It’s been quite a while since Jess & I did a Health in 2 Point 00 and that one was buried in our Policies|Techies|VCs conference in the first week of September. But, as John Malkovich says, We’re back…
Commure gets $500m and maybe one day we’ll know what it does, Spring Health adds to the mental health funding party, UniteUs buys competitor NowPow; Nomad banks $63m for its nurse hiring service, and Xealth adds $24m, even though I’m not sure it’s more than a feature! – Matthew Holt
Matthew Holt
It’s M&A day here on Health in 2 Point 00! On Episode 229, Jess and I chat about the big news that Headspace and Ginger are merging to create Headspace Health (for more deets tune into Jess’s interview on WTF Health here). Next up, Connect America buys remote patient monitoring platform 100Plus. Finally, AllStripes raises $50 million in a Series B, bringing their total up to $67 million – this is a rare disease play for clinical trial recruiting. —Matthew Holt
Costs and revenue: This is the oxygen of any business, any organization. What are your revenue streams? How much does it cost you to produce them? Life is not just about breathing, but, if you don’t get that in-out equation right, there is nothing else life can be about.
Right now this enormous sector is turning itself inside out. It has turned the “transmogrification” setting to “warp.” Why? It’s all about the in-out. It’s all about increasingly desperate attempts to get that right — and the clear fact that we cannot know if we are getting it right.
Let’s do some school on the two sides of this equation. Let’s just go over the new weirdness, and the implications for you and your organization. Revenue first.
Hunting for True Revenue
In traditional health care (the way we did business until about five minutes ago) the revenue side was complicated in detail, but simple in concept: You do various procedures and tests and services, and you bill for them. You bill each item according to a code. You bill different payers; each has its own schedule of payments that you negotiate (or just get handed) every year. There are complications, such as people on Medicare with supplemental insurance, dual eligibles on Medicare and Medicaid, and self-pay patients who may or may not pay.
That’s the basic job: aggregating enough services that reimburse more than their real cost so that you can cover the costs of services that don’t reimburse well. This is cost-shifted, fee-for-service management. Cut back on those low-reimbursement services; pump up the high-reimbursement ones. Corral the docs you need to provide the services, provide the infrastructure and allocate costs across the system.
The incentives all point in the same direction. The revenue streams are all additive. The more you do of the moneymaking items on the list, the more money you make.
With just a couple of weeks to go until we hear from the Supreme Court on the fate of Health Reform, bankers and the investment community are making grand pronouncements that M&A activity is “on hold” until the Court opines.
This is just not true as you will see below.
Here’s an excerpt with an evocative title from PEHub’s coverage of the annual Jeffries Healthcare Conference just this week (emphasis added):
PE-Backed Healthcare M&A on Hold for Election, Supreme Court Decision on Obamacare
Private equity investing in healthcare is on pause this year, according to executives speaking Wednesday on the panel “Financial Sponsors Perspectives on Healthcare Investing.” The industry is waiting to see whether Mitt Romney succeeds in overtaking President Obama. Also, dealmakers wants some clarity on President Obama’s healthcare reform bill….
Healthcare M&A has slowed this year. So far there have been 1,073 global announced M&A deals, valued at $75.3 billion. This compares to 2,729 deals in all of 2011 which totaled roughly $229.6 billion….
“Once we get clarity, and past Obamacare and the presidential election, we will see more deals,” the exec said.
The problem with this is that it might make for good reading or for an “entertaining” panel discussion at an investment banking conference, but it doesn’t reflect reality.
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