.5% in 2Q19), and could very well be a source of upside in the quarter. However, we expect the company’s Nutrition segment to continue to drag overall results. 4Q is typically the weakest sales season for the Nutrition segment. The company’s guidance implies 4Q revenue range of $117.6-$127.6 mln (both CSe and Consensus at $119 mln). Our expectation of a Y/Y decline of 7.9% in the company’s Nutrition segment compares with a 9.6% Y/Y decline in 3Q19 and a 4.4% decline in 2Q19. Further, we expect TVTY to meet our 4Q19 EBITDA estimate of $64.3 mln (Cons: $64 mln), which compares with the company’s implied 4Q19 EBITDA outlook of $62.3-$72.3 mln. 2020 & LT Outlook We expect the company to issue its 2020 outlook along with its 4Q earnings release. The company has already indicated that it expects its Healthcare segment revenues to be up high single digit/low double digit range in 2020 despite another Y/Y headwind related to UNH moving some of its individual MA lives away from SilverSneakers. Further, the company has also noted in the past that it expects its number of eligible lives for SilverSneakers at around 16- 16.5 mln. The company is targeting five million members for total enrollment (a growth of around 38% vs 3.6 million currently) and 1.8 million (a growth of 50% vs 1.2 million currently) active monthly participants by 2020. The current consensus for the Healthcare segment revenue is $686 mln (CSe: $684 mln). With respect to the company’s Nutrition segment, our 2020 revenue estimate of $629.5 mln is below the current consensus of $650 mln. As we noted in our initiation report, after several years of strong double-digit top-line growth, Nutrisystem has experienced a decline in its revenues over the past two years, primarily driven by fewer new customer starts, a critical component in the weight loss management industry. Despite the company’s recent initiatives to bolster Nutrisystem’s legacy business, it remains to be seen if these efforts are enough to drive a turnaround. Overall, our 2020 revenue estimate of $1.314 bln compares with the consensus of $1.327 bln. We believe any variance in the company’s guidance relative to our expectations is likely to be driven by the company’s Nutrition segment.
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2019 Share Price Performance While TVTY shares declined 32% on the day of Nutrisystem deal announcement in December of 2018, shares remained under pressure in 1H19 as the company’s diet season trends in 1Q19 fell short of expectations. In 2Q19, the company lowered its outlook for the Nutrition segment as the company’s direct-to-consumer nutrition business continued to face challenges. However, the company’s continuing strong results in its Healthcare segment as well as the extension of UNH’s Group MA lives contract drove a rally in shares in 2H19. In December of 2019, TVTY shares again declined after the departure of Dawn Zier, the former COO of Tivity Health and the former CEO of Nutrisystem.
Figure 7: TVTY’s Price Performance in 2019 Figure 8: TVTY’s Short Interest Trends in 2019
$26 45.0%
40.0%
35.0%
$22 30.0%
25.0%
20.0%
$18 15.0%
10.0%
5.0% $14 0.0%
Source: FactSet Source: FactSet Model & PT Updates With this note, we are maintaining our revenue, EBITDA, and EPS estimates for 2020 and 2021. Our PT remains $22, which is based on 7.5x our 2021 EBITDA estimate. Teladoc Health (TDOC) 4Q19 Expectations Based on our conversation with investors, there are expectations for a 4Q preannouncement (and a preliminary 2020 outlook) at the JPMorgan Healthcare conference next week. TDOC did issue its year ahead outlook when the company presented at this conference in 2018 but just reaffirmed 4Q without providing any update on the year ahead look when the company presented in 2019. Overall, we see a high likelihood of TDOC’s revenues coming in at the high end or higher than its quarterly outlook of $149-$153 mln (CSe/consensus of $151.8/$151.7 mln) primarily driven by higher than average Flu activity in the quarter. TDOC has noted in past that a strong flu season can lift its visits by 5-10%. However, with Flu activity having an impact on the company’s gross margin (driven by an increase in unpaid visits), we see TDOC’s 4Q EBITDA largely tracking expectations (CSe/Consensus: $14.3/$13.2 mln and outlook of $11.5-$15.5 mln). By way of background, nationwide during Week 52 (per the CDC), the percentage of outpatient visits for flu-like illness was 6.9% for the week ending December 28th (vs. 5.1% in the prior week), according to the CDC’s most recent FluView report. This figure surpasses the national baseline of 2.4% (“a reference point CDC uses based on the previous three seasons”), approaching levels last seen in the 2017-2018 season (which peaked at 7.5%). ILI has been at or above the national baseline for eight weeks with all regions at or above their baselines. According to a press release from MDLive in the first week of November, its virtual doctor visits for patients with cold and flu symptoms were expected to reach record levels this flu season. The projections, based on MDLIVE’s own AI-based predictive analytics that have been
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8 January 2020 highlighted by Microsoft, showed that flu-related visits could increase by 43% from a year ago and would be the highest volume of patient visits during the annual flu season since MDLIVE’s founding in 2006. MDLIVE’s models then predicted the peak flu season to begin in the U.S. in November, and MDLIVE’s own utilization was expected to peak in January. MDLIVE argues that Telemedicine is ideal for patients and providers during a busy flu season. In fact, flu is an appropriate condition that a doctor can diagnose by an assessment of a patient’s symptoms conducted via a convenient virtual visit. This also helps to address the overcrowding of urgent care clinics and ERs during the flu season. In addition, telemedicine makes good health sense for not only those seeking assistance from a virtual care provider, but for the general population as well. Because a patient experiencing flu-like symptoms can consult with a provider without needing to enter a crowded clinic or ER, the patient avoids coming in contact with additional germs as well as spreading their own.
Figure 9: Percentage of ILI Visits
Source: CDC 2020 Outlook At the JPMorgan Healthcare conference next week, TDOC should at least provide additional update on its RFPs, bookings etc. for 2020. However, as noted there are expectations that the company might provide a preliminary 2020 outlook at the conference. The current revenue consensus of $685.4 mln (CSe: $668.6 mln) represents a Y/Y growth of 25% (CSe: 22%). TDOC’s LT revenue growth target is 20-30%. Excluding incremental contributions from Advance Medical, the initial 2019 outlook implied organic revenue growth in the low-20% range as the company’s strong guidance around 2019 membership and visits was partially offset by the pricing drag related to the new business roll-outs. For the three quarters reported in 2019, TDOC has reported organic revenue growth of 23%, 24%, and 24%, respectively. We believe the company’s initial 2020 outlook is likely to put the mid-point of the outlook at around 23-24%. We also believe the incremental revenue related to the UNH contract is already reflected in TDOC’s LT revenue growth target and could represent close to 4-5% of Y/Y growth in 2020. With a possibility of the Flu season peaking earlier than what we saw last year, there is a likelihood that management might want to capture some Flu related Y/Y headwind in its 2020 outlook. 2019 Share Price Performance TDOC shares were volatile in 1H2019 driven by the company’s initial 2019 outlook falling short of consensus, NCQA certification related noise, concerns around the pricing trends, and lack of any substantial update on the UNH contracts. However, shares recovered in 2H19 as management struck a positive tone with respect to the 2020 selling season, the company
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8 January 2020 provided announced UNH contract win (and provided additional contract details), and investors became bullish on strong organic growth trends in 2020.
Figure 10: TDOC’s Price Performance in 2019 Figure 11: TDOC’s Short Interest Trends in 2019
$90 40.0%
35.0% $80 30.0%
$70 25.0%
20.0% $60 15.0%
$50 10.0% 5.0% $40 0.0%
Source: FactSet Source: FactSet Model & PT Updates With this note, we are maintaining our revenue, EBITDA, and EPS estimates for 2020 and 2021. Our PT remains $76, which is based on 7.5x our 2021 revenue estimate. Our Reports on TDOC in 2019 Comments Around Utilization, Payment Parity, & Other Trends Offers Updates on Selling Season, UNH Contract Rollout, and PMPM Expectations Q&A Our Way: Good Visibility Into 2020 A Beat and Raise Qtr Driven by Strong Visits Trends; UNH Contract Rollout Drags Pricing Livongo Integrates Virtual Care Into Its Platform; Our Thoughts Post Management Call Updating Model to Better Reflect UNH Contract Details Management Offers a Further Sneak Peek Into the UNH Contract Fact Checking; Management Weighs in on Noise Around HIIQ Relationship Q&A Our Way: Selling Season Comments & Organic Revenue Growth Drivers Elaborated Q2 Tracks Expectations; Positive 2020 Selling Season Commentary What Are We Hearing? Thoughts on Shares' Weakness Where Are Expectations for the UNH Contract? Company’s Perspective on the CFO Announcement Shares Weak on No Apparent News Management Weighs In on NCQA Update Q&A Our Way: Expressing Confidence About 2020 Growth Prospects No Major Surprises in Q1; Q2 Outlook Brackets Consensus, 2019 Outlook Reiterated Likely A Quiet Quarter; Thoughts on Timing of Various Catalysts Another ST Extension for NCQA Certification A Quick Check With Management on MédecinDirect Deal & NCQA Certification Q&A Our Way: Digging Into 2019 Assumptions and Potential 2020 Tailwinds 2019 Guidance Shortfall Offsets Strong 4Q Results 4Q Should Track Expectations; 2019 Outlook and CFO Update In Focus
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2019 Outlook To Wait; Provides Update on Recent Client Wins & UNH Contract Expansion Premier (PINC) 4QCY19/2QFY20 Expectations PINC reported an 8% Y/Y revenue growth in its Supply Chain Services segment (including a 6% Y/Y growth in net admin fees). The company attributed better than expected growth in admin fees to favorable utilization trends, better than expected performance in the company’s capital group purchasing contract portfolio, benefits related to the company’s SURPASS and ASCEND collaborations, and the company’s other initiatives. Additionally, the segment benefited from a strong growth in the company’s direct sourcing business (up 10% Y/Y), which was partly timing related. Post FY1Q results, the company maintained its guidance for the segment. However, if some of the favorable trends (primarily related to utilization) continued in FY2Q20, it could push results ahead of our expectations. However, for now, we are modelling the supply chain segment revenue to moderate from a growth of 7.8% in FY1Q20 to a growth of 4.1% in FY2Q20. Likewise, we expect the segment EBITDA growth to moderate from up 9.4% to 6.5%. For Performance Services segment, we expect the pressure to continue. Specifically, we expect the segment revenues to decline 11% Y/Y and EBITDA to decline roughly 36% Y/Y in FY2Q20. All in, our consolidated revenue and EBITDA estimates are $305.8 mln (Cons: $307 mln) and $137.2 mln (Cons: $139 mln), respectively, for FY2Q20. FY2020/FY21 Outlook Given PINC’s fiscal year ends June 30, we do not expect the company to provide any outlook for its FY21 at this point. We also expect the company to maintain its FY20 outlook. 2019 Share Price Performance PINC shares were volatile during 2019 given all the uncertainty around the company’s Performance Services segment. However, shares saw a steep decline post a short report in late September. The short report focused on the pending renewal of the company’s two large contracts and its implications for the company’s shareback etc. A strong FY2Q20 and the renewal one of the two large clients helped shares rally. In late Nov, PINC shares saw some further positive move after Dealreporter reported that Premier is running a process to potentially sell the company. We believe a private equity transaction makes more sense than a strategic transaction. PINC doesn’t necessarily fit (in terms of add-on capabilities) within the portfolio of a potential strategic buyer’s portfolio given the nature of its business. On the flip side, a financial sponsor can inject capital, realign the leadership, and transform PINC into a much more technology forward company to drive some potential growth in the company’s performance services business. We also highlighted concerns around some pending contract renewals and ownership structure & its implications for the fees shareback. More recently, PINC shares declined after a PE Hub article noted that the sale process is on hold for six months as the company determines how the current member ownership structure would roll into an equity structure with the new entity.
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Figure 12: PINC’s Price Performance in 2019 Figure 13: PINC’s Short Interest Trends in 2019 18.0% $45 16.0%
14.0% $40 12.0%
10.0% $35 8.0%
6.0%
$30 4.0%
2.0%
$25 0.0%
Source: FactSet Source: FactSet Model & PT Updates With this note, we are maintaining our revenue, EBITDA, and EPS estimates for FY20 and FY21. Our PT remains $42, which is based on 13x our CY21 EPS estimates and 8x our CY21 EBITDA estimate. Our Reports on PINC in 2019 LBO Math Works, But Some Near-Term Hurdles to Overcome Q&A Our Way: Discussions Around FY1Q20 Growth Drivers, Contracts Wins, & Other Initiatives FY1Q20 Ahead as Better than Expected Supply Chain Segment More than Offset Performance Service Segment Miss Takeaways From Our Conversations with Management & Industry Experts on the Pending Contract Renewals A Quick Check with Management on PDPRA (Section 109) & Quarterly Cadence Q&A Our Way: Moving Parts in FY20 Outlook Discussed in Detail FY4Q19 Results and FY20 Outlook Largely As Expected Waiting For the Tide To Turn; Neutral View
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Investor Outlook Survey - Most Preferred and Least Preferred Publicly Traded HCIT Companies Heading Into 2020
In the text and charts that follow, we discuss investor sentiment on the HCIT industry and the publicly-traded HCIT names investors are most and least excited about heading into 2020. The results are based on our survey of 45 institutional investor clients (40% Hedge Funds, 58% Long-only). See appendix for the respondents mix for the survey. Around 41% of our investor respondents were bullish on HCIT, 14% were bearish and 45% were neutral heading into 2020.
Figure 14: What is your general view on the Healthcare IT sector for 2020?
Bearish 14%
Bullish 41%
Neutral 45%
Source: Credit Suisse Among Long-only investors, 46% of respondents were bullish on HCIT, while among Hedge- funds, only 29% of respondents were bullish.
Figure 15: What is your general view on the Healthcare IT Figure 16: What is your general view on the Healthcare IT sector for 2020? – Long Only sector for 2020? – Hedge Fund
Bearish Bearish 12% 18% Bullish 29%
Bullish 46%
Neutral 42%
Neutral 53%
Source: Credit Suisse Source: Credit Suisse According to our survey, TDOC, EHTH and HCAT were the most preferred HCIT names heading into 2020.
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Figure 17: Which of these HCIT names are you most bullish on heading into 2020?
33.3% 31.1%
20.0% 15.6% 15.6%
8.9% 8.9% 8.9% 8.9% 6.7%
TDOC EHTH HCAT HQY CHNG CERN LVGO EVH RCM PHR
Source: Credit Suisse Long-only investors picked TDOC as their most preferred HCIT name heading into 2020, while hedge funds picked EHTH.
Figure 18: Which of these HCIT names are you most bullish on Figure 19: Which of these HCIT names are you most bullish on heading into 2020? - Long-Only Investors heading into 2020? - Hedge Funds
44.4% 38.5%
26.9% 27.8% 23.1% 23.1%
15.4% 16.7% 11.1% 11.1%
TDOC HCAT EHTH HQY CHNG EHTH TDOC CHNG HCAT EVH
Source: Credit Suisse Source: Credit Suisse According to our survey, LVGO, TDOC and CHNG were the least preferred HCIT names heading into 2020.
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Figure 20: Which of these HCIT names are you most bearish on heading into 2020?
22.2% 22.2%
17.8% 15.6% 13.3% 13.3% 11.1% 11.1% 11.1% 8.9%
LVGO TDOC CHNG None of the CSLT EVH CERN HIIQ PINC TVTY above
Source: Credit Suisse Long-only investors picked LVGO and CHNG as their least preferred HCIT names while Hedge Funds picked TDOC as their least preferred HCIT name.
Figure 21: Which of these HCIT names are you most bearish on Figure 22: Which of these HCIT names are you most bearish on heading into 2020? - Long-Only Investors heading into 2020? - Hedge Funds
23.1% 23.1% 38.9% 15.4% 15.4% 15.4%
22.2% 16.7% 16.7% 11.1%
LVGO CHNG CSLT None of the EVH above TDOC LVGO CERN HIIQ CSLT
Source: Credit Suisse Source: Credit Suisse
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Key Takeaways from Our 2020 Digital Health Outlook Survey of Investor & Industry Stakeholders
In the text and charts that follow, we highlight key takeaways from our 2020 outlook survey of both investors as well as industry stakeholders on expectations around various developments in digital health and healthcare IT. We surveyed 237 industry stakeholders (43% C-Level executives at Healthcare firms) and 45 institutional investor clients (40% Hedge Funds, 58% Long-only). See appendix for the respondents mix for two surveys. Excitement Around Virtual Care Across the Board
Around 58% of investor respondents selected “Virtual Care/Telemedicine” as the technology/innovation they are most excited about. Data Analytics was selected by roughly 51% of investor respondents, while 38% of investor respondents selected Technologies/Innovations Focused on Improving Efficiency/Accuracy of Clinical Trials.
Figure 23: With respect to Healthcare IT & Digital Health in 2020, which of the technologies/innovations below are you MOST excited about? – Investor Respondents
57.8% 51.1% 37.8% 37.8% 33.3% 31.1% 31.1%
15.6% 15.6% 11.1%
Genomics
Telemedicine
Virtual Care/ Virtual Cybersecurity
Data Data Analytics
Artificial
Learning
physician
Management
Employee
Improving
on Platforms on
Population Health Population
of Trials of Clinical
ons Focuses ons on Focuses
engagement, etc.) engagement,
Healthcare Delivery Healthcare InnovationsRelated
(direct primarycare, (direct
Practice Practice Ownership
Intelligence/Machine
risk-based physician, risk-based
Efficiency/Accuracy
Engagement/navigati Physician Changes in Technologies/Innovati Source: Credit Suisse Among industry stakeholders, roughly 57% of respondents selected “Virtual Care/Telemedicine” as their top choice, followed by Artificial Intelligence/Machine Learning (55% of respondents), and Data Analytics (49% of respondents).
Figure 24: With respect to Healthcare IT & Digital Health in 2020, which of the technologies/innovations below are you MOST excited about? – Industry Stakeholder Respondents
57.0% 55.3% 48.5% 44.7% 33.8% 25.3% 19.4% 16.0%
10.5% 9.3%
Genomics
Things*
Telemedicine
Virtual Care/ Virtual
Data Data Analytics
Artificial
Learning
physician
Management
Employee
Improving
on Platforms on
Population Health Population
Internet of Medical Internetof
of Trials of Clinical
ons Focuses ons on Focuses
engagement, etc.) engagement,
Healthcare Delivery Healthcare InnovationsRelated
(direct primarycare, (direct
Practice Practice Ownership
Intelligence/Machine
risk-based physician, risk-based
Efficiency/Accuracy
Engagement/navigati Physician Changes in Technologies/Innovati Source: Credit Suisse Not Much Love for Blockchain and AR/VR for Now
Around 64% of investor respondents selected “Blockchain” as the technology/innovation they are least excited about when it comes to healthcare. Augmented Reality/Virtual Reality was
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8 January 2020 selected by roughly 47% of investor respondents, while 31% of investor respondents selected Internet of Medical Things.
Figure 25: With respect to Healthcare IT & Digital Health in 2020, which of the technologies/innovations below are you LEAST excited about? – Investor Respondents
64.4% 46.7% 31.1% 22.2% 17.8% 13.3%
11.1% 11.1% 8.9% 6.7%
Genomics
Blockchain
Things
Telemedicine
Cybersecurity
Virtual Care/ Virtual
Artificial
Learning
Management
Employee
Augmented
on Platforms on
PopulationHealth
Internet of Medical Internetof
Practice Ownership Practice
Intelligence/Machine
Reality/Virtual Reality/Virtual Reality Changes Physician in Changes Engagement/navigati Source: Credit Suisse Among industry stakeholders, roughly 44% of respondents selected Blockchain as their top choice for the technology they were least excited about, followed by Augmented Reality/Virtual Reality and innovations related to Changes in Physician practices/ownerships.
Figure 26: With respect to Healthcare IT & Digital Health in 2020, which of the technologies/innovations below are you LEAST excited about? – Industry Stakeholder Respondents
44.3% 40.5% 36.3%
21.9% 20.7% 20.3% 17.3% 15.2%
7.2% 6.3%
Genomics
Blockchain
Things
Cybersecurity
Artificial
Learning
Management
Employee
Improving
Augmented
on Platforms on
PopulationHealth
Internet of Medical Internetof
of Trials of Clinical
ons Focuses ons on Focuses
Practice Practice Ownership
Intelligence/Machine
Efficiency/Accuracy
Reality/Virtual Reality/Virtual Reality
Changes Physician Changes in Engagement/navigati Technologies/Innovati Source: Credit Suisse Slow Transition to Value-Based Care, Lack of Customer Awareness, & Reimbursement Clarity Seen As Major Hurdles for Digital Health Adoption
Around 36% of investor respondents selected “Slow Transition from Fee for Service to Value- Based Care” as the biggest hurdle for the adoption/awareness of Digital Health/Healthcare Innovations. “Lack of Customer Adoption/Awareness” was also selected by roughly 36% of investor respondents, while 33% of investor respondents selected Reimbursement Environment/Clarity.
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Figure 27: Which of these do you see as the biggest hurdles for the adoption/awareness of Digital Health/Healthcare Innovations? – Investor Respondents
35.6% 35.6% 33.3%
24.4% 22.2% 17.8%
11.1% 11.1% 8.9%
Slow Transition from Lack of Customer Reimbursement Limited Near-Term ROI Diverse Interests Regulatory Hurdles Lack of Capital Among Cybersecurity Privacy Fee for Service to Adoption/Awareness Environment/Clarity Among Stakeholders Providers Value-Based Care
Source: Credit Suisse Among industry stakeholders, roughly 38% of respondents selected “Slow Transition from Fee for Service to Value-Based Care” as the biggest hurdle for the adoption/awareness of Digital Health/Healthcare Innovations followed by Reimbursement Environment/Clarity (35% of respondents) and Lack of Customer Adoption/Awareness (32% of respondents).
Figure 28: Which of these do you see as the biggest hurdles for the adoption/awareness of Digital Health/Healthcare Innovations? – Industry Stakeholder Respondents
37.6% 34.6% 32.1% 28.3% 24.9% 22.4%
7.6% 5.1% 4.2%
Slow Transition from Reimbursement Lack of Customer Regulatory Hurdles Limited Near-Term ROI Diverse Interests Lack of Capital Among Privacy Cybersecurity Fee for Service to Environment/Clarity Adoption/Awareness Among Stakeholders Providers Value-Based Care
Source: Credit Suisse Private Companies Respondents Are Most Excited About
Around 29% of investor respondents selected One Medical when asked about the private Healthcare IT & Digital Health companies they are most excited about. American Well was selected by roughly 18% of investor respondents, while 18% of investor respondents also selected CityMD.
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Figure 29: Which of these private Healthcare IT & Digital Health companies are you most excited about? – Investor Respondents
28.9%
17.8% 17.8%
13.3% 11.1% 8.9% 6.7% 6.7% 6.7% 6.7%
One Medical American Well CityMD Iora Health Doctor on ZocDoc Cedar Gate RxAdvance Omada Health 98point6 Demand Technologies
Source: Credit Suisse Among industry stakeholders, roughly 13% of respondents selected American Well, followed by Iora Health at 12% and One Medical at 11%.
Figure 30: Which of these private Healthcare IT & Digital Health companies are you most excited about? – Industry Stakeholder Respondents 13.1% 12.2% 11.4% 11.4%
9.3% 8.0% 8.0% 7.2% 7.2% 7.2%
American Well Iora Health One Medical Doctor on VillageMD Grand Rounds Altruista Health Omada Health RxAdvance 98point6 Demand
Source: Credit Suisse Expectations Around Non-Traditional Companies Entering or Expanding in Healthcare
Around 62% of investor respondents selected Amazon when asked about the non-traditional companies making a significant progress in healthcare in 2020. Google/Alphabet was selected by roughly 49% of investor respondents, while 36% of investor respondents selected Apple.
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8 January 2020
Figure 31: Which of these non-traditional healthcare companies do you expect to make significant progress in healthcare in 2020? – Investor Respondents
62.2%
48.9%
35.6%
24.4%
13.3% 8.9% 2.2% 0.0% 0.0% 0.0%
Amazon (including Google/Alphabet Apple Walmart Microsoft IBM Best Buy Uber Lyft Facebook Haven)
Source: Credit Suisse Among industry stakeholders, roughly 68% of respondents selected Amazon, followed by Google/Alphabet at 40% and Walmart at 37%.
Figure 32: Which of these non-traditional healthcare companies do you expect to make significant progress in healthcare in 2020? – Industry Stakeholder Respondents
67.9%
39.7% 37.1% 34.2%
16.5% 6.3% 5.5% 5.5% 5.1% 2.1%
Amazon (including Google/Alphabet Walmart Apple Microsoft Best Buy Uber Lyft IBM Facebook Haven)
Source: Credit Suisse
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Trends to Drive Digital Health Growth and Healthcare Innovations in 2020
In the text and charts that follow, we discuss in detail some of the key trends we believe are likely to drive the digital health growth and healthcare innovations in 2020. Acceleration in Employer Activists
Employers are placing a greater emphasis on health culture, creating a workplace environment that encourages employees to live healthier lives and, therefore, be more productive at work. Employers are increasingly focused on affordability and improving access to quality care and total wellbeing of employees. A small portion of the population is responsible for a large percentage of total health spending (roughly 5% of population driving more than 50% of healthcare spending). However, employers are recognizing that focusing only on the highest- cost and highest-risk patients is very well turning out to be driving while looking in the rear-view mirror. Despite employers’ efforts to control utilization through various tools (higher employee cost sharing, shift to CDHPs, etc.), medical cost trend continues to outpaces general inflation. As a result, employers are increasingly putting employees at the center of their health and wellbeing strategies. This has led to what PwC’s Health Research Institute (HRI) coins as an emergence of “employer activists.” In fact, according to a Large Employers’ Health Care Strategy and Plan Design Survey conducted by National Business Group on Health in May/June of 2019, around 36% of employer respondents saw their health care strategy becoming an integral part of their workforce strategy as investments in health and well-being are considered key to deploying the most engaged, productive and competitive workforce possible. This figure was up from 27% in the 2018 survey. In a large group employer survey we conducted in the summer of 2019, we asked benefit managers to pick their top three priorities over the next three years. Some 78% of employer respondents noted employee well-being (enhancing employees’ physical, emotional, financial and social wellbeing), followed by clinical conditions (improving the health of employees and reducing the costs for key chronic conditions) and a healthy workplace (creating a workplace environment that encourages healthy living).
Figure 33: Over the next three years, what are your top three priorities? Employee wellbeing: Enhancing employees’ physical, emotional, financial and social wellbeing 78% Clinical conditions: Improving the health of employees and reducing the costs for key chronic conditions 60% Healthy workplace: Creating a workplace environment that encourages healthy living 51% Employee experience: Promoting employee involvement in workplace, technological and physical 32% environments Healthy technology solutions: Adoption of connected devices, enhanced enrollment and integrated 28% platforms and processes to improve care delivery, and health analytics
Source: Credit Suisse The top three conditions which are currently a major concern for employers are hypertension/high blood pressure (31% of respondents), metabolic syndrome/diabetes (30% of respondents), and cancer (27% of respondents). Interestingly, National Accounts see musculoskeletal disease (44% of National Account respondents) as their top condition of concern for employers. In fact, employers’ healthcare spending on individuals with chronic diseases is nearly four-times that for healthy workers.
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Figure 34: Which top clinical conditions from the following are currently major concerns for your company? Hypertension/High Blood Pressure 31% Metabolic syndrome/Diabetes 30% Cancer 27% Obesity 22% Depression/Mental Illness 19% Mental/Behavioral Health 18% Cardiovascular disease 18% Musculoskeletal disease 16% Maternity/Infertility 8% Cholesterol 5% Other 2%
Source: Credit Suisse In spite of employers’ willingness and increasing attempts to take greater control of their healthcare spending by shifting to a self-insured arrangement, employers still rely heavily on multiple vendors to manage their spend. This results in several individual contracts with health insurers, data warehousing vendors, benefit consultants, several point solutions etc. Employers are also showing increased interest in the companies focused on providing personalized advocacy and employee navigation/engagement related services in order to better focus on total population health. These companies have focused on personalizing population health management, empowering individuals, families and providers to make better healthcare decisions. According to the most recent Best Practices in Health Care Employer Survey, evaluating vendors best positioned to help deliver on their organization's strategy is a top priority for 79% of employers over the next three years. As part of this effort, organizations are looking to improve specific high-cost clinical conditions. To encourage use of high-performance networks, employers are reducing employees’ share of premiums or point-of-care costs for high- performance network plans. Over the next three years, employers plan to pursue cost-effective options to manage overall pharmacy spend and, specifically, specialty drug costs. However, employers also recognize that pharmacy costs rank among the most difficult areas to improve. Among the top strategies planned or under consideration to address rising pharmacy spend are evaluating and addressing specialty drug costs and utilization performance, promoting use of lower-cost biosimilars and adopting point-of-sale rebates. Increasing Focus on Virtual Care
Virtual visits, remote monitoring, virtual consults, telemedicine, etc. are all getting a significant focus due to consumer demand for a more patient-centric health care system. As this trend continues, more diagnosis and care (as well as efforts to avoid treatment through prevention) will take place in the home (or in remote settings). Telemedicine is also seen a tool to disrupt the healthcare industry by providing data-driven, evidence-based medical expertise to patients who otherwise would not receive it. More recently, many healthcare providers and organizations have started to implement chatbots apps to offer more personalized and helpful online experiences for patients. These apps use AI to process a patient's appointment inquiry, and then artificially respond like a "real" person by replicating patterns of human interactions. While getting reimbursed for a telemedicine visit historically was a key hurdle for healthcare providers, reimbursement laws and policies have evolved in recent years. While rules vary between states and health plans, providers can be paid for telemedicine services and even create new revenue streams. Foley & Lardner recently released a report based on its 50-state survey of telehealth commercial insurance coverage law, with bills currently under development in several other states. According to the survey, 42 states have some sort of telehealth commercial payer statute. The report also notes that the quality and efficacy of these laws varies significantly from state to state. For example, four states have telehealth coverage laws on the books that do not actually mandate health plans to cover services delivered via telehealth (Florida, Illinois, Massachusetts, and Michigan). The report also projects that in 2020 more states will enact new telehealth insurance coverage and payment parity.
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Figure 35: Does the State Have a Telehealth Commercial Payer Statute? - Whether or not the state has a law addressing commercial health plan coverage of telehealth services.
Source: Foley & Lardner LLP The report also noted that while telehealth coverage has widely expanded, the payment parity adoption among states is still low. For example, currently, 16 states maintain laws expressly addressing reimbursement of telehealth services, but only 10 of them offer true “payment parity.” States with true payment parity laws are Arkansas, Delaware, Georgia, Hawaii, Kentucky, Minnesota, Missouri, New Mexico, Utah, and Virginia. Foley & Lardner predicts that 2020 will yield more states enacting new telehealth insurance coverage and payment parity laws or amending current laws to better account for the current state of telehealth. Figure 36: Does the State Have a Coverage Parity? Figure 37: Does the State Have a Payment Parity?
Source: Foley & Lardner Source: Foley & Lardner The report also highlighted that other limitations on telehealth commercial reimbursement continue to exist in some states, but the trend is towards favorable treatment for telehealth. For example, five states maintain some restrictions on the patient’s originating site. And 25 states have cost shifting protections, which prohibit a plan from charging a patient a deductible, coinsurance, and/or copayment for a telehealth consultation that exceeds what the insurer would charge for the same service if it were provided during an in-person consultation. Coverage of asynchronous telehealth and remote patient monitoring also has grown. Nearly half of the states (24 states) mandate coverage for store and forward asynchronous telehealth. Finally, 13 states require commercial health plans to cover remote patient monitoring services.
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Definitive Healthcare also released its 5th Annual Inpatient and Outpatient Telehealth Studies, surveying healthcare providers. Adoption of telehealth solutions or services has surged in the past five years (from 54% in 2014 to 85% in 2019), indicating a higher level of acceptance and desire for telehealth services. Plans for future telehealth investment have increased significantly from 26% in 2016 to 40% in 2019. Of these future investments, 90% are slated to occur in 2020. While adoption rates of telehealth solutions and services by outpatient physician practices remained relatively flat from 2018 to 2019 (at approximately 44%), the mix of telehealth technology solutions shifted, with an increase in two-way video/webcam platforms, mobile applications for concierge services, and clinical-grade remote patient monitoring devices. While the telehealth adoption among employers and providers continues to rise, the utilization rates have remained low because of issues such as branding and lack of patient understanding about telemedicine. There is also a huge barrier to entry from physicians’ perspective which includes the education that would need to be done and marketing to get patients to feel comfortable enough to do it on a regular basis. In addition, practitioners are not comfortable using technology. In fact, research studies have shown that physicians are not as good over the phone as they are in person. For example, on a video conference call, facial expressions, the body postures, etc. can be very different than in person which patients may not like. In addition, there still is no formal training in any universities practitioners group regarding telehealth. Further, there is no standard of care while engaging with a patient virtually. As a result, two people with the same conditions can see different doctors via telehealth and have two dramatically different experiences. When doctors see a patient in person, typically they are able to connect on an interpersonal level and have a better grounding as opposed to via a telemedicine visit. As a result, doctors are typically able to provide a better diagnosis in an in-person visit. Additionally, when placing that doctor in a telehealth situation, the liability concerns also come into effect. Further, cultural expectations have shifted patients thoughts as to what a doctor’s visit should look like, which is why patients are more satisfied when receiving medicine from a doctor rather than not. This ties back into the whole model of DTC whereas the patient is now a consumer and has paid for a service so expects a product (medicine). Overprescribing medication is the number one problem that the Center for Disease Control (CDC) is trying to address. These are some of the issues which the industry has to find ways to address before we start seeing any pick-up in the telehealth utilization rate. Telehealth Adoption Among Healthcare Providers We believe health systems and hospitals are likely to be the next big group to significantly invest in telehealth. Some health systems are focusing a lot on trying to retain patient populations so they don’t lose them to the DTC consumers. In 2019, healthcare organizations looked to invest in remote patient monitoring (RPM) solutions to transition to value-based care. These solutions are expected to support high-risk chronically ill patients whose conditions are considered unstable and at a risk for hospital admission. According to a Spyglass Consulting Group study, 88% of providers surveyed have invested or are evaluating investments in RPM technologies. Separately, 89% of providers surveyed have developed or are in the process of developing engagement strategies to encourage patients, family members, and care givers to take a proactive role in managing their chronic conditions. They are leveraging mobile technologies including Smartphones and Tablets, deploying EHR-based patient portals, offering telehealth video conferencing services, and evaluating emerging healthcare wearables. We surveyed hospitals and health systems executives in mid-October. Some 70% of respondents currently use telehealth (this compares with 77% of respondents from our survey in 2018). Most of those respondents expect to expand their use of telehealth over the next 1-3 years. 23% of respondents do not currently use telehealth but expect to add the capability over the next 1-3 years. 7% of respondents do not use telehealth and do not plan to add the capability. Some 34% of respondents said that they use proprietary, in-house technology for their telehealth program (though we suspect that this includes some hospitals that use a white- labeled third-party service). Among respondents who use telehealth, only 14% said that telehealth is a direct source of revenue (a slight decrease from the 16% reported in our 2018 survey). 10% of respondents
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8 January 2020 said that telehealth is a component of contracts with payers and thus drives incremental reimbursement. 41% said that telehealth is more for cost management than a source of revenue (up from 22% in our 2018 survey). 24% of respondents said that telehealth allows the hospital to accommodate more patients in the ER and thus indirectly drives revenue (up from 19% in our 2018 survey). In our 2018 survey, 44% of respondents said that telehealth was essentially just a “nice to have” service and a marketing tool, but only 10% of respondents selected this option during this year’s survey. Among respondents who currently do not use telehealth, 30% said that the reason is because it is not cost effective to use, 23% said that they do not see enough interest from patients/physicians in the community, and 23% said that they have reimbursement concerns or no coverage from payers. Regarding service lines in which telehealth is used among those who use telehealth or plan to use telehealth, 65% of respondents use telehealth for stroke care. While 54% of respondents use telehealth for behavioral health/psychiatry. Behavioral health/crisis care, non-emergency follow-up, and cardiology were all above 20% as well. 27% chose the “Other” category, with neurology being mentioned several times. Regarding utilization of telemedicine, respondents said that of all potential cases that could have been handled via telemedicine within the past year, 10.6% were actually serviced via telemedicine, on average. These results are meaningfully higher than our 2018 survey’s results. Based on the 2018 survey, 4.4% of eligible cases were serviced via telemedicine, on average. Please refer appendix for a list of hospitals/health systems which implemented telemedicine/virtual care in 2019. Telehealth Adoption Among Employers With respect to the adoption of telemedicine among employers, we believe the large group market (and National Accounts, in particular) is approaching close to full penetration. In fact, based on our survey of large group employers in summer of 2019, approximately 84% of total respondents plan to have a telemedicine offering for their employees in 2020 (vs 81% of respondents for 2019). From an employer size perspective, 91% of National Accounts (vs 86% last year) are planning to provide a telemedicine offering in 2020.
Figure 38: Do you offer Telemedicine to your employees?
7% 15% 18% 12% 5% 2% 6% 5% 1% 6% 1% 2%
81% 86% 78% 75%
Aggregate Middle Market Large Group National Accounts No offerings place for 2019, and no plans to introduce Telemedicine offerings for 2020 No offerings in place for 2019, but plan to introduce Telemedicine offerings for 2020 Offerings in place for 2019, but plan to discontinue those for 2020 Offerings in place for 2019, and will continue to do so for 2020
Source: Credit Suisse Majority of employers who offered Telemedicine to their employees selected “Reduce Medical Costs” and “Improve Access to Care” as the primary reasons to offer Telemedicine to their employees. Separately, majority of employers who are not offering Telemedicine to their employees selected “Need more information” and “Unclear on ROI” as the primary reasons to not offer Telemedicine to their employees. Among the small number of employers who are
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8 January 2020 discontinuing Telemedicine for next year, majority of them are doing so because employees are not using it. With respect to the key services being offered through Telehealth, urgent care, general health assessments, and behavioral health were the three primary services offered through Telehealth for both 2019 and 2020. On an aggregate basis, the percentage of employers offering behavioral health services via telehealth is expected to increase from 44% in 2019 to 48% in 2020, implying tele-behavioral still remains an opportunity in the large group employer market.
Figure 39: What are the key services your company is offering through Telehealth in 2020? Urgent General health Behavioral Diabetes Employee Diet and nutrition Smoking cessation care assessments health counseling assistance Middle Market 72% 59% 42% 31% 31% 28% 41% Large Group 72% 62% 53% 24% 19% 25% 39%
National Accounts 84% 63% 59% 19% 16% 19% 28%
Aggregate 73% 61% 48% 27% 24% 26% 39%
Source: Credit Suisse While adoption among employers is close to all-time high, the utilization rate among employees still remains pretty low. In fact, according to our survey, on a weighted average basis, only approximately 8.9% of employees (vs 9.3% in 2018) are actively using Telemedicine offering. When asked about the reasons behind the low Telemedicine utilization rate among employees, 46% of employers attributed it to “Employees continue to prefer in-person visits vs virtual visits”, while 42% attributed to “Lack of marketing/outreach/education on part of Employers”. Despite the low utilization rate, around 65% of employer respondents were very or somewhat satisfied with their current Telehealth vendors, with the satisfaction level being slightly below average among Middle market employers. Only 2% of employer respondents noted that they were unsatisfied with their current telehealth vendors (remaining 33% were neutral). In fact, according to a Large Employers’ Health Care Strategy and Plan Design Survey conducted by National Business Group on Health in May/June of 2019, employers see virtual solutions as having a growing impact in the future.
Figure 40: Large Employers’ Views on the Impact of Virtual Care, 2020 Some Impact, 30%
Slight Impact, 5%
No Significant Impact, 1%
Very Significant Impact - will revolutionize how care is delivered in the future, 13% Significant Impact, 50%
Source: National Business Group of Health According to a First Stop Health’s survey (155 employers) released recently, employers often struggle to measure the ROI of the benefits they offer and telemedicine is right on top of that list. For example, 56% of employers offering claims analysis/data analytics measure its ROI,
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8 January 2020 but only 22% of employers offering telemedicine measure its ROI. This may be because employers don’t have a clear approach to measuring telemedicine ROI. Meanwhile, claims analysis/data analytics outcomes are inherently quantifiable. Figure 41: Which of the following health and wellness solution metrics does your organization measure for each cost management strategy implemented? Participation/ Awareness Enrollment ROI Utilization
Telemedicine benefit 49% 37% 75% 22% Changes to coinsurance 38% 40% 53% 38% Claims analysis/data analytics 38% 36% 50% 56% Modify employee/employer split on premiums 38% 53% 41% 29% Offering high deductible health plans 39% 70% 79% 33% Preferred drug formulary 30% 35% 54% 43%
Source: FSH 2019 Health Benefits Cost Containment Report Artificial Intelligence Applications Continue to Rise
With ongoing healthcare staffing shortages, an increasing number of physicians and healthcare providers reaching retirement age, and access to more data than healthcare professionals know what to do with, healthcare organizations are looking towards Artificial Intelligence (AI), machine learning and predictive analytics technologies as a means to solve many future problems. The complexity and rise of data in healthcare means that AI and related technologies are becoming increasingly prevalent in business and society, and are beginning to be applied to healthcare. These technologies have the potential to transform many aspects of patient care, as well as administrative processes within provider, payer and pharmaceutical organizations. According to a journal in PubMed Central (PMC), AI is not one technology, but rather a collection of them: Machine learning – neural networks and deep learning, Natural language processing, Rule- based expert systems, Physical robots, Robotic process automation, etc. According to an Accenture analysis, growth in the AI health market is expected to reach $6.6 bln by 2021, a CAGR of 40% over a period of 2014 to 2021. When combined, key clinical health AI applications can potentially create $150 billion in annual savings for the United States healthcare economy by 2026. The same analysis estimates that AI can address an estimated 20% of unmet clinical demand.
Figure 42: Top 10 AI Applications Robot-Assisted Surgery $40 Virtual Nursing Assistants $20 Administrative Workflow Assistance $18 Fraud Detection $17 Dosage Error Reduction $16 Connected Machines $14 Clinical Trial Participant Identifier $13 Preliminary Diagnosis $5 Automated Image Diagnosis $3 Cybersecurity $2 Total $150
Source: Accenture Analysis AI continues to add value to the healthcare ecosystem by driving better performance, better outcomes, and better patient experience. A survey of more than 900 health-care professionals by MIT Technology Review Insights, in association with GE Healthcare, finds that health-care professionals are already using AI to improve data analysis, enable better diagnoses and
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8 January 2020 treatment predictions, and free medical staff from administrative burdens. More than 80% of survey respondents believe that AI is, or will, help them improve their ability to generate revenue, recruit talent, and be competitive. And during the next 10 years, AI will radically streamline health-care delivery processes. In fact, AI investment in health care has only just begun as most survey respondents (around 79%) with ongoing AI projects say that they will be spending even more to develop applications in 2020. AI adoption in clinical applications is widespread. AI automates repetitive or tedious tasks (Clinical Documentation Improvement, Coding, Payment Integrity, Prior Authorization etc.) and quickly helps discover patterns and anomalies to lower the total cost of care and help individuals work at the top of their field. AI can quickly process data, personalized for each patient, to provide appropriate medications, identify health issues and alert the appropriate stakeholder to take preventative action. The MIT survey shows the highest level of interest in AI-powered patient flow optimization - making sure patients move through a facility, with the right level of care, as efficiently as possible. AI-powered mobile applications are also becoming more mainstream. Using these apps, patients can report their symptoms and receive either a referral to a service or self-care advice. An increasing number of apps can also be connected to bluetooth-enabled health devices, such as blood pressure monitors, fitness apps and scales for an increased degree of interoperability. As we discuss in “Digital Health Funding” section, AI in healthcare funding reached a new high in 3Q19. Implementing AI in health-care operations, like any significant organizational transformation, presents multiple challenges. The MIT survey suggests skepticism about the provable benefit and overall cost of AI as top factors hindering its adoption. Another hurdle is the disruptive impact that AI has on existing processes; a third is the difficulty of integrating AI applications into existing systems. Clearly, a range of possibilities exists for AI in health care. However, every now and then the industry also gets hit by the hype, such as robots fully replacing the expertise and services of doctors. However, several studies and research suggest that AI can extend the resources and capabilities of overworked health-care professionals and vastly improve processes. Technologies/Innovations Focused on Social Determinants Continue to Gain Traction
Social Determinants of Health (SDOH) is defined by the World Health Organization as: “The conditions in which people are born, grow, live, work and age. These circumstances are shaped by the distribution of money, power and resources at global, national and local levels. The social determinants of health are mostly responsible for health inequities—the unfair and avoidable differences in health status seen within and between countries.” The idea is that our health is more than what just happens in the four walls of the doctor's office; that it’s the rest of our lives, from what we eat to how we sleep to our social interactions, even our access to transportation that will determine how healthy we are in the long run. There have been estimates that social determinants can account for 70-90% of total health outcomes, which makes it imperative to identify social support structures, community resources, and other variables that can have a profound effect on health outcomes. Despite the increased focus, there still remains several challenges in addressing SDOH. For example, payment systems not aligned with paying for social determinants across cross sector collaborations, lack of inappropriate technology, lack of standardization in what variables define the SDOH, appropriate screening and inconsistent data and measurement. The fact is that with few exceptions, healthcare delivery systems have never had to deal with the socioeconomic and social determinants of health to the degree that public health systems have faced these issues. The return on investment in addressing social determinants of health remains unclear in many cases, which has discouraged many systems from taking action. According to a recent study by JAMA Network, only a quarter of hospitals and 15.6% of physician practices screened patients for all five social determinants of health prioritized by the CMS: food insecurity, housing instability, utility needs, transportation needs and interpersonal Healthcare Technology 31
8 January 2020 violence. Providers with higher screening rates were federally qualified health centers, academic health centers, bundled payment participants, primary care improvement programs, Medicaid ACOs and physician practices in Medicaid expansion states. Despite these well telegraphed challenges, several industry participants made some of their biggest investments toward addressing socioeconomic factors tied to improving patient outcomes. The interest in social determinants had been building over the past few years; however, in 2019, the industry started to view such efforts as bigger than simply fulfilling a community need. Despite the progress in 2019, this is only the beginning of a major sea change in how healthcare is going to be delivered and covered. For the health insurance industry, this represents a major opportunity over the next number of years. Healthcare payers and providers are starting to incorporate Social Determinants of Health factors to predict the impact on an individual’s health. Several health insurers are focused on connecting more people into the entire ecosystem to make it easier for them to get access to these SDOH factors. Beginning in 2019, CMS allowed more flexible benefits for social determinants of health and virtual services. Some of those plans rolled out last year, with about 40% offering one of the new types of supplemental benefits, but payers didn't have enough time to produce extensive offerings. However, for 2020, MA plans increased their focus on SDoH. For example, Cigna MA plans include newly allowed benefits addressing social determinants of health, such as transportation assistance, an acupuncture allowance, adult day care services and air conditioner program. In Maine, Anthem will offer a package of 10 services addressing population heath factors. They will include pest control, food deliveries, transportation and adult day center visits. Pest control will be a new option under Anthem in California as well.
Figure 43: Summary of Expanded Supplemental Benefits*
Source: BetterMedicareAlliance.Org; *D-SNPs excluded as these benefits were previously allowable benefits for D-SNP beneficiaries; there are 3,734 plans in CY2020 subject to this reinterpretation; ** Support for caregivers of enrollees classified differently in CY2019 Separately, Kaiser Permanente, CVS Health and Aetna launched social care networks in 2019 that connect patient to resources, track referrals and service outcomes to gauge how well patients’ needs are being met. Additionally, there have been many collaborations between rideshare services and health systems, or partnerships such as the one between Allscripts and Lyft, which enables physicians to easily dial up transportation for patients who need it from within their workflow. Some regional health information exchanges have begun incorporating SDOH data into their platforms, helping providers to more easily refer patients to community groups that could help them address social health needs. A growing number of hospitals made social determinants key to their population health management strategies. Many see related interventions as the most cost-effective way to provide care in a reimbursement landscape that’s encouraging providers to take on more risk. For example, Mount Sinai deployed a natural language processing algorithm to mine its unstructured clinical notes for new insights.
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Primary Care Reinvention Gaining Momentum
While primary care accounts for only 5-6% of total health care costs, it can influence up to 90% of the spend by steering consumers to the most efficient providers and keeping them out of emergency rooms and hospitals. However, the current fee-for-service (FFS) model does not align with the primary care providers’ focus on delivering and coordinating care. Average wait time to see a physician in the U.S. is 29 days. Separately, providers are getting frustrated with 64% of family physicians complaining of burnouts. Providers are also frustrated as they struggle to balance lowering costs today versus investing in future. For example, hospitals struggle to balance current costs with future benefits of employing docs. A significant percentage of Americans still do not have primary care. As a result, over the last few years, the industry has seen an emergence of new models for primary care (doctor home visits, specialty primary care, medical homes etc.), where providers are aligning with payers, retail, and other organizations. Some advanced primary care provider networks back their promise to deliver healthier populations at attractive costs by taking on some degree of risk. From an employer’s perspective, the current system is not serving them well as employees are away from the office and costs are high. Even employers are recognizing a need for primary care reinvention. In fact, according to a Large Employers’ Health Care Strategy and Plan Design Survey conducted by National Business Group on Health, almost half (49%) of respondents plan to pursue an advanced primary care strategy in 2020, and an additional 26% expect to consider doing so by 2022. A third (34%) of employers will deliver advanced primary care through on-site or near-site health centers, while a quarter of them (26%) are contracting or expecting to contract with advanced primary care providers in select geographic markets. 5G - The Next Generation of Cellular Technology
AT&T, Verizon, and many downstream healthcare hardware and application vendors have been touting 5G as potentially transformational for the healthcare industry. According to these carriers, 5G, the fifth generation of cellular wireless technology, has the potential to offer massive connection power and fast speeds that can help transform how healthcare is delivered. Not only does 5G have the capacity to impact the Internet of Medical Things (IoMT), it will help enable medical innovations using augmented reality, virtual reality, artificial intelligence, remote medical learning, remote patient monitoring, etc. Because access to near real-time data and the ability to make split second decisions are critical in healthcare environments, the healthcare industry stands to benefit tremendously from 5G and advanced technologies when fully implemented. AT&T identifies five ways 5G can help healthcare organizations meet the growing demands of digital transformation. First, by adding a high-speed 5G network to existing architectures can help quickly and reliably transport huge data files of medical imagery. This can improve both access to care and the quality of care. Second, with 5G, healthcare systems can enhance telemedicine capabilities, which require a network that can support real-time high-quality video. Third, 5G may eventually further enhance a doctor's ability to deliver innovative, less invasive treatments using augmented reality, virtual reality, and spatial computing. Fourth, with 5G technology, which has lower latency and higher capacity, healthcare systems can offer remote monitoring for more patients. Providers can then be confident that they will receive the data they need in real time and can provide the care their patients need and expect. Finally, by moving to 5G networks, healthcare organizations can use the AI tools they need to provide the best care possible – from wherever they are in the hospital or clinic. Waste in the US Health Care System Approaching $1 Trillion
There have been various studies and analysis, which suggest around 25-30% of US healthcare spending is unnecessary, implying wasteful healthcare spending in range of $750-$950 bln. Examples of wastefulness include failure to adhere to best care practices and lack of care coordination, significant variation among providers in the cost and quality, and many inefficient processes that are manual, complex, frequently changing and time consuming. In addition,
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8 January 2020 improper payments, according to the Office of Management and Budget, have represented approximately 10% of all Medicare and Medicaid payments since 2015. Such improper payments and fraudulent billing create costly and labor-intensive follow-up. A study published in October of 2019 in JAMA (conducted by Humana and the University of Pittsburgh School of Medicine) says that roughly 25% of all US healthcare spending is just waste. The authors reviewed 54 peer-reviewed studies, government reports, and other data to come up with a waste estimate of $760-935 bln annually. Categories of waste identified and estimated in the study included: Administrative complexity: $265.6 bln, Pricing failure: $230.7- 240.5 bln, Failure of care delivery: $102.4-165.7 bln, Overtreatment or low-value care: $75.7- 101.2 bln, Fraud and abuse: $58.5-83.9 bln, and Failure of care coordination: $27.2-78.2 bln. The researchers estimated that the healthcare system could see $191-282 bln of savings by taking certain measures that have been shown to cut waste. Such measures included things like incentives to increase physician efficiency, optimizing medication use, drug pricing interventions, recovering funds from convictions and fraud settlements, and preventative measures addressing diabetes, obesity, smoking, and cancer. The Long March Towards Value-based Care to Continue
Value-based care is a model of offering care to patients that no longer rewards providers for the quantity of services delivered, but rather the quality of care. The U.S. healthcare industry continues to inch toward value-based care and away from fee-for-service (FFS). In fact, the number of U.S. states and territories that have implemented value based programs has risen from three states in 2011 to 48 as of 2018. Despite the fact that the healthcare industry has been shifting (or at least trying to shift) provider reimbursement from a fee-for-service system to one based on the value of services provided to patients, a significant percentage of revenues (almost three-fourth according to some recent estimates) for healthcare providers are still attributable to FFS. Healthcare providers and other industry leaders are still facing significant challenges with value-based care adoption, but provider incentives and market consolidation are expected to help accelerate the transition. According to a survey conducted by Definitive Healthcare which polled 1,090 healthcare leaders, providers are challenged by staffing shortages and may need to learn how to capitalize on rising opportunities such as implementing health IT systems to handle population health initiatives. Almost one-fourth of respondents picked Lack of resources (short-staffed, insufficient healthcare IT software, etc.) as the biggest barrier for a transition to a value-based system. Gaps in interoperability was picked by the second-highest number of respondents (around 20%). With respect to the factors that are expected to accelerate the adoption of value-based care, the highest percentage of respondents picked appropriate provider compensation and incentives.
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Figure 44: Biggest barriers when moving to a value-based Figure 45: Factors accelerating the adoption of value-based system? care?
44.8% 25.3%
19.7% 17.0% 16.2% 14.8% 18.9% 16.1% 11.9%
Lack of resources Gaps in Unpredictability of Changing Trouble with Appropriate provider Consolidating market, Policy requirements An increase in risk- (short-staffed, interoperability, revenue stream and regulations/policies collecting and compensation and mergers and sharing models like insufficient internally and complexity of reporting patient incentives acquisitions, moving ACOs healthcare IT externally financial risk information (i.e.: more providers into software, etc.) gaps in care) the VBC model
Source: Definitive Healthcare Source: Definitive Healthcare To address the issue of lack of resources and accelerate the transition to value-based care, healthcare organizations have been focused on the adoption of appropriate financial tools. In fact, according to a report published by College of Healthcare Information Management Executives (CHIME), some of the largest increases in adoption of revenue cycle and contract management capabilities in 2019 were for more advanced capabilities, like real-time identification and tracking of value based care conditions and distribution and management of bundled payments. For most other capabilities, the increase in adoption was substantially less.
Figure 46: Adoption of Revenue Cycle and Contract Management Capabilities: 2019 vs 2018
76% 78% 72% 69% 67% 63% 59% 61% 54% 51% 43% 43%
Retrospective analysis of Calculation of total cost-of- Reconciliation of patient Charge aggregation Real-time Distribution/management care improvement/cost care across care settings charges/accounts (including bundling for identification/tracking of of bundled payments reduction according to insurance different payers) value-based care agreements conditions
2018 2019
Source: CHIME According to the Definitive Healthcare survey, most respondents saw fewer medical errors and better outcomes as the biggest benefit of value-based purchasing in healthcare. With respect to the shift of value-based care programs in 2020, highest percentage of respondents see the continuing evolution of ACOs and bundled payment arrangements.
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Figure 47: Biggest benefits of value-based purchasing in Figure 48: How value-based care programs will shift in 2020? healthcare?
31.1% 48.0% 27.6%
21.3% 28.4% 18.0%
17.6%
Fewer medical errors/better Reduced costs Increased patient satisfaction ACOs and bundled Shift away from Providers will be Market consolidation: outcomes payment voluntary programs in more focused on new partnerships and
arrangements will favor of mandatory benchmarking their networks to capture continue to evolve participation (stricter success against that market share limits on fee-for- of their competitors service models)
Source: Definitive Healthcare Source: Definitive Healthcare Increasing Reliance on Technology & Data Implies Vulnerability to Cyberattacks
Healthcare organizations are major targets for cyber-criminals, who can siphon off patient data, hijack drug infusion devices to mine cryptocurrency, or shut down an entire hospital until a ransom is paid. Compared with data from other industries, medical records are more valuable to steal given the vast amounts of personal, sensitive data (e.g. social security number, address or claims data) that can be used and re‐used for identity fraud. While credit cards can be quickly cancelled and replaced, there is often no straightforward contingency plan for healthcare records once they have been breached. As a result, a medical record is over ten times more valuable on the black market than a credit card number. In addition, healthcare breaches are especially serious because personal data can cause medications or the proper treatment (for conditions such as diabetes) to become mixed up. At the same time, the increasing amount of Internet of Things (IoT) devices being used in healthcare such as pacemakers and wearable location trackers for the elderly, are adding to the risk. Though technology continues to advance to prevent errors and data breaches, cybersecurity incidents have been increasing. This can be attributed to cyber criminals becoming more sophisticated and hospitals have numerous obstacles to overcome. One of which is no availability in the budget for cybersecurity solutions. Healthcare providers often struggle to find room in tight budgets to invest in new IT systems, leaving them vulnerable. According to HIPAA Journal’s most recent Healthcare Data Breach report, data breaches are occurring at a rate of more than one a day. In fact, in 2019 through November 2019, 436 data breaches of 500 or more records were reported to the Department of Health and Human Services’ Office for Civil Rights (OCR). Phishing continues to be the most common cause of healthcare data breaches.
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Figure 49: Healthcare Data Breaches by Year
436 354 354 311 328 270
2014 2015 2016 2017 2018 2019 (through Nov)
Source: HIPAA Journal Chronic underinvestment in cybersecurity has left many organizations so exposed that they are unable to even detect cyberattacks when they occur. A breach typically goes undetected for an average of 229 days. Another major cybersecurity obstacle hospitals face is interoperability. With the influx of devices and applications, the critical nature of healthcare environments means users require immediate access to healthcare data across a range of devices and applications. Operating systems, including computers, software, lab networks and EHRs, cannot be upgraded to their latest versions because the systems are not compatible with each other. For example, the more equipment that is added, the more difficult it becomes to upgrade software. As a patient journeys across the healthcare continuum of primary, acute and post‐acute care, and with the increased number of systems, devices and staff, each touchpoint increases the risk of a cyberattack due to the amount of information stored and exchanged between organizations that operate within an interconnected network which, once breached, can put them all at risk (see appendix for the largest data breaches of 2019). In light of the increased data breaches, cybersecurity has come into acute focus for healthcare stakeholders. However, the industry at large has been unable to adequately respond or sufficiently invest in resources to mitigate the risk and reduce vulnerabilities. Use of Blockchain in Healthcare
At its core, blockchain is a distributed system recording and storing transaction records. More specifically, it is an open distributed ledger, meaning that anyone provided with the requisite credentials can access and add to the ledger. When data is added to the blockchain, it is done chronologically. Each block contains the relevant encrypted data, which is referred to as a hash, and the hash of a previous block. Blockchain relies on established cryptographic techniques to allow each participant in a network to interact (e.g. store, exchange, and view information), without preexisting trust between the parties. In a blockchain system, there is no central authority; instead, transaction records are stored and distributed across all network participants. Much hype has surrounded the use of blockchain technology and distributed ledgers in healthcare. While some enthusiasm has dissipated, use cases have emerged to test the potential for its use among players in the healthcare industry. In a journal published in Blockchain in Healthcare Today in early 2019, 10 experts offered the potential use of the blockchain technology in healthcare. Blockchain will become an essential part of consent management in healthcare Remittance and micropayments will increasingly migrate to blockchain Non-cash assets including outcomes will be tokenized Providers will be credentialed on chain
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Improvements to blockchain infrastructure will reduce electricity requirements and enhance speed/scalability Supply chain integrity will be tracked on blockchain Education of stakeholders will refine use cases for blockchain and accelerate adoption Opportunities for monetization of data, including the genome, will be enhanced by blockchain Integrity of medical records will be an essential use case for blockchain Existing blockchain in healthcare startups will be acquired and we will see substantial consolidation of blockchain in healthcare offerings Based on our conversations with the companies focused on blockchain, we see three use cases for the Blockchain technology in healthcare, which offer most promise: a) maintaining regulatory grade data; b) better claims management, shared provider directories, etc.; and c) drug tracking. The distributed ledgers allow healthcare data to be managed securely without a central authority, but instead, by a group of users. To protect sensitive health data, only selected healthcare stakeholders are allowed to form nodes of this private decentralized network: patients, advocacy groups, life sciences companies, payers, authorities and care centers. Additionally, the blockchain can be utilized for data providence – providing a source of the data and ensuring certification. Additionally, some of the blockchain focused companies (such as Embleema) have used tokens to reward individuals – patients to upload records, doctors to create the data, etc. Blockchain makes the data supply chain tamper-proof, which allows the company to incentivize patients and makes data regulatory grade. In April 2018, Humana, MultiPlan, Quest Diagnostics, UnitedHealthcare Group and Optum, launched the Synaptic Health Alliance, a pilot program using blockchain to ensure health plan provider directors include up-to-date physician information. Since then, Ascension and Aetna have joined the project. In January of 2019, Aetna/CVS Health, launched a collaboration with PNC Bank and IBM to design a blockchain healthcare network, an initiative which also includes Anthem and Health Care Service Corporation. The network’s goal is to improve transparency and interoperability in the healthcare industry and benefit multiple members of the healthcare ecosystem in a highly secure, shared environment. The collaboration members intend to use blockchain to address a range of industry challenges, including promoting efficient claims and payment processing, to enable secure and frictionless healthcare information exchanges, and to maintain current and accurate provider directories. While we admit that the Blockchain technology does present several opportunities for healthcare, the technology is still not fully mature today as several technical, organizational, and behavioral economics challenges need to be addressed before it can be universally adopted.
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Updates from Unconventional Players Entering Healthcare Market
Several unconventional healthcare players made strides in 2019 to enter or expand their presence in the healthcare market. In fact, according to The Chartis Group, among Fortune 50 companies, 84% play in healthcare, up from 76% in 2013. Such companies are seeking to gain a share of the growing healthcare sector by creating innovative solutions to improve healthcare operations, engage consumers, and create linkages across patients, payers and providers. The big tech companies, led by Apple, Google and Amazon, are pushing into healthcare in a myriad of ways, trying to use their massive computing power and expertise in data analytics and sensors to disrupt the industry, cut costs and make new discoveries. We discuss below initiatives from some of these companies. Alphabet/Google
Alphabet has effectively two subsidiaries that primarily focus on healthcare: Verily and Calico. Verily is focused on using data to improve healthcare via analytics tools, interventions, research, etc. Calico focuses on learning about and then combating aging and age-related diseases. The subsidiary uses AI to make sense of large datasets as well as to automate certain lab processes. Google has also invested heavily into the healthcare space through its venture arm GV, which invests across different sectors, but has been increasing its investing pace in healthcare companies, according to the data tracked by CB Insights. Google’s biggest advantage is its storage and management of big data. In 2016, the company spent $625 million to acquire Apigee, a company that helps companies design application programming interfaces (APIs) to manage data. A number of hospitals and health systems are already using Apigee's platform, including Cleveland Clinic, Kaiser Permanente, Rush University Medical Center, McKesson, Walgreens etc. Google is betting that the future of healthcare is going to be structured data and AI. The company is applying AI to disease detection, new data infrastructure, and potentially insurance. According to the data tracked by CB Insights, Google is doubling down on the number of research papers it publishes, opening more AI research centers around the world, and developing its own chips and hardware dedicated to running AI/ML processes. Google is also the most active investor/ acquirer of AI companies among big tech companies. In November of 2019, Google announced that it is acquiring Fitbit to bring together “the best AI, software and hardware” in order to “spur innovation in wearables and build products to benefit even more people around the world.” Companies throughout the healthcare industry are pushing to get closer to patients, and wearables have opened a new window into their health. According to a Forbes article, Google's ability to aggregate and analyze millions of points of data daily from Fitbits’ 28 million users could be a predictive analytic game changer in driving personalized health recommendations and interventions. Amazon
Amazon’s strategy for entry into health care is no different than the strategy it deployed in the past to lock up other markets. For years, HIPAA prevented Amazon Alexa from approaching any serious medical undertakings. In early April of 2019, Amazon rolled out a new skills kit that allowed select patients and health care organizations to securely transmit (in a HIPAA compliant manner) sensitive medical information often from the comfort of one’s own home. Along with this rollout, Amazon introduced six new business associate agreements with Express Scripts, Cigna Health Today, Boston Children’s Hospital, Providence St. Joseph Health, Atrium Health, and Livongo, and their skills involved tracking prescription deliveries, diarizing personal health goals, providing patient updates to care teams, locating urgent care centers, scheduling appointments, and querying previous blood sugar readings.
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In July of 2019, Cerner announced a multi-faceted, strategic collaboration with Amazon Web Services (AWS) to accelerate health care innovation across the globe. As part of the agreement, Cerner named AWS its preferred cloud provider, with a focus on enhancing clinical experiences, increasing efficiencies by lowering operational burdens for health care organizations and accelerating Artificial Intelligence, Machine Learning and other cutting-edge innovations thereby advancing better patient health outcomes. IN August of 2019, the Pittsburgh Health Data Alliance announced that it is collaborating with AWS in a machine learning research sponsorship to advance innovation in cancer diagnostics, precision medicine, voice-enabled technologies and medical imaging. By way of background, the health alliance was created four years ago by UPMC, University of Pittsburgh and Carnegie Mellon University to use data to transform how diseases are treated and prevented as well as develop strategies to better engage with patients. On September 24th, CNBC reported that Amazon has launched Amazon Care, a virtual medical clinic for its employees. According to the amazon.care website, Amazon Care is a benefit being piloted for close to 53K Amazon employees and their families in the Seattle area. Eligible employees can seek care via Care Chat (an in-app text chat that connects a patient with a nurse), Video Care (an in-app video visit with a doctor or nurse practitioner), Mobile Care (a mobile care nurse can be dispatched to the home) and Care Courier (prescribed medication delivery). Amazon has contracted Oasis Medical Group, a service provider, to deliver healthcare services to its employees. The service is currently available on Monday through Friday between 8am and 9pm, and on Saturday and Sunday between 8am and 6pm. A separate press report notes that Amazon doesn’t plan to offer the service to the general public. The article notes that Amazon Care is being run through the company’s employee benefit group and is an invitation-only service available to Amazon employees in Seattle. The company hopes to roll it out to employees in other cities if the pilot goes well. We believe the next logical expansion of Amazon Care will be to Haven, Amazon’s healthcare JV with JPMorgan Chase and Berkshire Hathaway. We published a report (Link: Telehealth Industry: Amazon Launches a Virtual Care Program For Its Employees; Threat or Opportunity?) with our key thoughts on this announcement from Amazon. In October, Amazon acquired Health Navigator, a startup that provides technology and services to digital health companies. Health Navigator is wrapped into Amazon Care. Amazon's healthcare venture with JPMorgan Chase and Berkshire Hathaway, Haven, also made some progress in 2019. In late October, Bloomberg reported that, Amazon is offering health plans for employees in Connecticut, North Carolina, Utah and Wisconsin that were created by Amazon in consultation with Haven and insurance providers. Under the program, called Haven Healthcare, JPMorgan is offering its 30,000 workers in Ohio and Arizona two plans for 2020 run by Cigna and Aetna. The group comprises just under 20% of the bank’s U.S. workforce. The efforts at both companies reportedly appear to be early steps in the venture’s goal of overhauling health-care benefits to make them more transparent, better at keeping people healthy and lowering costs. In mid-November, the CNBC reported that PillPack, which Amazon acquired in 2018, has updated its logo and other paperwork to include a new “Amazon Pharmacy” brand. Specifically, the group’s branding has changed from “PillPack, an Amazon company” to “PillPack by Amazon Pharmacy.” The move to rebrand is reportedly seen as an indication that Amazon plans to expand its pharmacy ventures. In late November, Amazon partnered with Pittsburgh-based Giant Eagle, a supermarket and pharmacy chain with more than 200 locations across Pennsylvania, Ohio, Maryland, West Virginia and Indiana. Customers with active prescriptions and an Alexa-enabled device can access medication management. In early December, Amazon Web Services (AWS) announced the launch of a service called Amazon Transcribe Medical, which transcribes doctor-patient interactions and plugs the text straight into the medical record. Amazon Transcribe Medical is associated with Amazon Comprehend Medical, which is designed to allow developers to understand medical text and identify patient information, such as diagnosis, treatments, dosages, symptoms and signs. The
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8 January 2020 transcription service can be integrated into any device or app. However, AWS is making the service only available to customers using its cloud. AWS teamed up with Cerner and transcription startup Suki to develop the technology. Further, Amazon Transcribe Medical is HIPAA-eligible. The service also has features to ensure the correct annotation of "domain specific language and abbreviations" that are common among clinicians. Apple
In 2019, Apple continued its expansion within healthcare through a variety of different channels. Most recently, the company integrated Apple’s health records service which enables veterans to see their medical information in one place and easily share it with doctors, regardless of the provider. Non-veteran users can also use Apple health records, but the data can only be shared if the health provider is integrated with the service. The company already expanded to more than 400 health systems and continue to expand in 2019. According to the CNBC article, Apple’s record sharing platform is the first of its kind and covers the largest medical system in the US, serving more than 9 million people. Additionally, CNBC reported that healthcare is one of Apple’s most lucrative opportunities and could soon generate tens of billions in annual revenue from wearables and health services. In 2019, Apple was able to recruit 400,000 people in less than a year for its Apple Watch heart health study with Stanford University. Thus, suggesting that people are willing to share their medical data with Apple, which would be a huge competitive advantage. The company also revamped its health app which all iPhone users have access to and allows consumers to pull medical information from dozens of hospitals and clinics. Apple also added a variety of other features which allows users to track other health information such as how loud headphones are played at, register as an organ donor, and more. According to CBInsights, Apple’s move into healthcare territory comes as the company looks to keep people in its ecosystem. Additionally, the company has one of the strongest brand names which could help Apple further penetrate the healthcare sector as more proactive models require engaging patients. Apple Health and Personal Health Records are the pillar of Apple’s healthcare stagey. In 2016, the company made an acquisition of Gliimpse, which helped push the company into personal health records. Apple is attempting to fuse wellness and healthcare to create a better product that people can engage with more frequently. Currently, over 120 healthcare institutions are a part of Apple’s health record beta, including Adventist Health System, Mount Sinai, Cleveland Clinic, Intermountain Healthcare, LabCorp, etc. Best Buy
Best Buy remains focused on rapidly scaling its health care segment, which is broadly aimed at helping seniors age in place through remote patient monitoring. The company plans to serve five million seniors through in-home health monitoring by 2025, up from one million currently. Best Buy’s technological capabilities in the health care space are in large part due to its August 2018 acquisition of GreatCall, which develops and sells smartphones, medical alert devices and other tech products that help seniors age in place. In 2019, Best Buy completed its second acquisition in the senior care space, buying remote senior monitoring service, Critical Signal Technologies (CST), for $125 million in April. CST’s services fall in line with the senior-focused communications and in-home monitoring tools of GreatCall. In August, Best Buy acquired the predictive health care technology business of BioSensics, including the hiring of the company’s data science and engineering team. In addition to scaling its health care arm, Best Buy is also looking to forge closer ties with insurance providers as Medicare Advantage (as plans now have flexibility to cover a variety of in- home telehealth services, especially when serving members with complex and chronic conditions).
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In mid-November of 2019, TytoCare, creator of the health care industry's first all-in-one modular device and telehealth platform for on-demand, remote medical exams, announced the nationwide availability of TytoHome, following a successful initial rollout in the Midwest. The TytoHome telehealth solution, now available in over 300 Best Buy stores, offers consumers across the country the ability to replicate an in-person doctor visit from the comfort of home. TytoHome is a handheld examination device with attachments that can examine the heart, lungs, skin, ears, throat and abdomen, as well as measure body temperature. The solution enables users to perform comprehensive medical exams and send the captured exam data to one of Tyto Care's health care provider partners for diagnosis of acute care situations (See our note on TytoCare: Healthcare Disruptive Technologies & Innovations TytoCare Story As Narrated by Chief Commercial Officer & General Manager) Facebook
Facebook recently launched a tool called Preventive Health, to prompt users to get regular checkups and connecting them to service providers. Additionally, according to an article by CNBC, the company has asked several major hospitals to share anonymized data about patients, such as illnesses and prescription info, for a research project. The project is led by Freddy Abnousi who is the head of healthcare research at Facebook. According to two people that heard Facebook’s pitch, the idea behind the project is to combine what a health system knows about its patients such as medical background with what Facebook knows about its users. The company would then figure out how this combined information could be used to improve patient care with an initial focus on cardiovascular. Additionally, Facebook is also providing a way for patients to post their health questions anonymously and rolling out special designation groups called “health support”. More specifically, users will be able to send posts to admins of the groups, where questions will be posted on their behalf. The company hopes that these changes would allow people to feel more confident about posting questions in these groups, which are often sponsored by drug companies. IBM
In June 2019, IBM, Merck, Walmart and KPMG were chosen for a U.S. Food and Drug Administration pilot program supporting the U.S. Drug Supply Chain Security Act (DSCSA). This program’s aim is to reduce the time needed to monitor prescription drugs, improve access to reliable distribution information and ensuring products are handled appropriately throughout the supply chain. By way of background, the DSCSA was enacted in 2013 to enhance the security of the drug supply chain and increase regulatory oversight of counterfeit, stolen, contaminated or otherwise harmful drugs. The DSCSA outlines steps to build an electronic, interoperable system to identify and trace certain prescription drugs as they are distributed in the US. This will enhance FDA’s ability to help protect consumers from exposure to drugs that may be counterfeit, stolen, contaminated, or otherwise harmful. The system will also improve detection and removal of potentially dangerous drugs from the drug supply chain to protect U.S. consumers. For example, the DSCSA requires wholesale distributors and third-party logistics providers to report licensure and other information annually to FDA. Additionally, manufacturers, repackagers, wholesale distributors, and dispensers are required to notify FDA and other trading partners within 24 hours after determining a product is illegitimate. As it relates to the pilot program, IBM, Merck and Walmart will work with KPMG to create a shared blockchain network that will allow real-time monitoring of products in the pharmaceutical supply chain. The program will track drugs and vaccines created by Merck and those sold by Walmart using IBM's blockchain platform. One of the main items in the pilot is a mobile app, which will allow patients receiving prescriptions to scan a QR code to discover important details about that specific batch of medication, such as the manufacturing site, how long it's been on the shelves, and more. IBM, through its Watson Health, continues to contribute to clinical decision support systems and the increase in AI in healthcare. Watson applies data analytics, advisory services and advanced Healthcare Technology 42
8 January 2020 technologies such as AI, to deliver actionable insights that make doctors and practitioners more efficient caring for patients and improve population health. Lyft & Uber
A significant portion of health care spending in the U.S. is focused on delivering care to people who face transportation challenges. Many of them, due to advanced age or disabilities, cannot drive themselves to appointments. They struggle to get to and from check-ups, to pick up prescriptions and to receive other types of critical medical care. Close to 3.5-4.0 million visits are missed a year from the lack of transportation, with the downstream revenue impact (including revenue lost and other healthcare implications) amounting to approximately $150- $200 billion annually. Both Uber and Lyft have been focused on removing transportation as a barrier to care by using its B2B platform that enables providers, payers, caregivers, to order rides on behalf of patients for non-emergency medical transportation. In February of 2019, Lyft expanded its partnerships with Blue Cross Blue Shield and Humana (through its collaboration with LogistiCare) to service Medicare Advantage plan members. The move was likely the result of CMS’ decision to allow Medicare Advantage plans to offer expanded services, such as meal delivery, home safety, rides to doctor appointments, preventative care etc. as part of their supplemental benefits to their enrollees. In November of 2019, Florida Blue announced that the company is working with Lyft to offer Florida Blue members with Affordable Care Act (ACA) individual plans Lyft rides to their doctor’s visits. Post the CMS’ decision to allow MA plans to include supplemental benefits as part of their bids, Uber Health also saw increased interest from MA plans in exploring partnership with the company. Uber Health is also working with transportation brokers, who often times support in handling benefits. In fact, the company is very actively working with American logistics (a partnership announced in August of this year), a broker which serves and works very closely with Care More Health, a unit of Anthem. The company believes that the combination of Uber Health’s vast driver-partner network and American Logistics’ full-service, turnkey transportation solution delivers an unmatched level of access to millions of healthcare plan members. Another area Uber Health is focused on is exploring how the company could leverage data analytics and driver partnerships to incentivize or communicate its driver partners that if its they are in a community where there is going to be a need for medical transportation, there is going to be a demand which they should benefit from. The company believes given its access to corporates and partnership in the employer market gives them a competitive advantage. The company believes employers can leverage transportation as a lever to drive higher healthcare value from the standpoint of incentive points, better clinical care, etc. Other avenues the company has been actively looking into are pharmacy delivery and addressing the access to food (number one social determinants of health currently). In June of 2019, Grand Rounds announced a partnership with Uber Health to deliver Grand Rounds’ members first and last mile experience to doctors’ appointments. The two companies are integrating the Uber interface directly into the Grand Rounds platform, enabling members to book rides directly. In December of 2019, Alignment Healthcare, a mission-based Medicare Advantage insurance company, partnered with Uber Health to expand its on-demand transportation services for seniors. Alignment will begin using the Uber Health dashboard to schedule non-emergency, curb-to-curb pickup and drop-off service to plan-approved locations for members in select California markets in early 2020 (See our note on UberHealth: Healthcare Disruptive Technologies & Innovations (HCDT&I) San Francisco Day Recap). Microsoft
In early 2019, Microsoft announced that it was officially shutting down HealthVault, its web- based personal health record system, due to its low adoption rate. While mobile apps that collect and store personal health information and share it with healthcare teams are poised to revolutionize medicine and wellness practice, HealthVault lacked some key features that limited its adoption. First, HealthVault also was not designed for mobile. Also,
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HealthVault did not integrate with many popular wearables and other smart health devices and it had limited social and sharing capabilities. Because of these limitations, HealthVault could only focus on traditional health records over dynamic and patient-acquired data. As a result, HealthVault didn’t offer patients much, if any, actionable insight into their health, how their health was changing over time or what they could be doing to improve it. Despite this setback, Microsoft isn’t giving up on the healthcare market. Microsoft is in the process of introducing innovative offerings, including machine learning, Internet of Medical Things (IoMT) features, and cloud computing. Through its new Microsoft Healthcare team, the company is following a "blueprint" aimed at securely transferring more health data to the cloud and creating services to monitor the usage and process that information in new ways. In July 2019, Microsoft announced a multi-year strategic partnership with Providence St. Joseph Health, a 51-hospital (119k doctor) system headquartered in Washington. The partnership will develop a portfolio of integrated solutions designed to improve health outcomes and reduce the total cost of care by combining technologies from Microsoft’s Azure cloud-based platform, AI, research capabilities, and collaboration tools with the clinical expertise and care environments of Providence St. Joseph Health. In August 2019, Microsoft announced the hiring of David Rhew M.D. as the company’s global Chief Medical Officer and Vice President of Healthcare. Prior to Microsoft, Dr Rhew was at Samsung where he spent six years leading the company’s healthcare efforts as Chief Medical Officer and Vice President for Enterprise Healthcare. He was recently named one of Modern Healthcare’s 50 Most Influential Clinical Executive Leaders, and also serves as an adjunct professor at the Stanford University School of Medicine. The healthcare industry is undergoing a major transformation as the cloud, AI, and technology innovations unlock new efficiencies in healthcare delivery and discover new breakthroughs in scientific exploration. To this end, David is also a computer scientist who holds six U.S. patents related to clinical decision support systems and the interoperability and integration of data in EHRs. Among the key priorities Dr Rhew will be focused on in his new role is helping to improve healthcare data interoperability that ties in traditional data sets with new types of information like biosensors, genomics and social determinants measures. He is also tasked with helping to advance the company’s Azure cloud platform as it continues to add features and healthcare-related tools. In May 2019, Microsoft announced that UCLA Health is deploying Microsoft cloud computing services to enable UCLA Health and the David Geffen School of Medicine to synthesize vast amounts of clinical and research data to speed medical discoveries and improve patient care. In October 2019, Microsoft announced five-year partnership with Novartis with one of the major projects being to analyze vast amounts of Novartis datasets with Microsoft’s advanced AI solutions. The lab will aim to create new AI models and applications that can augment healthcare professionals’ capabilities. Another project will use deep learning to advance the speed and precision with which the pharmaceutical company develops new medicines. With the cost of discovering and commercializing a new drug taking an average of 14 years and costing up to $2.5 bln, Novartis is hoping that Microsoft's AI can speed up the drug discovery process. Microsoft is also focusing on the interpersonal element of healthcare as one of the company’s goals is to help health care professionals talk to each other and their patients. One example is Microsoft’s Healthcare Bot. The Healthcare Bot aims to facilitate the creation and use of conversational health assistants powered by AI. The tool already counts Quest Diagnostics, Kaiser Permanente, Premera Blue Cross, Children's Healthcare of Atlanta, and others as users. In addition, the Microsoft Teams platform offers secure messaging, a patient care coordination hub, an audio-visual conference and meeting platform, and a workflow streamlining tool. The tool is built to enable HIPAA compliance and can connect with the EHR to collate patient information. In October, Microsoft announced a partnership with Humana focused on building modern health care solutions for Humana members aimed at improving their health outcomes and making their health care experiences simpler to navigate. Using the power of Microsoft’s Azure cloud, Azure AI, and Microsoft 365 collaboration technologies, as well as interoperability standards like FHIR, Humana will develop predictive solutions and intelligent automation to
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8 January 2020 improve its members’ care by providing care teams with real-time access to information through a secure and trusted cloud platform. Walmart
On December 10, the U.S. Department of Veterans Affairs and Walmart opened their first telehealth services pilot location in Asheboro, N.C. The pilot is part of VA's Accessing Telehealth through Local Area Stations initiative, which is a multisite pilot program that leverages Philips technology to provide remote and virtual care to veterans in rural areas. In addition to the Asheboro, N.C.-based site, Walmart is providing equipment and space at five additional sites in Wisconsin, Michigan and Iowa for the pilot. With the telehealth services, veterans can meet with a VA provider in a private room at Walmart via video technology to receive care. The initiative aims to reduce the burden of long travel times to appointments for veterans who live far from VA care facilities. In September, Walmart opened its first freestanding health center, called Walmart Health, in Dallas, GA. Walmart is working with partners to provide key services such as primary care, labs, X-ray and EKG, counseling, dental, optical, hearing and community health education, at prices about 30-50% lower than what people are currently paying at physician offices and other retail health clinics. The primary care clinic in Dallas, Ga., is different from the other 19 Care Clinics Walmart already operates in Georgia, South Carolina and Texas. The Care Clinics are inside a Walmart store and take up just 1,500 square feet. Walmart reportedly plans to open another Walmart Health center in Calhoun, GA, in early 2020. Walmart is also testing new healthcare benefits and expanding a few existing programs for its employees in 2020 in an effort to cut its healthcare costs. Among the new programs are: a) Featured Providers; b) Expanded Telehealth; c) Personal Healthcare Assistant; d) National Quality Provider Resource; and e) Nationwide Fitness Club Access. With respect to “Featured Providers”, Walmart is piloting the program in Orlando/Tampa, Dallas/Fort Worth and Northwest Arkansas. The company is curating a group of local physicians in eight specialties based on independent-medical expert analysis of a large, comprehensive healthcare data set to identify the factors that lead to high-quality care. The eight specialties are primary care, cardiology, gastroenterology, endocrinology, obstetrics, oncology, orthopedics and pulmonology. The company is working with data analytics company Embold Health on Featured Providers. Embold, with the guidance of a scientific advisory board that includes physicians and data scientists from the country’s leading academic institutions, establishes objective, scientific, standards for physician performance through evaluation of the latest research, clinical guidelines and quality measures. Embold identifies the factors shown to consistently deliver the best outcomes and applies these to its data set to find the physicians in the local community who consistently deliver quality care. Embold refreshes that data quarterly so doctors can improve their performance and move into the Featured Provider group based on their quality of care. Further, through its “Expanded Telehealth” program, Walmart allows its employees in Colorado, Minnesota, and Wisconsin to opt in to access a Personal Online Doctor and an entire team to manage chronic conditions, coordinate specialty care, provide nutritional and diabetic counseling, and coordinate behavioral health referrals and visits. Employees can book an appointment with a primary care physician within one hour and a behavioral health visit within one week. This offering is the result of Walmart bringing together incumbent partners Doctor On Demand, Grand Rounds and Health SCOPE Benefits to create a new service. Walmart is also piloting a Personal Healthcare Assistant service in North and South Carolina. The service will help associates identify quality physicians, serve as a single go-to source for all their health care related needs, including billing questions, making an appointment, understanding a diagnosis and supporting more complex health needs, including access to clinical resources. It also helps with coordinating transportation and finding day care during appointments. The service, through Grand Rounds, is provided at no cost to those on Walmart’s medical plans.
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Digital Health Funding, IPOs, & M&As Digital Health Venture Funding
The rise of digital health companies, driven by policy, market, and technology changes, offers great hope for all diseases and presents an opportunity to address health care’s largest areas of burden. As a result, the digital health industry has become more crowded and diverse, as well as better funded. In fact, digital health venture funding remained near all-time highs in 2019. According to the most recent funding report from Rock Health, startups in the sector were on track to raise an estimated $7.3 bln by the end of 2019, 1.3x more than 2017 but slightly short of $8.3 bln invested in 2018. The average deal size in 2019 was $20.9 mln, up 32% from 2017 and in line with 2018’s $21.7 mln average deal size.
Figure 50: Total Venture Funding ($ in blns) Figure 51: Number of Deals 380 $8.3 364 340 349 $7.3 320 291 $5.8
$4.7 $4.6 196 $4.1 142
$2.1 93 $1.5 $1.1
2011 2012 2013 2014 2015 2016 2017 2018 2019E 2011 2012 2013 2014 2015 2016 2017 2018 2019E
Source: Rock Health Funding Database Source: Rock Health Funding Database According to the most recent report from CB Insights, annual global VC-backed healthcare deals were on pace to reach all-time high in 2019 (around 4,500+ deals in 2019 for an estimated deal amount of roughly $38 bln vs around 4,473 deals in 2018 for an estimated deal amount of around $50.2 bln), with digital healthcare representing close to one-third of all healthcare deals (similar to 2018). CB Insights categorizes all the healthcare startups/funding in seven categories: Microbiome, Women’s Health, Cannabis, AI, Virtual Primary Care, Pharma Supply Chain, and Digital Therapeutics. In fact, AI in healthcare funding reached a new high in 3Q19. Likewise, virtual primary care funding bounced back in 3Q19.
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Figure 52: Global VC-backed deals and financing to healthcare Figure 53: Global VC-backed deals and financing to healthcare AI startups, 1Q18-3Q19 ($ in mlns) Virtual Primary Care startups, 1Q18-3Q19 ($ in mlns) 103 16 16 16 84 14 79 79 12 61 63 56 10 9
$1,595 $803 $659 $723 $926 $605 $772 $749 $595 $566 $589 $96 $90 $194
1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19
Deal Amount ($ in mlns) Deal Count Deal Amount ($ in mlns) Deal Count
Source: CB Insights Source: CB Insights
According to Rock Health funding data, digital behavioral health is showing signs of a maturing investment sector with more funding and larger deals, a greater number of later stage companies, and a consistently strong pipeline of early stage innovation. Women’s health appears to be on a similar trajectory. HCIT IPOs
Six HCIT companies in the U.S. went public in 2019: Livongo, a chronic condition management platform; Health Catalyst, data and analytics technology and services for healthcare organizations; Phreesia, applications to help healthcare organizations manage the patient intake process; Change Healthcare, revenue cycle management, payment management, and health information exchange solutions; and Peloton, live, on-demand fitness classes via its connected exercise bike, treadmill, and app; and Progyny, the fertility benefits management company. The figure below provides the details on these IPO and share price returns.
Figure 54: Performance of 2019 HCIT IPOs Original IPO Final IPO Current Market Return in 2019 (relative to the final Ticker Company Name Price Range Price Listing Date Cap ($ in blns) IPO Price) LVGO Livongo $20-$23 $28 25-Jul-19 $2.38 -10.2% HCAT Health Catalyst $20-$23 $26 25-Jul-19 $1.26 33.5% PHR Phreesia $15-$17 $18 8-Jul-19 $0.95 48.0% CHNG Change Healthcare $16-$19 $13 27-Jun-19 $5.23 26.1%
PTON Peloton $26-$29 $29 26-Sep-19 $8.58 -2.1%
PGNY Progyny $14-$16 $13 25-Oct-19 $2.46 124.2%
Source: Company data, FactSet M&A Involving Digital Health/HCIT Companies
2019 was a big year for M&A in Digital Health/Healthcare Technology. Alphabet, Amazon and Apple all made acquisitions, while the industry also saw exits for Qualcomm Life, Fitbit and PatientsLikeMe (see appendix for a complete list of HCIT deals closed/announced in 2019). The 53 deals tracked by MobiHealthNews totaled $8.16 bln. Five acquisitions were done by PE firms, while the rest were strategic transactions.
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The largest transaction (in size) in the list is Dassault Systèmes’ acquisition of Medidata Solutions, leader of the digital transformation of the Life Sciences industry for clinical development, commercial, and real-world data intelligence, in an all-cash transaction representing an enterprise value of $5.8 billion (announced in June). Second on the list is Alphabet’s acquisition (to be closed in 2020) of Fitbit for $2.1 billion This acquisition is set to unite the second biggest wearable maker and one of the biggest tech giants in the world.
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Price Performance and Valuation
Shares of HCIT companies increased 19.3%, on average, in 2019, underperforming the S&P 500, up 28.9%, but slightly outperforming the S&P Healthcare Index, up 18.7%. EHTH (up 150%) was the best performer in the group, followed by MDRX (up 69%) and RCM (up 63%). EVH (down 55% for the year), LVGO (down 34%) and TRHC (down 24%) underperformed.
Figure 55: HCIT Average Share Price Return versus HCX and S&P 500
35.0%
30.0%
25.0%
20.0%
15.0%
10.0%
5.0%
0.0%
(5.0%)
(10.0%) Dec-18 Mar-19 Jun-19 Sep-19 Dec-19
HCIT Avg. HCX S&P 500
Source: FactSet The figure below provides the valuation metrics for the publicly-traded HCIT companies.
Figure 56: HCIT Key Valuation Metrics Share Enterprise EV/ Sales EV/ EBITDA PE Covered Companies Ticker CS Rating Price* Mkt Cap Value 2019E 2020E 2021E 2019E 2020E 2021E 2019E 2020E 2021E eHealth, Inc. EHTH Outperform $95.79 $2,250 $2,230 5.5x 4.2x 3.4x 32.1x 14.8x 10.2x 46.8x 25.6x 18.8x HMS Holdings Corp. HMSY Outperform $29.14 $2,574 $2,593 4.1x 3.9x 3.6x 16.0x 14.9x 13.5x 22.7x 22.4x 20.3x Change Healthcare CHNG Outperform $16.16 $5,231 $10,124 3.1x 3.0x 2.8x 10.3x 9.5x 8.9x NM 10.1x 9.1x Tivity Health, Inc. TVTY Neutral $20.04 $974 $2,023 5.4x 4.7x 4.6x 26.7x 24.1x 22.5x 9.0x 8.7x 7.0x Premier, Inc. PINC Neutral $37.61 $4,931 $5,122 4.2x 4.0x 3.9x 8.7x 8.3x 8.0x 13.9x 12.5x 11.6x Teladoc Health, Inc. TDOC Neutral $83.25 $6,007 $6,171 11.3x 9.2x 7.8x 202.5x 104.0x 74.3x NM NM NM Allscripts Healthcare Solutions, Inc. MDRX Not Covered $9.84 $1,637 $2,464 1.4x 1.3x 1.3x 8.2x 7.6x 7.3x 13.7x 12.3x 10.9x Cerner Corp. CERN Not Covered $73.11 $23,330 $23,391 4.1x 4.0x 3.8x 3.8x 3.3x 3.0x 26.8x 22.8x 20.1x Evolent Health, Inc. EVH Not Covered $9.08 $761 $715 7.3x 6.7x 6.4x -622.0x 161.8x 109.1x NM NM 125.6x Health Catalyst, Inc. HCAT Not Covered $34.12 $963 $697 40.3x 33.1x 27.1x -213.9x -275.2x -539.6x NM NM NM Health Insurance Innovations, Inc. HIIQ Not Covered $18.57 $221 $430 15.3x 13.0x 11.4x 75.0x 64.4x 68.9x 5.3x 4.5x 4.6x HealthEquity, Inc. HQY Not Covered $73.54 $5,186 $6,381 11.8x 7.5x 6.8x 33.5x 23.6x 20.4x 49.3x 42.7x 34.9x Inovalon Holdings, Inc. INOV Not Covered $18.64 $2,774 $3,603 9.6x 8.7x 8.0x 29.0x 26.2x 23.8x 35.6x 31.5x 26.3x Livongo Health, Inc. LVGO Not Covered $24.08 $1,739 $1,500 36.7x 22.4x 14.0x -218.9x -254.2x 321.5x NM NM 281.1x NextGen Healthcare, Inc. NXGN Not Covered $15.86 $1,040 $967 11.4x 10.8x 10.4x 62.3x 59.6x 54.5x 17.5x 16.7x 15.6x Phreesia, Inc. PHR Not Covered $26.38 $944 $863 50.5x 42.6x 35.3x 1527.1x 1022.0x 424.3x NM NM NM R1 RCM, Inc. RCM Not Covered $12.91 $2,138 $2,378 5.2x 4.5x 4.2x 36.5x 24.3x 19.2x 60.3x 21.1x 12.7x Tabula Rasa Healthcare, Inc. TRHC Not Covered $48.93 $1,012 $1,062 21.7x 17.9x 15.0x 169.5x 124.0x 94.5x 60.4x 44.5x 28.9x Source: FactSet, Credit Suisse
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Our Most Popular Reports in 2019
Healthcare IT/ Managed Care: A Leading Health Insurer Offers Views on Evolving Digital Health Landscape (Published on Aug 8, 2019) Healthcare Technology: Healthcare Disruptive Technologies & Innovations (HCDT&I) San Francisco Day Recap (Published on Nov 29, 2019) Telehealth Industry: Amazon Launches a Virtual Care Program For Its Employees; Threat or Opportunity? (Published on Sep 25, 2019) Healthcare Disruptive Technologies & Innovations: Grand Rounds Story – As Narrated by Co-Founder & CEO (Published on Mar 4, 2019) Healthcare Technology & Managed Care: A Major Blues Plan Offers Views on Its Telehealth Initiatives & Other Market Trends (Published on Oct 10, 2019) CHNG: Investments Today Pave the Way for a Bright Future; Initiating with an Outperform, $18TP (Published on July 22, 2019) Healthcare Disruptive Technologies & Innovations: Redefining Primary Care: Iora Health Story as Narrated by Co-Founder/CEO & CFO (Published on Apr 22, 2019) EHTH: Skating To Where the Puck is Going; Initiate with an Outperform (Published on July 10, 2019) TDOC: Q&A Our Way: Expressing Confidence About 2020 Growth Prospects (Published on May 6, 2019) Healthcare Technology: HCIT Related Takeaways From UNH Dinner Meeting (Published on Dec 3, 2019) TDOC: Where Are Expectations for the UNH Contract? (Published on July 15, 2019) Healthcare Technology: Healthcare Disruptive Technologies & Innovations (HCDT&I) Chicago Day Recap (Published on Oct 22, 2019) Healthcare Disruptive Technologies & Innovations: Modernizing Healthcare: One Medical Story as Narrated by CEO and CFO (Published on July 29, 2019) Healthcare Disruptive Technologies & Innovations: Role of AI & Blockchain in HC Data: doc.ai Story – As Narrated by Co-Founder & CEO (Published on Mar 25, 2019) Telehealth Industry: Telemedicine Start-up Call9 Shutting Down Operations; Our Thoughts (Published on July 8, 2019) Healthcare Disruptive Technologies & Innovations: A Dual – Sided Online Marketplace Model: Slingshot Health Story (Published on Apr 8, 2019) TDOC: Shares Weak on No Apparent News (Published on June 3, 2019) Healthcare Disruptive Technologies & Innovations: A Telehealth Company Driving a 56% Utilization Rate: The First Stop Health Story (Published on Apr 15, 2019) TDOC: Another ST Extension for NCQA Certification (Published on Apr 5, 2019) TDOC: Management Offers a Further Sneak Peek Into the UNH Contract (Published on Sep 5, 2019) TDOC: A Quick Check With Management on Medicine Direct Deal & NCQA Certification (Published on Mar 20, 2019) PINC: Waiting For the Tide To Turn; Neutral View (Published on Aug 13, 2019) Healthcare Disruptive Technologies & Innovations: One of the Fastest Growing Urgent Care Chains: CityMD Story (Published on June 24, 2019) TDOC: Management Weighs In on NCQA Update (Published on May 15, 2019)
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Appendix Catalysts in 2020 For Our Covered HCIT Names CHNG
Late Apr/Early May: Detailed FY21 Outlook 2H20: (Tentative) CHNG to Provide LT Outlook for its Business EHTH
2H of Jan: 4Q Preannouncement Mid-Feb: Detailed 4Q Results and 2020 Outlook
Spring of 2020: EHTH to Update Its LT Outlook Mid to late Feb: 2021 MA Advance Notice April 6th: 2021 MA Final Rule Late Sept/Early Oct: Details on 2021 MA Plans from CMS Oct 15th to Dec 7th: MA Open Enrollment Period HMSY
Mid-to-Late Feb: (Tentative) 4Q Preannouncement/2020 Outlook PINC
Late Aug: FY21 Outlook 1H20: Update on Greater New York Hospital Association (GNYHA) Contract Renewal 1H20: Update on CommonSpirit Health GPO Decision 2020: Any update/development on the sale speculations TDOC
JPM HC Conference: (Tentative) 4Q Preannouncement/2020 Outlook 1H20: (Tentative) TDOC Investor Day 3Q20 Earnings Call in Late Oct: Update on 2021 Selling Season TVTY
Mid-to-Late Feb: 4Q Results/2020 Outlook Mid to late Feb: 2021 MA Advance Notice April 6th: 2021 MA Final Rule Late Sept/Early Oct: Details on 2021 MA Plans from CMS Oct 15th to Dec 7th: MA Open Enrollment Period
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Hospitals/Health Systems That Launched Telehealth Services in 2019
Figure 57: Hospitals/Health Systems That Launched Telehealth Services in 2019 Date Telemedicine Hospital/Health System Comments/Remarks Announced Vendor Jan 2nd U.S. Department of Veterans Affairs OptumServe To provide veterans with new telehealth services in 2019. Partnered with Lambeth House, a retirement community in New Orleans, to launch a Jan 23rd Ochsner Health System Not Available 12-month intervention study of dementia management using telehealth. Jan 25th NewYork-Presbyterian Hospital Philips To add remote patient monitoring to its telehealth capabilities. Access Jan 29th Cuero (Texas) Regional Hospital To provide its patients with cardiology services via telehealth Physicians Feb 18th University of Virginia Health System Not Available To help lung disease prevention, diagnosis and treatment CentraCare Feb 19th Rice Memorial Hospital Unveiled its new heart-failure telemedicine program Health Health Recovery Deploying telehealth software from remote monitoring to reduce avoidable emergence Feb 21st Marshfield (Wis.) Clinic Health System Solutions department visits The U.S. Department of Agriculture's Rural Utilities Service awarded $401,700 to Feb 21st St. Luke's University Health Network Not Available launch a telehealth program Partnered with a local elementary school to provide virtual appointments to students in Feb 22nd St. Vincent Health Not Available need of medical attention during school hours. Shriners Hospital for Children — St. Partnered with Newton (Kan.) Medical Center on Shriners' first telehealth location in Feb 25th Not Available Louis Kansas. Feb 26th Flagler Hospital Not Available New telehealth options for patients as part of a rebranding strategy. Feb 27th University of Virginia Health System Not Available Expanded current telehealth initiatives focusing on chronic disease management Launched a new telehealth solution called Virtual Visit, which allows providers to Feb 28th Summa Health Not Available diagnose and treat more than 20 common medical conditions. Implemented digital health telehealth platform for remote monitoring of pediatric March Children's of Alabama Locus Health cardiology patients. University of Virginia Health System's Created a telehealth app with Locus Health, a digital health developer, to enhance March 7th Locus Health Children's Hospital patient follow-up care United Concierge March 18th St. Peter's Health Partners A program to improve medical care for individuals who have been sexually assaulted Medicine March 27th The Medical University of South Carolina Not Available Launched virtual urgent care services for patients in rural areas of the state March 29th McLaren Health Care Not Available Launched a telehealth service for patients seeking non-emergency care. Launched an emergency telemedicine program for pediatric patients after receiving a Apr 3rd Providence St. Mary Medical Center Not Available financial donation and letter from a local family of a child who previously needed emergency medical care Launched a mobile stoke unit program, which incorporates telemedicine to allow Apr 8th Stony Brook (N.Y.) Medicine Not Available emergency medical technicians to communicate with neurologists through video Cincinnati Children's Hospital Medical Apr 11th Teladoc Develop its first consumer-specific pediatric telehealth platform Center Began rolling out 24/7 virtual behavioral health visits in emergency departments Apr 12th Indiana University Health Not Available across its network of hospitals Opened its new emergency room telepsychiatry center at Lenox Health Greenwich Apr 18th Northwell Health Not Available Village hospital in New York City. Advanced ICU Apr 18th Baptist Health For patients at Baptist Medical Center Nassau. Care Implemented a telemedicine program that allows neonatologists at Maria Fareri Westchester Medical Center Health Apr 29th Not Available Children's Hospital in Valhalla to provide remote care to newborn patients Network at HealthAlliance Hospital. Began working with Erlanger Health System in Chattanooga, Tenn., to provide Apr 30th AdventHealth Not Available neurology and stroke care through telemedicine. Allina Health and Hayward (Wis.) Area May 2nd Not Available Launched a telemedicine program geared toward expanding virtual neurology care. Memorial Hospital Advanced ICU May 3rd AdventHealth Dade City Remote monitoring technology for patients in its intensive care unit. Care Began offering residents in Wisconsin and Missouri — established patients or not, May 6th SSM Health Not Available health insurance or not — $25 virtual visits within an hour of requesting an appointment.
Source: Becker's Hospital Review
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Figure 58: Hospitals/Health Systems That Launched Telehealth Services in 2019 (Cont’d) Date Telemedicine Hospital/Health System Comments/Remarks Announced Vendor Appalachian Regional Advanced ICU May 8th Remote monitoring technology for ICU patients across all 12 of its hospitals Healthcare System Care Added videoconferencing technology and more care training to its intensive care unit May 13th Ochsner LSU Health Monroe Not Available telemedicine program. Texas A&M University Health Teamed up with Project Extension for Community Healthcare Outcomes, a telehealth May 15th Not Available Science Center teaching model for clinicians, on a program to address the opioid epidemic. Shriners Hospitals for Children Partnered with Angola, Ind.-based Cameron Memorial Community Hospital to offer May 16th Not Available — Chicago telehealth care to pediatric patients with orthopedic and spine conditions. Launched its telemedicine company Infectious Disease Connect to help hospitals that May 16th UPMC Not Available experience shortages in infectious diseases specialists provide care to patients. Offer its patients home recovery care services including virtual visits by a physician and May 20th CommonSpirit Health Contessa remote monitoring. Virtual care service that allows patients to use telehealth to receive treatment and May 21st Lee Health Not Available prescription medication from their providers. Medical University of South began providing telehealth services to Hampton Regional Medical Center in Varnville, May 23rd Not Available Carolina S.C. Installed a telemedicine system for its rheumatology department to offer appointments May 28th St. Joseph Healthcare Not Available to patients who are unable to travel to the hospital. Oregon Health & Science Deployed developed a digital health platform to improve follow-up care for cardiology May 30th University Doernbecher Not Available and neonatal intensive care unit patients. Children's Hospital Began providing patients access to TytoCare's portable patient examination device for June 5th Sanford Health Not Available telehealth appointments. Expanded its psychiatric services for emergency department patients by using Alpine June 6th Gifford Health Care Not Available Telehealth's video conferencing abilities. Michael E. DeBakey VA Medical Launched a telehealth platform that allows veterans to receive mental health services June 12th Not Available Center remotely. Dartmouth-Hitchcock Medical Partnered with Southwestern Vermont Medical Center in Bennington to help expand June Not Available Center care for pediatric cardiology and urology patients through telemedicine. Implemented a telemedicine cart that allows the health system's cardiologists to June 17th OakBend Medical Center Not Available virtually examine patients to determine whether they should be admitted to the hospital. Rolled out virtual walk-in visits where patients and providers can connect through video June 19th UHS Healthcare Not Available to discuss minor medical conditions. June 20th Billings (Mont.) Clinic Blue Sky Provide neurology and stroke care during the hospital's overnight hours. June 20th Allegheny Health Network Mercy Virtual Develop a new virtual care model for critically ill patients. June 27th University of Arkansas Not Available Launched a digital health clinic that uses telemedicine to treat spinal patients. Launched the Hauser Institute for Health Innovation in recognition of the more than June NewYork-Presbyterian Hospital Not Available $50 million philanthropists Rita Hauser and Gustave Hauser have donated to the hospital's telemedicine programs. Rolled out its urgent care telemedicine program to college students at select July 1st MetroHealth System Not Available universities in Ohio, Kentucky, Texas and Florida. July 2nd Community Medical Center SOC Telemed 24/7 neurology and stroke care coverage. Offer its patients home recovery care services such as telehealth appointments and July 2nd Ascension Saint Thomas Contessa remote monitoring. West Virginia United Health Teamed up on telemedicine services to expand neurology and stroke care for patients July 9th System and Mon Health Not Available at Mon Health's facilities. Medical Center July 11th Marietta Memorial Hospital Not Available Implement a telemedicine program for opioid addiction. The Department of Veterans Launched a telehealth pilot program at select VA medical centers and remote facilities July 11th Not Available Affairs across the country to increase patients' access to audiology care specialists. Developed a telehealth program that allows patients with diabetes to teleconference July 19th Broaddus Hospital Not Available with a dietician or a certified diabetes educator instead of traveling to the hospital for an appointment. Partnered with telemedicine provider Curvai Health on a program that offers its patients July 22nd St. Luke Health Services Curvai Health virtual care anytime day or night. Metron Integrated Health July 22nd Not Available Launched its new "smarter heart" cardiac rehab program and telehealth services. Systems University of Burn center launched a telehealth pilot program to help reduce patients' barriers to July 23rd Not Available Louisville (Ky.) Hospital's follow-up care.
Source: Becker's Hospital Review
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Figure 59: Hospitals/Health Systems That Launched Telehealth Services in 2019 (Cont’d) Date Telemedicine Hospital/Health System Comments/Remarks Announced Vendor Launched telehealth services that connect its cardiology and dermatology patients with July 25th Coon Memorial Hospital Not Available specialists through video and audio conferencing technology. Offering a new telemedicine service that provides pregnant patients with at-home checkup July 29th St. Mark's Hospital Not Available kits and virtual appointments. The University of Chicago July 30th PinnacleCare Offer remote second opinions to patients across the country. Medicine University of Alabama at Cardiologists and rheumatologists began using telehealth to treat patients at four rural medical Aug 1st Not Available Birmingham centers across the state. To provide patients across the globe with second opinions on their respective medical Aug 5th UCLA More Health diagnoses through telemedicine technology. Developed an online platform dubbed "virtual health village" that allows patients to access Flagler Aug 5th Flagler Hospital virtual care appointments, communicate with providers and view their health information, Health+ among other capabilities. Dartmouth-Hitchcock Launched its new telemedicine intensive care unit program to help extend care to critically ill Aug 9th Not Available Medical Center patients at rural hospitals. Shriners Healthcare for Partnered with Boys Town (Neb.) National Research Hospital to provide telehealth Aug 12th Not Available Children – Twin Cities consultations for patients who live hours away from Shriners facilities. Northern Inyo Healthcare Granted funding to establish a new telemedicine-equipped room after the successful launch of Aug 19th Not Available District the organization's virtual care substance abuse program. University of Alabama at Began providing 24/7 nephrology care through telehealth to help treat kidney patients Aug 20th Not Available Birmingham at Whitfield Regional Hospital in Demopolis, Ala. Amita Health St. Mary's Aug 22nd Not Available Launched telemedicine services as part of its neurology and neurosurgery program. Hospital Kankakee Unveiled its new mobile application that allows patients to participate in virtual visits with their Aug 29th Memorial Health System Not Available provider. Lafayette (La.) General Sep 9th Not Available Released its new mobile telehealth app. Health Researchers developed a blood pressure home-monitoring program to more quickly detect Sep 11th University of Pittsburgh Not Available hypertension levels of postpartum women. Implemented a two-way audio and video device that allows clinicians to continually monitor Sep 11th Covenant Health Plainview Not Available patients who require more constant watch. Launched its first telehealth-equipped neurology step down unit to support constant Sep 12th Cleveland Clinic Not Available monitoring of epilepsy and stroke patients' brain activity Sep 13th WellSpan Health Not Available Deployed its new digital urgent care clinic for patients to access entirely online. Gila Regional Medical Acquired telemedicine neurology equipment to diagnose a stroke more quickly in emergency Sep 16th Not Available Center department patients. Announced it will extend its telemedicine services to provide critical care neonatal services to Sep 20th Dartmouth-Hitchcock Not Available nonprofit, community hospital Littleton (N.H.) Regional Healthcare patients. University of Iowa Stead Sep 24th Locus Health Provide patients and their families with software to monitor vital health information from home. Family Children's Hospital Jersey Community Eagle Sep 25th Launched a telemedicine hospitalist program to help address onsite staffing challenges. Hospital Telemedicine Texas Health Harris Sep 26th Methodist Hospital Not Available Launched telehealth-based 24/7 care for sexual assault victims. Stephenville Sep 26th Oklahoma State University Not Available Began offering opioid addiction treatment services through telemedicine. Bozeman (Mont.) Health a Partnered to establish a neonatal care and maternal-fetal medicine center that uses Oct 4th Not Available nd St. Peter's Health telemedicine technology to reach more high-risk patients. Greenville (Tenn.) Commu Advanced ICU Oct 10th An intensive care unit telemedicine provider. nity Hospital East Care Tampa (Fla.) General Opened a standalone booth within the hospital in which employees can access on-demand, Oct 15th Not Available Hospital real-time consultations with physicians and automated pharmaceutical services. Partnered with Tyto Care, a New York City-based developer of digital tools for at-home Oct 16th Novant Health Tyto Care examination and diagnosis, to expand the Winston-Salem, N.C.-based system's virtual care offerings. The Department of Launched a multisite pilot program that uses Philips technology to provide remote and virtual Oct 16th Philips Veterans Affairs care to veterans at their local veterans service organizations. Oct 21st Cleveland Clinic Not Available Announced plans to launch a digital health company. Launched its new telehealth application, FHNow, which allows individuals to access a provider Oct 18th FHN Healthcare Not Available directly from their smartphone or computer.
Source: Becker's Hospital Review
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Figure 60: Hospitals/Health Systems That Launched Telehealth Services in 2019 (Cont’d) Date Telemedicine Hospital/Health System Comments/Remarks Announced Vendor University of Mississippi Released a new mobile health app designed to treat patients with non-emergency Oct 22nd Not Available Medical Center conditions. Received a $4.3 million grant to develop a national telehealth certificate program that aims to Oct 24th Avera Health Not Available standardize and enhance the quality of care delivered via telehealth platforms. Bergen New Bridge Medical Unveiled a new telehealth service line aimed at diagnosing and treating emergency medical Nov 7th Not Available Center conditions. The Department of Veterans Began rolling out the use of private enclosure rooms, called pods, which veterans can use to Nov 11th Not Available Affairs conduct telehealth appointments from remote areas. St. Louis Children's Integrated Locus Health's real-time remote monitoring platform into the discharge process Nov 14th Hospital and its Washington Locus Health for high-risk infant cardiac patients. University Heart Center Launched its own telehealth app, offering patients affordable, near-instant urgent care virtual Nov 18th Maury Regional Health Not Available visits. UnityPoint Health — Trinity Welcomed six new hospitalists to its staff who connect with and examine patients using Nov 19th Not Available Regional Medical Center telemedicine technology. Nov 21st Mayo Clinic Health System Not Available Brought its telestroke program to the La Crosse, Wis., inpatient setting. Named the recipient of a $3.84 million grant from bi3, the grantmaking initiative of TriHealth Nov 25th TriHealth Not Available co-sponsor Bethesda Inc., to fund the development and implementation of a new virtual care program. WVU Medicine St. Joseph's Clinicians established a telemedicine-based connection to virtually communicate with one Dec 2nd Hospital and United Hospital Not Available another and treat infectious disease patients. Center Launched telehealth services within its pediatric emergency department to allow the health Dec 3rd Stanford (Calif.) Health Care Not Available system's pediatric specialists at other facilities to provide care for patients virtually, HSHS Good Shepherd Launched a telehealth system that helps patients who reside in rural areas receive diabetes Dec 4th Not Available Hospital care. Began using telemedicine technology to extend neurology and stroke care to patients Dec 10th Erlanger Health System Not Available at Floyd Medical Center in Rome, Ga. Advanced ICU Deployed Advanced ICU Care's telemedicine intensive care unit services at three of its Dec 10th Roper St. Francis Healthcare Care hospitals. Dec 11th Orlando (Fla.) Health Not Available Expanded access to its virtual visit system for all patients throughout Central Florida. Tapped Vox Telehealth to help the New Brunswick, N.J.-based hospital incorporate virtual Dec 12th Saint Peter's University Vox Telehealth care services with its enhanced recovery after surgery program. Source: Becker's Hospital Review
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Health Systems That Implemented EHR Systems in 2019
Figure 61: Hospitals/Health Systems That Implemented/Updated EHR Systems in 2019 Date Hospital/Health System EHR Vendor Comments/Remarks Announced Jan 10th Lavaca Medical Center Cerner Integrated EHR and revenue cycle management systems across its hospital and clinic. Launched a new Epic EHR through a partnership with Mercy Technology Services, Jan 14th Meritus Health Epic the IT arm of Aurora, Mo.-based Mercy health system. The Virginia Department of Behavioral Jan 14th Cerner Implemented a Cerner EHR across its 13 facilities. Health and Developmental Services Signed a 10-year agreement with Cerner Jan. 14 to replace the disparate EHR Jan 15th Lexington (Neb.) Regional Health Center Cerner systems in its hospital and three urgent care clinics. Went live on the CommonWell Health Alliance's interoperability service with support Jan 15th Northwestern Medical Center Meditech from its EHR vendor, Meditech. Jan 18th Williamson Memorial Hospital Meditech Implemented Expanse, a web-based EHR from Meditech. Jan 22nd Remi Vista Cerner Implementing Cerner technology across its facilities in Northern California. Jan 22nd King's Daughters Medical Center Meditech One of the first hospitals in the U.S. to implement Meditech's Point of Care software. Four members of Vermont Care Partners partnered with Netsmart to deploy a unified Jan 25th Vermont Care Partners Netsmart technology platform. Jan 25th Boys Town National Research Hospital Meditech Plans to implement Expanse, a web-based EMR from Meditech Jan 28th West Calcasieu Cameron Hospital Allscripts Implementing the Wellsoft EDIS, an emergency department information system. Jan 28th Scotland Health Care System Epic Went live on a new Epic EHR in early February. Feb 4th Heritage Valley Health System Allscripts Signed a 10-year extension and expansion agreement with Allscripts. Feb 8th Catholic Health Epic Planning to implement an Epic EHR system, investing > $100 million in the project. Feb 13th St. Luke's Hospital Epic Implemented an Epic EHR system Feb. 2. Feb 15th Premise Health Epic Wrapped up a two-year transition to an Epic EHR. Feb 26th Blessing Health System Allscripts Expanded its 15-year partnership with Allscripts and adding more solutions. Launched new nursing and provider documentation services as the first two Feb 27th Kaleida Health Cerner components of its Cerner EHR upgrade. Mar 1st Sturdy Memorial Hospital Cerner Signed a seven-year agreement to transition to Cerner's EHR. Mar 4th PMC Regional Hospital Meditech Installed a Meditech EHR system Feb. 25. Mar 4th Saint Anthony Hospital Allscripts Added to its MDRX contract, a Paragon EHR expansion & integrating solutions. Arise Austin Medical Center and The Mar 6th Allscripts Implemented Allscripts' EHR. Hospital at Westlake Medical Center Mar 7th Escambia County Healthcare Authority's Cerner Two hospitals installed Cerner Millennium EHRs. Northwestern Medicine & Alfardan Mar 11th Allscripts Chose Allscripts' EHR for their ambulatory care services facility in Qatar. Medical Mar 14th OhioHealth Epic Installed Epic's CareConnect system across its 11 hospitals & 200+ ambulatory sites. Mar 14th The Massachusetts Health Collaborative Meditech Installed Meditech's Expanse EHR at its three hospitals Mar 19th Jasper General Hospital Evident Deployed an Evident EHR in May Mar 27th United Regional Health Care System Epic Selected Epic as its new EHR provider. Apr 1st University Health System Epic Will invest $170 million to update its Epic EHR system. Apr 4th Pullman Regional Hospital Epic Will invest $10 million in a new Epic EHR system. Apr 9th Signature Healthcare Meditech Implement Meditech's web-based EHR in its acute care and ambulatory facilities. Apr 17th Carris Health Epic Deployed an Epic EHR May 1. Debuted an Epic EHR at two hospitals in New York City and 17 ambulatory care Apr 17th NYC Health + Hospitals Epic clinics in Brooklyn as part of the health system's $1 billion IT platform rollout. Apr 23rd Frances Mahon Deaconess Hospital Meditech Finished installing Meditech's web-based EHR. Expanding its contract with Allscripts to develop a single, integrated clinical and Apr 29th Hendrick Health System Allscripts financial EHR. Apr 29th Logansport Memorial Hospital Cerner Implement a Cerner Millennium EHR. May 2nd North Mississippi Health Services Epic Installed an Epic EHR system in mid-April. May 3rd Oklahoma Spine Hospital Evident Implement Evident's cloud-based EHR system Thrive. May 8th Cape Fear Valley Health System Epic Went live on an Epic EHR. May 8th ProMedica Coldwater Regional Hospital Epic Implemented an Epic EHR. May 10th Carle Richland Memorial Hospital Epic Implemented an Epic EHR to increase interoperability and transfer of medical records. May 13th Alice Peck Day Memorial Hospital Epic Switched over to an Epic EHR May 11. May 14th Mohawk Valley Health System Epic Implemented an Epic EHR in June.
Source: Becker's Hospital Review
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8 January 2020
Figure 62: Hospitals/Health Systems That Implemented/Updated EHR Systems in 2019 (Cont’d) Date Hospital/Health System EHR Vendor Comments/Remarks Announced May 15th Roosevelt Medical Center Athenahealth Transitioning to an Athenahealth EHR. Butler County Health Care May 21st Cerner Install a Cerner EHR to move its records system to a single platform. Center David Grant USAF Medical May 23rd Cerner Go live on the Department of Defense's new Cerner-supported EHR in September. Center at Travis Owensboro Health Muhlenberg May 28th Epic Completed its transition to an Epic EHR. Community Hospital May 29th Woman's Hospital Meditech Meditech's web-based EHR system. Kingman Regional Medical June 3rd Meditech Launched a Meditech EHR. Center Implementing an Epic EHR at two Chippewa Falls, Wis.-based HSHS St. Joseph's June 3rd Hospital Sisters Health System Epic Hospital locations as part of HSHS' four-year, $112 million EHR transition. June 12th Lawrence General Hospital Meditech Deployed a Meditech Expanse EHR. June 18th St. Luke's Health Care System Meditech Installed a Meditech Expanse EHR. June 19th Baptist Health Floyd Epic Launched a multimillion-dollar Epic EHR. Johns Hopkins All Children's Transitioned to an Epic EHR to be on the same system as all other Johns Hopkins June 21st Epic Hospital Medicine entities. Piedmont Launched an Epic EHR at several of its campuses in July as part of Atlanta-based July 10th Epic Columbus (Ga.) Regional Piedmont Healthcare's $30M project to implement a single records system. July 15th McLeod Health Cerner Announced plans in July to roll out a Cerner EHR at four more of its hospitals this year. Implemented Allscripts' Sunrise Acute Care EHR system to move its patient records for July 16th St. Luke's Medical Center Allscripts surgical, radiology, laboratory and ambulatory services onto a single system. Deployed its Epic EHR system Aug. 3 at five more of its hospitals as well as 25 Aug 6th Tower Health Epic additional Tower Health Medical Group physician practices. Implemented an eClinicalWorks cloud-based EHR system across its almost 200 Aug 8th Advocare eClinicalWorks practice locations. Aug 8th Plumas District Hospital Cerner Installed a Cerner-based EHR system. Sidney (Neb.) Regional Medical Aug 9th Epic Selected Epic for its new EHR system. Center Announced its plans to break ground on a $180 million, six-story patient care tower Aug 19th Cape Cod Healthcare Epic and implement an Epic EHR systemwide. Aug 21st Adventist Health + Rideout Cerner Deployed a Cerner EHR system Aug. 18. Aug 22nd Ivinson Memorial Health Epic Launched an Epic EHR system Aug. 24. Aug 27th MaineGeneral Health Allscripts Expanded its contract with EHR vendor Allscripts through 2027. Mayo Clinic and Oxford Selected Cerner to develop an EHR system for the healthcare organizations' new joint Sep 4th Cerner University Clinic medical facility in London. Sep 4th Ellis Medicine Cerner Deployed a Cerner Millennium EHR in September. Sep 9th Department of Defense Cerner Went live on its new Cerner EHR at four sites in California and Idaho. Eastland (Texas) Memorial Hospital, Pawhuska (Okla.) Hos Sep 10th Cerner Partnered with Cerner to implement the vendor's EHR cloud-based platform. pital and Schoolcraft Memorial Hospital Moved its patients' medical records Oct. 1 to Urbana, Ill.-based Carle Clinic's Epic Sep 12th Christie Clinic Epic EHR system. Sep 13th Phelps Health Epic Announced plans to deploy an Epic EHR system by late 2020. Grinnell Regional Medical Sep 16th Epic Deployed an Epic EHR system Sept. 29. Center Signed a 10-year partnership with New Orleans-based Ochsner Health System to Sep 18th Rush Health Systems Epic install an Epic EHR. Oct 1st Northwell Health Allscripts Allscripts teamed up to develop and deploy a cloud-based, voice-enabled EHR across the New Hyde Park, N.Y.-based health system Oct 1st Boulder Community Health Epic Deployed an Epic EHR across its network Oct. 1. Oct 8th Geisinger Health System Epic Deployed Cerner's EHR-agnostic population health management platform HealtheIntent across its clinical network. Oct 10th Bridgeport Hospital Epic Went live on an Epic EHR. Oct 11th Alameda Health System Epic Deployed an Epic EHR at the beginning of October. Oct 11th North County Health Services Epic OCHIN, a national nonprofit health IT organization that provides technology for community health centers, announced in October plans to extend access to its Epic EHR
Source: Becker's Hospital Review
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8 January 2020
Figure 63: Hospitals/Health Systems That Implemented/Updated EHR Systems in 2019 (Cont’d) Date Hospital/Health System EHR Vendor Comments/Remarks Announced Arrowhead Regional Medical Transitioned to an Epic EHR, unifying patient records on a single platform across the Oct 14th Epic Center Colton, Calif.-based health system. Deployed a Cerner EHR to move its hospital and clinic onto the same digital records Oct 15th Mid-Valley Hospital Cerner platform. Oct 25th Beaver Medical Group Epic Implemented an Epic EHR across its network. Oct 25th U.S. Coast Guard Cerner Begin deploying its new Cerner EHR system during the fourth quarter of 2019. Oct 30th Vively Health Cerner Selected a Cerner EHR and population health management platform. Nov 4th Kern Medical Cerner Went live on a $30 million Cerner EHR on Nov. 1. University of Vermont Health Nov 4th Epic Launched the first phase of its $151.6 million Epic EHR implementation on Nov. 9 Network Nov 6th Tanner Health System Epic Deployed an Epic EHR system on Nov. 3. Implemented an Epic EHR system to streamline clinical applications, billing and Nov 12th CHI Memorial Hospital Epic population health services across the Chattanooga, Tenn.-based health system. Nov 14th San Gorgonio Memorial Hospital Allscripts Announced on Nov. 14 that it will implement an Allscripts Sunrise EHR system. Announced on Nov. 14 that it will renew its partnership with Meditech and transition to Nov 14th Willis-Knighton Health System Meditech its mobile, web-based EHR system. Aigned a 10-year agreement to extend access to its Epic EHR system to the Grand Nov 19th Mary Free Bed Epic Rapids, Mich.-based hospital. Nov 19th Pipeline Health Cerner Announced that it will implement a Cerner EHR at its facilities across the U.S. Will invest $35 million over the next three years to transition to a Meditech EHR Nov 19th Berkshire Health Systems Meditech system. Ferrell Hospital and Gibson Nov 20th Epic Went live on Epic. General Hospital Will allocate $170 million of its fiscal year 2020 budget to transition to an Epic EHR Nov 20th University Health System Epic system. Dec 10th Wyckoff Heights Medical Center Allscripts Announced on Dec. 10 that it is now live on Allscripts' Sunrise EHR. Dec 20th Faith Regional Health Services Epic Deployed an Epic EHR system. Source: Becker's Hospital Review Largest Data Breaches In 2019
Figure 64: Largest Data Breaches In 2019 Number of Date Individuals/ Organization Comments/Remarks Announced Organizations Impacted June 3rd Quest Diagnostics 11.9 million Notified 11.9 million patients of a data breach that happened at one of its billing collections vendors. June 5th Laboratory Corp. of America 7.7 million Patients may have had their data exposed in the same vendor breach as Quest Diagnostics. July 18th Clinical Pathology Laboratories 2.2 million Began notifying 2.2 million patients July 5 that their personal health information may have been exposed in a vendor data breach. May 23rd Inmediata Health Group 1.5 million Notified its customers of a data breach that may have exposed the personal information of more than 1.5 million people. June 19th Oregon's Department of Human 645,000 Opened a phishing email on Jan. 8 that may have exposed around 645,000 people. Services October 15th Women's Care Florida 528,188 aAerted all current and former patients — 528,188 people — that their medical or personal information may have been exposed due to a cybersecurity incident. March 25th The Oregon Department of Human 350,000 An email phishing attack on 2 million agency emails that may have exposed the Services medical information of more than 350,000 people. April 16th Navicent Health's 278,016 Employee email account system may have affected 278,016 patients' personal information. March 21st Zoll 277,016 Notified 277,319 patients in March of a security incident that put their personal and medical information at risk from Nov. 8 to Dec. 28, 2018. March 6th Health Alliance Plan and Blue 270,000 Alerted nearly 270,000 members combined in March that their personal information Cross Blue Shield of Michigan may have been compromised after a data breach at the payers' mailing service vendor in September 2018. Source: Becker's Hospital Review
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Digital Health M&A Deals In 2019
Figure 65: Digital Health M&A Deals In 2019 Date of Acquirer Acquiree Comments/Remarks Announcement/ Acquisition Close June 13th Dassault Medidata Cloud-based clinical trial SaaS Medidata was acquired by French 3-D and product lifecycle Systèmes management specialist Dassault Systèmes for a $5.8 billion in June Nov 1st Alphabet Fitbit In November, Alphabet officially announced its $2.1 billion acquisition of long-time wearable activity tracker category leader Fitbit. The acquisition is expected to close in 2020. June 3rd Best Buy Critical Signal Best Buy completed its second acquisition in the senior care space in April, buying remote senior Technologies monitoring service Critical Signal Technologies (CST) for $125 million. Nov 27th Elsevier 3D4 Medical Health analytics and education company Elsevier announced its plans to acquire Dublin-based 3D4Medical, a startup specializing in digital medical education tools. While the terms of the deal were not disclosed, Irish investor Malin, which owns 38% of the startup, said it would be collecting €17 million from the deal — indicating that Elsevier paid around €44.73 ($49.2 million USD). Jan 28th BioTelemetry Geneva Remote patient monitoring company BioTelemetry announced plans to acquire startup Geneva Healthcare Healthcare, maker of a remote monitoring platform for implantable cardiac devices, for $45 mln in upfront cash with additional performance-based earn-out considerations of no less than $20 mln. Sep 5th OptimizeRx RMDY Health OptimizeRx, a software company that enables digital health messaging between pharmas and providers, acquired RMDY Health, a SaaS platform designed for digital therapeutics. RMDY shareholders receive $8 million in cash and another $8 million in equity. Apr 25th CPSI Get Real Health Hospital software company CPSI spent $11 million (and could spend up to $14 million more) on Get Real Health, a patient engagement company with offerings around chronic condition management, personal health records, and patient data aggregation and analysis. March 6th AbleTo Joyable AbleTo users will gain access to Joyable’s mental health coaching app. Jan 14th ClassPass GuavaPass Online fitness membership platform ClassPass acquired GuavaPass, a similar competing service active in Asia and the Middle East, for $4.2 million. Along with ClassPass assuming control of GuavaPass’s operations, GuavaPass CEO Jeffrey Liu, President Rob Pachter and a number of GuavaPass employees will be joining ClassPass. Jan 7th Medici Chiron Health Medical messaging company Medici announced the acquisition of Chiron Health, an Austin-based telehealth company. This new acquisition will give Medici access to Chiron Health’s platform, which was designed to facilitate provider-patient video visits. Jan 24th EBSCO Health HealthDecision Clinical information tool EBSCO Health announced the acquisition of HealthDecision, a clinical decision support and shared decision making tool for clinicians and patients. As part of the deal EBSCO Health will get HealthDecision’s educational resources, which includes a visual representation of medical outcomes. Feb 5th PerfectServe CareWire and PerfectServe, a Tennessee-based medical communication and collaboration platform, announced Lightning Bolt two acquisitions in the digital health space. The first is CareWire, which is a mobile patient Solutions communication platform. The second is Lightning Bolt Solutions, an artificial intelligence-run physician shift scheduling technology designed for hospitals and healthcare systems. Feb 11th Francisco Qualcomm Life PE firm Francisco Partners acquired Qualcomm Life, the Qualcomm subsidiary focused on Partners medical device connectivity. Feb 28th Crossover Sherpaa Crossover Health, which provides medical services to large employers, Apple and Facebook Health among them, acquired Sherpaa, an asynchronous telehealth company that has also mostly focused on serving employer populations. The terms of the deal were not disclosed, but Sherpaa founder Dr. Jay Parkinson and his team will all become part of Crossover Health. Feb 26th CareLinx Optimal Aging CareLinx, a digital health company focused on in-home care, acquired Optimal Aging, a fledgling startup still being incubated at Providence St. Joseph Health. Feb 27th Guidewell Onlife Health Guidewell Connect, a consumer engagement company that shares a parent company (Guidewell) Connect with health insurer Florida Blue, acquired Onlife Health, a health and wellness technology platform, from Blue Cross Blue Shield of Tennessee and Cambia Health Solutions. Feb 27th WellSky Health Care Healthcare software and services company WellSky (previously known as Mediware) Software announced the acquisition of Health Care Software (HCS), which specializes in clinical and financial software for long-term care settings. Feb 27th Medsphere Wellsoft Interoperable health IT company Medsphere Systems Corporation announced that it is set to Systems acquire Wellsoft, a company that specializes in ED information systems. As part of the deal Medsphere will be acquiring Wellsoft’s signature product, the Emergency Department Information Systems (EDIS), which is targeted at improving workflow in EDs and urgent care centers. Mar 6th PointClickCare QuickMar Senior-focused EHR and health software company PointClickCare Technologies acquired post- acute care management company QuickMar.
Source: Becker's Hospital Review
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8 January 2020
Figure 66: Digital Health M&A Deals In 2019 (Cont’d) Date of Acquirer Acquiree Comments/Remarks Announcement/ Acquisition Close Mar 8th Zoll Medical Payor Logic and Zoll Medical Corporation, the medical device & software company that makes the LifeVest Golden Hour wearable defibrillator acquired patient charting & RCM company Golden Hour. Mar 18th Teladoc Médecin Direct Teladoc Health announced an acquisition to bolster its growing international line of business. The US virtual care company acquired Paris-based MédecinDirect, which provides confidential medical consultations via phone and internet. Apr 4th Advantia Health Pacify Advantia Health acquired Pacify, a live video chat platform for new and soon-to-be moms. As part of the deal Advantia Health, which provides in-person care with a companion care coordination platform, will now be able to offer its members video chats with physician extenders including lactation consultants and registered nurses. April/May Harris Uniphy Harris Computer Systems, through its healthcare group, acquired Uniphy Health, a startup Healthcare focused on clinical communications and physician workflow software. May 9th Warburg Pincus DocuTAP, Two players in the EHR space, DocuTAP and Practice Velocity, merged in May to form a new Practice Velocity company called Experity, in a deal facilitated by private equity firm Warburg Pincus. May 23rd Stratus Video InDemand Language services company Stratus Video acquired InDemand Interpreting, which specializes in Interpreting the video-remote-interpreting (VRI) market and provides access to medically qualified or certified interpreters through video, audio and geolocation technology. May 28th Apple Tueo Health Apple acquired asthma monitoring company Tueo Health. Founded in 2015, Tueo Health pitched a digital tool that helps parents monitor the symptoms, environment and treatment of their asthmatic children. June 6th Waystar PARO RCM specialist Waystar announced its acquisition of healthcare financial assistance predictive analytics specialist PARO. PARO uses data related to social determinants of health, rather than credit scores, to help organizations identify eligible candidates for financial assistance. June 14th Allscripts ZappRx ZappRx, a digital specialty prescription and prior authorization platform, was purchased by EHR vendor Allscripts. June 24th UnitedHealth PatientsLikeMe PatientsLikeMe was acquired by UnitedHealth Group after being forced into a fire sale when the Group US Committee of Foreign Investment forced Chinese majority investor iCarbonX to pull out of the business. June 27th Sansoro Health Datica Health Datica Health, which offers cloud compliance management services, and Sansoro Health, which merge provides integration and interoperability technologies, announced their merger at the end of the quarter. July 3rd Net Health Optima In July, software developer Net Health purchased Optima Healthcare Solutions, which specializes in cloud-based EHRs. The deal will help expand Optima’s outpatient EHR software into more specialties. July 9th NTT Security WhiteHat NTT Security completed its purchase of application security developer WhiteHat security. NTT Security officials say the deal will bolster its ability to help healthcare and other clients address a wider range of security imperatives — from IT infrastructure to mission-critical applications. July 18th Philips Medumo. Philips inked a deal to acquire Medumo, a startup focused on tracking and triaging patients. Medumo focuses on helping patients prepare for appointments. Aug 12th Experian Health MyHealthDirect In August, Experian Health, maker of a healthcare revenue cycle management platform and other health IT enterprise tools, announced that it signed an agreement to acquire Nashville-based digital care coordination company MyHealthDirect. Both companies see the acquisition as a chance to more broadly deploy tools that can help patients initiate their own care and avoid frustrations that could harm their experience. Aug 27th Warburg Pincus WebPT Private equity firm Warburg Pincus signed an agreement in late August to buy a majority interest in the EHR developer WebPT, acquiring it from Battery Ventures. The investment will enable WebPT to boost its product offerings for outpatient physical therapists, occupational therapists and speech-language pathologists. Aug 28th Water Street Thread Two private equity firms, Water Street Health Partners and JLL Partners, acquired virtual clinical Health Partners research company Thread. Thread’s platform is aimed at improving clinical trial research data and & JLL Partners making registration and participation in trials easier. Sep 16th TrialCard Mango Health TrialCard, a company that works with pharma manufacturers to link patients to medications and services, announced to acquire Mango Health, maker of a gamified patient engagement tool and medication adherence platform. Sep 23rd Heal Doctors on Call Heal, maker of an app for booking and processing device-driven physician house calls, announced the acquisition of New York City-based Doctors on Call Source: Becker's Hospital Review
Healthcare Technology 60
8 January 2020
Survey Respondents Mix
Figure 67: 2020 Digital Health Outlook Investor Survey – Respondents Mix
Special Situations 2% Hedge Fund 40%
Long-Only 58%
Source: Credit Suisse
Figure 68: 2020 Digital Health Outlook Industry Investor Survey – Respondents Sector Focus
Generalist 22%
Technology 7%
Healthcare 71%
Source: Credit Suisse
Healthcare Technology 61
8 January 2020
Figure 69: 2020 Digital Health Outlook Industry Stakeholders Survey – Respondents Mix
Healthcare/Technol Physician Other ogy Entrepreneur 2% 7% 10%
Healthcare Consultant/Expert 21%
Healthcare C-Level Executive 42%
Healthcare Mid- Level Employee 18%
Source: Credit Suisse
Healthcare Technology 62
8 January 2020
eHealth EHTH
Updating Model
Target price (12M, US$) 134.00 [V] Healthcare Technology & Distribution Outperform
With this note, we are updating our model and refining our EBITDA margin Price (7 Jan 20, US$) 95.84 assumptions to reflect more gradual improvement than what we previously 52-week price range 110.32 - 40.74 anticipated. While we remain comfortable with our $530 mln revenue estimate for 2020, Market cap (US$ m) 2,213.73 we are lowering our EBITDA margin estimate for 2020 through 2023. As a result, our Enterprise value (US$ m) 2,193 2020 EBITDA estimate is now $113.8 mln vs vs $150.7 mln, previously, and our 2021 [V] = Stock Considered Volatile (see Disclosure Appendix)
EBITDA estimate is $167.5 mln vs $217.8 mln, previously. Our 2020 EPS estimate is now $2.92 vs $3.82 previously and 2021 EPS estimate is now $4.00 vs $5.20 previously. Research Analysts With our revenue estimates and our PT basis of 5x our 2021 revenue estimate largely Jailendra Singh unchanged, our price target remains $134.
212 325 8121 [email protected]
Jermaine Brown 212 325 8125 [email protected]
Share price performance
Financial and valuation metrics Year 12/18A 12/19E 12/20E 12/21E EPS (CS adj.) (US$) 1.05 2.09 2.92 4.00 Prev. EPS (US$) - - 3.82 5.20 P/E (x) 91.5 45.9 32.8 23.9 EV/SALES 8.8 5.4 4.2 3.3 Revenue (US$ m) 251.4 405.4 530.2 670.8 EBITDA (US$ m) 33.7 69.4 113.8 167.5 On 07-Jan-2020 the S&P 500 INDEX closed at 3237.18Daily Jan08, 2019 - Jan07, 2020, 01/08/19 = US$41.28 EBITDA margin (%) 13.4 17.1 21.5 25.0 EV/EBITDA (current) 64.3 31.2 19.0 12.9 ROIC (%) 6.76 10.97 14.26 18.35 Quarterly EPS Q1 Q2 Q3 Q4
2018A -0.07 -0.40 -0.22 1.61 Number of shares (m) 23.10 IC (current, US$ m) 295.06 2019E 0.33 0.10 -0.43 2.04 Source: Company data, Refinitiv, Credit Suisse estimates 2020E 0.46 0.37 -0.26 2.30
Healthcare Technology 63
8 January 2020
eHealth (EHTH) Analyst: Jailendra Singh Price (07 Jan 2020): US$95.84 Target Price: 134.00 Rating: Outperform [V]
Per share 12/18A 12/19E 12/20E 12/21E Company Background No. of shares (EOP) 20 23 25 27 EPS (Credit Suisse) (US$) 1.05 2.09 2.92 4.00 eHealth owns eHealth.com, a private online health insurance exchange Prev. EPS (US$) - - 3.82 5.20 DPS (US$) 0.00 0.00 0.00 0.00 where individuals, families & small businesses can compare health Book value per share 25.77 28.05 27.73 28.72 insurance products from brand-name insurers side by side and purchase Income Statement 12/18A 12/19E 12/20E 12/21E and enroll in coverage online and over the phone.
Net written premiums written - - - - Pre-tax profit 31.9 68.4 112.8 166.3 Blue/Grey Sky Scenario Income tax (expense) 11.5 20.1 39.1 57.3 Minority interests (P&L) - - - - Adjusted net income (US$) 20.4 48.3 73.7 109.0 Balance Sheet (US$) 12/18A 12/19E 12/20E 12/21E Assets Cash & cash equivalents 13 47 19 22 Account receivables 138 194 242 290 Other current assets 5 9 11 14 Total current assets 156 249 272 326 Total fixed assets 8 22 40 64 Investment securities - - - - Total assets 439 666 781 929 Liabilities Total current liabilities 61 109 146 182 Total liabilities 136 218 281 346 Shareholder equity 303 448 500 583 Total liabilities and equity 439 666 781 929 Net debt (8) (21) 7 4 Earnings 12/18A 12/19E 12/20E 12/21E P&C net premium growth - - - - BVPS growth (%) (0) 0 (0) 0 Net income growth (0) 1 1 0 EPS (0) 1 0 0
DPS Growth Margins (%) Our Blue Sky Scenario (US$) 161.00 P&C combined ratio (%) - - - - Profitability (%) Our Blue Sky valuation of $161 assumes shares are valued at 6.0x our Return on equity stated - - - - 2021 revenue estimates under the assumption that the company grows ROE (%) - - - - its market share in Medicare market at a pace much faster than currently Valuation 12/18A 12/19E 12/20E 12/21E reflected in our assumptions PE - stated 91.5 45.9 32.8 23.9 P/E 91.5 45.9 32.8 23.9 Dividend Yield (%) 0.0 0.0 0.0 0.0 Our Grey Sky Scenario (US$) 54.00 Price / NAV 3.7 3.4 3.5 3.3 Price / EV 0.0 0.0 0.0 0.0 Our Grey Sky valuation of $54 assumes shares are valued at 2x our Embedded value data 12/18A 12/19E 12/20E 12/21E 2021 revenue estimates under the assumption that the noise around Group embedded value - - - - Medicare For All continues and the company grows its market share in Embedded value per share - - - - Medicare market at a pace slower than currently reflected in our Life - APE sales - - - - Life - new business values - - - - assumptions EV ratios 12/18A 12/19E 12/20E 12/21E Return on embedded value (%) - - - - Share price performance EV per share growth - - - - APE sales growth - - - - New business value growth - - - -
Life new business margin (%) - - - -
On 07-Jan-2020 the S&P 500 INDEX closed at 3237.18 Daily Jan08, 2019 - Jan07, 2020, 01/08/19 = US$41.28
Source: Company data, Refinitiv, Credit Suisse estimates
Healthcare Technology 64
8 January 2020
Figure 70: EHTH Quarterly Income Statement ($ in mlns except EPS) 1Q19A 1Q18A Y/Y Change 2Q19A 2Q18A Y/Y Change 3Q19A 3Q18A Y/Y Change 4Q19E 4Q18A Y/Y Change 2019E 2018A Y/Y Change Commission-based Revenue 64.2 40.7 57.8% 60.6 30.6 97.8% 59.8 33.6 77.8% 186.4 122.2 52.5% 371.0 227.2 63.3% Other Revenue 4.5 2.4 92.4% 5.2 2.0 156.6% 10.2 7.1 42.2% 14.6 12.7 15.0% 34.4 24.2 42.4% Total Revenue $68.8 $43.1 59.7% $65.8 $32.7 101.4% $69.9 $40.8 71.6% $201.0 $134.9 49.0% $405.4 $251.4 61.3% Guidance $365-$385 mln
Operating Costs & Expenses: Cost of revenue 0.1 (0.2) (150.7%) (0.4) (0.2) 197.4% (0.4) (0.2) 141.2% (0.4) (0.8) (45.7%) (1.2) (1.2) (2.9%) Marketing and advertising (23.3) (14.6) 59.3% (22.4) (14.1) 59.3% (24.9) (15.6) 59.8% (47.7) (36.7) 30.0% (118.3) (81.0) 46.1% Customer care and enrollment (19.7) (13.1) 50.5% (21.2) (13.0) 62.9% (39.8) (17.1) 132.9% (47.0) (26.6) 77.0% (127.7) (69.7) 83.1% Technology and content (8.5) (8.0) 5.9% (9.8) (6.9) 41.5% (11.3) (7.4) 53.8% (13.3) (8.0) 65.0% (42.8) (30.3) 41.3% General and administrative (8.8) (8.4) 5.3% (11.1) (8.6) 28.9% (12.3) (7.5) 64.2% (13.8) (11.0) 25.0% (46.0) (35.5) 29.6% Total Operating Costs & Expenses (60.2) (44.3) 36.1% (64.9) (42.7) 51.9% (88.7) (47.7) 86.0% (122.1) (83.1) 47.1% (336.0) (217.7) 54.3% Adjusted EBITDA $8.6 ($1.2) (821.2%) $0.8 ($10.1) (108.4%) ($18.8) ($6.9) 171.0% $78.8 $51.9 52.0% $69.4 $33.7 106.3% Guidance $65-$70 mln D&A (0.7) (0.6) 5.8% (0.7) (0.6) 16.2% (0.8) (0.6) 23.4% (0.9) (0.6) 41.1% (3.0) (2.5) 21.5% EBIT 7.9 (1.8) (537.6%) 0.1 (10.7) (101.1%) (19.6) (7.6) 158.9% 78.0 51.3 52.1% 66.4 31.2 113.0% Other Income, net 0.6 0.2 202.7% 0.7 0.3 136.1% 0.6 0.3 91.9% 0.2 (0.0) (900.0%) 2.0 0.8 163.8% Pre-Tax Income 8.5 (1.6) (621.7%) 0.8 (10.4) (107.8%) (19.0) (7.3) 161.6% 78.1 51.2 52.5% 68.4 31.9 114.2% Tax Expense (1.2) 0.3 (486.1%) 1.5 2.9 (49.5%) 9.0 3.0 202.0% (29.3) (17.6) 66.1% (20.1) (11.5) 75.1% Adjusted Net Income $7.2 ($1.3) (654.5%) $2.3 ($7.5) (130.0%) ($10.1) ($4.3) 133.8% $48.8 $33.6 45.4% $48.3 $20.4 136.2%
Stock-based compensation Expense, pre-tax (3.2) (2.6) 26.6% (4.7) (3.1) 49.4% (5.5) (3.5) 55.5% (8.0) (3.1) 161.4% (21.4) (12.3) 74.4% Amortization Expense, pre-tax (0.5) (0.5) 21.3% (0.5) (0.5) 0.0% (0.5) (0.5) 0.0% (0.6) (0.5) 5.5% (2.2) (2.1) 6.0% Other Non-recurring Items (13.3) (1.9) 595.2% (7.2) (2.5) 184.9% 5.4 (3.8) (242.1%) 0.0 (6.0) (100.0%) (15.1) (14.2) 6.1% Tax Impact of the Non-recurring Items 4.7 1.4 240.9% 4.4 1.7 153.7% (0.3) 3.2 (109.7%) 1.7 2.1 (17.8%) 10.5 8.4 24.7% GAAP Net Income ($5.2) ($4.8) 6.5% ($5.8) ($12.0) (52.1%) ($11.0) ($9.0) 22.9% $42.0 $26.1 61.0% $20.0 $0.2 8246.5% Diluted Shares Outstanding 21.8 18.9 15.7% 23.1 19.1 21.1% 23.5 19.2 22.1% 24.0 20.9 14.8% 23.1 19.5 18.4% Adjusted EPS $0.33 ($0.07) (579.4%) $0.10 ($0.40) (124.8%) ($0.43) ($0.22) 91.4% $2.04 $1.61 26.6% $2.09 $1.05 99.6% Guidance $1.86-$2.06 GAAP EPS ($0.24) ($0.26) (7.9%) ($0.25) ($0.63) (60.5%) ($0.47) ($0.47) 0.6% $1.75 $1.25 40.2% $0.87 $0.01 6951.3% Guidance $0.62-$0.82
EBITDA Including Stock-based Comp 11.8 1.4 763.9% 5.5 (7.0) (179.5%) (13.3) (3.4) 291.3% 86.8 54.9 58.1% 90.8 45.9 97.7%
Margin Analysis 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Cost of revenue (0.1%) 0.4% 0.7% 0.5% 0.6% 0.4% 0.2% 0.6% 0.3% 0.5% Marketing and advertising 33.9% 34.0% 34.0% 43.0% 35.7% 38.3% 23.7% 27.2% 29.2% 32.2% Customer care and enrollment 28.6% 30.4% 32.2% 39.8% 56.9% 41.9% 23.4% 19.7% 31.5% 27.7% Technology and content 12.3% 18.6% 14.9% 21.1% 16.2% 18.0% 6.6% 6.0% 10.6% 12.1% General and administrative 12.9% 19.5% 16.9% 26.4% 17.6% 18.4% 6.8% 8.2% 11.3% 14.1% Adjusted EBITDA 12.4% (2.8%) 1.3% (30.9%) (26.9%) (17.0%) 39.2% 38.4% 17.1% 13.4%
D&A 1.0% 1.4% 1.1% 1.9% 1.1% 1.5% 0.4% 0.5% 0.7% 1.0% EBIT 11.5% (4.2%) 0.2% (32.8%) (28.0%) (18.6%) 38.8% 38.0% 16.4% 12.4% Pre-Tax Margin 12.3% (3.8%) 1.2% (31.9%) (27.2%) (17.8%) 38.9% 38.0% 16.9% 12.7% Effective Tax Rate 14.4% 19.5% (178.5%) 27.6% 47.1% 40.8% 37.5% 34.4% 29.4% 36.0% Adjusted Net Margin 10.5% (3.0%) 3.4% (23.1%) (14.4%) (10.6%) 24.3% 24.9% 11.9% 8.1% Source: Company data, Credit Suisse estimates
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8 January 2020
Figure 71: EHTH Annual Income Statement ($ in mlns except EPS) Annual Income Statement 2017 2018 2019E 2020E 2021E 2022E 2023E Commission-based Revenue 176.9 227.2 371.0 492.1 628.9 787.6 973.4 Other Revenue 13.8 24.2 34.4 38.1 41.9 46.1 50.7 Total Revenue $190.7 $251.4 $405.4 $530.2 $670.8 $833.7 $1,024.1 Guidance $365-$385 mln $750-$1,000 mln
Operating Costs & Expenses: Cost of revenue (0.6) (1.2) (1.2) (1.4) (1.3) (1.6) (1.449) Marketing and advertising (64.8) (81.0) (118.3) (156.4) (203.4) (255.0) (316.2) Customer care and enrollment (58.8) (69.7) (127.7) (161.1) (194.9) (226.4) (260.3) Technology and content (31.5) (30.3) (42.8) (48.3) (51.1) (54.0) (56.7) General and administrative (30.3) (35.5) (46.0) (49.2) (52.6) (55.7) (58.5) Total Operating Costs & Expenses (186.0) (217.7) (336.0) (416.4) (503.3) (592.6) (693.2)
Adjusted EBITDA $4.7 $33.7 $69.4 $113.8 $167.5 $241.1 $330.9 Guidance $65-$70 mln $225-$350 mln
D&A (2.8) (2.5) (3.0) (3.1) (3.4) (3.7) (4.1) EBIT 1.9 31.2 66.4 110.7 164.1 237.3 326.9
Other Income, net 1.2 0.8 2.0 2.1 2.2 2.3 2.4 Pre-Tax Income 3.1 31.9 68.4 112.8 166.3 239.7 329.3
Tax Expense 29.1 (11.5) (20.1) (39.1) (57.3) (89.9) (123.5) Adjusted Net Income $32.2 $20.4 $48.3 $73.7 $109.0 $149.8 $205.8
GAAP Net Income $25.4 $0.2 $20.0 $52.0 $82.3 $116.8 $165.0
Diluted Shares Outstanding 18.7 19.5 23.1 25.2 27.2 29.2 31.2
Adjusted EPS $1.72 $1.05 $2.09 $2.92 $4.00 $5.12 $6.59 Guidance $1.86-$2.06 GAAP EPS $1.36 $0.01 $0.87 $2.06 $3.02 $4.00 $5.28 Guidance $0.62-$0.82
EBITDA Including Stock-based Comp 14.4 45.9 90.8 140.6 201.0 282.9 383.2
Margin Analysis Cost of revenue 0.3% 0.5% 0.3% 0.3% 0.2% 0.2% 0.1% Marketing and advertising 34.0% 32.2% 29.2% 29.5% 30.3% 30.6% 30.9% Customer care and enrollment 30.8% 27.7% 31.5% 30.4% 29.1% 27.2% 25.4% Technology and content 16.5% 12.1% 10.6% 9.1% 7.6% 6.5% 5.5% General and administrative 15.9% 14.1% 11.3% 9.3% 7.8% 6.7% 5.7% Adjusted EBITDA 2.5% 13.4% 17.1% 21.5% 25.0% 28.9% 32.3%
D&A 1.5% 1.0% 0.7% 0.6% 0.5% 0.4% 0.4% EBIT 1.0% 12.4% 16.4% 20.9% 24.5% 28.5% 31.9% Pre-Tax Margin 1.6% 12.7% 16.9% 21.3% 24.8% 28.7% 32.2% Effective Tax Rate (942.3%) 36.0% 29.4% 34.7% 34.4% 37.5% 37.5% Adjusted Net Margin 16.9% 8.1% 11.9% 13.9% 16.3% 18.0% 20.1%
Growth Analysis Other Revenue 75.0% 42.4% 10.7% 10.0% 10.0% 10.0% Total Revenue 31.8% 61.3% 30.8% 26.5% 24.3% 22.8%
Marketing and advertising 24.9% 46.1% 32.2% 30.0% 25.4% 24.0% Customer care and enrollment 18.7% 83.1% 26.2% 21.0% 16.2% 15.0% Technology and content (3.8%) 41.3% 12.7% 6.0% 5.5% 5.0% General and administrative 17.2% 29.6% 7.0% 6.8% 6.0% 5.0% Total Operating Costs & Expenses 17.1% 54.3% 23.9% 20.9% 17.8% 17.0% Adjusted EBITDA 610.0% 106.3% 64.0% 47.1% 44.0% 37.3% EBIT 1538.1% 113.0% 66.7% 48.3% 44.6% 37.7% Pre-Tax Income 934.9% 114.2% 64.9% 47.5% 44.1% 37.4% Adjusted Net Income (36%) 136% 53% 48% 37% 37% Adjusted EPS (99.1%) NM 39.6% 37.2% 28.0% 28.6% Source: Company data, Credit Suisse estimates
Healthcare Technology 66
8 January 2020
HMS Holdings Corp HMSY
Updating Model
Target price (12M, US$) 34.00
Healthcare Technology Outperform
Updating Model for Accent Deal. We are reinstating coverage with an Outperform rating Price (7 Jan 20, US$) 30.02 and a target price of $34. On December 23rd, HMS Holdings announced the acquisition of 52-week price range 39.93 - 26.53 Accent, a payment accuracy and cost containment business, from Intrado Corporation for Market cap (US$ m) 2,644.69 $155 million. Accent generated $50 mln of revenues on a TTM basis, and its margins are Enterprise value (US$ m) 2,819 comparable to HMSY’s margins. The company’s release also noted that Accent has a solid history of positive operating profitability and cash flows. The company will pay for the Research Analysts acquisition using cash on hand. The transaction price implies 3.1x Accent’s TTM revenues. Assuming Accent’s margins are similar to 26.4% YTD core EBITDA margin (excluding Jailendra Singh reserve releases and 3Q19 Gain on Investment), the transaction price implies 10.7x our 212 325 8121 [email protected] estimated TTM EBITDA. We are updating our model to reflect the deal. We are raising our 2020 revenue estimates by roughly $50 mln (80% PI and 20% COB) to $720 mln. We Jermaine Brown are also raising our EBITDA estimates by $10 mln to $205 mln and EPS by $0.05 to 212 325 8125 $1.36. Our $34 PT is based on 14x our 2021 EBITDA estimate. [email protected]
Share price performance
Financial and valuation metrics Year 12/18A 12/19E 12/20E 12/21E EPS (CS adj.) (US$) 1.28 1.29 1.36 1.51 Prev. EPS (US$) - - 1.31 1.44 P/E (x) 23.5 23.2 22.0 19.8 EV/SALES 4.5 4.3 3.8 3.5 Revenue (US$ m) 598.3 633.0 720.2 776.5 EBITDA (US$ m) 162.3 184.3 205.1 225.0 On 07-Jan-2020 the S&P 500 INDEX closed at 3237.18Daily Jan08, 2019 - Jan07, 2020, 01/08/19 = US$29.65 EBITDA margin (%) 27.1 29.1 28.5 29.0 EV/EBITDA (current) 16.7 15.3 13.7 12.3 ROIC (%) 19.06 14.04 14.14 15.67 Quarterly EPS Q1 Q2 Q3 Q4
2018A 0.22 0.25 0.31 0.48 Number of shares (m) 88.10 IC (current, US$ m) 774.45 2019E 0.28 0.41 0.30 0.31 Source: Company data, Refinitiv, Credit Suisse estimates 2020E 0.32 0.36 0.33 0.36
Healthcare Technology 67
8 January 2020
HMS Holdings Corp (HMSY) Analyst: Jailendra Singh Price (03 Jan 2020): US$29.91 Target Price: 34.00 Rating: Outperform
Income Statement 12/18A 12/19E 12/20E 12/21E Company Background Revenue (US$ m) 598.3 633.0 720.2 776.5 EBITDA (US$ m) 162 184 205 225 HMS Holdings uses healthcare data technology, analytics, and related Depr. & amort. (58) (44) (39) (39) EBIT (US$) 171 175 179 199 services to deliver solutions in healthcare across its three business Net interest exp (10) (7) (13) (14) segments: Coordination of Benefits (COB), Payment Integrity (PI) and PBT (US$) 127 150 160 178 Total Population Management (TPM).
Income taxes (73) (58) (61) (66) Profit after tax 55 92 99 113 Minorities - - - - Blue/Grey Sky Scenario Net profit (US$) 110 114 121 135 Reported net income (US$) 55 92 99 113 Other NPAT adjustments (55) (22) (22) (22) Adjusted net income 110 114 121 135 Cash Flow 12/18A 12/19E 12/20E 12/21E EBIT 171 175 179 199 Net interest (10) (7) (13) (14) Change in working capital (33) (10) (17) (5) Cash flow from operations 96 126 121 147 CAPEX 30 30 34 36 Free cashflow to the firm 127 155 155 184 Acquisitions 0 (155) 0 0 Divestments 0 0 0 0 Cash flow from investments (30) (185) (34) (36) Net share issue(/repurchase) 32 (27) (75) (75) Dividends paid 0 0 0 0 Changes in Net Cash/Debt 96 (113) 12 36 Balance Sheet (US$) 12/18A 12/19E 12/20E 12/21E Assets Cash & cash equivalents 179 86 98 134 Account receivables 207 219 248 268 Other current assets 40 39 37 36 Total current assets 425 344 383 438 Total fixed assets 94 118 129 142 Our Blue Sky Scenario (US$) 39.00 Investment securities - - - - Total assets 1,079 1,158 1,193 1,245 Our $39/share blue sky scenario is predicated on the company Liabilities continuing to expand into Population Health Management (PHM) through Total current liabilities 97 98 108 123 Total liabilities 365 386 397 411 intelligent acquisitions and winning additional business in Coordination of Shareholder equity 713 772 796 834 Benefits (COB) leading to HSD growth in this segment the remainder of Total liabilities and equity 1,079 1,158 1,193 1,245 the year. We see HMSY shares trading at 16x our 2021 EBITDA Net debt 61 174 162 126 estimate in such a scenario. Per share 12/18A 12/19E 12/20E 12/21E
No. of shares (wtd avg) 86 88 89 89 Our Grey Sky Scenario (US$) 24.00 CS adj. EPS 1.28 1.29 1.36 1.51 Prev. EPS (US$) - - 1.31 1.44 Our $24/share grey sky scenario is predicated on any issues in the Dividend (US$) 0.00 0.00 0.00 0.00 Free cash flow per share 1.47 1.76 1.75 2.06 Payment Integrity (PI) segment and slower than expected growth in PHM Earnings 12/18A 12/19E 12/20E 12/21E given the significant competition. Additionally, regulatory shifts specific to Sales growth (%) 14.8 5.8 13.8 7.8 Medicaid could pressure sentiment in the industry leading to depressed EBIT growth (%) 26.1 2.3 2.6 11.1 valuations. We see HMSY shares trading at 10x our 2021 EBITDA Net profit growth (%) 16.2 3.6 5.9 11.4 estimate in such a scenario. EPS growth (%) 14.8 1.0 5.4 10.9 EBITDA margin (%) 27.1 29.1 28.5 29.0 EBIT margin (%) 28.5 27.6 24.9 25.6 Share price performance Pretax margin (%) 21.3 23.7 22.2 23.0 Net margin (%) 18.4 18.0 16.8 17.3 Valuation 12/18A 12/19E 12/20E 12/21E EV/Sales (x) 4.51 4.44 3.88 3.56 EV/EBITDA (x) 16.6 15.2 13.6 12.3 EV/EBIT (x) 15.8 16.1 15.6 13.9 P/E (x) 23.4 23.1 21.9 19.8 Price to book (x) 3.6 3.4 3.3 3.2 Asset turnover 0.6 0.5 0.6 0.6 Returns 12/18A 12/19E 12/20E 12/21E ROE stated-return on (%) 8.3 12.4 12.6 13.8 ROIC (%) 19.1 14.0 14.1 15.7 Gearing 12/18A 12/19E 12/20E 12/21E Net debt/equity (%) 8.6 22.5 20.3 15.1 On 03-Jan-2020 the S&P 500 INDEX closed at 3234.85 Interest coverage ratio (X) 16.7 23.4 14.2 14.0 Daily Jan04, 2019 - Jan03, 2020, 01/04/19 = US$28.33 Quarterly EPS Q1 Q2 Q3 Q4 2018A 0.22 0.25 0.31 0.48 2019E 0.28 0.41 0.30 0.31
2020E 0.32 0.36 0.33 0.36 Source: Company data, Refinitiv, Credit Suisse estimates
Healthcare Technology 68
8 January 2020
Figure 72: HMSY Quarterly Income Statement ($ in mlns except EPS) HMS Health 1Q19A 1Q18A Y/Y 2Q19A 2Q18A Y/Y 3Q19A 3Q18A Y/Y 4Q19E 4Q18A Y/Y 2019E 2018A Y/Y
$ in mlns
Operating revenues $148.0 $141.4 4.6% $168.2 $146.8 14.6% $146.8 $154.2 -4.8% $170.0 $155.8 9.1% $633.0 $598.3 5.8% Guidance $630-$640 mln Cost of Services (90.7) (86.8) 4.5% (93.8) (89.7) 4.6% (88.7) (92.4) -4.0% (100.3) (92.3) 8.7% (373.5) (361.2) 3.4% Gross Profit 57.2 54.6 4.8% 74.4 57.1 30.3% 58.1 61.9 -6.1% 69.7 63.5 9.8% 259.4 237.1 9.4%
SG&A (16.3) (19.7) -17.5% (18.6) (17.0) 9.1% (19.4) (20.5) -5.6% (20.9) (17.4) 20.0% (75.2) (74.7) 0.6%
EBITDA 41.0 34.9 17.4% 55.7 40.0 39.3% 38.8 41.4 -6.3% 48.8 46.1 5.9% 184.3 162.3 13.5% Guidance $182-$187 mln 30.0 25.4 18.1% 50.9 15.3 232.9% 35.8 37.9 -5.5% 45.8 42.2 8.5% 162.5 120.8 34.5% Depreciation and amortization (6.1) (5.3) 14.4% (6.2) (6.4) -3.3% (6.9) (5.7) 20.2% (7.4) (7.1) 3.6% (26.6) (24.6) 8.0% 4.2 8.1 -48.8% 4.9 9.6 -48.8% 4.1 7.9 -48.8% 3.7 7.3 -48.8% $43 MM (including amortization of acquired intangibles) EBIT 34.9 29.5 17.9% 49.5 33.6 47.5% 31.9 35.6 -10.5% 41.4 39.0 6.3% 157.7 137.7 14.5%
Interest expense, net (1.7) (2.5) -31.4% (1.9) (2.8) -33.7% (1.5) (2.6) -43.3% (2.4) (2.3) 4.8% (7.5) (10.2) -27.1% $8 mln Pretax income (loss) 33.1 27.0 22.6% 47.6 30.7 55.0% 30.4 33.0 -8.0% 39.1 36.7 6.4% 150.2 127.5 17.8% Income tax (8.6) (8.5) NM (11.9) (10.2) NM (4.1) (6.3) NM (11.3) 5.5 NM (36.0) (17.2) 108.7%
Adjusted Net Earnings 24.5 18.5 32.3% 35.7 20.6 73.5% 26.3 26.8 -1.8% 27.7 42.3 -34.4% 114.2 110.3 3.6% 11 5 3 3 22 One time charges, net of tax (4.9) (12.1) -59.9% (6.6) (23.9) -72.5% (5.2) (8.2) -37.1% (5.6) (8.9) -37.1% (22.2) (55.3) -59.9% GAAP net earnings (loss) 19.6 6.4 207.3% 29.1 (3.4) -964.3% 21.1 18.6 13.8% 22.2 33.4 -33.7% 92.0 55.0 67.4% $89-$94 mln Shares outstanding (diluted) 88.6 85.7 3.4% 87.9 83.2 5.6% 88.3 85.1 3.7% 88.5 87.5 1.1% 88.3 86.1 2.5%
Pro forma net earnings (loss) per$0.28 share from$0.22 Continuing28.0% Operations$0.41 $0.25 64.4% $0.30 $0.31 -5.3% $0.31 $0.48 -35.1% $1.29 $1.28 1.0%
GAAP net earnings (loss) per share$0.22 - HMSY$0.07 Reports &197.2% Guides this $0.33 ($0.04) -918.8% $0.24 $0.22 9.7% $0.25 $0.38 -34.4% $1.04 $0.64 63.2% Guidance Margin Analysis (% of cash revenues) Cost of Services ratio 61.3% 61.4% 59.0% 60.4% 59.0% 59.0% 61.3% 61.7% 57.8% 58.0% Gross Margin 38.7% 38.6% 44.2% 38.9% 39.6% 40.1% 41.0% 40.8% 41.0% 39.6%
SG&A 11.0% 14.0% 11.1% 11.6% 13.2% 13.3% 12.3% 11.2% 11.9% 12.5% EBITDA margin 27.7% 24.7% 33.1% 27.3% 26.4% 26.8% 28.7% 29.6% 29.1% 27.1%
Depreciation and amortization 4.1% 3.8% 3.7% 4.4% 4.7% 3.7% 4.3% 4.6% 4.2% 4.1% EBIT margin 23.6% 20.9% 29.4% 22.9% 21.7% 23.1% 24.4% 25.0% 24.9% 23.0% Pretax margin 22.4% 19.1% 28.3% 20.9% 20.7% 21.4% 23.0% 23.6% 23.7% 21.3% Effective tax rate 26.0% 31.5% 25.1% 33.1% 13.5% 18.9% 29.0% -15.1% 24.0% 13.5% Net profit margin 16.6% 13.1% 21.2% 14.0% 17.9% 17.4% 16.3% 27.1% 18.0% 18.4% Source: Company data, Credit Suisse estimates
Healthcare Technology 69
8 January 2020
Figure 73: HMSY Annual Income Statement ($ in mlns except EPS) ($ million except EPS) 2015A 2016A 2017A 2018A 2019E 2020E 2021E 2022E
Operating revenues $474.2 $496.0 $521.2 $598.3 $633.0 $720.2 $776.5 $839.0 Guidance $630-$640 mln Compensation (172.0) (185.5) (194.7) (217.5) (224.8) (255.7) (272.6) (292.9) Direct project and other operating expenses(80.4) (74.0) (69.8) (74.3) (78.1) (93.3) (100.6) (108.7) Information Technology (40.9) (37.3) (45.7) (53.4) (53.2) (59.9) (64.6) (69.8) Occupancy (15.8) (14.0) (17.2) (16.0) (17.4) (20.3) (22.1) (23.8) Total Cost of Services (309.1) (310.8) (327.4) (361.2) (373.5) (429.2) (459.8) (495.2) Gross Profit 165.1 185.2 193.8 237.1 259.4 291.0 316.7 343.8
SG&A Expenses (Excluding Depreciation(52.6) & Stock-based(67.6) Comp) (69.2) (74.7) (75.2) (85.9) (91.6) (96.5)
Adjusted EBITDA 112.5 117.6 124.6 162.3 184.3 205.1 225.0 247.4 Guidance $182-$187 mln Reported EBITDA 98.2 102.6 100.5 120.8 162.5 183.5 203.4 225.8 Depreciation and amortization (22.5) (17.0) (19.7) (24.6) (26.6) (32.4) (32.5) (32.6) Guidance $43 MM (including amortization of acquired intangibles) Adjusted EBIT 90.0 100.5 105.0 137.7 157.7 172.6 192.5 214.8
Interest expense, net (7.8) (8.2) (10.6) (10.2) (7.5) (12.6) (14.2) (15.8) Guidance $8 mln Pretax income (loss) 82.3 92.3 94.4 127.5 150.2 160.0 178.3 199.0 Income tax (31.6) (27.4) 0.5 (17.2) (36.0) (39.1) (43.6) (48.6)
GAAP reported tax (15.3) (11.8) 0.2 2.0 (20) (34) (38) (43) Adjusted Net Earnings 50.7 65.0 94.9 110.3 114.2 120.9 134.7 150.3 Stock Based Comp Projection 22 22 22 22 One time charges, net of tax (26.2) (27.3) (54.8) (55.3) (22.2) (21.9) (21.9) (21.9) GAAP net earnings (loss) 24.5 37.6 40.1 55.0 92.0 99.0 112.8 128.4 Guidance $89-$94 mln Shares outstanding (diluted) 88.4 87.0 85.1 86.1 $88.3 88.7 89.1 89.5
Pro forma net earnings (loss) per share$0.57 from Continuing$0.75 Operations$1.11 $1.28 $1.29 $1.36 $1.51 $1.68
GAAP net earnings (loss) per share - HMSY$0.28 Reports $0.43& Guides this$0.47 $0.64 $1.04 $1.12 $1.27 $1.44
Margin Analysis (% of Revenues) Compensation 36.3% 37.4% 37.4% 36.3% 35.5% 35.5% 35.1% 34.9% Direct project and other operating expenses17.0% 14.9% 13.4% 12.4% 12.3% 13.0% 13.0% 13.0% Information Technology 8.6% 7.5% 8.8% 8.9% 8.4% 8.3% 8.3% 8.3% Occupancy 3.3% 2.8% 3.3% 2.7% 2.7% 2.8% 2.8% 2.8% Cost of Services Ratio 65.2% 62.7% 62.8% 60.4% 59.0% 59.6% 59.2% 59.0% Gross Margin 34.8% 37.3% 37.2% 39.6% 41.0% 40.4% 40.8% 41.0%
SG&A Ratio 11.1% 13.6% 13.3% 12.5% 11.9% 11.9% 11.8% 11.5% EBITDA margin 23.7% 23.7% 23.9% 27.1% 29.1% 28.5% 29.0% 29.5%
Depreciation and amortization (excluding4.7% amortizatin of3.4% acquired intangibles)3.8% 4.1% 4.2% 4.5% 4.2% 3.9% EBIT margin 19.0% 20.3% 20.1% 23.0% 24.9% 24.0% 24.8% 25.6% Pretax margin 17.3% 18.6% 18.1% 21.3% 23.7% 22.2% 23.0% 23.7% Effective tax rate 38.4% 29.6% -0.5% 13.5% 24.0% 24.4% 24.5% 24.4% Profit Margin 10.7% 13.1% 18.2% 18.4% 18.0% 16.8% 17.3% 17.9%
Year-Over-Year % Change Operating revenues 4.6% 5.1% 14.8% 5.8% 13.8% 7.8% 8.1% Cost of Services 0.6% 5.3% 10.3% 3.4% 14.9% 7.1% 7.7% SG&A 28.5% 2.3% 8.0% 0.6% 14.3% 6.7% 5.3% EBITDA 4.5% 6.0% 30.2% 13.5% 11.3% 9.7% 9.9% EBIT 11.7% 4.4% 31.2% 14.5% 9.5% 11.5% 11.5% Adjusted Net Earnings 28.2% 46.0% 16.2% 3.6% 5.9% 11.4% 11.6% Adjusted EPS 30.2% 49.3% 14.8% 1.0% 5.4% 10.9% 11.1% Source: Company data, Credit Suisse estimates
Healthcare Technology 70
8 January 2020
Other Financial Models
Figure 74: CHNG Quarterly Income Statement ($ in mlns except EPS) Fiscal Quarters/Years 1Q20A 1Q19A Y/Y Δ 2Q20A 2Q19A Y/Y Δ 3Q20E 3Q19A Y/Y Δ 4Q20E 4Q19A Y/Y Δ 2020E 2019A Y/Y Δ Adjusted Solutions revenue $797.1 $757.7 5.2% $738.7 $737.8 0.1% $750.6 $763.1 -1.6% $793.6 $775.5 2.3% $3,080.0 $3,034.1 1.5% Postage revenue $58.5 $65.6 -10.8% $57.1 $62.4 -8.5% $60.0 $58.8 2.0% $56.0 $51.9 8.0% $231.6 $238.6 -3.0% Total revenue $855.6 $823.3 3.9% $795.8 $800.2 -0.5% $810.6 $821.9 -1.4% $849.6 $827.3 2.7% $3,311.5 $3,272.7 1.2%
Cost of operations (323.5) (333.7) -3.0% (328.0) (323.9) 1.2% (322.8) (334.7) -3.6% (322.0) (327.0) -1.5% (1,296.3) (1,319.3) -1.7% R&D Expense (49.3) (55.3) -10.8% (51.8) (51.2) 1.1% (52.5) (49.9) 5.3% (55.6) (45.0) 23.4% (209.2) (201.4) 3.9% Sales, Marketing, G&A (193.3) (206.9) -6.6% (190.0) (207.1) -8.2% (185.4) (206.6) -10.2% (189.5) (200.0) -5.2% (758.2) (820.6) -7.6% Accretion and changes in estimate with related parties,(3.9) net (3.8) 1.5% (20.1) (5.9) 239.1% (3.2) (3.5) -9.1% (3.3) (6.0) -44.5% (30.5) (19.3) 58.5% Gain on Sale of the Extended Care Business 0.0 0.0 N/A 0.0 111.4 -100.0% 0.0 0.0 -100.0% 0.0 0.0 N/A 0.0 111.4 -100.0% Other Income 4.6 5.3 -13.1% 2.7 3.9 -31.5% 4.0 4.4 -8.9% 4.0 4.5 -11.9% 15.3 18.1 -15.8% Customer Postage Expense (58.5) (65.6) -10.8% (57.1) (62.4) -8.5% (60.0) (58.8) 2.0% (56.0) (51.9) 8.0% (231.6) (238.6) -3.0%
GAAP EBITDA $231.7 $163.2 41.9% $151.5 $264.9 -42.8% $190.7 $172.9 10.3% $227.2 $202.1 12.4% $801.0 $803.1 -0.3% D&A (71.3) (68.5) 4.1% (77.4) (69.3) 11.8% (79.9) (70.3) 13.6% (81.5) (69.9) 16.6% (310.2) (278.0) 11.6% Amortization of capitalized software developed for sale(3.5) (3.8) -8.2% (3.2) (3.6) -10.3% (3.2) (3.5) -7.3% (3.2) (3.8) -14.5% (13.2) (14.7) -10.1% GAAP EBIT $156.9 $90.9 72.5% $70.8 $192.0 -63.1% $107.6 $99.0 8.6% $142.4 $128.4 10.9% $477.7 $510.4 -6.4%
Interest Expense (83.4) (78.5) 6.2% (69.9) (80.7) -13.4% (69.9) (82.6) -15.4% (69.9) (83.6) -16.4% (293.1) (325.4) -9.9% Pre-Tax Income $73.5 $12.4 492.9% $0.9 $111.3 -99.2% $37.7 $16.4 129.1% $72.5 $44.8 62.0% $184.5 $184.9 -0.2%
Income Tax Expense (1.6) 0.1 -1522.7% (1.0) 2.1 -147.1% (5.6) (3.3) 72.2% (10.9) (3.4) 220.0% (19.1) (4.5) 328.9% GAAP Net Income $71.9 $12.5 475.1% ($0.1) $113.4 -100.1% $32.0 $13.2 143.2% $61.7 $41.4 49.0% $165.5 $180.5 -8.3%
Non-Recurring Expenses (Income) for Adjusted EBITDA Calculation Gain on sale of Extended Care Business 0.0 0.0 N/A 0.0 (111.4) -100.0% 0.0 (0.0) -100.0% 0.0 0.0 N/A 0.0 (111.4) -100.0% Equity Compensation 5.9 5.3 10.6% 9.3 3.0 215.8% 9.5 8.1 17.3% 9.8 4.0 145.0% 34.5 20.4 69.5% Acquisition & Transaction Costs 0.7 6.2 -89.3% 0.6 3.9 -85.7% 2.9 4.0 -27.5% 4.1 5.0 -18.0% 8.2 19.0 -56.9% Integration & Strategic Costs 36.5 39.4 -7.5% 28.8 37.0 -22.0% 23.8 38.7 -38.4% 22.8 37.0 -38.3% 112.0 152.1 -26.4% Management Fees 2.6 2.7 -1.1% 2.4 2.6 -7.4% 0.0 2.6 -100.0% 0.0 2.6 -100.0% 5.1 10.5 -51.8% Accretion Expense 3.9 3.8 1.5% 3.2 5.9 -45.8% 3.2 3.5 -9.1% 3.3 3.0 10.3% 13.6 16.3 -16.4% Non Routine (0.1) 7.2 -101.5% 21.9 10.1 116.1% 0.9 4.1 -78.0% 3.0 4.0 -25.0% 25.7 25.4 1.0% Total Non-recurring Adjustments 49.4 64.6 -23.5% 66.2 (48.9) -235.4% 40.3 61.0 -33.9% 43.0 55.6 -22.6% 199.0 132.2 50.5%
Adjusted EBITDA $281.1 $227.8 23.4% $217.7 $216.0 0.8% $231.0 $233.9 -1.2% $270.2 $257.7 4.9% $1,000.0 $935.3 6.9%
After Tax Impact of Non-recurring items 69.6 85.1 -18.3% 86.8 (23.5) -468.9% 70.3 83.5 -15.7% 55.5 84.2 -34.0% 282.2 229.3 23.1% Adjusted Net Income $141.5 $97.6 44.9% $86.6 $89.9 -3.7% $102.3 $96.6 5.9% $117.2 $125.5 -6.6% $447.7 $409.7 9.3%
Diluted Shares Outstanding 253.1 NM N/A 324.0 NM N/A 324.0 NM N/A 324.0 NM N/A 319.2 NM N/A
GAAP EPS $0.28 NM N/A $0.19 NM N/A $0.25 NM N/A $0.27 NM N/A $0.52 NM N/A Adjusted EPS $0.56 NM N/A $0.36 NM N/A $0.37 NM N/A $0.38 NM N/A $1.40 NM N/A
Margins Analysis (As a % of Adj Soltns Rev) Cost of Operations 40.6% 44.0% 44.4% 43.9% 43.0% 43.9% 40.6% 42.2% 42.1% 43.5% R&D Expense 6.2% 7.3% 7.0% 6.9% 7.0% 6.5% 7.0% 5.8% 6.8% 6.6% Sales, marketing, G&A 24.2% 27.3% 25.7% 28.1% 24.7% 27.1% 23.9% 25.8% 24.6% 27.0% EBITDA Margin 29.1% 21.5% 20.5% 35.9% 25.4% 22.7% 28.6% 26.1% 26.0% 26.5% Adjusted EBITDA Margin 35.3% 30.1% 29.5% 29.3% 30.8% 30.6% 34.1% 33.2% 32.5% 30.8%
Pre-Tax Margin 9.2% 1.6% 0.1% 15.1% 5.0% 2.2% 9.1% 5.8% 6.0% 6.1% Effective Tax Rate 2.1% NM 115.0% NM 15.0% NM 15.0% NM 10.3% NM Adjusted Net Margin 17.8% 12.9% 11.7% 12.2% 13.6% 12.7% 14.8% 16.2% 14.5% 13.5% Source: Company data, Credit Suisse estimates
Healthcare Technology 71
8 January 2020
Figure 75: CHNG Annual Income Statement ($ in mlns except EPS) FY18 FY19 FY20E FY21E FY22E Adjusted Solutions revenue $3,024.4 $3,034.1 $3,080.0 $3,214.7 $3,375.0 Postage revenue $274.4 $238.6 $231.6 $255.2 $278.2 Total revenue $3,298.8 $3,272.7 $3,311.5 $3,469.9 $3,653.1
Cost of operations (1,390.2) (1,319.3) (1,296.3) (1,313.1) (1,354.3) R&D Expense (221.7) (201.4) (209.2) (194.4) (202.5) Sales, Marketing, G&A (749.8) (820.6) (758.2) (747.1) (733.8) Accretion and changes in estimate with related parties,49.9 net (19.3) (30.5) (12.95) (13.0) Gain on Sale of the Extended Care Business 0.8 111.4 0.0 0.0 0.0 Other Income 17.2 18.1 15.3 16.0 16.0 Customer Postage Expense (274.4) (238.6) (231.6) (255.2) (278.2)
GAAP EBITDA $730.6 $803.1 $801.0 $963.1 $1,087.4 D&A (278.4) (278.0) (310.2) (311.7) (310.7) Amortization of capitalized software developed for sale(18.3) (14.7) (13.2) (13.0) (13.0) GAAP EBIT $433.9 $510.4 $477.7 $638.4 $763.7
Interest Expense (292.5) (325.4) (293.1) (256.3) (216.0) Pre-Tax Income $141.5 $184.9 $184.5 $382.1 $547.7
Income Tax Expense 51.8 (4.5) (19.1) (76.4) (123.2) GAAP Net Income $193.2 $180.5 $165.5 $305.6 $424.5
Non-Recurring Expenses (Income) for Adjusted EBITDA Calculation Gain on sale of Extended Care Business (0.8) (111.4) 0.0 0.0 0.0 Equity Compensation 24.7 20.4 34.5 40.0 43.5 Acquisition & Transaction Costs 1.8 19.0 8.2 4.0 0.0 Integration & Strategic Costs 189.3 152.1 112.0 50.0 8.0 Management Fees 11.4 10.5 5.1 0.0 0.0 Accretion Expense (49.9) 16.3 13.6 13.0 13.0 Non Routine and Other 36.9 25.4 25.7 1.0 0.8 Total Non-Recurring Adjustments 213.4 132.2 199.0 108.0 65.2
Adjusted EBITDA $944.0 $935.3 $1,000.0 $1,071.0 $1,152.6 Adjusted EBIT $647.3 $642.6 $676.7 $746.3 $828.9
After Tax Impact of Non-recurring items 256.6 229.3 282.2 155.3 93.9 Adjusted Net Income $449.9 $409.7 $447.7 $460.9 $518.4
Diluted Shares Outstanding 134.4 134.4 319.2 324.3 327.3
GAAP EPS $0.52 $0.94 $1.30 Adjusted EPS $1.40 $1.42 $1.58
Margins/Expense Analysis (As a % of Adj Soltns Rev) Cost of Operations 46.0% 43.5% 42.1% 40.8% 40.1% R&D Expense 7.3% 6.6% 6.8% 6.0% 6.0% Sales, marketing, G&A 24.8% 27.0% 24.6% 23.2% 21.7% EBITDA Margin 24.2% 26.5% 26.0% 30.0% 32.2% Adjusted EBITDA Margin 31.2% 30.8% 32.5% 33.3% 34.2%
Pre-Tax Margin 4.7% 6.1% 6.0% 11.9% 16.2% Effective Tax Rate NM NM 10.3% 20.0% 22.5%
Adjusted Net Margin 14.9% 13.5% 14.5% 14.3% 15.4%
Growth Analysis Adjusted Solutions revenue 0.3% 1.5% 4.4% 5.0% Postage revenue (13.0%) (3.0%) 10.2% 9.0% Total Revenue (0.8%) 1.2% 4.8% 5.3%
Adjusted EBITDA Growth (0.9%) 6.9% 7.1% 7.6% Adjusted Net Income Growth (8.9%) 9.3% 3.0% 12.5% Adjusted EPS Growth 1.3% 11.4% Source: Company data, Credit Suisse estimates
Healthcare Technology 72
8 January 2020
Figure 76: PINC Quarterly Income Statement ($ in mlns except EPS) PINC 1Q20A 1Q19A Y/Y 2Q20E 2Q19A Y/Y 3Q20E 3Q19A Y/Y 4Q20E 4Q19A Y/Y FY20E FY19A Y/Y
$ in mlns 48.4% 49.3% Operating revenue $302.4 $292.6 3.4% $305.8 $307.6 -0.6% $314.3 $301.2 4.4% $334.2 $316.2 5.7% $1,256.8 $1,217.6 3.2% Guidance $1,231-$1,280 mln Cost of Services (47.5) (43.4) 9.6% (49.0) (43.2) 13.4% (53.5) (46.5) 15.0% (48.1) (49.3) -2.4% (198.1) (182.9) 8.3% Cost of Products (43.5) (39.8) 9.3% (47.6) (44.8) 6.3% (48.8) (39.5) 23.6% (54.3) (49.2) 10.3% (194.2) (173.0) 12.2% Cost of Revenue (91.0) (83.1) 9.5% (96.6) (88.0) 9.8% (102.4) (86.0) 19.0% (102.4) (98.5) 4.0% (392.3) (355.9) 10.2% Gross Profit 211.4 209.5 0.9% 209.2 219.6 -4.7% 212.0 215.2 -1.5% 231.8 217.7 6.5% 864.4 862.0 0.3% Operating Expenses (Net of Other operating(71.1) income)(69.3) 2.7% (72.1) (76.6) -5.9% (71.8) (77.2) -7.1% (74.9) (77.9) -3.8% (289.9) (300.7) -3.6% Adjusted EBITDA 140.3 140.2 0.0% 137.2 143.1 -4.1% 140.2 137.9 1.7% 156.9 139.9 12.2% 574.6 561.0 2.4% Guidance $566-$589 mln Depreciation and amortization (37.6) (20.5) 83.2% (24.8) (21.7) 14.6% (25.0) (22.0) 13.9% (25.3) (23.4) 8.1% (99.7) (86.6) 15.1% Adjusted EBIT 117.2 119.7 -2.1% 112.3 121.4 -7.4% 115.2 115.9 -0.7% 131.7 117.5 12.1% 476.4 474.5 0.4% Interest and investment income (loss), net(0.5) (2.3) -79.0% (0.5) (1.9) -75.1% (0.5) (1.4) -67.0% (0.5) (0.2) 203.2% (1.9) (5.8) -67.0% Pretax Adjusted Income 116.7 117.4 -0.6% 111.9 119.5 -6.4% 114.7 114.5 0.2% 131.2 117.3 11.9% 474.5 468.7 1.2% Tax Expense (30.7) (29.5) 4.0% (28.0) (30.1) -7.0% (28.7) (28.3) 1.4% (32.8) (31.0) 5.9% (120.2) (118.8) 1.1% Guidance Non-GAAP Adjusted Fully Distributed Net86.0 Income 87.9 -2.2% 83.9 89.4 -6.2% 86.0 86.2 -0.2% 98.4 86.3 14.0% 354.3 349.9 1.3% Diluted Share Count (for Non-GAAP Purpose)126.6 134.1 -5.6% 125.6 133.7 -6.0% 124.7 129.1 -3.4% 123.8 127.7 -3.0% 125.2 131.1 -4.5% Adjusted Diluted EPS $0.68 $0.66 3.6% $0.67 $0.67 -0.2% $0.69 $0.67 3.3% $0.80 $0.68 17.6% $2.83 $2.67 6.1% Guidance $2.76 - $2.89
Margin Analysis (% of Revenues) Cost of Services 15.7% 14.8% 16.0% 14.0% 17.0% 15.5% 14.4% 15.6% 15.8% 15.0% Cost of Products 14.4% 13.6% 15.6% 14.6% 15.5% 13.1% 16.2% 15.6% 15.5% 14.2% Cost of Services Ratio 30.1% 28.4% 31.6% 28.6% 32.6% 28.6% 30.6% 31.1% 31.2% 29.2% Gross Margin 69.9% 71.6% 68.4% 71.4% 67.4% 71.4% 69.4% 68.9% 68.8% 70.8%
SG&A Expenses 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% EBITDA margin 46.4% 47.9% 44.9% 46.5% 44.6% 45.8% 47.0% 44.2% 45.7% 46.1%
Depreciation and Amortization 12.4% 7.0% 8.1% 7.0% 8.0% 7.3% 7.6% 7.4% 7.9% 7.1% EBIT margin 38.7% 40.9% 36.7% 39.5% 36.6% 38.5% 39.4% 37.1% 37.9% 39.0% Interest and investment income (loss), net0.2% 0.8% 0.2% 0.6% 0.2% 0.5% 0.1% 0.0% 0.2% 0.5% Pretax Adjusted Income 38.6% 40.1% 36.6% 38.8% 36.5% 38.0% 39.3% 37.1% 37.8% 38.5% Tax Expense 10.2% 10.1% 9.1% 9.8% 9.1% 9.4% 9.8% 9.8% 9.6% 9.8%
Non-GAAP Adjusted Fully Distributed Net28.4% Income 30.0% 27.4% 29.1% 27.4% 28.6% 29.4% 27.3% 28.2% 28.7% Source: Company data, Credit Suisse estimates
Healthcare Technology 73
8 January 2020
Figure 77: PINC Annual Income Statement ($ in mlns except EPS) ($ million except EPS) 2016A 2017A 2018A 2019A 2020E 2021E 2022E Operating revenue $1,162.6 $1,454.7 $1,661.3 $1,217.6 $1,256.8 $1,300.4 $1,347.2 Guidance $1,231-$1,280 mln Cost of Services (163.2) (182.8) (187.4) (182.9) (198.1) (194.3) (193.8) Cost of Products (293.8) (497.3) (610.9) (173.0) (194.2) (201.9) (210.4) Cost of Revenue (457.1) (680.0) (798.3) (355.9) (392.3) (396.2) (404.2) Gross Profit 705.5 774.6 863.0 862.0 864.4 904.2 943.0
Remeasurement of tax receiveable liability 4.8 5.4 177.2 - - - - Other Operating Income 4.8 5.4 177.2 - - - - SG&A Expenses (266.5) (275.4) (495.7) (299.7) (289.5) (299.0) (309.1) Research and Development (2.9) (3.1) (1.4) (0.9) (0.4) (0.4) (0.4) Operating Expenses (269.4) (278.5) (497.1) (300.7) (289.9) (299.4) (309.5) Operating Expenses (Net of Other operating income) (264.6) (273.1) (319.9) (300.7) (289.9) (299.4) (309.5) Adjusted EBITDA 441.0 501.6 543.0 561.0 574.6 604.8 633.5 Guidance $566-$589 mln Reported EBITDA 370.1 643.0 648.9 532.7 574.6 604.8 633.5
Depreciation and amortization (excluding amortization of intangibles) (51.1) (58.9) (71.3) (86.6) (99.7) (103.1) (106.1) Adjusted EBIT 389.9 442.7 471.7 474.5 476.4 501.8 527.3
Interest and investment income (loss), net (1.1) (4.5) (5.3) (5.8) (1.9) (1.9) (1.9) Pretax Adjusted Income 388.8 438.2 466.4 468.7 474.5 499.9 525.4
Tax Expense (155.5) (170.9) (149.3) (118.8) (120.2) (128.5) (135.1) Non-GAAP Adjusted Fully Distributed Net Income 233.3 267.3 317.1 349.9 354.3 371.4 390.4
GAAP Tax Expense (49.3) (81.8) (259.2) (31.4) (99.1) (128.5) (135.1) Non-recurring Items (net of taxes) 1.9 182.2 (59.5) (65.8) (14.7) - - GAAP Net Income 235.2 449.5 257.6 284.1 339.7 371.4 390.4
Diluted Share Count (for Non-GAAP Purpose) 145.3 141.2 137.3 131.1 125.2 120.9 115.6 Adjusted Diluted EPS $1.61 $1.89 $2.31 $2.67 $2.83 $3.07 $3.38 Guidance $2.76 - $2.89
Margin Analysis (% of Revenues) Cost of Services 14.0% 12.6% 11.3% 15.0% 15.8% 14.9% 14.4% Cost of Products 25.3% 34.2% 36.8% 14.2% 15.5% 15.5% 15.6% Cost of Services Ratio 39.3% 46.7% 48.1% 29.2% 31.2% 30.5% 30.0% Gross Margin 60.7% 53.3% 51.9% 70.8% 68.8% 69.5% 70.0%
SG&A Expenses 22.9% 18.9% 29.8% 24.6% 23.0% 23.0% 22.9% EBITDA margin 37.9% 34.5% 32.7% 46.1% 45.7% 46.5% 47.0%
Depreciation and Amortization 4.4% 4.0% 4.3% 7.1% 7.9% 7.9% 7.9% EBIT margin 33.5% 30.4% 28.4% 39.0% 37.9% 38.6% 39.1% Interest and investment income (loss), net 0.1% 0.3% 0.3% 0.5% 0.2% 0.1% 0.1% Pretax Adjusted Income 33.4% 30.1% 28.1% 38.5% 37.8% 38.4% 39.0% Effective Tax Rate 40.0% 39.0% 32.0% 25.4% 25.3% 25.7% 25.7% Guidance
Non-GAAP Adjusted Fully Distributed Net Income 20.1% 18.4% 19.1% 28.7% 28.2% 28.6% 29.0%
Year-Over-Year % Change Operating revenues 25.1% 14.2% -26.7% 3.2% 3.5% 3.6% Cost of Revenue 48.8% 17.4% -55.4% 10.2% 1.0% 2.0% Total Operating Expenses (Net) 3.2% 17.2% -6.0% -3.6% 3.3% 3.4% Adjusted EBITDA 13.7% 8.3% 3.3% 2.4% 5.3% 4.7% Adjusted EBIT 13.6% 6.6% 0.6% 0.4% 5.3% 5.1% Pretax Adjusted Income 12.7% 6.4% 0.5% 1.2% 5.4% 5.1% Non-GAAP Adjusted Fully Distributed Net Income 14.6% 18.6% 10.3% 1.3% 4.8% 5.1% Adjusted Diluted EPS 17.9% 22.0% 15.6% 6.1% 8.5% 10.0% Source: Company data, Credit Suisse estimates
Healthcare Technology 74
8 January 2020
Figure 78: TDOC Quarterly Income Statement ($ in mlns except EPS)
Teladoc Health 1Q19A 1Q18A Y/Y 2Q19A 2Q18A Y/Y 3Q19E 3Q18A Y/Y 4Q19E 4Q18A Y/Y 2019E 2018A Y/Y $ in mlns Operating revenues $128.6 $89.6 43.4% $130.3 $94.6 37.8% $138.0 $111.0 24.3% $151.8 $122.7 23.7% $548.2 $417.9 31.2% Guidance $126-$129 mln $128-$131 mln $135-$138 mln $149-$159 mln $546-$550 mln COGS 44.7 26.9 66.4% 41.6 27.7 50.4% 42.8 34.2 25.3% 50.8 40.0 27.0% 180.0 128.7 39.8% Gross Profit 83.9 62.8 33.6% 88.6 66.9 32.5% 95.2 76.8 23.9% 100.9 82.7 22.0% 368.3 289.2 27.3%
Advertising and marketing 25.6 19.9 28.4% 25.3 19.0 33.2% 29.9 21.1 42.0% 25.8 23.0 12.1% 106.6 83.0 28.4% Sales 14.1 12.2 15.3% 13.3 12.6 5.9% 13.4 14.2 -6.0% 14.9 12.5 18.9% 55.6 51.5 8.0% Technology and development 14.1 11.7 20.5% 14.5 12.7 14.5% 14.2 12.0 18.0% 15.2 12.0 26.4% 57.9 48.4 19.8% Legal 1.1 0.5 128.1% 1.5 0.1 1297.2% 1.6 0.3 543.3% 1.5 1.0 48.4% 5.8 1.9 208.6% Regulatory 0.5 0.6 -13.3% 0.5 0.5 -4.0% 0.0 0.6 -100.0% 0.8 0.5 62.5% 1.8 2.1 -16.9% General and administrative 27.3 19.4 41.1% 27.2 19.3 40.7% 27.0 22.4 21.0% 28.5 27.9 2.5% 110.0 88.9 23.8%
EBITDA 1.2 (1.4) -186.8% 6.3 2.7 135.4% 9.0 6.3 42.7% 14.3 5.8 144.5% 30.5 13.4 127.3% Guidance $0-$2 mln $5-$7 mln $7-$9 mln $11.5-$15.5 mln $28-$32 mln
Depreciation and amortization 9.6 8.3 16.3% 9.8 8.0 22.4% 9.6 7.7 25.5% 10.3 9.6 8.0% 39.4 33.5 17.5%
EBIT (8.4) (9.7) -13.8% (3.5) (5.4) -34.3% (0.6) (1.3) -55.8% 4.0 (3.7) -206.2% (8.9) (20.1) -55.7%
Interest expense, net 6.5 4.9 33.8% 7.2 6.9 4.4% 7.7 7.6 1.2% 8.2 6.7 23.1% 29.6 26.1 13.7%
Pretax income (loss) (14.9) (14.6) 2.1% (10.7) (12.3) -12.5% (8.3) (9.0) -7.4% (4.2) (10.4) -59.1% (38.5) (46.2) -16.5% Income tax (benefit) 2.5 1.9 NM (4.0) 3.0 NM (11.6) (0.1) NM 5.0 3.5 NM (8.1) 8.2 -198.6% Net earnings (loss) attritutable to TDOC (17.3) (16.4) 5.5% (6.7) (15.3) -55.8% 3.3 (8.8) -137.0% (9.2) (13.9) -33.3% (30.5) (54.4) -44.0%
One time charges, net of tax (12.8) (7.4) 72.3% (16.8) (9.8) 71.2% (15.2) (14.5) 5.2% (15.2) (11.0) 38.1% (60.0) (42.7) 40.5% GAAP net earnings (loss) (30.2) (23.9) 26.4% (29.3) (25.1) 16.9% (20.3) (23.3) -12.5% (24.4) (24.9) -1.7% (104.3) (97.1) 7.4%
Shares outstanding (diluted) 70.9 61.8 14.8% 71.7 63.0 13.9% 72.2 68.2 5.7% 72.7 70.2 3.4% 71.9 65.8 9.2%
Pro forma net earnings (loss) per share from Continuing($0.24) Operations($0.27) -8.0% ($0.09) ($0.24) -61.2% $0.05 ($0.13) -135.0% ($0.13) ($0.20) -35.5% ($0.42) ($0.83) -48.7%
GAAP net earnings (loss) per share - TDOC Reports &($0.43) Guides this($0.39) 10.1% ($0.41) ($0.40) 2.7% ($0.28) ($0.34) -17.3% ($0.34) ($0.35) -5.0% ($1.45) ($1.48) -1.6% Guidance ($0.44)-($0.46) ($1.43)-($1.49)
Margin Analysis (% of cash revenues) COGS ratio 34.7% 30.0% 32.0% 29.3% 31.0% 30.8% 33.5% 32.6% 32.8% 30.8% Gross Margin 65.3% 70.0% 68.0% 70.7% 69.0% 69.2% 66.5% 67.4% 67.2% 69.2%
Advertising and marketing 19.9% 22.2% 19.4% 20.1% 21.7% 19.0% 17.0% 18.8% 19.4% 19.9% Sales 11.0% 13.6% 10.2% 13.3% 9.7% 12.8% 9.8% 10.2% 10.2% 12.3% Technology and development 11.0% 13.0% 11.1% 13.4% 10.3% 10.8% 10.0% 9.8% 10.6% 11.6% Legal 0.9% 0.5% 1.2% 0.1% 1.2% 0.2% 1.0% 0.8% 1.1% 0.4% Regulatory 0.4% 0.6% 0.4% 0.6% 0.0% 0.5% 0.5% 0.4% 0.3% 0.5% General and administrative 21.2% 21.6% 20.9% 20.4% 19.6% 20.1% 18.8% 22.7% 20.1% 21.3% Total Opex Ratio 64.3% 71.6% 63.2% 67.9% 62.4% 63.5% 57.1% 62.6% 61.6% 66.0% EBITDA margin 1.0% -1.6% 4.9% 2.8% 6.5% 5.7% 9.4% 4.8% 5.6% 3.2%
Depreciation and amortization 7.5% 9.2% 7.6% 8.5% 7.0% 6.9% 6.8% 7.8% 7.2% 8.0% EBIT margin -6.5% -10.8% -2.7% -5.7% -0.4% -1.2% 2.6% -3.0% -1.6% -4.8% Interest Expense -78.1% -50.3% -204.9% -129.0% -1294.1% -565.8% 207.5% -179.1% -332.6% -129.5% Pretax margin -11.6% -16.2% -8.2% -13.0% -6.0% -8.1% -2.8% -8.5% -7.0% -11.0% Reported tax rate NM 12.7% NM 24.5% NM -1.6% NM 33.6% NM -17.7% Net earnings (loss) attributable to TDOC -13.5% -18.3% -5.2% -16.1% 2.4% -7.9% -6.1% -11.3% -5.6% -13.0% Source: Company data, Credit Suisse estimates
Healthcare Technology 75
8 January 2020
Figure 79: TDOC Annual Income Statement ($ in mlns except EPS) ($ million except EPS) 2015A 2016A 2017A 2018A 2019E 2020E 2021E 2022E
Operating revenues $77.4 $123.2 $233.3 $417.9 $548.2 $668.6 $795.6 $936.8 Guidance $546-$550 mln COGS 21.0 32.0 61.6 128.7 180.0 220.6 254.6 290.4 Gross Profit 56.3 91.2 171.7 289.2 368.3 448.0 541.0 646.4
Advertising and marketing # 20.2 34.2 53.1 83.0 106.6 116.5 136.6 158.3 Sales # 17.6 24.9 34.5 51.5 55.6 77.9 92.1 105.4 Technology and development # 13.9 20.5 31.5 48.4 57.9 67.5 80.3 93.7 Legal 8.9 4.1 1.5 1.9 5.8 0.7 0.8 0.9 Regulatory 2.4 3.2 3.4 2.1 1.8 3.3 4.0 4.7 General and administrative # 40.7 44.0 60.2 88.9 110.0 122.7 144.0 166.3
EBITDA (47.3) (39.7) (12.5) 13.4 30.5 59.3 83.1 117.0 Guidance $28-$32 mln
Depreciation and amortization 4.9 8.3 19.1 33.5 39.4 43.3 46.5 49.7
EBIT (52.2) (48.0) (31.6) (20.1) (8.9) 16.1 36.6 67.4
Interest expense, net 2.2 2.6 17.5 26.1 29.6 34.0 35.2 36.4
Pretax income (loss) (54.4) (50.6) (49.1) (46.2) (38.5) (17.9) 1.4 31.0 Income tax (benefit) 1.3 3.6 12.0 8.2 (8) (2.7) 0.3 6.2 Net earnings (loss) attritutable to TDOC (55.6) (54.2) (61.1) (54.4) (30.5) (15.2) 1.2 24.8
One time charges, net of tax (2.4) (20.0) (45.7) (42.7) (60.0) (69.0) (79.4) (91.3) GAAP net earnings (loss) (58.0) (74.2) (106.8) (97.1) (104.3) (84.3) (78.2) (66.5)
Shares outstanding (diluted) 37.8 42.3 55.4 65.8 71.9 77.4 82.6 83.4
Pro forma net earnings (loss) per share from($1.47) Continuing ($1.28)Operations ($1.10) ($0.83) ($0.42) ($0.20) $0.01 $0.30
GAAP net earnings (loss) per share - TDOC Reports($1.53) & Guides($1.75) this ($1.93) ($1.48) ($1.45) ($1.09) ($0.95) ($0.80) Guidance ($1.43)-($1.49)
Margin Analysis (% of cash revenues) COGS ratio 27.2% 26.0% 26.4% 30.8% 32.8% 33.0% 32.0% 31.0% Gross Margin 72.8% 74.0% 73.6% 69.2% 67.2% 67.0% 68.0% 69.0%
Advertising and marketing 26.0% 27.8% 22.8% 19.9% 19.4% 17.4% 17.2% 16.9% Sales 22.7% 20.2% 14.8% 12.3% 10.2% 11.7% 11.6% 11.3% Technology and development 17.9% 16.6% 13.5% 11.6% 10.6% 10.1% 10.1% 10.0% Legal 11.5% 3.3% 0.6% 0.4% 1.1% 0.1% 0.1% 0.1% Regulatory 3.1% 2.6% 1.5% 0.5% 0.3% 0.5% 0.5% 0.5% General and administrative 52.7% 35.8% 25.8% 21.3% 20.1% 18.4% 18.1% 17.8% Total Opex Ratio 133.9% 106.3% 78.9% 66.0% 61.6% 58.1% 57.6% 56.5% EBITDA margin -61.1% -32.2% -5.4% 3.2% 5.6% 8.9% 10.4% 12.5%
Depreciation and amortization 6.3% 6.7% 8.2% 8.0% 7.2% 6.5% 5.8% 5.3% EBIT margin -67.4% -39.0% -13.5% -4.8% -1.6% 2.4% 4.6% 7.2% Interest Expense -4.2% -5.4% -55.3% -129.5% -332.6% 211.7% 96.1% 54.0% Pretax margin -70.2% -41.1% -21.0% -11.0% -7.0% -2.7% 0.2% 3.3% Reported tax rate -2.3% -7.1% -24.5% -17.7% NM 15.0% 20.0% 20.0% Net earnings (loss) attributable to TDOC -71.9% -44.0% -26.2% -13.0% -5.6% -2.3% 0.1% 2.6%
Year-Over-Year % Change Operating revenues 59.2% 89.4% 79.1% 31.2% 22.0% 19.0% 17.7% Cost of revenue 51.9% 92.7% 108.9% 39.8% 22.6% 15.4% 14.1% Net operating revenues 61.8% 88.2% 68.5% 27.3% 21.6% 20.8% 19.5%
Operating Expenses: Advertising and marketing 69.7% 55.2% 56.4% 28.4% 9.3% 17.3% 15.9% Sales 41.7% 38.6% 49.4% 8.0% 40.0% 18.3% 14.4% Technology and development 47.7% 53.9% 53.4% 19.8% 16.5% 19.0% 16.6% Legal -53.6% -63.9% 25.7% 208.6% -88.4% 19.0% 17.7% Regulatory 29.8% 7.3% -37.6% -16.9% 90.2% 19.0% 17.7% General and administrative 8.1% 36.7% 47.7% 23.8% 11.5% 17.4% 15.5% EBITDA NM NM NM NM 127.3% 94.7% 40.1% 40.8% EBIT -8.0% -34.1% -36.4% -55.7% -280.3% 128.1% 83.8% Net earnings (loss) attributable to TDOC -2.6% 12.8% -11.0% -44.0% -50.0% -107.6% 2043.4% Pro forma net loss per share from Continuing Operations -13.8% -25.1% -48.7% -53.5% -107.1% 2022.8% Source: Company data, Credit Suisse estimates
Healthcare Technology 76
8 January 2020
Figure 80: TVTY Quarterly Income Statement ($ in mlns except EPS) Tivity Health 1Q19A 1Q18A Y/Y 2Q19A 2Q18A Y/Y 3Q19A 3Q18A Y/Y 4Q19E 4Q18A Y/Y 2019E 2018A Y/Y
($ millions except EPS)
Revenues $ 214.09 $ 149.93 42.8% $ 340.38 $ 151.87 124.1% $ 303.90 $ 151.47 100.6% $ 273.42 $ 153.04 78.7% $ 1,131.79 $ 606.30 86.7% Guidance $1,127-1,142 Cost of revenue (140.3) (108.3) 29.6% (194.8) (109.0) 78.6% (178.6) (107.0) 66.9% (149.0) (108.4) 37.5% (662.8) (432.7) 53.2% Gross Profit 73.8 41.7 77.1% 145.6 42.8 239.9% 125.3 44.4 182.0% 124.4 44.7 178.5% 469.0 173.6 170.2%
Marketing expenses (24.1) 0.0 N/A (54.6) 0.0 N/A (46.7) 0.0 N/A (46.5) 0.0 N/A (172.0) 0.0 N/A Selling, general and administrative expenses (10.1) (8.6) 18.1% (20.7) (7.8) 166.5% (21.7) (7.8) 177.6% (13.7) (7.7) 77.7% (66.2) (31.8) 107.8%
Adjusted EBITDA 39.5 33.1 19.4% 70.3 35.1 100.5% 56.8 36.6 55.3% 64.3 37.0 73.8% 230.9 141.7 62.9% Guidance $229-239 mln D&A (2.3) (1.1) 101.4% (4.6) (1.1) 309.2% (5.1) (1.2) 325.3% (5.1) (1.2) 324.6% (17.1) (4.7) 267.4% EBIT 37.2 31.9 16.5% 65.7 34.0 93.5% 51.7 35.4 46.1% 59.1 35.8 65.3% 213.8 137.1 56.0% Interest expense (7.7) (3.5) 121.9% (23.7) (3.5) 579.5% (23.0) (1.0) 2171.1% (23.0) (0.8) 2834.4% (77.3) (8.7) 785.6%
Adjusted pretax income (loss) 29.5 28.5 3.7% 42.0 30.5 38.0% 28.7 34.4 -16.5% 36.1 35.0 3.3% 136.4 128.3 6.3% Income tax (expense) / benefit (7.6) (7.2) 6.4% (10.9) (7.7) 41.5% (6.5) (9.0) -27.8% (9.0) (4.1) 122.6% (34.0) (27.9) 21.9% Non Controlling Interest Adjusted net earnings (loss) Attribuitable to TVTY $21.93 $21.34 2.8% $31.19 $22.80 36.8% $22.20 $25.36 -12.5% $27.10 $30.93 -12.4% $102.41 $100.42 2.0%
One time charges, net of tax GAAP net earnings (loss) $4.21 $21.34 -80.2% $18.14 $22.68 -20.0% $13.92 $36.60 -62.0% $19.10 $28.53 -33.1% $55.37 $109.15 -49.3%
Shares outstanding (diluted) 43.2 43.6 -0.9% 48.5 43.3 12.0% 48.6 42.8 13.4% 48.6 42.6 14.2% 47.2 43.1 9.6%
Diluted adjusted EPS $ 0.51 $ 0.49 3.8% $ 0.64 $ 0.53 22.2% $ 0.46 $ 0.59 -22.8% $ 0.56 $ 0.73 -23.3% $ 2.17 $ 2.33 -7.0% $2.14-2.32 GAAP EPS $ 0.10 $ 0.49 -80.1% $ 0.37 $ 0.52 -28.6% $ 0.29 $ 0.85 -66.5% $ 0.39 $ 0.67 -41.4% $ 1.17 $ 2.53 -53.7%
Margin Analysis (% of Revenues) Cost of revenue 65.5% 72.2% 57.2% 71.8% 58.8% 70.7% 54.5% 70.8% 58.6% 71.4% Gross Margin 34.5% 27.8% 42.8% 28.2% 41.2% 29.3% 45.5% 29.2% 41.4% 28.6% Marketing expenses 11.3% 0.0% 16.0% 0.0% 15.4% 0.0% 17.0% 0.0% 15.2% 0.0% Selling, general and administrative expenses 4.7% 5.7% 6.1% 5.1% 7.1% 5.2% 5.0% 5.0% 5.8% 5.3% Adjusted EBITDA Margin 18.4% 22.1% 20.7% 23.1% 18.7% 24.2% 23.5% 24.2% 20.4% 23.4% D&A 1.1% 0.7% 1.4% 0.7% 1.7% 0.8% 1.9% 0.8% 1.5% 0.8% Adjusted EBIT Margin 17.4% 21.3% 19.3% 22.4% 17.0% 23.4% 21.6% 23.4% 18.9% 22.6% Adjusted Pre-Tax Margin 13.8% 19.0% 12.4% 20.1% 9.4% 22.7% 13.2% 22.9% 12.1% 21.2% Tax Rate 25.8% 25.1% 25.8% 25.2% 22.7% 26.3% 25.0% 11.6% 24.9% 21.8% Adjusted Net Margin 10.2% 14.2% 9.2% 15.0% 7.3% 16.7% 9.9% 20.2% 9.0% 16.6% Source: Company data, Credit Suisse estimates
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Figure 81: TVTY Annual Income Statement ($ in mlns except EPS) ($ millions except EPS) 2015A 2016A 2017A 2018A 2019E 2020E 2021E 2022E
Revenues $770.6 $564.2 $556.9 $606.3 $1,131.8 $1,313.6 $1,374.6 $1,442.6 Guidance $1,127-1,142 Cost of revenue -636.8 -429.7 (395.6) (432.7) (662.8) (755.3) (794.0) (829.1) Gross Profit 133.8 134.5 161.3 173.6 469.0 558.3 580.6 613.5
Marketing expenses 0.0 0.0 0.0 0.0 (172.0) (234.9) (237.3) (249.1) Selling, general and administrative expenses -63.5 -41.3 (33.4) (31.8) (66.2) (68.9) (72.1) (72.1)
Adjusted EBITDA 70.4 93.2 127.9 141.7 230.9 254.4 271.2 292.3 Guidance $229-239 mln D&A -49.9 -17.1 (3.4) (4.7) (17.1) (20.5) (20.5) (20.5) EBIT 20.5 76.1 124.6 137.1 213.8 234.0 250.8 271.8 Interest expense -11.2 -16.9 (15.6) (8.7) (77.3) (85.0) (77.5) (69.0)
Adjusted pretax income (loss) 9.4 59.2 109.0 128.3 136.4 148.9 173.2 202.8 Income tax (expense) / benefit -0.2 -16.5 (38.1) (27.9) (34.0) (38.0) (44.2) (51.7) Non Controlling Interest 0.4 -0.5 0.0 0.0 0.0 0.0 0.0 0.0 Adjusted net earnings (loss) Attribuitable to TVTY 9.5 42.2 70.9 100.4 102.4 111.0 129.1 151.1
One time charges, net of tax (47.0) (19.0) (14.4) (13.0) GAAP net earnings (loss) -30.9 -172.9 61.2 109.1 55.4 92.0 114.7 138.1
Shares outstanding (diluted) 36.1 37.9 42.5 43.1 47.2 50.4 52.4 54.4
Diluted adjusted EPS $0.26 $1.11 $1.67 $2.33 $2.17 $2.20 $2.46 $2.78 $2.14-2.32 GAAP EPS ($0.86) ($4.56) $1.44 $2.53 $1.17 $1.83 $2.19 $2.54 $1.11-$1.32 Margin Analysis (% of Revenues) Cost of revenue 82.6% 76.2% 71.0% 71.4% 58.6% 57.5% 57.8% 57.5% Gross Margin 17.4% 23.8% 29.0% 28.6% 41.4% 42.5% 42.2% 42.5% Marketing expenses 0.0% 0.0% 0.0% 0.0% 15.2% 17.9% 17.3% 17.3% Selling, general and administrative expenses 8.2% 7.3% 6.0% 5.3% 5.8% 5.2% 5.2% 5.0% Adjusted EBITDA Margin 9.1% 16.5% 23.0% 23.4% 20.4% 19.4% 19.7% 20.3% D&A 6.5% 3.0% 0.6% 0.8% 1.5% 1.6% 1.5% 1.4% Adjusted EBIT Margin 2.7% 13.5% 22.4% 22.6% 18.9% 17.8% 18.2% 18.8% Adjusted Pre-Tax Margin 1.2% 10.5% 19.6% 21.2% 12.1% 11.3% 12.6% 14.1% Tax Rate 1.9% 27.8% 34.9% 21.8% 24.9% 25.5% 25.5% 25.5% Adjusted Net Margin 1.2% 7.5% 12.7% 16.6% 9.0% 8.4% 9.4% 10.5%
Year-Over-Year % Change Revenues -26.78% -1.29% 8.86% 86.67% 16.06% 4.65% 4.94% Cost of revenue -32.5% -7.9% 9.4% 53.2% 14.0% 5.1% 4.4% Gross Profit 0.5% 20.0% 7.6% 170.2% 19.0% 4.0% 5.7% Marketing expenses N/A N/A N/A N/A 36.6% 1.0% 5.0% SG&A Expenses -35.0% -19.0% -4.7% 107.8% 4.1% 4.7% 0.1% Adjusted EBITDA 32.4% 37.3% 10.8% 62.9% 10.2% 6.6% 7.8% D&A -65.6% -80.4% 39.1% 267.4% 19.5% 0.0% 0.0% Adjusted EBIT 270.5% 63.8% 10.0% 56.0% 9.4% 7.2% 8.4% Adjusted Pre-Tax 532.9% 84.1% 17.8% 6.3% 9.2% 16.3% 17.1% Adjusted Net Income 342.2% 67.9% 41.6% 2.0% 8.3% 16.3% 17.1% Adjusted EPS 321.5% 49.8% 39.6% -7.0% 1.5% 11.9% 12.8% Source: Company data, Credit Suisse estimates
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Companies Mentioned (Price as of 07-Jan-2020) Allscripts Healthcare Solutions Inc. (MDRX.OQ, $9.545) Alphabet (GOOGL.OQ, $1395.11) Amazon com Inc. (AMZN.OQ, $1906.86) Anthem, Inc. (ANTM.N, $299.54) Apple Inc (AAPL.OQ, $298.39) Best Buy (BBY.N, $88.41) CVS Health (CVS.N, $73.58) Centene Corporation (CNC.N, $63.03) Cerner (CERN.OQ, $73.02) Change Healthcare (CHNG.OQ, $15.65) Cigna Corporation (CI.N, $207.93) Evolent Health (EVH.N, $9.54) HCA Healthcare (HCA.N, $148.3) HMS Holdings Corp (HMSY.OQ, $30.02, OUTPERFORM, TP $34.0) Health Catalyst (HCAT.OQ, $35.8) Health Insurance Innovations, Inc (HIIQ.OQ, $19.15) HealthEquity (HQY.OQ, $72.31) Humana Inc. (HUM.N, $366.87) International Business Machines (IBM.N, $134.19) Livongo Health (LVGO.OQ, $25.65) Lyft (LYFT.OQ, $44.25) Microsoft (MSFT.OQ, $157.58) Molina Health (MOH.N, $139.26) Phreesia (PHR.N, $27.24) Premier Inc (PINC.OQ, $35.97) Progyny (PGNY.OQ, $29.32) Quality Systems, Inc (NXGN.OQ, $15.64) R1 RCM (RCM.OQ, $12.54) Tabula Rasa (TRHC.OQ, $47.88) Teladoc Health (TDOC.N, $85.73) Tenet Healthcare Corporation (THC.N, $36.85) Tivity Health (TVTY.OQ, $20.73) Uber (UBER.N, $32.81) UnitedHealth Group Inc. (UNH.N, $289.79) Universal Health Services (UHS.N, $142.43) Walgreens Boots Alliance (WBA.OQ, $59.29) Walmart Inc. (WMT.N, $116.56) WellCare Health Plans, Inc. (WCG.N, $331.27) eHealth (EHTH.OQ, $95.84, OUTPERFORM[V], TP $134.0)
Disclosure Appendix Analyst Certification I, Jailendra Singh, certify that (1) the views expressed in this report accurately reflect my personal views about all of the subject companies and securities and (2) no part of my compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.
3-Year Price and Rating History for HMS Holdings Corp (HMSY.OQ)
HMSY.OQ Closing Price Target Price Date (US$) (US$) Rating 24-Feb-17 18.83 25.00 O 10-May-17 18.89 27.00 12-Jul-17 18.52 27.00 * 13-Jul-17 18.32 25.00 03-Nov-17 15.57 19.00
04-May-18 19.46 22.00
03-Aug-18 28.90 27.00 22-Aug-18 31.60 33.00 02-Nov-18 34.09 36.00 OUTPERFORM 04-Jan-19 28.33 34.00 REST RICT ED 22-Feb-19 35.28 35.00 03-May-19 32.83 36.00 10-Jul-19 33.73 40.00 * 05-Aug-19 38.28 45.00 04-Nov-19 27.13 34.00 21-Nov-19 29.52 R * Asterisk signifies initiation or assumption of coverage.
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3-Year Price and Rating History for eHealth (EHTH.OQ)
EHTH.OQ Closing Price Target Price
Date (US$) (US$) Rating
10-Jul-19 93.51 104.00 O 26-Jul-19 108.40 118.00 06-Aug-19 104.08 136.00 31-Oct-19 69.04 108.00 16-Dec-19 98.29 134.00 * Asterisk signifies initiation or assumption of coverage.
OUTPERFORM
As of December 10, 2012 Analysts’ stock rating are defined as follows: Outperform (O) : The stock’s total return is expected to outperform the relevant benchmark* over the next 12 months. Neutral (N) : The stock’s total return is expected to be in line with the relevant benchmark* over the next 12 months. Underperform (U) : The stock’s total return is expected to underperform the relevant benchmark* over the next 12 months. *Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as Europea n (excluding Turkey) ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, w ith Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin America, Turkey and Asia (excluding Japan and Australia), stock ratings are based on a stock’s total return relative to the average to tal return of the relevant country or regional benchmark (India - S&P BSE Sensex Index); prior to 2nd October 2012 U.S. and Canadian ratings were based on (1) a stock’s absolute total return potential to its current share price and (2) the relative attractiveness of a stock’s total return potential within an analys t’s coverage universe. For Australian and New Zealand stocks, the expected total return (ETR) calculation includes 12-month rolling dividend yield. An Outperform rating is assigned where an ETR is greater than or equal to 7.5%; Underperform where an ETR less than or equal to 5%. A Neutral may be assigned where the ETR is between -5% and 15%. The overlapping rating range allows analysts to assign a rating that puts ETR in the context of associated risks. Prior to 18 May 2015, ETR ranges for Outperform and Underperform ratings did not overlap with Neutral thresholds between 15% and 7.5%, which was in operation from 7 July 2011. Restricted (R) : In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances. Not Rated (NR) : Credit Suisse Equity Research does not have an investment rating or view on the stock or any other securities related to the company at this time. Not Covered (NC) : Credit Suisse Equity Research does not provide ongoing coverage of the company or offer an investment rating or investment view on the equity security of the company or related products. Volatility Indicator [V] : A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24 months or the analyst expects significant volatility going forward. Analysts’ sector weightings are distinct from analysts’ stock ratings and are based on the analyst’s expectations for the fundamentals and/or valuation of the sector* relative to the group’s historic fundamentals and/or valuation: Overweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is favorable over the next 12 months. Market Weight : The analyst’s expectation for the sector’s fundamentals and/or valuation is neutral over the next 12 months. Underweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is cautious over the next 12 months. *An analyst’s coverage sector consists of all companies covered by the analyst within the relevant sector. An analyst may cov er multiple sectors.
Credit Suisse's distribution of stock ratings (and banking clients) is:
Global Ratings Distribution Rating Versus universe (%) Of which banking clients (%) Outperform/Buy* 48% (31% banking clients) Neutral/Hold* 38% (25% banking clients) Underperform/Sell* 13% (22% banking clients) Restricted 2% *For purposes of the NYSE and FINRA ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, and Underperfor m most closely correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are d etermined on a relative basis. (Please refer to definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdin gs, and other individual factors. Important Global Disclosures Credit Suisse’s research reports are made available to clients through our proprietary research portal on CS PLUS. Credit Suisse research products may also be made available through third-party vendors or alternate electronic means as a convenience. Certain research products are only made available through CS PLUS. The services provided by Credit Suisse’s analysts to clients may depend on a specific client’s preferences regarding the frequency and manner of receiving communications, the client’s risk profile and investment, the size and scope of the
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8 January 2020 20208January overall client relationship with the Firm, as well as legal and regulatory constraints. To access all of Credit Suisse’s research that you are entitled to receive in the most timely manner, please contact your sales representative or go to https://plus.credit-suisse.com . Credit Suisse’s policy is to update research reports as it deems appropriate, based on developments with the subject company, the sector or the market that may have a material impact on the research views or opinions stated herein.
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Target Price and Rating Valuation Methodology and Risks: (12 months) for HMS Holdings Corp (HMSY.OQ) Method: We expect HMSY shares to trade at 14x our 2021 EBITDA estimate, yielding a PT of $34 in support of our Outperform rating. This target multiple is essentially in-line with the 10-year avg HMSY shares trading multiple. Risk: With respect to risks to our Outperform rating and $34 PT, we note that the competitive landscape is highly crowded in the PI and TPM industries, with some competitors having very significant relevant experience and large scale. If growth in these markets slows relative to the increased competition, or if the company’s competitors are able to offer lower pricing, respond quicker to changing customer needs, or devote greater resources to the development and sale of their services, then this could unfavorably impact HMSY’s expansion opportunities and/or threaten the ability of the company to expand margins. Additionally, any major disruptions to Medicaid (such as any rollback of ACA) would hurt the company’s COB business. Target Price and Rating Valuation Methodology and Risks: (12 months) for eHealth (EHTH.OQ) Method: Our $134 target price and Outperform rating for EHTH are derived from 5x our 2021 revenue estimate. Our PT multiple reflect some of the potential revenue and earnings upside. Risk: Risks to our Outperform rating and $134 target price for EHTH are slower than expected market share improvement in Medicare market and slower than expected ramp in margin improvement over the next several years.
Please refer to the firm's disclosure website at https://rave.credit-suisse.com/disclosures/view/selectArchive for the definitions of abbreviations typically used in the target price method and risk sections. See the Companies Mentioned section for full company names Credit Suisse currently has, or had within the past 12 months, the following as investment banking client(s): EHTH.OQ, TVTY.OQ, LYFT.OQ, CVS.N, AMZN.OQ, ANTM.N, WMT.N, BBY.N, CHNG.OQ, CI.N, GOOGL.OQ, IBM.N, MSFT.OQ, UNH.N Credit Suisse provided investment banking services to the subject company (EHTH.OQ, TVTY.OQ, LYFT.OQ, CVS.N, AMZN.OQ, ANTM.N, WMT.N, BBY.N, CHNG.OQ, CI.N, GOOGL.OQ, IBM.N, MSFT.OQ, UNH.N) within the past 12 months. Within the last 12 months, Credit Suisse has received compensation for non-investment banking services or products from the following issuer(s): TVTY.OQ, CVS.N, AAPL.OQ, AMZN.OQ, ANTM.N, WMT.N, CI.N, GOOGL.OQ, IBM.N, MSFT.OQ, UNH.N Credit Suisse has managed or co-managed a public offering of securities for the subject company (EHTH.OQ, LYFT.OQ, CVS.N, WMT.N, CHNG.OQ, IBM.N, UNH.N) within the past 12 months.
Within the past 12 months, Credit Suisse has received compensation for investment banking services from the following issuer(s): EHTH.OQ,
TVTY.OQ, LYFT.OQ, CVS.N, AMZN.OQ, ANTM.N, WMT.N, BBY.N, CHNG.OQ, CI.N, GOOGL.OQ, IBM.N, MSFT.OQ, UNH.N Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (EHTH.OQ, HMSY.OQ, TVTY.OQ, LYFT.OQ, WCG.N, CVS.N, AAPL.OQ, AMZN.OQ, ANTM.N, WMT.N, BBY.N, CHNG.OQ, CI.N, GOOGL.OQ, IBM.N, MSFT.OQ, WBA.OQ, UNH.N) within the next 3 months. Credit Suisse currently has, or had within the past 12 months, the following issuer(s) as client(s), and the services provided were non- investment-banking, securities-related: TVTY.OQ, CVS.N, AAPL.OQ, AMZN.OQ, ANTM.N, CI.N, GOOGL.OQ, IBM.N, MSFT.OQ, UNH.N Credit Suisse currently has, or had within the past 12 months, the following issuer(s) as client(s), and the services provided were non- investment-banking, non securities-related: AMZN.OQ, WMT.N, GOOGL.OQ, IBM.N, UNH.N Credit Suisse or a member of the Credit Suisse Group is a market maker or liquidity provider in the securities of the following subject issuer(s): GOOGL.OQ, AMZN.OQ, ANTM.N, AAPL.OQ, BBY.N, CVS.N, CNC.N, CERN.OQ, CHNG.OQ, CI.N, HCA.N, HMSY.OQ, HUM.N, IBM.N, LYFT.OQ, MSFT.OQ, MOH.N, PINC.OQ, TDOC.N, THC.N, TVTY.OQ, UNH.N, UHS.N, WBA.OQ, WMT.N, WCG.N, EHTH.OQ A member of the Credit Suisse Group is party to an agreement with, or may have provided services set out in sections A and B of Annex I of Directive 2014/65/EU of the European Parliament and Council ("MiFID Services") to, the subject issuer (EHTH.OQ, TVTY.OQ, LYFT.OQ, CVS.N, AMZN.OQ, ANTM.N, WMT.N, BBY.N, CHNG.OQ, CI.N, GOOGL.OQ, IBM.N, MSFT.OQ, UNH.N) within the past 12 months. As of the date of this report, Credit Suisse beneficially own 1% or more of a class of common equity securities of (TDOC.N, WCG.N, PINC.OQ). Healthcare Technology 81
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Credit Suisse is acting as financial advisor to New York Life on its announced acquisition of Cigna’s group life and disability insurance business. 2020nuary
For date and time of production, dissemination and history of recommendation for the subject company(ies) featured in this report, disseminated within the past 12 months, please refer to the link: https://rave.credit-suisse.com/disclosures/view/report?i=480936&v=- 7byhk9oxhnbi3w2rtcgumkv2f . Important Regional Disclosures Singapore recipients should contact Credit Suisse AG, Singapore Branch for any matters arising from this research report. The analyst(s) involved in the preparation of this report may participate in events hosted by the subject company, including site visits. Credit Suisse does not accept or permit analysts to accept payment or reimbursement for travel expenses associated with these events. For Credit Suisse Securities (Canada), Inc.'s policies and procedures regarding the dissemination of equity research, please visit https://www.credit-suisse.com/sites/disclaimers-ib/en/canada-research-policy.html. Investors should note that income from such securities and other financial instruments, if any, may fluctuate and that price or value of such securities and instruments may rise or fall and, in some cases, investors may lose their entire principal investment. This research report is authored by: Credit Suisse Securities (USA) LLC ...... Jailendra Singh ; Jermaine Brown Important disclosures regarding companies that are the subject of this report are available by calling +1 (877) 291-2683. The same important disclosures, with the exception of valuation methodology and risk discussions, are also available on Credit Suisse’s disclosure website at https://rave.credit-suisse.com/disclosures . For valuation methodology and risks associated with any recommendation, price target, or rating referenced in this report, please refer to the disclosures section of the most recent report regarding the subject company.
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