Becker's Hospital Review

Save the Date: Becker's Hospital Review CEO Strategy Roundtable - Nov. 5, 2014 - Chicago 10 6. Out-of-network pressure How will regulators approach network access issues? As payers look to bring down costs as well as de- velop lower-cost narrow networks, they are getting more aggressive with out-of-network providers. As a result, we are seeing an increase in litigation by providers over these benefits, or lack thereof. Seattle Children's Hospital, which is an out-of- network provider for every plan on the state's health exchange, is suing the state's Office of In- surance Commissioner, arguing its approval of the narrow network plans fails to meet mandated requirements for adequate access to care. Seattle Children's argues the exchange plans have no out- of-network benefits, which means parents who send their children to the hospital for care will be responsible for 100 percent of costs. The hospital has agreed to continue to treat children covered by these plans, but it will now be on the hook for recouping charges directly from patients' families. Surgery centers and other providers, who have in the past relied on out-of-network options in order to maintain leverage with payers, can expect chal- lenges in payer contracting to continue, which will put material pressure on these providers. 7. Data privacy and HIPAA How much of hospitals' resources will need to be expended to protect patients' personal informa- tion? Data privacy and HIPAA have become a huge is- sue in and of themselves. For the last few years, there has been a tremendous amount of attention paid to privacy breaches and to government inves- tigations of these breaches. When privacy started to become an issue a decade ago, it was typically because drug companies were buying patient infor- mation and aggressively selling products to people with certain diseases (often very private in nature). Now, privacy and data security have become much more about identity theft, which never would have been expected a decade or more ago. And, health- care data breaches are more frequent. In 2013, 199 data breaches were reported to HHS, a 138 percent increase from 2012, according to a report from Red- spin. Since 2009, the protected health information of more than 30 million Americans has been compro- mised in data breaches. Seven million records were exposed in 2013, 4 million of which were exposed in a single incident. It is unclear whether the regula- tory scheme matches the real problems. However, it is clear an incredible amount of spending is here to stay on data security, privacy and HIPAA issues. 8. Private equity investment Which areas are most attractive to PE investors? We are seeing marked interest in three core areas: Pain management. There has been a substantial increase in interest by private investors in pain management clinics. Nearly 100 million Ameri- cans suffer from acute and chronic pain, and bil- lions of dollars are spent each year on treatment. After modest private equity activity in this space since 2010, including Chicago Growth Partners' acquisition of Advanced Pain Management and Sentinel Capital Partner's investment in National Spine & Pain Centers, significant investments were made in 2013. Prospira PainCare, for exam- ple, formed in 2012 with the backing of three sig- nificant private equity firms. It acquired a number of pain centers across the country, including The Pain Management Center based in New Jersey and Neuro Pain Consultants based in Michigan. Dental practice management. Tremendous in- vestor interest remains in the dental practice management arena. Dentistry, traditionally comprising only small group practices and solo practitioners, is shifting toward more DPM ar- rangements. In the past decade, more than 25 private equity firms have invested significantly in this sector, in which certain large DPM compa- nies already have annual revenue exceeding $100 million. In 2013, this interest included Monroe Capital providing a $16.6 million credit facility to private equity-owned Smiles Services, a leading DPM in the Pacific Northwest. Such investments are paying off for private equity firms: A Sage- works analysis found DPM investments generated the highest return on equity of the industries it examined. The investor interest in DPM compa- nies may grow in 2014 if certain opportunities materialize. First, many state Medicaid programs have supported dentistry fairly well, especially pe- diatric dentistry. This support allows dental prac- tices to thrive with substantial Medicaid business, unlike other healthcare providers. Yet, during the past few years, stretched state budgets forced many legislatures to cut spending on dental care, especially for adults. Second, the PPACA strengthened support for dental services, especially for children, by funding Medicaid program expansions and including pedi- atric dentistry as part of the essential health benefit packages for individual and small employer plans. On the other hand, increased regulatory scrutiny of DPM structures could put new pressures on the sector. For example, a 2013 Senate committee investigation into DPM practices in the Medicaid program recommended some practices be exclud- ed from Medicaid. Similarly, states such as North Carolina have considered legislation at the bequest of their state dental associations to reduce DPM companies' involvement in Medicaid. Urgent care. The urgent care industry is a rap- idly growing healthcare sector. There was an al- most 20 percent growth in existing clinics in the past four years, totaling more than 9,400 urgent care clinics. Furthermore, the existing clinics are looking to expand. In 2013, almost 40 percent of these clinics told the Urgent Care Association of America they would be expanding their facilities or adding new locations, up from 18 percent in 2010. This expansion is not expected to slow; in- deed, estimates by IBIS World predict the sector will see more than $18 billion in revenues in 2017 at more than 12,000 clinics, up from $13 billion in revenues in 2012. Millions of private equity dollars from at least a dozen firms have gone to urgent care clinics in the past few years. For exam- ple, in 2013, NextCare Holdings, backed by En- hanced Capital Partners, acquired 11 PrimaCare Medical Centers in the Dallas/Fort Worth area to bring its total to 86 clinics nationwide. These in- vestments should continue, in part as a response to fiscal pressure by lawmakers and insurers on hospitals to cut costs and the health insurance mandate's potential increased demand, according to a recent Forbes article. The potential positives for urgent care are twofold. First, patients love the convenience of urgent care clinics. Second, these clinics have the advantage of saving significant payer dollars. For instance, a 2010 Rand study found that almost one in five visits to hospital emergency rooms could be treated at an urgent care clinic, potentially saving $4.4 billion annually in healthcare costs. n

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