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Memorial Day marks the unofficial beginning of summer. As the selections in this edition of our newsletter reflect, the healthcare economy continues to heat up. The Federal Policy section begins with a clip heralding that the healthcare industry added 45,000 jobs in April—the largest gain in months. Consistent with the progression toward community-based care, the ambulatory services sector added the most jobs in April. A selection in the Research section reports that healthcare spending continued to climb in March to $3.2T, boosted by spikes in drug and hospital spending. This sustained growth in the US healthcare sector creates abundant investment opportunities for growth investors such as Mansa Capital.

The effects of Obamacare continue to ripple through the US economy as seen in three separate articles this month. In the State Policy section, we see that the tax on health insurers—who benefited from increased enrollments as a result of the ACA—is helping to pay for President Obama's healthcare law. Yet it's proving costly to state governments—as much as $13B in less than a decade. A second clip in that section looks at the effect in Louisiana of a Supreme Court ruling against the exchanges and offers a glimpse of the national implications. Yet, another article in the Research section reports that “high deductibles are the reason U.S. households are increasingly underinsured and more likely to struggle with medical debt and unmet medical need.” The ACA may be achieving the goal of “universal coverage.” Clearly, however, having “coverage” is not the same as having “enough coverage.”

The progression toward value- and risk-based payments is a strong theme this month. One selection reports that the CMS Office of the Actuary found that the shared-risk Pioneer ACOs saved $279.9M in 2012 and $104.5M in 2013. Another discusses HHS’s plans to move its payment system to 30% value-based in 2016 and 50% by 2018. The department also plans to have 95% of fee-for-service plans include some sort of value and efficiency components by 2018. Hospitals, practitioners, drug manufactures and insurers are already rethinking their strategies to flourish in a market where a strong and clear value proposition is essential for success.

The rapid adoption of telemedicine is the other major theme this month. One clip describes how the country’s largest health insurer, UnitedHealthcare, is expanding coverage for virtual visits, a clear sign of legitimacy for a growing part of consumer-driven medicine. Another announces the acquisition of Virtual Radiologic Corp., a major provider of outsourced radiology and telemedicine services by Mednax, a national medical group based in South Florida. This edition closes with a clip on the payer report cards issued by our friends at Athenahealth. You may find the rankings most interesting.

This Memorial Day we encourage you take a moment to thank those who gave that “last full measure of devotion” in service to this country. And we hope you get to enjoy some of those “lazy, crazy, hazy days of summer.”

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 Operating Officer

Policy

Federal

  • Healthcare adds 45,000 jobs in April as hiring picks up
    "The healthcare industry added 45,000 jobs in April, the largest gain in months, led by big gains in ambulatory center hiring leading the sector, according to data from the Dept. of Labor’s Bureau of Labor Statistics. Overall, the U.S. economy added 223K jobs in the month, and the unemployment rate fell to 5.4%. Healthcare has added 390K jobs in the past year, the Labor Dept. said. Ambulatory services added 25,300 jobs in April, compared to March. Hospitals added 11,800 jobs, nursing care facilities added 10,400 and physician offices added 9,300 jobs. No sector in healthcare lost jobs, though home health services added the smallest amount with 2,700 jobs…”
  • Medicare's Pioneer ACOs post modest savings
    "With new data from the Medicare Pioneer ACOs, accountable care advocates can be cautiously optimistic, although the pessimistic can also find things to latch onto as well. The participating organizations in Medicare’s Pioneer ACA pilot saved $384M in Medicare spending in the first two years, according to a study by an independent office at the Centers for Medicare & Medicaid Services. The CMS Office of the Actuary found that the shared-risk Pioneer ACOs saved $279.9M in 2012 and $104.5M in 2013—drops in Medicare’s $500B bucket, though encouraging to a federal government trying to have 50% of Medicare payments in alternative contracts by 2018. HHS said, the Pioneer ACO Model has demonstrated that patients can get high quality and coordinated care at the right time, and we can generate savings for Medicare and the healthcare system at large…”

State

  • Insurers are passing health care law tax along to states [Nationwide]
    "A tax on health insurers is helping pay for President Obama's healthcare law, but it's proving costly to state governments—as much as $13B in less than a decade. The Health Insurance Providers Fee was aimed at insurance companies. The thinking went: Because insurers would gain a windfall of customers, they ought to help pay for the expansion of coverage. Insurers say they have raised prices for individuals and small businesses to cover the new tax. They are raising their prices to state Medicaid programs, too. The federal government issued guidance in October requiring states to build the tax into what they pay for-profit Medicaid health plans that serve low-income people...”
  • How healthy are seniors in your state? [Nationwide]
    The United Health Foundation [analyzed] data from 12 government agencies and research organizations, including HHS and the National Foundation to End Senior Hunger. Key takeaways: 37.6% of seniors have four or more chronic conditions, 26.7% are obese, 8.7% smoke…preventable hospitalizations down 8.6%...more seniors are deciding where to spend their last moments with a 3.1% increase in hospice care and a 9.3% increase in…home healthcare workers, and there was a 9% decrease in preventable hospitalizations per 1K Medicare beneficiaries, and a 9% decrease in hospital deaths per 100K Medicare beneficiaries…”
  • How Louisiana would fare if Obamacare subsidies struck down [Louisiana]
    "The politics of the ACA in the state of Louisiana are not subtle: It is not popular. The state was part of the lawsuit to strike down the law in 2012; it didn’t expand Medicaid and has no plans to, even as other Republican-led states have done so. And Louisiana didn’t set up its own marketplace to sell Obamacare insurance. Nevertheless, about 186K people in Louisiana signed up for health insurance under the law and almost all of them got help from the federal government to pay their premiums. The U.S. Supreme Court could soon rule illegal the insurance subsidies in Louisiana and more than 30 other states that use the federal website healthcare.gov. If the subsidies are eliminated, the number of uninsured people in the affected states would rise by 8.2M in 2016, according to recent Senate testimony by Linda Blumberg, a senior fellow at the Urban Institute…"

Strategy

  • Tracking healthcare metrics in the age of value-based payment
    "…HHS threw down the gauntlet in late January when Secretary Sylvia Burwell announced its intention to increase value-based purchasing dramatically in the next few years. The CMS Office of the Actuary found that the shared-risk Pioneer ACOs saved $279.9M in 2012 and $104.5M in 2013. The industry has slowly been moving in this direction for some time, nudged further by the ACA. But what does it mean for hospital CFOs trying to build budgets based on schizophrenic payment systems? Volume will no longer be king when it comes to gauging success and financial planning. The core challenge when converting to a value-based, rather than fee-for-service, system is the lack of consistency in payment measures. Unlike a set fee for a particular DRG code, value is much more ethereal…"
  • Surescripts attains digital breakthrough
    "Surescripts processed 6.5B health data transactions in 2014, a feat that the network's officials say marks a major digital transformation of U.S. healthcare. Surescripts reports in its 2014 National Progress Report that its network handled more transactions over the past year than American Express (6B) and PayPal (4.2B). 'Connecting the nation’s healthcare system is a monumental task, and while more work is needed to ensure true interoperability nationwide, there is no question that the Surescripts network is more connected than ever before,' said CEO Tom Skelton...At of the end of 2014, Surescripts connected 900K healthcare professionals, 61K pharmacies, 3,300 hospitals, 700 EHR software applications, 45 immunization registries, and 32 state and regional networks, with access to health information for 230M patients representing 71% of the U.S. population…"
  • UHG going all in on telemedicine
    "The country’s largest insurer is expanding coverage for virtual visits, a clear sign of legitimacy for a growing part of consumer-driven medicine. UnitedHealthcare is increasing coverage options for virtual physician visits. Members in self-funded employer health plans now have a covered benefit for telemedicine physician visits via mobile phone, tablet or computer 24/day. Starting next year, the insurer will cover virtual visits in all employer-sponsored and individual plans. Members can pick from an in-network provider, 'then see and speak with a doctor using real-time audio and video technology to obtain a diagnosis and any necessary prescriptions for minor medical needs,' among them allergies, sinus and bladder infections, bronchitis and skin conditions. 'Consumers can save time and money choosing among quality physician groups from…their smartphone, tablet or home computer…,” said Jeff Alter, UnitedHealthcare CEO, commercial group business…"

Industry Activity

  • Mednax acquires teleradiology firm in $500M deal
    "Mednax, a national medical group based in Sunrise, Fla., has made a move into the teleradiology business by agreeing to acquire Virtual Radiologic Corp., a major provider of outsourced radiology and telemedicine services. The $500M cash deal comes after Mednax CEO Roger Medel hinted at this year's J.P. Morgan Healthcare Conference that the company was looking to add a third specialty in addition to pediatrics and anesthesiology…Virtual Radiologic, also known as vRad, operates a network of over 350 mostly sub-specialty trained radiologists who interpret diagnostic images for more than 2,100 healthcare facilities across the U.S. and abroad. The company generates annual revenue of about $185M. Mednax hopes the company will offer a platform for growth within the teleradiology and broader telemedicine market…Ryan Daniels, an analyst with William Blair, estimates that the U.S. teleradiology industry earns an estimated $3B in sales every year…"

Research

  • More underinsured as high deductibles proliferate
    "High deductibles are the reason U.S. households are increasingly underinsured and more likely to struggle with medical debt and unmet medical need, the Commonwealth Fund reports. Last year, 14M adults were underinsured because their deductibles amounted to 5% or more of their income, an increase from 11M two years earlier…The underinsured are those with insurance coverage but who nonetheless have out-of-pocket medical bills that exceed what they can afford. The Commonwealth Fund reported another 24M adults had deductibles below that threshold, but who were also underinsured after combining the cost of deductibles, co-insurance, co-payments, out-of-network providers and medical care not covered by insurance. Adults with total out-of-pocket costs that amounted to 10% or more of their income were considered underinsured. For those with low-incomes (200% of the federal poverty guidelines), adults were underinsured when all out-of-pocket costs exceeded 5% of income."
  • Healthcare spending rises to $3.2 trillion, but consultant warns of slowdown
    "Healthcare spending continued to climb in March to $3.2T, boosted by spikes in drug and hospital spending, according to the Altarum Institute. In March, hospital spending rose 6.8%, compared to March 2014. Prescription drug spending grew by 10.7% while hospital spending grew by 9.8%. The sector’s share of the U.S. gross domestic product also grew in the month, hitting 18.1% in March. Compare that to the start of the Great Recession in 2007, when health spending’s slice of GDP was 16%. Although the numbers suggest healthcare spending is breaking out from its recent periods of low growth, Altarum warned that bump seen in March might not last…"
  • New report cards rate health insurers
    "Payer report cards released…by health IT company athenathealth and healthcare marketing communications firm ReviveHealth show payers strong on operational performance, but lacking in provider trust. Humana ranks No. 1 in overall performance among major payers, according to athenahealth's PayerView Report, followed by Aetna and Cigna. PayerView, which measures payers' financial, administrative and transactional performance, reveals that, contrary to expectations, market turbulence resulting from the Affordable Care Act has not caused operational challenges for most payers. Moreover, those offering health plans in Medicaid expansion states and on the health insurance exchanges are performing better than those not participating…"

Website:  http://www.mansacapital.com/


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. 2015 Mansa Capital©

Mansa Partner