Becker's Hospital Review

Save the date! Becker's Hospital Review Annual Meeting – May 7-9, 2015 – Chicago 16 Healthcare reform initiatives, including the HI- TECH Act and the PPACA, have led many health systems to invest heavily in IT, which has made health IT an increasingly popular investment area: health IT's share of healthcare private equity deals rose from 10 percent in 2011 to 15 percent during the first three quarters of 2013. In the first half of 2014, 30 health IT companies fo- cused on expanding the care continuum received outside investments, and 47 companies provid- ing patient empowerment solutions received out- side investments. According to Bain, recent health IT investments include WCAS' acquisition of GetWellNetwork, which aims to improve patient engagement and satisfaction; and Bain Capital Ventures and Spectrum Equity's minority invest- ments in MedHOK, a cloud-based software-as-a- service platform. Mobile health, data mining solu- tions and analytics have become attractive health IT investment areas, along with EHRs. 20. EHRs. As the EHR market has matured, a once- crowded field of vendors has narrowed significant- ly. At the end of 2013, 10 EHR vendors accounted for about 90 percent of the hospital EHR market: Epic, Meditech, CPSI, Cerner, McKesson, Health- land, Siemens, Healthcare Management Systems, Allscripts and NextGen Healthcare. However, there are additional EHR vendors, such as Centricity, Practice Fusion, and athenahealth that are among the most-used EHRs by physicians. Hospitals and health systems are typically in the middle of the EHR discussion, but payers are starting to enter the conversation as well. With health insurance companies concerned with cut- ting down costs and improving the health out- comes of patient populations, some payers, such as Aetna, are now mining data collected from EHRs to try to intervene and steer consumers to a healthier lifestyle. As the industry increasingly turns to data and an- alytics to address healthcare costs, private equity investments in health IT have centered on EHR systems. For example, Lambert Private Equity has invested $200 million in the healthcare software company Accelera, and, last year, private equity firm Thomas Bravo acquired SRS Software. 21. Behavioral health. There has been a signifi- cant increase in investment interest in behavioral health, including substance abuse businesses, and this investment interest is widespread across the spectrum of investors. The spike in interest is due to the increased demand for behavioral health services and the requirement that health insur- ance companies do not use more restrictive re- quirements when reimbursing mental health and substance-abuse related claims than they do with medical-related claims. The combination of increased demand, a lack of adequate providers and increased sources of pay- ers has created opportunities for private equity investors in the behavioral health market, accord- ing to a recent Law360 report by industry experts from McGuireWoods and HCP & Co. Investments in 2013 included Kinderhook and Mansa Capital providing additional funding (building on an ini- tial investment from Kinderhook in 2011) to E4 Health, which provides employee assistance pro- grams and behavioral health risk management programs, according to Bain. 22. Behavioral health with a focus on substance abuse. In 2011, approximately 21.6 million Amer- icans needed addiction treatment for a problem related to drugs and alcohol, although only about 2.3 million received treatment in a specialty facil- ity at that time, according to a McGuireWoods report. The PPACA's expansion of coverage for behavioral health and substance abuse specifi- cally has garnered the interest of investors. Re- imbursement in this sector has been on the rise: From 2002 to 2011, the National Survey on Drug Use and Health found the number of respondents using Medicaid and Medicare payments for treat- ment increased by 23.1 percent and 19.5 percent, respectively. Investments in this space include Trinity Hunt Partners' 2013 majority stake in Lakeview Health Systems in Jacksonville, Fla., a substance abuse treatment company. 23. Specialty pharmacy. There continues to be great interest in the development and funding of specialty pharmacy distribution companies, as well as companies that focus on the actual devel- opment of pharmaceuticals. For example, hepa- titis C pill Sovaldi posted $3.48 billion in sales for the second quarter of 2014, which puts Fos- ter City, Calif.-based Gilead Sciences, the maker of the drug, on track to become one of the top- selling pharmaceutical companies. In 2013, in the U.S. and Europe, many private equity deals involved the specialty pharmacy sector, according to Bain. The trends driving this activity include the growth of specialty pharma drugs and the continuing shift toward lower-cost medication administration sites. One recent deal in this area involved Nautic Partners' December 2013 acquisition of specialty pharmacy QoL meds, which operates more than 80 pharmacies nationwide. n 7.2 million enrollees since the passage of the PPACA. With all of the new op- portunities for low- and-middle income people to gain health coverage, some hospitals and health systems are making significant changes to their charity care programs. The case against charity care Some hospitals across the country are scaling back their charity care programs to help encourage those who qualify to sign up for coverage under the PPACA. The hospitals have supported this decision by saying they believe individuals will forgo signing up for subsidized coverage if they can still receive financial assistance from hospitals. Also driving the change is the burden charity care places on some hospitals, with the PPACA reducing federal aid to hospitals that provide medical care to large numbers of uninsured and poor people. At St. Louis-based BJC HealthCare — a 12-hospital system with facilities in Illinois and Missouri, including Barnes-Jewish in St. Louis — the char- ity program has changed by requiring all patients to contribute to the cost of their care, regardless of their income level. BJC has also made changes to who qualifies for financial assistance once the co-payment has been paid. BJC offers a 25 percent discount on services to patients earning up to three times the federal poverty level, while the system formerly offered the discount to patients making up to four times the poverty level. Burlington, Vt.-based Fletcher Allen Health Care has also made changes to its policy since the passage of the PPACA. With the changes in place, patients who earn as low as twice the poverty level are receiving reduced financial assistance. At Southern New Hampshire Medical Center in Nashua, uninsured patients who are above the federal poverty line — $11,670 for an individual — can no longer receive free care. Before the change, free or discounted care was available for pa- tients at or below 225 percent the poverty level, about $26,260 for an individual. While some hospitals and health systems have already made changes to their charity care policies, others, including St. Louis-based Ascension Health, are still evaluating whether to modify their programs. Ascension has put together a special task force to address the issue and make a recommendation by the end of 2014. The case for charity care Some people are not buying the hospitals' reasoning behind the changes to their financial assistance programs. Even with the uninsured rate on the de- cline, Michael Miller, director of strategic policy at Boston-based advocacy group Community Catalyst, believes hospitals scaling back their financial assistance programs is not the right way to encourage people to sign up for health coverage. He believes people will still purchase insurance if charity care programs continue to operate as they are now, as many of the uninsured require medical services outside of the hospital setting. Like Mr. Miller, many other advocates for the uninsured fear many low-and middle-income individuals will not receive the care they need because they cannot afford to buy insurance, even with the subsidies. Some hospitals agree with Mr. Miller's view. For instance, Parkland Health & Hospital System in Dallas has no immediate plans of making any major changes to its charity care program. Despite the PPACA, "there is still a need Is This the End for Hospital Charity Care? (continued from cover)

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