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. Healthcare Technology 2 8 January 2020 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 Healthcare Technology 3 8 January 2020 Microsoft ..................................................................................................................... 43 Walmart .....................................................................................................................