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As the Deep South is in the midst of another long, hot summer and many families in the Mid-Atlantic and Midwest head to the cooler climates further north, the healthcare economy continues to evolve. As examples, this month’s edition of our newsletter offers two selections, one in the Federal Policy Section and another in the Strategy section, heralding telehealth’s arrival as a mainstream care management platform. Similarly, the surging interest in bundled payments for healthcare providers indicates the further adoption of risk-based and value-based payment policies. In the State Policy section, we see how a State Medicaid program uses ‘big data’ analytics to better manage care and costs—illustrating that public, not for profit entities can innovate too. In our Industry Activity section, we offer two different views of the frothy healthcare M&A market. One selection summarizes the pace of HCIT transactions while a second explores some potential M&A targets among managed care payers. That section also reviews the strategic developments at some of the nation’s premier hospital and health systems. The Research section opens with some encouraging (we think) news on the long term health of the Medicare program. Before we know it, the autumn leaves will start to fall in New England and footballs will fill the air across California and Texas. In the meantime, all of us at Mansa Capital hope you enjoy what’s left of the summer and this issue of our newsletter.

Ruben J. King-Shaw Jr., Managing Partner & Chief Investment Officer

James Renna, Operating Partner and head of the Mansa Operations and Advisory Group

Jason P. Torres, Partner and Chief Operation Officer



  • Telehealth bill may fix payment issues
    “The use of telehealth is poised to become more widespread when a fistful of obstacles gets flattened out…chief among those: payment policies…doctors have little financial incentive to engage in telemedicine because it's hard for them to be reimbursed for services rendered virtually, particularly across state borders. Two Republican senators from Mississippi are looking to change that. In an ambitious effort that appears to have some 20 early bi-partisan supporters, Sens. Thad Cochran and Roger Wicker have introduced the Telehealth Enhancement Act. The bill aims to free doctors to more widely practice medicine via telehealth technologies by altering Medicare payment policies to cover some critical access hospitals and home health services…‘telehealth cuts down travel time and increases access to specialists for residents in many rural areas who do not live near these essential healthcare resources,’ said Wicker.”
  • Justice Dept. seeks appeal in Halbig ruling
    “The Justice Department asked…federal appeals court…to take up a case that has endangered subsidies helping millions of low- and middle-income people to afford their healthcare premiums under [the ACA]. In the case of Halbig v. Burwell…a divided…panel of the U.S. Court of Appeals for the D.C. Circuit said financial aid [could] be provided only in states that have set up their own insurance markets or exchanges. To date, 16 states have set up their own...34 states have opted to have the federal government establish exchanges on their behalf. Two judges nominated by [GOP] presidents formed the majority over a dissent from a Democratic appointee…In the case in Washington, the judges' decision precluded the IRS from providing tax credits to people in the 34 states that allowed the…government to establish exchanges…If the full court decides to take the case, the balance would shift [to] eight Dem nominees and five [GOP] nominees hearing the case.”
  • Interest surges in Medicare bundled-payment initiative
    "The CMS announced it will add roughly 4,100 providers to about 2,400 already exploring the possible use of bundled payments for some or all of four dozen medical conditions and procedures such as diabetes, joint replacements and pacemaker implants. Providers…will analyze Medicare spending data to decide whether or not to enter into bundled-payment contracts, which must reduce Medicare costs by 2% to 3.5% before providers are rewarded…The initiative…is one attempt under the Patient Protection and Affordable Care Act to test incentives for providers to more closely control costs…Because the model ‘bundles’ payments for multiple services connected to an episode of care…providers profit when their spending on that care falls below Medicare’s savings target. Hospitals and doctors can test any of four bundles that include some or all medical expenses for care provided throughout a hospital stay; one to three months after patients leave; or both."


  • Divide between red and blue states over healthcare deepens [Nationwide]
    "The state-by-state numbers, from the Gallup-Healthways Well-Being Index, reinforce one of the major impacts of Obamacare so far: Political debate has widened the healthcare gap between red and blue states. All 10 states with the largest percentages of uninsured adults now have Republican governors and legislatures…all declined to expand Medicaid and refused to participate in creating the online exchanges, leaving that task to [the federal government]. Opponents of expansion argue that Washington eventually will dump the cost on the states…In addition to Arkansas, Kentucky and California [where the most improvement was seen], the 10 states with the biggest drop included Delaware, Washington, Colorado, West Virginia, Oregon, New Mexico and Connecticut. Some of those states—most notably Oregon—had considerable trouble with their state-run…marketplaces.”
  • Texas sees little change despite insurance gains [Texas]
    “Harris Health System—like other programs across the state—hasn't enjoyed the expected savings from the ACA because most of its 48K patients eligible for subsidized insurance instead chose to remain enrolled in the county's cheaper taxpayer-funded medical care. Now, public entities from Houston to El Paso are scrambling to tweak rules to make those who qualify for subsidized insurance ineligible for the local programs…Texas, which has the nation's highest uninsured rate at about a quarter of the population, far exceeded expectations in the first enrollment drive…with [over] 733K people signing up. Local officials and nonprofits toiled…to reach the uninsured, investing financial and personnel...San Antonio appears to be one of the few success stories, possibly because it requires users to pay a monthly fee of $20 to $300 depending on income."
  • Data mining slashes Medicaid ER visits [Wyoming]
    "By mining state Medicaid data and utilizing a population health platform, the Wyoming Department of Health was able to slash its Medicaid-related emergency room visits by 20% in a one-year period. The state, which has nearly 88K Medicaid enrollees, also saw small improvements in 30-day hospital readmission rates, as they declined in 2013, down to 6.89% compared with 7.4% in 2012...After analyzing the claims data, officials were able to identify top cost drivers in the Medicaid program, one of which was found to be emergency room services. Medicaid patients who had been admitted to the emergency room more than 10 times in the past year were flagged in their records and subsequently contacted by continuity of care managers who work to engage those patients in better managing their care following hospital discharge. As another layer of intervention, the department also implemented a 24/7 nurse advice line available to enrollees…With fewer emergency room admissions, Wyoming Medicaid has seen ER costs per member, per month decline by more than 20%. According to the Wyoming Department of Health's 2013 Medicaid report, the top 5% of enrollees account for the lion's share [54%] of Medicaid expenditures.”


  • More insurers see case for telemedicine
    "WellPoint’s Anthem Blue Cross plans are rolling out telemedicine services across their markets, most recently in Kentucky and Maine, as part of a strategy to increase value propositions to existing and potential members—and also in part defending its territory...New competitor, Maine Community Health Options, [says it has] 80% of membership from the ACA marketplace. Anthem plans to offer digital consults through its…telemedicine business unit, LiveHealth Online…first deployed in California and Ohio early last year and is now expanding nationwide…LiveHealth Online, a part of WellPoint’s Health Management Corp. subsidiary, is open to anyone, charging $49/consult. Anthem members will pay their…primary care co-pay, which…is around $20...UnitedHealthcare is piloting the telemedicine in certain areas…Oscar Health, a New York City-area startup plan, offers telemedicine and free, unlimited phone calls with docs, and the Utah cooperative insurer Arches Health Plan has set up a telemedicine service with providers in its own network."
  • Mobile devices, apps open for attacks
    "In many ways, mobile device security is an oxymoron in its current state...That's according to a new HP-led study that sheds light on the alarming number of connected devices with serious security weak spots. As the data reveals, a whopping 70% of all commonly used mobile devices and apps have these vulnerabilities. In the study, HP researchers scanned 10 of the most common devices…[and] although the devices tested included [a range of] products from TV, webcam, remote power outlets and home alarm manufacturers, unprotected health data contained on apps was a concern [and]…the numbers are significant. Currently, there are more than 100K health-related apps just available via smartphones….Many of these devices, for instance, are transmitting the unencrypted data over the consumer's network. ‘Users are one network misconfiguration away from exposing this data to the world via wireless networks,' HP officials wrote in the study.”
  • Wearable Tech: 5 Healthcare Wins
    "In the real world, wearable tech has not made much of a dent yet with consumers or business. The exception is the healthcare industry, where wearable devices...seem to have found their first enthusiastic home...Augmedix [aims to provide via Google Glass app] a data management and display system for doctors, so they can handle the flood of electronic health data and access it when they need it—while examining a patient…[Also]… Stanford University surgeons [are]…using Glass to augment the surgical procedure, while the patient is under the knife. [Another Google Glass App] from a company called Wearable Intelligence guides a therapist through a specific set of exercises for a specific patient, with exact instructions on such things as amount of flexion and limb rotation...Google developing a contact lens with microscopic sensors that can monitor the blood sugar levels of someone with diabetes, using tears as a fluid source. The lens has tiny sensors, a tiny processor to analyze the sample…and a small antenna…to send…data to an outside device.”

Industry Activity

  • Health IT leads healthcare M&A activity
    “[M&A] across healthcare, pharma and health IT are on the rise…by 18% since the second half of 2013, with health IT outpacing all other segments, according to a report from Berkery Noyes. The aggregate value of all healthcare M&A activity jumped 46% to $5.45B from $3.73B. Health IT M&A deal volume was up 17% going from 65 transactions to 76—the largest increase on a half-year basis throughout the past two-and-a-half years. Notable Health IT deals during first half of 2014 included Summit Partners’ acquisition of Ability Network for $550M, Xerox’s acquisition of ISG Holdings for $225M, and Emdeon’s acquisition of Capario for $115M… ‘There is a supply and demand imbalance where buyers looking to broaden their exposure to the $3T healthcare space with very favorable underlying growth drivers continue to exceed the number of sellers, and as a result multiples being paid are very attractive to sellers,’ said Fellow Managing Director, Jonathan Kriege.”
  • Integrated healthcare shifts M&A deals
    “As integrated healthcare becomes a central goal, the time may be ripe for mergers and acquisitions to get more interesting. Recent mega-deals in managed care—like Aetna-Coventry ($5.7B), Cigna-HealthSpring ($3.8B) and WellPoint-Amerigroup ($4.9B)—have created some of the largest health insurers ever seen in the U.S., which has gained the attention of federal regulators who have shown signs that the government might not accommodate more large-scale consolidation. But some think more acquisitions and mergers are to come, particularly among for-profit payers. 'We’re likely to see M&A heating up, as soon as the back half of this year,' said Brian Wright, an analyst at Sterne Agee, citing Centene, Health Net, Molina and WellCare as acquisition targets. Not long ago, Centene and WellCare in particular were thought to be possible targets for a rather unlikely buyer—the nation’s largest nonprofit Catholic health system, Missouri-based Ascension Health.”
  • Tenet's multiyear strategy pays off
    “The…operator of 80 hospitals and 190 outpatient centers posted a net loss of $26M for shareholders in Q2 (down from $50M this time last year), and projected full-year earnings of $1.85B, before interest, taxes, depreciation and amortization…Three quarters after the completed acquisition of Vanguard Health Systems, Tenet saw net quarterly operating revenues of $4B, up 2.6% from last year…Inpatient hospital admissions increased by 2.8% year-over-year, with the growth trend in commercial admissions ‘achieving the best quarterly same-hospital performance in more than a decade’ and paying admissions increasing 4.8%. Outpatient visits increased 7%, surgeries increased 8% and ER visits increased 4%. In the five states that expanded Medicaid eligibility under the ACA, Tenet saw a 54.3% decline in uninsured plus charity admissions and a 22% increase in Medicaid-covered admissions. Across the company, uninsured plus charity admissions declined by 21.8% while Medicaid admissions increased 11%—and about 27K admissions and 34K outpatient visits were by patients insured through new ACA exchange plans.”
  • California powerhouses join forces
    “UCSF Medical Center and John Muir Health…signed a letter of intent to create a company that would be both a funding vehicle for future joint initiatives and a shared services organization supporting programs and initiatives focused on improved healthcare and lower costs. UCSF Medical Center and John Muir Health will remain independent. The new company will be equally owned and operated by both...While a final agreement is expected by the end of the year, the two organizations are already moving to get the new company’s first project off the ground—a San Francisco Bay area-wide ACO. Both organizations have experience operating ACOs that have resulted in lower healthcare costs and quality of care improvements...With the formal affiliation, the two organizations also plan on coordinating the rollout of their Epic electronic medical record systems and patient communication portals and creating enhanced physician practice management services that will enable area physicians to affiliate with the new company and the ACO."


  • Medicare trustees' report finds 'cautious optimism'
    “The Medicare trustees say there are reasons for “cautious optimism” about Medicare's financial outlook, and that Obamacare deserves at least some credit for that. The depletion date for the Part A hospital insurance trust fund is now projected at 2030, compared with last year's projection of 2026, and initial projections show unchanged Part B premiums in 2015...The 2030 date is consistent with a recent estimate from the CBO. Two years ago the trustees projected that the Part A trust fund would be depleted in 2024. The new report indicated that the outlook for Medicare improved largely because of lower-than-expected hospital spending and savings resulting from the ACA…The more optimistic projections come with a slight change in…models…Previous reports…assumed…physician pay cuts from the sustainable growth-rate formula would occur. But this year's report has a baseline projection that assumes Congress will replace the cuts with 0.6% raises a year, starting in 2015.”
  • Crackdown may be coming for Medicare Advantage
    “Federal health officials are increasingly scrutinizing Medicare Advantage risk adjustment, suggesting policy changes and even clawbacks to come. Since the inception of Medicare Advantage, from 2004 to 2013, the average risk scores for beneficiaries that are used to guide plan reimbursement have increased at a faster rate than average fee-for-service scores, a study in the Medicare & Medicaid Research Review has found. 'The increase in relative MA scores appears to largely reflect changes in diagnostic coding, not real increases in the morbidity of MA enrollees,' concluded Richard Kronick, director of the Agency for Healthcare Research and Quality, and Pete Welch, HHS assistant secretary for planning and evaluation. ‘Given the continuous relative increase in the average MA risk score, further policy changes will likely be necessary,’ they wrote.”
  • The great big hospital revenue crunch
    "Not-for-profit hospitals are facing more pressure to adapt to revenue upheaval in the coming years, with 2013 data once again showing expenses exceeding revenue growth…The analysis, covering 45% of Moody’s rated portfolio of not-for-profit hospitals, is based on the fiscal year ending Sept. 30, 2013, and thus doesn’t account for impacts that might come with the ACA's coverage expansions, such as reimbursement for patients covered by new exchange plans or Medicaid...Annual expenses grew at a rate of 4.6% last year, half a percent more than revenue, which increased at a median rate of 4.1% while median operating margins hit a three year low of 2.2% and median operating cash flow margins fell to 9.3% from 9.5% the previous two years. The slow revenue growth and operating margin challenges [is attributed] to low rate increases from commercial payers and rate reductions from Medicare and Medicaid…with a payer mix shifting to more government payer reimbursement.”


About Mansa Capital:
Mansa Capital is a healthcare private equity investment firm specializing in high growth companies in the healthcare services and healthcare technology sectors. Mansa focuses on companies as they prepare for expansion, acquisition, privatization or IPO. We integrate strong expertise in healthcare policy, regulation, and reimbursement with vast experience in healthcare operations, marketing, finance, and medical administration. Mansa makes equity investments in operating companies with enterprise values up to $150 million. We build shareholder value by working with management to implement strategic initiatives that grow top-line revenues. Mansa's Managing Partner and CIO, Ruben J. King-Shaw Jr., directs the firm's investment activities, in addition to managing the firm's equity portfolio. The firm has offices in Boston, MA, New York, NY, and Miami, FL.

This newsletter is provided for information purposes only. The information is believed to be reliable and is based on publicly available information, but Mansa Capital does not warrant its completeness or accuracy. Opinions, estimates, and assumptions constitute our judgment as of the date hereof and are subject to change without notice. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. 2014 Mansa Capital©

Mansa Partner