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Matthew’s health care tidbits: Athenahealth & Private Equity

Each week I’ve been adding a brief tidbits section to the THCB Reader, our weekly newsletter that summarizes the best of THCB that week (Sign up here!). Then I had the brainwave to add them to the blog. They’re short and usually not too sweet! –Matthew Holt

For my health care tidbits this week, it’s time to delve into the private equity firms’ buying and selling of Athenahealth. That’s of course the practice management/EMR firm bought by private equity companies led by Elliot Capital Management–they of the Israeli spy agency dirty tricks division–for roughly $6.5bn in 2018. Many (including me) have wondered how, given it was already doing about $1bn a year in revenue then, Athenahealth could be sold for $17bn three years later. After all it’s hardly likely to have tripled its revenue in a mature market! This comment by “Debtor 23” on @histalk is very instructive:

“Elliott did quite a bit better than 3x on its investment. The original deal was funded with about $4.8B of debt and $1B of equity from the hedge fund sponsors. Add in the acquisition cost of Centricity (call it $500M of equity, $500M of debt) and the equity investors are all-in with $1.5B of equity and $5.3B of debt. They sold off some assets for a total of ~$600M in cash, so net equity in play is $900M. They turned that equity into $11.7B (assuming no interim debt pay down), which is a 13x return. 13x feels ridiculous….but….if you’d invested that same levered-up $6.8B in the Nasdaq (QQQ) on the same timeline (Elliott began buying ATHN in spring 2017)…you could sell today for $18.1B. Absurd as this whole deal sounds, it has actually underperformed the market. This story is more about tech multiple expansion/bubble broadly than it is about improving management or running the business.”

So much like Renaissance and other hedge funds that rely on leverage, essentially Elliott leveraged Athenahealth up with debt to the tune of 80% of its value. So after slashing and burning R&D, selling assets (like the HQ which they apparently got $500m for) they probably got costs down & profits way up. When it was public under CEO Jonathan Bush, Athenahealth never tried to be that profitable. It was always fixated on the next big thing (the last one was building the future state inpatient EMR with Toledo & using the BIDMC tech it bought from John Halamka). That’s one reason its PE ratio was 100+.

So if Elliott can get some sucker to pay up and manages to turn $1bn into $13bn, how do the next greater fools–H&F and Bain Capital–do it? Well they need to layer Athenahealth up with even more debt (as money is currently so cheap) and keep generating enough cash to pay the debt. Of course at that price and with this mature a market it’s going to be super hard to grow the company enough to justify another leap in sales price, but it might be doable to service or even pay down some of the debt and take it for an IPO for a couple of billion more if the market stays nutso. So if H&F and Bain Capital basically shrink their equity portion down to $1-2 billion, and get it to IPO in a year or so for say $20Bn, they will at least double or triple their money. Not quite 13 x but not terrible.

And if it all goes wrong and Athenahealth can’t service the debt? Well the beauty of leverage and debt is that it attaches to the company – not to the PE fund that put it in that position. So all the new owners will have at stake is a reasonably small amount of equity. Of course if the shit hits the fan and Athenahealth goes bankrupt the employees and customers may not be so happy, but who cares about them? (Apart from that hasbeen CEO who got kicked out!)

EMRs, APIs, App stores & all that: More data

Olivia Dunn
Kim Krueger
Matthew Holt

By MATTHEW HOLT, with OLIVIA DUNN & KIM KRUEGER

Today I’m happy to release an update to some unique data about a pressing problem–the ability of small health tech vendors to access data from the major EMR vendors and integrate their applications into those EMRs. For those of you following along, in 2016 when Health 2.0 first ran this EMR API survey, we confirmed the notion that it’s hard for small health technology companies to integrate with the EMR vendors. Since then the two biggest vendors, Epic & Cerner, have been much more aggressive about supporting third party vendors, with both creating app stores/partnership programs and embracing FHIR & SMART on FHIR.

In 2018, we conducted a follow-up survey to see if these same issues persisted and how much progress has been made. In this report, we break down the results of the 2018 survey and compare them to the results of our 2016 survey. As in 2016, survey response rates weren’t great, but in this year’s survey we asked a lot more questions regarding app store programs, specific resources accessed, troubling contract terms and much more. And if you look at the accompanying slides, we also pulled some juicy quotes.

The key message: In 2016 we said this, The complaint is true: it’s hard for smaller health tech companies to integrate their solutions with big EMR vendors. Most EMR vendors don’t make it easy. But it’s a false picture to say that it’s all the EMR vendors’ fault, and it’s also true that there is great variety not only between the major EMR vendors but also in the experience of different smaller tech companies dealing with the same EMR vendor.

In 2018, things are better but not yet good. A combination of government prodding (partly from ONC implementing the 21st Century Cures Act, partly in the continued growth of pay for value programs from CMS), fear of Apple/Google/Amazon, genuine internal sentiment changes at least at one vendor (Cerner), and maturity in dealing with smaller applications vendors from three others (Allscripts, Athenahealth, Epic), and the growth of third party integration vendors like Redox and Sansoro, is making it easier for application vendors to integrate with EMRs. But it’s not yet in any way simple. We are a long way from the all-singing, all-dancing, plug-in interoperability we hoped for back in the day. But the survey suggests that we are inching closer. Of course, “inching” may not be the pace some of us were hoping to move at.

All the data is in the embedded slide set below, with much more commentary below the fold.

Health 2.0 EMR API report 2018

It’s getting better but….EMR Vendors are still a bottleneck
Continue reading…

Health in 2 Point 00, Episode 43

Jessica DaMassa cracks her whip and in just 2 minutes gets answers out of me about the bidding for #athenahealth, the new clinics at #Amazon, the #FDA approving #NaturalCycles as a contraceptive, and the tech giants getting on stage unprompted at ONC’s Blue Button 2.0 day to tell the world that they are going to fix the interoperability problem. Oh, and a shout out to THCB’s 15th birthday–Matthew Holt

Health in 2 Point 00, Episode 30

Jessica DaMassa asks me about Jonathan Bush’s exit and the future of Athenahealth, celebrity suicide and the future of mental health apps, and who Amazon/Buffet/Chase should choose to be their CEOMatthew Holt

Apple, Cerner, Microsoft, and Salesforce

… all rumored to be in the mix to acquire athenahealth.

Nope.

Why not?

a) Apple doesn’t do “verticals.” It’s that easy. Apple sells products that anyone could buy. A teacher, a doctor, my mom. Sure – they have sold high-end workstations that video editors can use, but so could a hobbyist filmmaker. Likelihood of Apple buying athenahealth? ~ .01%

b) Cerner? Nah. While (yes) they have an aging client-server ambulatory EHR that needs to be replaced by a multi-tenant SaaS product (like the one athenahealth cas built), they have too much on their plate right now with DoD and VA and the (incomplete) integration of Siemens customers. Likelihood of Cerner buying athenahealth?  ~ 1%

c) Microsoft. Like Apple, it’s uncommon for MSFT to go “vertical.” They have tried it. (Who remembers the Health Solutions Group?) But the tension between a strong product-focused company that meets the needs of many market segments, and a company that deeply understands the business problems of health (and health care) is too great. The driving force of MSFT, like Apple, is to sell infrastructure to care delivery organizations. Owning a product that competes with their key channel partners would alienate the partners – driving them to AMZN, GOOG and APPL. Likelihood of Microsoft buying athenahealth?  ~ 2%

d) Salesforce. I’d love to see this. But it’s still unlikely. athenahealth has built a product, and they (now) have defined a path to pivot the product into a platform. This is the right thing to do. Salesforce “gets” platform better than everyone (aside from, perhaps, Amazon). But Salesforce has struggled with health care. They’ve declared times in recent years that they are “in” to really disrupt health care, and with the evolution of Health Cloud, and their acquisition of MuleSoft, they have clearly made some investments here, but the EHR is not the “ERP of healthcare” as they think it is. (Salesforce’s success in other markets has been that they dovetail with – rather than replace – the ERP systems to create value and improve efficiencies.) The way that Salesforce interacts with the market is unfamiliar (and uncomfortable) to most care delivery organizations. So if Salesforce “gets” platform, and athenahealth wants to be a platform when it matures, could these two combine? It’s the most likely of the three, but I still see the cultures of the two companies (I know them both well) as very different, and not quite compatible. Likelihood of Salesforce buying athenahealth?  ~ 10%

e) IBM. yup. I forgot that one. Many recent acquisitions. This would fit. I don’t think it would work very well, but it could happen. ~6%

Others?Continue reading…

Health in 2 point 00, Episode 29

It’s Nicer in Nice, which is where Jessica DaMassa is hanging out as she asks me about health tech in Finland, Teladoc’s foreign foray and the trials and tribulations of Athenahealth’s Jonathan Bush in this edition of Health in 2 point 00 — Matthew Holt

Update–I’m indeed a tea leaf reading soothsayer. When I said Jonathan Bush would be gone by the Fall, apparently I meant by the start of summer!

Health in 2 point 00, Episode 23

In this start your weekend off right edition, Jessica DaMassa asks me about Andy Slavitt’s new Town Hall venture fund announced at HLTH, the ATHN buyout, Novartis paying Michael Cohen, Trump’s drug price speech & Lyra Health’s $45m raise….all in 2 minutes–Matthew Holt

Health in 2 point 00, Episode 22

In this edition of Health in 2 point 00 the tables are turned! Jessica DaMassa is at the upstart HLTH conference, which will make those of you with long memories of the first ehealth bubble laugh. So today I’m asking Jessica the questions, including whether Jonathan Bush likes the buyout idea, what Alex Drane (Walmart’s most extraordinary cashier) said, and whether there was anything about sex at HLTH or whether that was just at YTHLive!–Matthew Holt

Interoperability: Faster Than We Think – An Interview with Ed Park

Screen Shot 2015-11-10 at 9.34.40 PM

Leonard Kish, Principal at VivaPhi, sat down with Ed Park, COO of athenaHealth, to discuss how interoperability is defined, and how it might be accelerating faster than we think.

LK: Ed, how do you define interoperability?

EP: Interoperability is the ability for different systems to exchange information and then use that information in a way that is helpful to the users. It’s not simply just the movement of data, it’s the useful movement of it to achieve some sort of goal that the end user can use and understand and digest.

LK:  So do you have measures of interoperability you use?

EP: The way we think about interoperability is in three major tiers. The first strata (1) for interoperability can be defined by the standard HL7 definitions that have been around for the better part of three decades at this point. Those are the standard pipes that are being built all the time.  So lab interoperability, prescription interoperability, hospital discharge summary interoperability. Those sort of basic sort of notes that are encapsulated in HL7.  The second tier (2) of interoperability we are thinking about is the semantic interoperability that has been enabled by meaningful use. The most useful thing that meaningful use did from an interop standpoint was to standardize all the data dictionaries. And by that I mean that they standardized the medication data dictionary, the immunizations, allergies and problems.

Continue reading…

The Time-Warp

jonathan bushJohn Gage, Sun Microsystem’s fifth employee and its former chief researcher, famously said “the network is the computer.” The majority of us experience this every day through interactions with a wide variety of highly-intelligent, super-connected networks including Facebook, which remembers our friends’ birthdays better than we do; ATM networks, which know instantly if we have the cash that matches our request; and the complex, yet seemingly simple interweaving of phone networks, which allows us to communicate smartphone-to-smartphone regardless of carrier. Sadly, healthcare struggles to grasp this important concept.

Earlier this month, I flew to Utah for a conference hosted by KLAS, a major healthcare research outfit, about interoperability. Interoperability is a clunky word that’s talked about endlessly in healthcare, but at its root is an important notion: health care information needs to flow freely. Interoperability means that important information isn’t stuck in proprietary enterprise software that a hospital spent millions of dollars buying years ago. Having this information in the right place at the right time equates to reduced risk of medical errors and makes the delivery of health services more efficient and less costly. I’m convinced more than ever the only way to free information from the silos where it’s currently stranded is for the industry to embrace connectedness by switching to cloud-based, open networks.

The goal is clear. Yet healthcare IT executives and those buying their products remain stuck in the old ways of thinking. In their minds, software is still the computer, and sunk costs keep it so. As such, health information is largely trapped on technology islands that are maintained at great expense onsite at hospitals across our country versus flowing across the care continuum via a universally available information network. Just how bad is the data jam? An Epocrates’ survey earlier this year of nearly 3,000 physicians found that only 14 percent of physicians can access usable electronic health information across all care delivery sites and six out of 10 doctors, even when in the same organization, aren’t effectively sharing information.Continue reading…

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