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Just as summer finally begins to creep into New England, the market effects of the Accountable Care Act begin to seep into the U.S. healthcare economy. This issue of our newsletter highlights a few examples. In the Policy section, we note that states which elected to expand Medicaid under the Act are seeing a stabilization of hospital revenues simultaneous with a reduction of charges to self-pay patients. No such trends are evident in the mostly Republican states which rejected the option to expand Medicaid coverage. In the Strategy section we offer two examples of how information technology is improving clinical care management for practitioners and patients alike. The Industry Activity section focuses on how the new trends in healthcare policy and innovation have sparked a resurgence of mergers and acquisitions in the health sector. We close this edition, however, with some sobering perspective on the U.S. healthcare system. The Research section includes highlights of a Commonwealth study showing that the U.S. healthcare system lags behind Britain, Sweden and Switzerland in some key comparisons. As always, we encourage your feedback. Feel free to follow us on Twitter. We hope you enjoy this month’s newsletter as part of your summer reading list.

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



  • Medicaid expansion helps smooth out turmoil
    With expanded Medicaid eligibility due to the ACA, enrollment has reached record levels with some 65M people now covered nationwide. According to the Colorado Hospital Association—which examined recent financial data from 465 hospitals across 30 states (half with expanded and the other half declined expansion)—analysts found that hospitals in states with expanded Medicaid saw the program become a greater share of their revenue base, increasing on average from 15% of all revenue to almost 19% between 2013 and the first quarter of this year. Average hospital charges for self-pay patients declined 25% in those same states. Meanwhile, hospitals in states that are not expanding eligibility saw little variation in their share of Medicaid and self-pay patients.
  • Senators reach deal on VA healthcare
    A deal has been reached on a bipartisan bill that enables veterans to seek healthcare outside the scandal-ridden Veterans Affairs (VA) hospitals and clinics. As proposed, veterans who experience waits for VA appointments of 30 days or more or who live at least 40 miles from a VA hospital or clinic would be able to see private doctors enrolled as providers for Medicare, military TRICARE or other government healthcare programs. It would also authorize the VA, which currently has 150 hospitals and 820 clinics nationwide, to lease 26 new health facilities in 18 states, and spend $500M to hire more doctors and nurses.
  • Hospitals fight Medicare audit clawbacks
    American Hospital Association (AHA) is urging federal Medicare leaders to stem the practice of using sample hospital audit data to identify overpayments eligible for recovery. The AHA warns of an increasing number of hospital compliance reviews performed by the Office of Inspector General (OIG), which are being leveraged as a justification for clawbacks at the hands of Medicare Administrative Contractors (MACs). A number of facilities such as Duke University Hospital, University of Miami Hospital and St. Vincent’s Medical Center have been evaluated under the OIG’s Medicare compliance review specifically for inpatient stays. Many of the OIG audits have focused on short inpatient stays, which have plagued Medicare claims disputes and appeals, and has led to the proposition of a new rule where hospitals could use observation status instead of inpatient admission for cases under two nights. Medicare says this would significantly reduce recovery audits.


  • U.S. law prods states to revisit healthcare rules [AR, CA, MN, NH and WA]
    In response to the ACA, several states are updating their rules for insurance networks to more accurately reflect who is covered and how people shop for and utilize their benefits. While health insurance laws may vary, states generally work to ensure that health plans give reasonable access to an appropriate number of primary care and specialty physicians but those efforts have not kept up with changes in how and where people access healthcare. For example, often consumers go to urgent care clinics rather than booking an appointment, and nurse practitioners and physician's assistants now provide a significant share of primary care. The current focus on hospitals ignores the reality that virtually every service provided during a short-term hospital stay is now available in other settings, including ambulatory surgical centers.
  • Five states healthcare exchanges see costly fixes [MA, MD, MN, OR and NV]
    Massachusetts, Maryland, Minnesota, Oregon and Nevada estimate that overhauls of their state healthcare exchanges (or moving under the federal site, healthcare[dot]gov) will cost $240M. The five states have spent or committed to spend more than $700M in federal funds. The federal government has already granted nearly $4.7B for state exchanges. Fourteen states built their own exchanges for 2014. State marketplaces are required to be financially sustainable after their first start-up year. Federal grants awarded through the end of 2014 can be used on implementation but not on operational expenses for 2015. "We are closely monitoring how grant money is being spent and working to ensure that all consumers can gain new health coverage options offered in the marketplaces,” said Aaron Albright, spokesman for the Centers for Medicare & Medicaid Services.
  • Hospital margins sink in Pennsylvania [Pennsylvania]
    Pennsylvania acute care hospitals are facing what some are calling a financial sustainability crisis that is forcing providers to rethink organizational mergers and management. According to the Pennsylvania Healthcare Cost Containment Council (an independent state agency), one third of Pennsylvania hospitals had negative operating margins in 2013. Of the 173 licensed general acute care hospitals half had margins below the 4% threshold considered necessary for long-term stability. Over 2013, 59 hospitals (35%) saw a loss in operating margins and 22% have had average losses over the last three years combined. With declining Medicare reimbursement in some areas, and amid an ongoing debate about expanding Medicaid in a state with some 1M uninsured residents, the Hospital and Health System Association of Pennsylvania identifies uncompensated care as one large source of the losses, which between 2012 and 2013 grew by 5% to more than $1B.


  • How technology can transform our healthcare labyrinth
    The reporter asks, "Why has our rat-maze approach to coordinating care continued largely unchanged for more than 60 years?" According to the Institute of Medicine, the U.S. healthcare system wastes about 30% of our healthcare spending, which amounts to over $765B each year. Eliminating this waste could—within just 10 years—reduce 50% of the country’s national debt. As part of an integrated model, technology can transform healthcare. For example, Aetna is working to align economic incentives between payers and providers to create a more simple, transparent consumer experience. Technologies that seamlessly connect the healthcare system are key. From integrating files (so that doctors can truly collaborate and not re-test or contradict recommendations, prescriptions and treatment) to motion-sensitive wristbands that track exercise and sleep patterns to apps for scheduling medical appointments or even flu shots at a walk-in clinic, the integrated digital experience is here but consumers must take an active role in it.
  • Healthcare must prioritize operational analytics
    From clinicians to MRI machines, healthcare CIOs can access a wealth of data on the use of precious resources. A high priority should be placed on efforts to make operational improvements through better data analysis. Top of the agenda are optimizing use of expensive resources, improving access for patients, and cutting wait times and red tape. For example, some health systems have streamlined appointment scheduling to shorten the time it takes for a patient to get in to see a specialist, or to get an MRI or CT scan. Others have collected data on patient no-shows, which are often as high as 20% to help facilities develop better ways of scheduling including overbooking to stem the loss of revenues and wasted resources caused by no-shows. Some facilities have even moved outpatient surgery into ambulatory surgery centers that can operate more efficiently and effectively at a lower cost and with increased patient safety. Many of these projects would not have been easy just a few years ago. More work needs to be done, but it’s a step in the right direction.
  • Healthcare sector faces rising pressure to bolster data security
    With the passage of the ACA, healthcare industry networks and patient data are exposed to online thieves now more than ever. A recent report from the SANS Institute based on data from threat intelligence firm Norse revealed breaches at 375 healthcare-related organizations. In 2013 alone, over 7M records were put at risk with 200 breaches reported to HHS, which security-consulting firm, Redspin, cites as a jump of 138%. HHS has begun to crack down on healthcare orgs that are not protecting their data properly. According to the FBI, healthcare fraud—including identity theft based on stolen electronic records—cost the U.S. $80B.
  • Securing mobile healthcare devices: best practices
    IT departments can protect even the most mobile healthcare departments by combining technology, education and best practices. Mobile use in the healthcare industry is rapidly growing. Over half—51%—of physicians use tablets and 74% use smartphones at work. According to Transparency Market Research, the mobile monitoring/diagnostic medical devices market is projected to reach $8.03 billion by 2019. ABI Research reports in 2014 alone 90M wearable health devices will ship.

Industry Activity

  • M&A activity fearless against fed's looming interest rate hikes
    If the latest activity is any indication, M&A is making a comeback. “What we’re seeing is fewer deals in the market, but higher quality, fully-valued deals and larger average deal sizes. Those are getting done with cheap financing, debt and cash – stockpiled by private equity and corporates...confidence is rising and [corporations] have long-term inorganic plans for growth,” said Matt Porzio, vice president of product marketing at Intralinks. M&A is expected to heat up across the board. Pfizer’s attempted $119B takeover of British rival AstraZeneca (AZN) dominated headlines in May as healthcare industry and technology M&A took hold in the first half of the year. “From a sector perspective, tech, media, and telecom have been firing on all cylinders…cash is still king…in the short, mid-term, the rate environment has minimal effect in those hot sectors,” added Porzio.
  • Healthcare IT M&A - Do many notes make a song?
    While M&A has been hearty, it has been mostly comprised of midsized companies acquiring smaller ones at high prices and with little movement out of the Healthcare Informatics 100. When athenahealth acquired Epocrates for a 22% premium over its stock trading price, expectations were high and the fit seemed reasonable. Last year’s largest transaction by Experian, which—in order to expand its presence in payments and eligibility—acquired Passport Health Comms for $850M. Private equity-backed Vitera Health made two acquisitions including SuccesEHS (to gain some market share) and Greenway Health in a $664M take-private deal (20% premium over previous day’s close). Also leaving the HCI 100 for life were two vendors QuadraMed, which has since been acquired by Constellation Software’s Harris Computer Corp., and API Healthcare, which was sold to GE’s Healthcare Services division. Another Francisco Partners portfolio company, Healthland, was a buyer that acquired American HealthTech and moved it into the post-acute care facility space.


  • No, to the U.S. doesn't have the best healthcare
    According to Commonwealth researchers, 37% of Americans do not seek a physician’s help when they are sick or fail to fill prescriptions due to high cost, compared with 4-6% in Britain and Sweden. About 23% of Americans had problems paying or did not pay medical bills, compared with only 6% or fewer in Britain and Sweden. About 75% of Americans said the healthcare system required fundamental changes while 50-63% of Europeans were happy with their systems. Americans wait longer than most Europeans to see a primary care doctor: 63-76% of Europeans see a doctor within 1-2 days, compared with 48% of Americans, and only Canada scores lower (41%). About $750B, almost a third of the nation's annual health care spending, was wasted in 2009. One-third of healthcare dollars are spent on overhead. Second, Americans pay far more for patented drugs, medical devices, procedures, hospital care and physicians’ fees. Patented drugs are 2-3 times more than in Canada or Europe. Hip replacement is $80K in the U.S. and less than $14K in Europe. MRIs in the U.S. are $1,145 and $138 in Switzerland. Fundamental changes are needed to fix these extensive and chronic problems, and policy and technology integration will be key.
  • Billions in improper Medicare Advantage payments, investigation finds
    According to an investigation conducted by non-partisan watchdog group, the Center for Public Integrity, Medicare Advantage health plans received nearly $70B in improper payments between 2008 and 2013. By focusing on “risk scores” used to tabulate how much private insurers are paid to take care of Medicare beneficiaries, the group found that those scores spiked from 2007-2011 in at least 1,000 counties across the country, thereby increasing federal spending over anticipated costs by $36B. The CPI investigation also determined that in over 200 of those counties, Medicare Advantage enrollees cost at least 25% more than the traditional fee-for-service program. The CPI has requested federal records identifying which health plans are suspected of overcharging Medicare. The report is the first in a three-part investigation. "Recent reports show that Medicare Advantage plans have far fewer improper payments than traditional fee-for-service Medicare,” said Clare Krusing, a spokesperson for AHIP. “The evidence is clear that Medicare Advantage plans are providing better quality care and improving health outcomes for millions of seniors."
  • Docs may be the best ACO leaders, but significant weaknesses remain
    A new study, conducted by researchers at Dartmouth and UC Berkeley, provides more evidence that physician leadership is the key to success with accountable care organizations (ACOs). The study, results of which were published in June's Health Affairs, examined the landscape of public and private ACOs, which serve an estimated 18.2M people in the U.S. Researchers determined that some 51% of ACOs were spearheaded by physicians, which typically struggle with the care coordination part of operations management. "It seems likely that the challenge of fundamentally changing care delivery as the country moves away from fee-for-service payment will not be accomplished without strong, effective leadership from physicians," the study states.


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