Private equity accelerates its push into physician practice

https://mailchi.mp/bfba3731d0e6/the-weekly-gist-july-2-2021?e=d1e747d2d8

As we reported recently, healthcare M&A hit record highs in the first quarter of 2021—with deal activity in the physician practice space surging 87 percent. The graphic above highlights private equity firms’ increasing investment in the sector over the last five years. Both the number and size of PE-backed healthcare deals have increased substantially from 2015 to 2020, up 39 and 45 percent respectively.

In 2020, physician practices and services comprised nearly a fifth of all transactions, with PE firms driving the majority. One in five physician transactions involved primary care practices—a signal that investors are banking on profits to be made in the shift to value-based care models. 

Meanwhile, PE firms are still rolling up high-margin specialty practices, with ophthalmology, orthopedics, dermatology, and anesthesiology groups all receiving significant funding in 2020. PE investment in physician practices will likely continue to accelerate, as investors view healthcare as a promising place to deploy readily available capital.

But we remain convinced that private equity investors have little interest in being long-term owners of practices, and will ultimately look for an exit by selling “rolled-up” physician entities to health systems or insurers.

Doctor on Demand, Grand Rounds merge to create multibillion-dollar digital health company

Dive Brief:

  • Virtual care company Doctor on Demand and clinical navigator Grand Rounds have announced plans to merge, creating a multibillion-dollar digital health firm.
  • The goal of combining the two venture-backed companies, which will continue to operate under their existing brands for the time being, is to integrate medical and behavioral healthcare with patient navigation and advocacy to try to better coordinate care in the fragmented U.S. medical system.
  • Financial terms of the deal, which is expected to close in the first half of this year, were not disclosed, but it is an all-stock deal with no capital from outside investors, company spokespeople told Healthcare Dive.

Dive Insight:

The digital health boom stemming from the coronavirus pandemic resulted in a flurry of high-profile deals last year, including the biggest U.S. digital health acquisition of all time: Teladoc Health’s $18.5 billion buy of chronic care management company Livongo. Such tie-ups in the virtual care space come as a slew of growing companies race to build out end-to-end offerings, making them more attractive to potential payer and employer clients and helping them snap up valuable market share.

Ten-year-old Grand Rounds peddles a clinical navigation platform and patient advocacy tools to businesses to help their workers navigate the complex and disjointed healthcare system, while nine-year-old Doctor on Demand is one of the major virtual care providers in the U.S.

Merging is meant to ameliorate the problem of uncoordinated care while accelerating telehealth utilization in previously niche areas like primary care, specialty care, behavioral health and chronic condition management, the two companies said in a Tuesday release.

Grand Rounds and Doctor on Demand first started discussing a potential deal in the early days of the coronavirus pandemic, as both companies saw surging demand for their offerings. COVID-19 completely overhauled how healthcare is delivered as consumers sought safe digital access to doctors, resulting in massive tailwinds for digital health companies and unprecedented investor interest in the sector.

Equity funding in digital health globally hit an all-time high of $26.5 billion in 2020, according to CB Insights, with mental and women’s health services seeing particularly fast growth in investor interest.

Both companies reported strong funding rounds in the middle of last year, catapulting Grand Rounds and Doctor on Demand to enterprise valuations of $1.34 billion and $821 million respectively, according to private equity marketplace SharesPost. Doctor on Demand says its current valuation is $875 million.

The combined entity will operate in an increasingly competitive space against such market giants as Teladoc, which currently sits at a market cap of $31.3 billion, and Amwell, which went public in September last year and has a market cap of $5.1 billion.

​Grand Rounds CEO Owen Tripp will serve as CEO of the combined business, while Doctor on Demand’s current CEO Hill Ferguson will continue to lead the Doctor on Demand business as the two companies integrate and will join the combined company’s board.

High-priced specialty drugs: Exposing the flaws in the system

https://theconversation.com/high-priced-specialty-drugs-exposing-the-flaws-in-the-system-129598

Image result for High-priced specialty drugs: Exposing the flaws in the system

My husband, Andy, has Parkinson’s disease. A year ago, his neurologist recommended a new pill that he was to take at bedtime. We quickly learned that the medication would cost US$1,300 for a one-month supply of 30 pills. In addition, Andy could obtain the drug from only one specialty pharmacy and would have to use mail order.

This was our introduction to specialty drugs.

These medications are becoming increasingly common, though many Americans are unfamiliar with the term. In 2018, the Food and Drug Administration approved 59 new medications, of which 39 are considered specialty drugs.

Specialty drugs are generally high-cost drugs requiring special handling such as refrigeration or injection, though Andy’s did not. They treat complex conditions such as cancer and multiple sclerosis.

Specialty drugs are often available only through specialty pharmacies. In addition to filling prescriptions, these outlets provide educational and support services to patients. For example, they provide refill reminders and help patients learn how to inject their drugs.

In a forthcoming articleprofessor Isaac Buck and I argue that specialty drugs raise significant legal and ethical questions. These merit attention from the public and policymakers.

Specialty drug concerns

First, the term “specialty drug” is somewhat elusive and has no clear definition. In addition, government authorities and medical experts are not the ones who decide whether a medication is designated a specialty drug. Rather, the decision is entirely up to pharmacy benefit managers, or PBMs.

PBMs administer health plans’ drug benefit programs and thereby serve insurers. PBMs have been criticized for driving up health care costs. Drugs that are specialty drugs under one insurance policy are sometimes classified differently in other policies. Furthermore, some specialty drugs are simple pills that do not involve complicated instructions, and thus, it is unclear why they are categorized as specialty drugs.

The second problem is the very high cost of specialty drugs. The average price tag of the more than 300 medications that are considered specialty drugs is approximately $79,000 per year. Almost half of the dollars that Americans pay for medications are spent on specialty drugs. In fact, Medicare spent $32.8 billion on specialty drugs in 2015.

Because of these exorbitant costs, some insurers have created what they call a “specialty tier” in their health plans. In this tier, patients’ cost-sharing responsibilities are higher than they are for medications in other tiers. If your drug is placed in a specialty tier, your coinsurance payment, or the percentage of cost that you pay, may be 25% to 33% of the drug’s price.

This leads to a situation in which you may have the least generous insurance coverage for your most expensive drugs. Under some plans you might pay $10 per month for generic drugs but hundreds of dollars per month for specialty drugs. This can translate into many thousands of dollars in annual out-of-pocket costs, even for consumers with good health insurance. There are no federal regulations in the U.S. that limit drug prices or insurers’ tiering practices.

Conflict of interest and patient choice

A third problem is conflict of interest. PBMs own or co-own the top four specialty pharmacies in the U.S., which are responsible for two-thirds of nationwide specialty drug prescription revenues.

PBMs frequently require patients to purchase their medications from the specific specialty pharmacy that they own. Thus, PBMs have much to gain from designating medications as specialty drugs. Doing so may lead to significant revenues in the form of purchases at PBM-owned specialty pharmacies.

A related problem is the limiting of patient choice. Many specialty pharmacies fill prescriptions only through mail order. Consequently, patients may be restricted to using just one pharmacy and be forced to rely on the mail for delivery.

Some patients enjoy the convenience of home delivery. Others, however, prefer the traditional approach of visiting a drugstore in person. They may worry that the mail will be late, their package will be stolen, or they will be out of town when the drugs arrive. Yet, such patients do not have the option of a brick and mortar pharmacy.

Possible corrective measures

Both political parties have stated that health care costs are a priority for them. However, they have shown a limited appetite for tackling this herculean problem.

The House recently passed a bill that would enable the federal government to negotiate prices with drug manufacturers. Such negotiations could well lower specialty drug prices. The Senate, however, is unlikely to approve the bill, and Congress is unlikely to pass sweeping legislation in a divisive election year.

There has been more success at the federal level in promoting consumer choice. Medicare rules establish that Medicare plans may not force participants to use mail-order pharmacies.

In the meantime, individual states offer useful solutions. For example, some have provided patients with relief in the form of capping out-of-pocket costs. California limits consumers’ expenditures to $250 or $500 for a 30-day supply, depending on the drug type.

At least 15 states also have pharmacy choice statutes. Several ban PBM mandates that prevent patients from freely selecting their preferred qualified pharmacy. Many ban mail-order only requirements.

Some states have recognized that PBMs should not be entirely free to designate medications as specialty drugs. Because such designations can significantly disadvantage patients and may increase patients’ costs, such states have statutory definitions for the term “specialty drug.”

They generally mandate that the drug require special administration, delivery, storage or oversight. Such requirements may justify purchase from a specialty pharmacy. However, drugs without complicated instructions should not be deemed specialty drugs.

One more option that some insurers have already adopted is allowing patients to obtain just a few pills or doses for an initial trial period. Sometimes individuals quickly learn that they cannot tolerate a medication or that it is ineffective. Such “partial fill” programs can spare patients the exorbitant cost of a full 30-day specialty drug supply.

Specialty drugs contribute significantly to the American health care cost crisis. Additional state, or better yet, federal laws should be enacted to constrain PBMs’ authority over specialty drugs. We need further regulation concerning drug classification, pricing, conflicts of interest and patient choice.

 

 

 

The growth of private equity investment in physician practice

https://mailchi.mp/192abb940510/the-weekly-gist-february-7-2020?e=d1e747d2d8

Private equity (PE) investment in US healthcare has ballooned over the past decade—2018 and 2019 saw record numbers of deals, representing more than $100 billion in total value. As we show below, in 2018 just under a fifth of these transactions were in the physician practice space, with the largest number of deals in dermatology and ophthalmology.

While these two specialties remain active areas of PE investment, a growing number of recent deals have focused on women’s health, gastroenterology, and urology practices.

Across all these areas, PE firms see an opportunity to grow revenue from high-margin ancillary services, cash procedures, and retail products.

Physician groups are pursuing PE investment as an alternative to joining health systems or large payer-owned physician organizations to access capital and fund buyouts of legacy partners. Doctors’ heads are increasingly being turned by the current sky-high multiples PE firms are offering, often up to 10 or even 12 times EBITA.

Private equity roll-ups of physician practices are far from over. Recent activity suggests that the behavioral health market is heating up, as it remains very fragmented in a time of increasing consumer demand.

And we predict a rush for further investment in cardiology and orthopedic practices, as investors look to profit from the shift of lucrative joint and heart valve replacement procedures to outpatient facilities.

 

UnitedHealth projects major revenue boost in 2020 on the back of continued Optum growth

https://www.fiercehealthcare.com/payer/unitedhealth-projects-242b-2019-revenue-offers-2020-guidance-262b-revenue?mkt_tok=eyJpIjoiWkdObE5HRTJNMlptT0RkayIsInQiOiJiaFk3K2s2TDl5OGNrMmJ5XC9EWWEyb3VacEVjUGpOUVhrdE5wQmxkaTN6TUNTbkVJaUJlTnl3eldXcmRaVU1nN3k4UUhKRFEzb1B3XC9pYWNJaHVcL0NqS29QSmI4RFR1aWEwWlNNRUE2QmdqaVJINkNIa090XC9lUzMxUUpUbG1yY24ifQ%3D%3D&mrkid=959610

The outside of Optum's headquarters

UnitedHealth Group projected it will generate $242 billion in revenue in 2019 and expects to report another 7% to 8% increase in top-line growth in 2020.

The insurance group presented updated figures during its investor conference that kicked off Tuesday with officials saying they expect to increase the company’s 2020 revenue to between $260 billion and $262 billion.

They project between $21 billion and $22 billion in operating earnings in 2020.

In comparison, UnitedHealth Group generated $17.3 billion in profits on $226 billion in revenue in 2018. The company is projecting to report $19 billion in profits in 2019.

The biggest driver of growth this year has been UnitedHealth’s Optum, the company’s pharmacy benefit management and care services group. Optum revenue is projected to have increased by 11% from 2018 to 2019, earning UnitedHealth $112 billion in revenue compared to $101 billion in 2018.Optum is expected to continue to be a major growth driver for the company in its 2020 earnings projection, with UnitedHealth pegging growth to increase again between 13% and 14%. UnitedHealth executives said that Optum is expected to make up 50.5% of the company’s total after tax operating earnings this year.. 

Optum could also be the key for UnitedHealth to improve its Medicare Advantage business.

“We don’t like being third, that’s fundamentally where we landed for the year,” said UnitedHealth Group CEO David Wichmann, “Over time I think we will continue to grow and outpace the market.”

Executives said that the key to growth is to keep its networks consistent as well as pharmacists and pharmacies consistent for seniors. 

“We believe we maintain in the Medicare market a strategic cost advantage because of the capacities we have as an organization,” Wichmann said.

UnitedHealth pointed to the success of OptumCare, the company’s primary and specialty care provider.  The highest performing Medicare Advantage plans were in markets that had an OptumCare presence. Wichmann said that growing the OptumCare platform is a majority priority for UnitedHealth over the next seven years.