InSight

Exit and Growth Strategies for Middle Market Businesses

Archive for the ‘Healthcare’ Category

M&A News for the Healthcare Industry Sector

By Daniel Sirvent | Sep 21, 2017

The report below provides a good overview of the 3rd Quarter M&A activity in the Healthcare Industry Sector. Q2 M&A activity for North American based Healthcare companies included 152 closed deals, according to data published by industry data tracker FactSet Research with an average disclosed transaction value of $142 million.

One of the largest deals of the quarter closed in May when Sawai Pharmaceutical Co. Ltd. acquired Upsher-Smith Laboratories, Inc. from ACOVA, Inc., for US$1.1 Billion in cash. Sawai Pharmaceutical Co. engages in the manufacture and sale of prescription pharmaceutical products that include cardiovascular drugs, antihyperlipidemic agents, diabetes, anticancer drugs and over-the-counter drugs. Upsher-Smith Laboratories manufactures generic pharmaceuticals.

Read more »


M&A News From the Healthcare Industry

By Peter Heydenrych | Mar 02, 2017

healthcare industryM&A activity for North American based target companies in the Healthcare industry for Q4 2016 included 147 closed deals, according to data published by industry data tracker FactSet.  The average transaction value was $137 million.

The number of US physician practices owned by hospitals is rising rapidly, as changes in medical payment systems prompt providers to seek efficiencies through new operational structures. Some 31,000 practices were acquired by hospital groups between 2012 and 2015, leading to an 86% jump in the number of hospital-owned doctors’ offices, according to a recent study from Avalere Health and the Physicians Advocacy Institute (PAI). Nearly 40% of physicians in the US are employed by hospitals or health systems. Typical acquisitions include employment contracts for multiple physicians’ services, along with physical property and equipment. The study found that Medicare payments for some common outpatient hospital services are up to three times higher than if they’d been performed at a physician-owned office, leading to concerns that the acquisition trend could drive up health care costs for payers. 

Industry Indicators

  • US consumer prices for medical care commodities, an indicator of healthcare costs, increased 4.3% in November 2016 compared to the same period in 2015.
  • US consumer prices for medical care services, an indicator of profitability for healthcare services, rose 3.9% in November 2016 compared to the same month in 2015.
  • Total US revenue for healthcare and social assistance rose 5.40% in the third quarter of 2016 compared to the previous year.

Posted by Peter Heydenrych.

Read the Entire Healthcare 1st Quarter Newsletter Here


Healthcare Industry | M&A News

By Peter Heydenrych | Dec 08, 2016

healthcare industryHealthcare industry providers are consolidating to get a better handle on revenue streams, reduce costs and control risk. Federal programs looking to control costs may further alter payment systems if consolidation is found to increase medical spending. The number of US physician practices owned by hospitals is rising rapidly, as changes in medical payment systems prompt providers to seek efficiencies through new operational structures. Some 31,000 practices were acquired by hospital groups between 2012 and 2015, leading to an 86% jump in the number of hospital-owned doctors’ offices, according to a recent study from Avalere Health and the Physicians Advocacy Institute (PAI). Nearly 40% of physicians in the US are employed by hospitals or health systems.

A growing number of insurers and health providers are transitioning to value-based reimbursement methods, with the goal of containing costs and improving care. Healthcare providers must adjust processes to maintain efficient, high-quality operations during the transition period. While fee-for-service reimbursements are still the primary mode of payment for US health care providers, insurers are making progress on goals to switch over to value-based contracts. Value-based payment systems include quality incentives, accountable care models, network management, and bundled payments. The US Department of Health and Human Services (HHS) is on track to meet its goal of tying 30% of traditional Medicare payments to value-based payments by the end of 2016, as well as higher targets over the next several years. Commercial insurers are also adopting new payment models; Aetna is aiming for 75% of spending through value-based contracts by 2020. According to a recent survey by McKesson reported by Healthcare Dive, hospitals are about 50% along the continuum towards full value-based reimbursement. However, challenges remain in areas including process automation and payer-provider collaboration. A majority of surveyed hospitals were not yet meeting value-based reimbursement goals including lower costs, better care coordination, and improved patient outcomes.

Posted by Peter Heydenrych.

Read the Entire Healthcare 4th Quarter Newsletter Here


Healthcare M&A Activity

By Peter Heydenrych | Jul 28, 2016

healthcare M&A activityHealthcare M&A activity for North American based target companies in the Healthcare sector for Q2 2016 included 122 closed deals, according to data published by industry data tracker FactSet.  The average transaction value was $332 million.

A growing number of insurers and health providers are transitioning to value-based reimbursement methods, with the goal of containing costs and improving care. While fee-for-service reimbursements are still the primary mode of payment for US health care providers, insurers are making progress on goals to switch over to value-based contracts. Value-based payment systems include quality incentives, accountable care models, network management, and bundled payments. The US Department of Health and Human Services (HHS) is on track to meet its goal of tying 30% of traditional Medicare payments to value-based payments by the end of 2016, as well as higher targets over the next several years. Commercial insurers are also adopting new payment models; Aetna is aiming for 75% of spending through value-based contracts by 2020. According to a recent survey by McKesson reported by Healthcare Dive, hospitals are about 50% along the continuum towards full value-based reimbursement. However, challenges remain in areas including process automation and payer-provider collaboration. A majority of surveyed hospitals were not yet meeting value-based reimbursement goals including lower costs, better care coordination, and improved patient outcomes.

Industry Indicators

  • US consumer prices for medical care commodities, an indicator of healthcare costs, increased 3.2% in June 2016 compared to the same period in 2015.
  • US consumer prices for medical care services, an indicator of profitability for healthcare services, rose 3.8% in June 2016 compared to the same month in 2015.

Posted by Peter Heydenrych.

Read the Entire Healthcare 3rd Quarter Newsletter Here


Healthcare – M&A News From the Industry

By Peter Heydenrych | May 05, 2016

healthcare m&AHealthcare M&A activity for North American based target companies in the Healthcare sector for Q1 2016 included 180 closed deals, according to data published by industry data tracker FactSet.  The average transaction value was $114 million.

On the public markets, the Healthcare sector started out in decline with the rest of the market, but picked up significantly heading into the second quarter.

The rate of growth in healthcare spending in the US continues to increase after years of historic lows. The jump is due primarily to rising numbers of newly insured patients under Obamacare using more health services, higher government Medicaid spending, and prescription drug cost increases. Spending rose 5.3% in 2014 faster than growth in the previous dozen years, according to a report from actuaries at the Centers for Medicare and Medicaid Services (CMS). Government spending on programs including Medicare and Medicaid increased 11.7%, while prescription drug spending growth rose 12.2%. The increase was anticipated by economists, and the Obama administration called the escalating growth temporary, according to The Wall Street Journal. The CMS actuaries state that outcomes in future years hinge on whether new expensive drugs hit the market, according to US News. 

Rural hospitals in the US, which continue to struggle financially, are hindered by an inability to pay for IT enhancements that would help improve efficiency. Historically challenged by low-income populations and low patient loads, many rural hospitals are critical access facilities that rely on government support. Economic difficulties, federal budget cuts, lower insurance reimbursements, and new Medicare penalties for poor quality of care have worsened the situation. More than 65 rural hospitals have closed in the past five years, and about two-thirds operate with negative operating margins, causing them to eliminate or delay capital outlays including IT investments, according to Health Data Management.

Posted by Peter Heydenrych.

Read the Entire Healthcare 2nd Quarter Newsletter Here


Healthcare Industry News

By Peter Heydenrych | Mar 24, 2016

healthcare industryThe healthcare industry was the most active segment for global M&A in 2015 with deal value of $723.7 billion, up 66% over $436.4 billion in 2014 and the highest annual level on record, according to data published by industry tracker Dealogic.  Drug giant Pfizer’s proposed $160 billion merger with Allergan, announced on November 23, is the second largest M&A deal announced on record and the largest Healthcare M&A deal globally on record.

US Health Spending Jumps as Number of Insured, Medicine Costs Rise – The rate of growth in health care spending in the US increased in 2014 after years of historic lows. The jump is due primarily to rising numbers of newly insured patients under Obamacare using more health services, higher government Medicaid spending, and prescription drug cost increases. Spending rose 5.3% in 2014, faster than growth in the previous dozen years, according to a report from actuaries at the Centers for Medicare and Medicaid Services (CMS). Government spending on programs including Medicare and Medicaid increased 11.7%, while prescription drug spending growth rose 12.2%. The increase was anticipated by economists, and the Obama administration called the escalating growth temporary, according to The Wall Street Journal. The CMS actuaries state that outcomes in future years hinge on whether new expensive drugs hit the market, according to US News.

Several companies are working to make data from patient blood glucose monitors more easily available in health tracking apps and medical records. Johnson & Johnson’s OneTouch Verio Sync monitor has added capability to support the Apple HealthKit app, the first glucose device to do so; the device also has its own mobile app. Data collected through such devices can be extracted, analyzed, recorded, and easily accessed by patients and physicians, providing a more holistic view of a patient’s health including glucose levels, diet and exercise, and medication impacts. Other companies developing devices and apps to improve care coordination for diabetics include Royal Philips, Medtronic, Insulet, and Dexcom, according to FierceMedicalDevices.

Industry Indicators

  • US consumer prices for medical care commodities, an indicator of healthcare costs, increased 1.5% in December 2015 compared to the same period in 2014.
  • US consumer prices for medical care services, an indicator of profitability for healthcare services, rose 2.9% in December 2015 compared to the same month in 2014.

Posted by Peter Heydenrych.

Read the Entire Healthcare 1st Quarter Newsletter Here


Healthcare – Major Merger & Acquisition Focus

By Catherine Patience | Feb 23, 2016

Healthcare - Major Merger & Acquisition FocusHealthcare – Major Merger & Acquisition Focus

Recent reports shine a spotlight on mergers and acquisitions in the healthcare industry.  2015 was a banner year for M&A in this sector and reports suggest that healthcare will still be a major M&A focus in 2016, lagging only behind the technology and biotechnology/pharmaceutical industries

Three driving forces behind the continued activity in the healthcare sector include large cash reserves on corporate balance sheets, improving consumer confidence and readily available credit. With the Affordable Care Act’s emphasis on improving patient outcomes while at the same time lowering costs, healthcare companies are looking for competitive advantages.  During the second half of 2015 healthcare insurers made headlines with mega-merger announcements and if the deals pass regulatory muster, we could see just three major insurance players by 2017.  Smaller insurers may benefit from the fallout of such deals should mandatory divestitures spin off acquisition targets for other plans.

2016 will see patients becoming more “brand” conscious when selecting their healthcare providers, seeking the best care their money can buy. For health systems, this attention to brand will be critical as they seek to differentiate themselves to attract consumers. Affiliations, partnerships and joint ventures with well-known entities may be a growth strategy that makes more sense than a traditional merger from a branding standpoint.

Independent hospitals, clinics and medical groups may have a difficult time competing on their own and find it necessary to acquire complimentary groups.

Subscribe to the Middle Market Pulse


M&A News From the Healthcare Industry

By Peter Heydenrych | Nov 19, 2015

healthcare industryMedical practices across the US began adding new medical codes after the new ICD-10 medical coding system finally took effect October 2015. The new system of diagnostic and procedural codes is more complex and represents a significant increase in the number of codes used by physicians to get paid by insurers. Codes now number about 70,000 compared to about 14,000 codes used in the old ICD-9 system, which was established in 1979. Hospital codes also increased from 4,000 to 72,000. Healthcare industry experts worry that claims denials could double in number as providers and payers adjust to the more specific codes, according to the Wall Street Journal.

Health insurers struggle to attract millennials, some of whom believe they are too young and too healthy to need insurance. Marketing departments are working to create communications geared to these younger consumers, people who often research health conditions online and may be equipped with inaccurate information, according to Modern Medicine. Experts recommend focusing on young families experiencing life transitions such as relocation, employment, or childbirth. Social media campaigns, wellness webinars, and website videos can be effective, as can straightforward, easy-to-find information on billing, covered services, and physician networks. Although baby boomers are currently the largest target audience for health insurers and providers, millennials are poised to surpass boomers as the largest US generation.

Posted by Peter Heydenrych.

Read the Entire Healthcare 4th Quarter Newsletter Here


Healthcare Industry M&A Update

By Peter Heydenrych | Sep 10, 2015

HEIPG-Doctor and xraysWhile transaction volume has slowed a bit as the year has progressed, healthcare industry M&A is still a primary sector for M&A as big pharma looks to expand by acquiring small competitors with potential blockbuster drugs. In addition, big pharma companies are actively funding drug development companies with minority equity positions and the option for greater ownership should the drugs take off. Deals in the sector are also expected to be driven by healthcare IT innovation and hospital consolidation in the wake of the Affordable Care Act and declining reimbursements.

As patients are required to pay more and make more medical decisions, they likely will demand better information from providers. Despite being responsible for paying an increasing portion of their medical bills, most US consumers are not shopping around for the best deal. Fewer than 15% of Americans viewed comparative quality and pricing data for hospitals and physicians, and less than 10% actually used the data over a recent 12-month period, according to a survey by Kaiser Family Foundation. Reasons include lack of time to research competitors and difficulty find information and understanding technical terms. Consumers also struggled with inaccurate practitioner estimates and unexpected bills, according to Kaiser Health News. Some consumers with high deductibles end up forgoing care. Government health care officials are calling for greater pricing transparency to improve consumer access to comparative data.

Posted by Peter Heydenrych.

Read the Entire Healthcare 3rd Quarter Newsletter Here


Healthcare M&A Industry Update

By Peter Heydenrych | May 08, 2015

stethoscopeHealthcare M&A activity for the sector for Q1 2015 included 167 closed deals according to data published by industry data tracker FactSet, with an average enterprise value of $236 million. Favorable credit markets and cash-rich balance sheets are spurring continued strategic activity in the healthcare sector and M&A in general. Private equity buyers are also increasingly active with interest rates remaining at or near record lows. Healthcare services represented more than half of Q1’s transaction total. Other sectors, such as behavioral healthcare and managed care, also had significant activity. Biotechnology and pharmaceuticals were also active sectors driven by investment from venture capital firms.

The Centers for Medicare and Medicaid Services (CMS) is proposing revisions to its accountable care organization (ACO) guidelines to increase incentives and reduce penalties for participating health care providers. About 330 Medicare ACOs have been formed since 2012 under rules established in the Affordable Care Act (ACA). ACOs can earn bonuses for lowering the cost of care and improving quality, but they were scheduled to begin facing penalties in 2015 for exceeding cost benchmarks. The CMS has determined that many ACOs are not ready to assume financial risks associated with the program. To maintain participation, officials have proposed an option where some providers can avoid penalties but earn smaller bonuses for another three years, according to Modern Healthcare.

US consumer prices for medical care commodities, an indicator of healthcare costs, increased 4.2 percent in March 2015 compared to the same period in 2014. US consumer prices for medical care services, an indicator of profitability for healthcare services, rose 1.9 percent in March 2015 compared to the same month in 2014. Total US revenue for healthcare and social assistance rose 5.4 percent in the fourth quarter of 2014 compared to the previous year.

Read the Entire Healthcare 2nd Quarter Newsletter Here