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If you are looking for indications of the market effects of Obamacare, look no further than this month’s edition of Mansa Capital Monthly News. The State Policy section offers two examples of the economic benefits to states which elected to expand Medicaid. In the Strategy section, we see how patients are finally beginning to access more convenient options to pay for their health services up-front in response to the shift to high-deductible health plans with the introduction of the ACA. The Industry Activity section lists the six trends, which are expected to drive M&A activity this year. At the heart of most deals are the ACA and HITECH Act. The Research section offers a couple of reports showing a short term rise in healthcare costs but an overall downward trend over a longer period of time. We end this edition with a look at the pricing difference that can be attributed by more free market competition. The highlighted study found that ambulatory centers often (but not always) have lower prices versus hospitals—particularly across states with fee schedules. We trust that this edition of our newsletter provides you with a glimpse of the many, sometimes complicated, but always interesting issues we consider every day in our determination to remain among the very best at what we do.

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



  • High court creates an opt-out of contraception mandate
    After upholding the majority of the Affordable Care Act, the U.S. Supreme Court has established a new religious exemption for employers, which once again, brings women's health into the forefront and could add new complications to group insurance. In a 5-4 ruling, the Supreme Court ruled that “closely held” companies such as Hobby Lobby do not need to comply with the fed’s regulations requiring certain forms of contraception as a part of essential health benefits. According to the IRS closely held companies are considered “persons” under 1993’s Religious Freedom Restoration Act.
  • CMS reports paltry numbers for Stage 2
    According to the Centers for Medicare and Medicaid Services (CMS), just 1% of eligible providers and 3% of eligible hospitals have complied with Stage 2 of the Medicare and Medicaid Electronic Health Records (EHR) Incentive Programs to date. According to Elisabeth Myers with the CMS Office of e-Health Standards and Services, “it’s dangerous to apply interpretations” to those numbers as they are based on an aggressive timeline for healthcare entities, so naturally the first wave was expected to be small, though few expected it to be as low as it is. Myers said that CMS is seeing a good proportion of smaller medical groups in the Stage 1 cohort, which would be able to make Stage 2.
  • More than 750 hospitals face Medicare penalties for patient injuries
    Beginning in October, one quarter of the nation’s hospitals with the worst patient injury rates will lose 1% of every Medicare payment for one year. The feds identified 761 hospitals for the penalty. However, when Medicare sets final penalties later this year that list could change because officials will be looking at performance over a longer period than was used to calculate initial penalties. The sanctions, estimated at $330M over a year, will go into effect at a time when most hospital-measured infections are on the decline, but still far too common.


  • States can shed light on healthcare prices[Nationwide]
    The Rand Corporation projects that by 2016 people who buy health insurance on the ACA exchanges will pay about $2,000 more annually than they would have without the new law. A major barrier to curtailing healthcare costs is the lack of transparency, which costs consumers, insurers, and taxpayers while impeding free market competition and creating huge disparities from hospital to hospital and state to state driving consumers to consider procedures overseas. State legislators can make healthcare costs more transparent and provide consumers with the information necessary to make better decisions. A prime example is House Bill 2045, championed by Arizona Sen. Nancy Barto (R), requiring large medical facilities to list out-of-pocket prices for the 50 most common medical procedures and small hospitals must provide prices for the 35 most common medical procedures.
  • White House says states without Medicaid expansion are suffering [LA, MI, WI, et al.]
    The White House issued a report on the harmful economic consequences for Republican-led states that haven’t expanded Medicaid under the ACA. The report—from the White House council of economic advisers—stated that the 24 states, which haven’t accepted Medicaid expansion will by 2016 deprive 5.7M people of healthcare insurance coverage. The report went on to assert that decisions in those states will have “far-reaching” implications for their own economies. “States that fail to expand Medicaid are also passing up billions of federal dollars that could boost their economies today.” In the 26 states and Washington D.C. where Medicaid has been expanded the report said that 5.2M people have gained coverage.
  • Uncompensated care dropping fast in Medicaid expansion states [AZ, CA, MO, TN, TX]
    A recent report released by the Colorado Hospital Association, states that expanded Medicaid have seen a dramatic drop in uncompensated hospital care, which according to the American Hospital Association, cost the country $46B in 2012. However, it's unclear whether the savings will be enough to offset cuts from the ACA. The study, which analyzes data from 465 hospitals in 30 states in the first four months of Medicaid expansion, provides the most comprehensive insights yet on Medicaid expansion's impact on uncompensated care. The report states that unpaid care decreased by 30% in expansion states and remained unchanged in non-expansion states. Enrollment surges also correlate with a 25% decrease in people paying out of pocket for coverage.
  • Small state runs big experiments with alternative payments [RI]
    Over the next three years, Blue Cross & Blue Shield of Rhode Island will collaborate with new incentives “as shared risk becomes the new normal.” The two have agreed to a deal with Lifespan, the state’s largest health system. Covering approximately 35K Medicare Advantage and commercially-insured patients, the agreement is the most significant risk-sharing payer-provider contract in the state’s history. Working with 110 different primary care physicians (40% from patient-centered medical homes and about 35 from Lifespan) the two parties will together invest in care delivery redesigns that “reward physicians” for meeting set quality and outcome goals. According to Peter Andruszkiewicz, president and CEO of Blue Cross & Blue Shield of RI, the deal could serve as a template for “physician-led, patient-centered, team-based” improvement. “Our goal is for patients to receive the care they need and to realize better health outcomes at a lower cost.” Details weren’t disclosed but it’s “the first step in moving away from the…fee-for-service model.”


  • To innovate for consumers, insurers must nurture culture, data
    At AHIP Institute 2014 in Seattle, Doug Rauch, previous president of Trader Joe’s said if health insurers want to attract and retain new members, they should take a look at how managers are managing and employees are faring. “This may seem obvious,” he said, but if insurers—who haven’t always had positive relationships with their members—want to innovate and get to the point where consumers heed and respect their health advice and continue enrolling, it’s worth going back to basics to articulate values. “Start looking at your culture,” including everything from how decisions are made to how people are promoted. “All innovation is about taking risk.” He also said, “To design new plans; to offer employers and individuals wellness programs that are both popular and effective; to succeed in a new, regulated and scrutinized market—it is going to take an internal culture that values and unites employees, and constantly learns from data.”
  • Bridge between insurers, providers helps patients pay their shares
    In response to the shift to high-deductible health plans with the introduction of the ACA, patients are finally beginning to access more convenient options to pay for their health services up-front. Enter developers of online, cloud-based revenue cycle management platforms who are bridging the gap between payers, providers and increasingly involved consumers. New apps are assisting providers and consumers by aggregating a patient's insurance information while also allowing patients to pay in the doctor's office. The mobile platform—developed by Wellero—gives patients all the eligibility information they need at the point of care while giving providers a portal in the office to connect the patient with his or her health plan for improved billing processes. Wellero says the platform gives providers a front-end office management solution that integrates with existing claims and bill payment systems, cuts down billing charges and enables them to receive payments within 48 hours. Other developers bringing similar tools to market: CareCloud, DocuTap, Iconic Data, and Kareo.
  • Cloud, mobile promise to ease claims, authorization friction
    Healthcare providers have long complained about the extensive amount of time they must invest with insurers to coordinate care and get paid, and secure Prior Authorization in particular. Without Pre Authorization, providers risk serious disruption to their revenue cycle and the prospect of denial of reimbursement after services have already been rendered. New regulations designed to standardize the Prior Authorization process, reward efficient payers and providers, and penalize less efficient providers will go into effect in 2016. By shifting to patient-centered, risk-based high-deductible health plans and mobile data at the point of care, patients have the opportunity to possibly receive a cash discount and avoid the surprise of additional bills in the future.

Industry Activity

  • Six trends that will increase healthcare M&A in 2014
    Healthcare M&A is expected to surge past 2013 levels when there were 394 deals valued at $97B. The report by Bass Berry & Sim and Mergermarket, indicates that ACA-spurred market disruption will lead to additional consolidation deals across healthcare facilities, life science and healthcare IT companies. At the heart of most deals are the ACA and HITECH Act. From healthcare providers working to identify ways to cope with reduced Medicare reimbursements to the technology hospitals’ need to adopt to fit in with changing in payment models as well as electronic medical record requirements, the following are six trends driving healthcare M&A. First, long-term care facilities will feel the brunt of Medicare reimbursement cuts so they will make up a sizable portion of the consolidation trend. Second, retail clinics will take center stage in M&A deals. Third, physician practices with a cardiology or dermatology specialty will be the most sought after deals. Fourth, Hospitals are diversifying, but so are ambulatory services centers. Fifth, healthcare IT tools that can improve clinical workflows and make quick work of billing continue to be sought after by IT vendors. Sixth, private equity buyers will play a bigger role than strategic buyers in healthcare transactions.
  • IBM, Epic unite for massive DoD contract
    Tech giant IBM is teaming up with EHR leader Epic to compete for the DoD Healthcare Management Systems Modernization DHMSM contract, which is slated to replace the current Military Health System and serve some 9.7M. The partnership will leverage Epic's interoperable platform, which is among the highest-ranked and most widely-adopted EHR systems nationwide, and currently used by big name hospitals including Cleveland Clinic, PartnersHealthCare and Kaiser Permanente.
  • Medtronic and Covidien deal is tax strategy guiding healthcare M&A
    Directly following the passage of the ACA, pharma and healthcare M&A fell. Now, it's back up with deals including the Covidien/Medtronic merger valued at $43B. While some deals in the healthcare industry are being guided by synergies, other, like MergerTalk, are being guided by strategy. In order to save on a hefty U.S. tax bill, Medtronic needs to relocate its Minnesota tax base to Ireland, where Covidien is based. Pfizer also attempted to acquire AstraZeneca, for the same reasons.


  • Employer health costs to rise in 2015
    According to a PricewaterhouseCoopers report, health costs will accelerate in 2015, but changes in how people buy care will help keep them from growing as quickly as several years ago. PwC doesn’t expect health plans to remain the same. In a separate study, PwC forecasts employers and insurers will keep raising deductibles and give members other incentives to accept the price of care. PwC expects those changes to slow growth in the total cost of care to 4.8% as increased exposure to price tags prompt workers to undergo fewer treatments and tests.
  • Claims growth trends portend new spending challenges
    S&P’s Healthcare Claims Indices show that healthcare costs rose 3.5% in the 12 months ending February 2014, which was slower than the nearly 5% increase seen a year earlier prior to the ACA taking full-effect. Medical costs, for inpatient and outpatient hospitalization and services, rose 3.1% between February 2013 and February 2014. Inpatient fee-for-service rose 2.6% from 4.3% in 2012-2013, and outpatient fee-for-service costs rose 4.9% down from 6.3%. During most of 2013 and the first two months of 2014, prescription drugs rose 3.5%—2% points higher than the rate of growth in 2012-2013—at the same time that individual health plans were starting to grow in membership. “With the exception of prescription drugs, healthcare expenditures are growing more slowly than a year ago,” said David Blitzer, managing director and chairman of the S&P Dow Jones Indices, which analyzes claims data on 33 large health insurance companies and 60M Americans.
  • Ambulatory surgical centers compete with hospitals on costs
    Workers Compensation Research Institute compared surgery payments for ambulatory centers and hospital outpatient centers and found that ambulatory centers often (but not always), have lower prices, particularly across states with fee schedules. The study supports, “the conventional wisdom that ASC surgeries are less expensive than hospital outpatient surgeries,” said Bogdan Savych, PhD, a policy analyst at the Workers Compensation Research Institute and author of the report. For example, ASC payments for knee orthroscopies were over $6K in Indiana, New Jersey, Virginia, Missouri, Illinois, Connecticut and Louisiana but were less than $2K in Pennsylvania, Michigan, Maryland and New York. The study found that in states with fee schedules for both ASC and hospital outpatient surgeries, payments for the two kinds of facilities were often similar. However, in states without fixed-amount fee schedules, the price differences were less predictable. The study found that ASC surgeries in Connecticut were more expensive than hospital outpatient surgeries, while ASCs in Georgia, New Jersey, North Carolina and Tennessee had higher prices for some procedures.


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©

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