Welcome to Mansa Capital
This month’s sampling of the events which shape our investment strategy reflects some common themes across multiple sections. First, federal, state and local governments are bracing for significantly higher healthcare costs over the next five years. Unless other government expenditures—such as services, programs and/or employment—are reduced, Americans will likely face higher taxes to avoid a budget deficit. Precision healthcare information technology is another theme this month. Three different articles highlight the development of mobile apps to support behavior change, patient engagement and care management. “Big Data” shows up twice in our selections this month: once as a challenge to Accountable Care Organizations and again as the basis of GE’s most recent acquisition in the healthcare sector. You can find these and other stories on our website. Soon, we will be sending out a survey to get your feedback on our newsletter and to seek your guidance on some other initiatives we have in mind for improved investor relations. We look forward to your response.
Ruben J. King-Shaw Jr., Managing Partner & Chief Investment Officer
- Deficit down but health costs to bleed red ink again
The Congressional Budget Office (CBO) sees deficits falling in the short term but climbing significantly over the next decade. The CBO projects a 2014 budget deficit of $514 billion, which is well below the $1.4 trillion deficit in 2009 that followed heavy federal spending due to the collapse of revenue during the financial crisis. After falling again next year, however, the CBO estimates the deficit will balloon to over $1 trillion by 2022 and could result in the loss of more than 2.3M jobs.
- CBO lowers 2014 insurance enrollment estimate by 2 million
In 2014, the CBO projects that 2 million fewer individuals are expected to obtain insurance (either through Medicaid or the healthcare exchanges) than previously anticipated. The CBO estimates now that 6M (not 7M) individuals will purchase a plan through the exchanges and 8M (not 9M) will enroll in Medicaid this year. The estimate reduction is attributed primarily to the shaky rollout of the online marketplaces. The CBO projects that the risk adjustment, reinsurance and risk corridor programs (designed to protect insurers from risk in the new marketplace) will cost the federal government $208 billion, but expects it will bring in the $215 billion in revenues to net $7 billion.
- First crop of Medicare ACOs navigate data problems
The National Assoc. of Accountable Care Organizations (NAACOs) surveyed health orgs in 35 of the first generation of Medicare shared savings ACOs. Evaluating their startup costs, estimated savings and biggest challenges, NAACOs concluded that the picture is likely to be mixed when full data on savings/performance comes in. Startup costs averaged $2M/ACO—higher than CMS estimated. Problems cited include: finding suitable software…meeting implementation schedules…delays in getting claims data…new skill sets to analyze data…slow stand-up of IT system…data inconsistency from CMS…translating data into actionable information for care managers and providers.
- State, local governments spending more on health than ever
Per a report from the Pew Charitable Trusts, state and local governments are spending more on healthcare—about one-third of their budgets—than at anytime since the U.S. started keeping such records in 1987 when local spending was just over 15%, not i.e. federal contributions. By 2000, in the dotcom era, state spending grew 21.5%. By 2012, the Great Recession had taken millions of jobs, and the number rose to 31.5%. The federal stimulus program helped offset the toll on state and local budgets 2008-2010, and temporary Medicaid aid helped healthcare spending grow just 2%. In 2012, the states spent $188B on Medicaid and $152B on public employee healthcare, along with $144B on general assistance, vocational rehabilitation, public health and hospital subsidies. By 2020, Pew projects states will be spending over $700B on all of those programs, $200B on Medicaid alone.
- Report criticizes California health plans for treatment of chronic ailments [California]
California finds easy access to healthcare services and care for chronic diseases falls short. California’s annual report card on its 10 largest HMOs, six biggest preferred-provider organization plans and over 200 medical groups scores on clinical performance and patient satisfaction and reflects care for approximately 16M Californians with private health insurance. The CA Office of Patient Advocate said the report card allows consumers to quickly search by specific medical conditions and examine the level of patient complaints against insurers. The report says CA insurers and physicians are doing a “solid job” at monitoring the care of patients with diabetes, heart disease and other chronic conditions, but controlling those costly conditions afterward is often lacking. For example, insurance company performance differed widely on getting asthma patients the right combination of medications to help control their disease. Other chronic conditions are addressed.
- Report finds billions wasted on healthcare [Massachusetts]
According to Massachusetts’ Health Policy Commission, 21-39% of medical expenditures in the state ($14.7B to $26.9B in 2012) may be wasteful. Making the first statewide attempt at hot-spotting— identifying high-cost, chronically-ill patients that are often hospitalized or with repeated ER visits—5% of patients accounted for nearly half of all medical spending among those covered by Medicare and commercial insurance. Many are poor and/or have mental health problems. This is the first time a formula typically used to estimate waste in national healthcare spending was used to estimate waste for a smaller geographic region. The method could be used in the future by other states.
- Healthcare IT: An investment choice for the future
Today, one of the most robust investment categories for investors in start-up companies is healthcare technology, or healthcare IT. Much of this has been prompted by the ACA passed in 2010. During that year, there were only 17 seed and Series A healthcare software and application companies that were funded, and many were focused on creating more convenience and accessibility for women/mothers who are often coordinating healthcare in the family and look for helpful in-store services and apps that help to diagnose and track health. The trend is growing. Health app downloads doubled to 247M in 2012. Many start-ups are covered in this must-read.
- Providers zeroing in on patient behavior
In a healthcare environment dominated by chronic diseases and their associated costs it is no wonder that so many orgs are taking interest in affecting patient health behaviors including adherence to medical advice (i.e. dietary, exercise, alcohol and smoking) and follow-through on prescriptions, taking them correctly. Robin DiMatteo, PhD, adherence expert and psychology professor at the UC Riverside, says interest in the field has exploded. "Four years ago I mostly spoke to medical groups. Now it is major health systems, health plans and their CEOs and CMOs,” she said.
- Apple's iWatch: The killer apps may be in hospitals, not health clubs
"The whole sensor field," Apple CEO, Tim Cook said last spring, "is going to explode." The technology has the potential to impact the delivery and study of resuscitative care by allowing vital signs to be automatically collected and fully integrated into the patient care record and used for real-time: Triage…long-term observation…correlation with hospital records. With the baby boom generation about to move en masse into government-subsidized health insurance programs, nursing homes and hospice care, those are serious growth markets. And if a generation of young, healthy joggers could be trained to watch for trouble signs before—not after—they get sick, we'd all be better off. "There are a lot of problems to solve in this space," Cook said last May. "It's ripe for exploration."
- Centene rides wave of new contracts, but still has to land
A year after breaking even with its for-profit managed care plans, new Medicaid contracts have helped to grow Centene’s revenue, leaving the company optimistic about 2014. In Q3 2013, its Sunshine State Health Plan won a contract to cover Florida beneficiaries, including TANF and dual eligible patients, in 9 of the state’s 11 regions. In Q4 2013, a subsidiary was awarded a contract for coordinated dual eligible care in S. Carolina, and another started a new managed care contract for Medicaid beneficiaries in 18 rural California counties. Then Centene signed an agreement to buy a majority stake of 68 percent—valued at about $200M—of Fidelis SecureCare of Michigan, a home care management company recently selected to provide integrated care to dual eligibles in Detroit.
- GE to acquire API Healthcare
In an effort to bolster its healthcare data and analytics offerings, GE has acquired API Healthcare. The company’s solutions—used by 1,600 U.S. hospitals and staffing agencies—focus on staffing, scheduling, patient classification, HR, talent mgmt., payroll, time/attendance and business analytics. GE said that labor costs can represent over half of most hospitals' operating budgets, and the API acquisition will help “address a significant portion of hospital operations costs–assets, patients and labor–with a mix of software, real-time data, powerful analytics and professional services." The deal could close in two months, and while announced by both companies, no terms were disclosed.
- Humana takes Q4 loss but ready to use new acquisitions
Preparing for Medicare Advantage reductions and concerned about commercial risk pools, Humana reported a Q4 2013 loss. Between the Obama Admin’s late-year decision to extend non-ACA compliant plans and pending Medicare Advantage rate reductions, 2013 signaled more challenges ahead. But with revenue growing, the company is focused on its integrated insurance/care model. Revenues across Humana’s businesses grew 6% last year to $41.3B bringing in net income of $1.23B above 2012’s $1.22B, and a consolidated medical loss ratio of 83.9%. The fourth quarter of last year brought a $30M loss stemming from a need to shore up cash reserves for long-term care.
- RAND study cites telemedicine benefits: lowers costs, expands access
The Health Affairs-published study assessed the utilization of telemedicine services in a commercial insurance plan offering 24/7 access to Teladoc for phone/online consultations re: minor illnesses. During the 11-month study published in Health Affairs, 291 patients used the cost-saving service compared to 39,431 primary-care visits and 883 ER trips. Younger, affluent, tech-savvy patients were more likely to use Teledoc at $38/consultation. Despite its potential, the authors said further study is necessary to assess the capacity of such services to accurately treat/manage conditions.
- Dr. compensation methods may frustrate shift to value
A recent report from the American Medical Assoc. looked at proposed payment methods in models such as accountable care orgs, episodic bundles of care and risk-adjusted global budgets, to see how they line up with compensation methods, which vary depending on practice type/specialty and whether a physician is an owner or employee. The study concluded that variation in compensation arrangements suggests that it may be difficult to align practice level incentives that encourage sensible use of resources with physician level incentives that do not.
- Drug adherence may improve with incentives, but spending reduction might not offset cost
A new study in Health Affairs suggests that consumers do respond when health plans drop or reduce the cost of care. Over two years, Blue Cross and Blue Shield of North Carolina paid an additional $6.4 million to cover the cost of higher drug use for patients with hypertension, diabetes, hyperlipidemia and congestive heart failure after the insurer lowered drug co-pays. That amounts to $139 to $173 annually for each member. The $5.7M drop in the cost of all other care did not offset the expense.
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. 2013 Mansa Capital©