HEALTH CARE SPENDING AND INVESTMENT OPPORTUNITIES ON THE RISE WEISERMAZARS THOUGHT LEADERSHIP U.S. HEALTH CARE SYSTEM ON THE CUSP OF CHANGE AS A RESULT OF NEW TECHNOLOGIES COMING INTO THE MARKET. With so many challenges ahead, investors have ample opportunity to make investments in the sector. WeiserMazars LLP is an independent member firm of Mazars Group. HEALTH CARE PROVIDERS NEED TO FIGURE OUT HOW TO OPTIMALLY LEVERAGE TECHNOLOGY. If there’s a T.V. Junkie in your home, you’re familiar with House, the television medical drama that followed Dr. Gregory House as he led a team of top diagnosticians to miraculously solve the most difficult medical cases. Dr. House saved each of his patients’ lives in under 45 minutes—an awesome feat. Of course this show is fiction, but new technologies are indeed making it easier for real life physicians to develop correct diagnoses—maybe not in 45 minutes—but more quickly than was previously possible. For example, new sensor technology enables a physician to remotely receive real-time information about the heartbeat and blood levels of a patient in a distant location. “We still have a long way to go, but the U.S. health care system is on the cusp of change as a result of new technologies coming government initiatives and the aging population at a reasonable into the market. Adoption will take some time, but it is a step in cost. Predictive models were non-existent 20 years ago, but the right direction,” says Steven Kops, a Partner in the Financial today they enable physicians to rapidly zero in on a correct Advisory Services Group at WeiserMazars. Kops elaborated that diagnosis. The models use algorithms that analyze hundreds the firm has found itself providing more financial, accounting of data points, which can then make a diagnosis or predict risk and tax due diligence for strategic acquirers and private equity factors. Predictive models take the guesswork out of a diagnosis, firms like Veronis Suhler Stevenson that are seeking to invest in which ultimately saves time, money and, most importantly, lives. the health care space. Predictive tools can change a care outcome for the better and help to bring providers in line with government mandates. Multiple factors are driving this evolution. According to McKinsey Data, health care costs in the U.S. are expected to skyrocket to RCM solutions also play a big role in provider success. Today’s $2.8 trillion in 2014 with $800 billion of those costs to be paid by growing financial pressures on health care organizations the U.S. government. The U.S. government’s health care reform will continue to increase as consumers bear more financial mandate is also a major change catalyst. With the passing of responsibility for their health care. RCM solutions extend the the Patient Protection and Affordable Care Act as well as the capabilities of hospital information systems and are key to HITECH provisions of the Affordable Care Act (ACA) there are improving access to management, responding to health care two immediate changes: in January 2014, all uninsured U.S. consumerism, accelerating cash collection and improving payer citizens will be provided health insurance and providers will be performance. reimbursed based on care outcomes rather than on quantity of service provided. Additionally, the U.S. health care system faces Predictive modeling and RCM systems are just two examples substantial pressure from an aging population. Between 2000 of the tools available to health care providers today. Data and 2050, the number of older people is expected to increase by analytic tools that can give health care providers insights 135 percent, according to the Journal of Epidemiology. What’s into trends, customer preferences, product demand and help more, the population of people 85 and older, a group that is most with cost forecasting, are also gaining momentum. Evidence- likely to need health and long-term care, is projected to increase based health care, which uses current best evidence in making by a whopping 350 percent during that same time period. decisions about the care of individual patients, is also being used increasingly in diagnosis and treatment. Also in use is The good news is that there are technologies available to help longitudinal patient record (LPR) where organizations can create the U.S. health care system meet the challenges it faces going a comprehensive patient record that is accurate, current and forward. However, health care providers need to figure out how available at the point of care. Data provided includes consumer to optimally leverage technology, including predictive models profile, claims history and prescriptions. LPR is built on a cloud- and revenue cycle management systems (RCM), to deal with WeiserMazars LLP is an independent member firm of Mazars Group. 2 “THERE IS A RUSH AMONG PRIVATE EQUITY FIRMS TO BRING HEALTH CARE INFORMATION AND TECHNOLOGY TO CONSUMERS...” based system, so that it is accessible by any authorized user at clinical outcomes for the patient,” says Kathee Kramm, Chief any time. Operating Officer of AxelaCare, adding that WeiserMazars assists AxelaCare by building strategic partnerships with health “To successfully deploy predictive modeling, evidence-based care provider companies and developing distribution channels medicine, or population health management, health care for medications being administered in the home. providers must have a solid data foundation on which to build. This foundation requires effective data governance, data quality, Meaningful integration of IT into the health care system, will and data management programs that identify and define key require a large amount of capital, which means plenty of data elements, ensure consistency and accuracy, and provide opportunity for all types of investors in the health care sector the infrastructure for data storage and access. WeiserMazars throughout the next decade. helps clients to deploy these programs and to select and implement the technologies that will make them successful,” In fact, growth in health care investing has already begun. says David Hurst, a Principal in the Consulting Services Group at Private equity firms invested $4 billion in 2012 in health and WeiserMazars. medical services companies, which is up from $3.5 billion in 2011, according to Thomson Reuters. These numbers are However, the truth is that while most of these tools are already expected to continue to grow. available for use, not many health care organizations have embraced them due to difficultly with implementation and cost. According to HIMSS EMR Adoption Model, most hospitals are still in the early stages of adoption—with only 1.2 percent having reached Stage 7, the most advanced level of adoption. This is not to say that all technologies have been shunned - adoption rates are slowly growing. For example, one of the easiest technologies to adopt is electronic health records. In most cases, primary care physicians have converted paper files to electronic medical records and can track a patient’s medical history. In fact, the percentage of private care providers who have adopted EHRs in their practice doubled from 20 percent to 40 percent between 2009 and 2011. Additionally, EHR adoption at hospitals has more than doubled since 2009, increasing from 16 percent to 35 percent — 85 percent of hospitals intend to use it by 2015. But EHRs are just the tip of the iceberg. Many technologies haven’t even gotten to market yet. “There is a rush among private equity firms to bring health care information and “Private equity firms have traditionally found health care technology to consumers through a box on top of a digital companies to be a fruitful investment. As demand for health television,” notes Ian Adler, a Senior Managing Director with care grows, investors will continue to be bullish on new investment bank Marwood Group. technologies available both domestically and internationally,” says Brian Kinkead, Vice Chairman, Health Care Division of Bank WeiserMazars client, AxelaCare, has received private equity of America Merrill Lynch. capital as part of its development of a state of the art home care technology. “We are changing the paradigm of care in the Indeed, in March, private equity firm The Gores Group acquired patient’s home by marrying technology and home infusion of GE Healthcare Strategic Sourcing from GE Healthcare. The expensive, complicated medications. The result is improved company, now operating under the name Meridian Medical Management, is a provider of electronic billing and medical WeiserMazars LLP is an independent member firm of Mazars Group. 3 FOREIGN GOVERNMENTS PRIMARILY FACE CHALLENGES FROM PATIENTS DEMANDING A HIGHER LEVEL OF SERVICE. records outsourcing. In February, CareClarity, a revenue cycle partnerships have formed since the ACA. management solution was bought by Cymetrix, which is owned by private equity firm Riordan Lewis & Haden. All told, there “Passage of the ACA has created new incentives for health care were 141 private equity-backed health care technology deals providers and payers to work together as opposed to what was completed in 2012, according to Pitchbook Data. That’s up from often an adversarial relationship previously. This is evidenced by 69 private equity deals completed in the U.S. in 2011. the large number of ACOs Medicare Advantage Plans in the U.S. We are aware of this because we have assisted clients pursuing “The need for health care IT is going to continue to grow and these opportunities by providing accounting due diligence there will be plenty of opportunity for private equity firms to support, tax advice and operations reviews,” says Vincent Burke, participate. In fact, their participation is a crucial component of a Partner in the Insurance Group at WeiserMazars. “It’s ironic fixing the health care system in the U.S.,” says Kops. because in some ways, the U.S.