Industry Update Healthcare Services Industry June 2015

Transcription

1 Industry Update Healthcare Services Industry June 2015 New York Chicago Boston Hartford Orlando Princeton

2 Table of Contents * Industry Overview... 3 M&A Overview... 5 Public Market Data... 6 Segments of the Healthcare Services Industry Defined About MPI * This publication is also available in soft copy on the MPI website: Page 2 2

3 Industry Overview This publication focuses on major events, developments, and trends within the following segments of the Healthcare Services industry 1 : Acute Care Hospitals Care Management/Cost Containment Diagnostic Imaging Healthcare Staffing Long-Term Care Pharmacy Management Assisted Living Clinical Laboratories Healthcare Information Technology Home Care/Hospice Managed Care Surgicenters/Rehabilitation A recent development in the Healthcare Services industry is that of startups competing to be the next Uber for healthcare. Applications for mobile phones and tablets, such as Heal, are leveraging the same architecture as the taxicab disruptor to quickly and easily provide in-home healthcare to consumers who would rather pay a premium for the house-call versus going to the providers. Most of the services do not accept insurance, but they say patients can pay with health savings accounts or submit out-ofnetwork claims. Some applications, such as Pager, in New York City, are even using Uber directly to dispatch the providers. The companies are attracting venture capital investment and partnerships with hospital systems, which increasingly see in-home care as a way to reduce unnecessary ER visits and readmissions. Still, many questions remain: Is the proper quality control in place? Are the environments sanitary? Will these services further fragment health care delivery and interfere with doctor-patient relationships? That being said, considering the growing popularity of Uber and other disruptive technologies, there is potential for the Healthcare Services industry to see the impact of these applications in the form of IPOs, mergers, and or, acquisitions in the near future. (Source: Wall Street Journal) 1 Brief descriptions of each segment of the Healthcare Services industry can be found on pages 12 through 14 of this report. Page 3 3

4 Industry Overview (cont.) The S&P Healthcare Services Index has increased by 32.3% over the latest twelve months and by 16.9% over the latest six months. With an increase of 122.0% and 37.1% for the latest twelve months and six months, respectively, the surgicenters/rehabilitation segment has exhibited the strongest performance. The worst performing segment was diagnostic imaging (down 14.9% and 16.3%). Page 4 4

5 M&A Overview Industry Trends As shown below, a few mega deals, such as OptumRx, Inc. acquiring Catamaran Corp. for $13.2 billion and CVS Pharmacy, Inc. purchasing Omnicare, Inc. for $11.3 billion, through the first half of 2015 have resulted in observed deal volume that has almost surpassed total volume throughout all of However, deal count appears to be on pace for a slight reduction from For the first half of the 2015 calendar year, we observed 133 deals in the healthcare services industry, totaling $45.5 billion. (Source: S&P Capital IQ) Top Ten Largest Announced Transactions Year to Date - June 30, 2015 Announced Buyer Target Target Description 3/29/2015 OptumRx, Inc. Catamaran Corporation Catamaran Corporation provides pharmacy benefit management (PBM) services and healthcare information technology (HCIT) solutions to the healthcare benefits management industry in North America. 5/20/2015 CVS Pharmacy, Inc. Omnicare Inc. Omnicare, Inc. operates as a healthcare services company that specializes in the management of pharmaceutical care in the United States. 4/6/2015 Ventas, Inc. AHS Medical Holdings LLC AHS Medical Holdings LLC, doing business as Ardent Health Services, through its subsidiaries, owns and operates a network of health systems that provide health care services for patients and their families in the United States. 3/2/2015 Boston Scientific Corporation American Medical Systems American Medical Systems Holdings Inc., Men's Health and Prostate Health Businesses Holdings Inc., Men's Health and distributes medical devices to physicians for the treatment of urological disorders. Prostate Health Businesses 6/3/2015 Opko Health, Inc. Bio Reference Laboratories Inc. Bio Reference Laboratories, Inc. provides clinical laboratory testing services for the detection, diagnosis, evaluation, monitoring, and treatment of diseases in the United States. 4/8/2015 Optum, Inc. MedExpress Urgent Care, PLLC MedExpress Urgent Care, PLLC operates a network of walk in urgent care facilities in Arkansas, Delaware, Florida, Indiana, Maryland, Michigan, New Jersey, Pennsylvania, Tennessee, Virginia, and West Virginia. 3/22/2015 Welsh, Carson, Anderson & StowConcentra, Inc. Concentra, Inc., a health care company, owns and operates medical centers throughout the United States. 3/17/2015 HCP, Inc.; Brookdale Senior Living Inc. CSH Master Care USA Inc. CSH Master Care USA Inc. owns and operates long term care seniors housing communities, memory care, and skilled nursing facilities. 6/10/2015 HEALTHSOUTH Corp. Reliant Hospital Partners, LLC Reliant Hospital Partners, LLC owns and operates rehabilitation hospitals in the United States. 6/29/2015 AMAG Pharmaceuticals, Inc. CBR Systems, Inc. CBR Systems, Inc., also known as Cord Blood Registry Systems, operates a cord blood stem cell bank that serves families in the United States and internationally. Page 5 5

6 Public Market Data Company Guideline 6/30/ Week Enterprise EV/EBITDA EBITDA Margin Market Cap/Earnings Ticker Close (2) High Low Value (EV) (3) LTM NFY LTM NFY LTM NFY Acute Care Hospitals Community Health Systems, Inc. CYH , x 8.1x 14.9% 15.3% 26.3x 16.2x HCA Holdings, Inc. TSX:BR x 9.5x 6.0% NA 150.8x NA Kindred Healthcare Inc. KND , x 8.1x 6.9% 8.5% NM 119.6x LifePoint Health, Inc. LPNT , x 8.4x 12.8% 13.6% 30.1x 21.3x Tenet Healthcare Corp. THC , x 8.3x 12.2% 11.5% NM 28.2x Universal Health Services Inc. UHS , x 10.8x 18.4% 17.2% 24.2x 21.5x Median 10.6x 8.3x 12.5% 13.6% 28.2x 21.5x Assisted Living Brookdale Senior Living Inc. BKD , x 13.9x 18.0% 18.2% NM NM Capital Senior Living Corp. CSU , x 16.9x 17.5% 19.9% NM NM Five Star Quality Care Inc. FVE x 8.6x 1.5% 2.3% 2.7x 18.8x Median 19.1x 13.9x 17.5% 18.2% 2.7x NA Median EBITDA Multiples Acute Care Hospitals Median EBITDA Multiples Assisted Living 12.0x 10.0x 8.0x 6.0x 4.0x 2.0x 0.0x 7.2x 5.9x 6.4x 7.0x 6.2x 6.5x 8.0x 8.7x 10.6x 25.0x 20.0x 15.0x 10.0x 5.0x 0.0x 13.8x 8.0x 9.7x 10.0x 11.0x 14.8x 14.1x 21.3x 19.1x Average of Medians (7.4x) Average of Medians (13.5x) Page 6 6

7 Public Market Data (cont.) Company 6/30/ Week Enterprise EV/EBITDA EBITDA Margin Market Cap/Earnings Close (2) High Low Value (EV) (3) LTM NFY LTM NFY LTM NFY Care Management/Cost Containment Accretive Health, Inc x 31.6x (16.7%) NA 9.7x 8.2x CorVel Corporation x NA 12.9% NA 22.5x NA ExamWorks Group, Inc , x 14.5x 13.9% 17.3% NM NM HMS Holdings Corp , x 13.4x 19.7% 25.3% 107.7x 63.0x MAXIMUS, Inc , x 13.5x 15.4% 15.1% 28.7x 27.1x Median 15.2x 13.5x 13.9% 17.3% 25.6x 27.1x Clinical Laboratories Bio Reference Laboratories Inc , x 9.8x 13.1% 13.2% 22.7x 21.4x Laboratory Corp. of America Holdings , x 11.1x 20.0% 19.9% 30.5x 21.5x Psychemedics Corp x NA 16.9% NA 29.2x NA Quest Diagnostics Inc , x 9.4x 19.5% 19.9% 20.9x 19.4x Sonic Healthcare Limited , x 14.6x 17.7% 17.5% 22.5x 23.2x Median 14.7x 10.4x 17.7% 18.7% 22.7x 21.4x Median EBITDA Multiples Care Management / Cost Containment Median EBITDA Multiples Clinical Laboratories 25.0x 20.0x 15.0x 10.0x 5.0x 0.0x 6.4x 5.8x 7.9x 21.0x 9.3x 12.1x 13.3x 12.5x 15.2x 16.0x 14.0x 12.0x 10.0x 8.0x 6.0x 4.0x 2.0x 0.0x 10.4x 8.7x 11.4x 8.7x 8.3x 8.5x 8.7x 9.9x 14.7x Average of Medians (11.5x) Average of Medians (9.9x) Page 7 7

8 Public Market Data (cont.) Company 6/30/ Week Enterprise EV/EBITDA EBITDA Margin Market Cap/Earnings Close (2) High Low Value (EV) (3) LTM NFY LTM NFY LTM NFY Diagnostic Imaging Alliance Healthcare Services, Inc x NA 26.8% NM 19.0x NA RadNet, Inc x 7.2x 14.8% 14.6% 55.1x 26.9x Median 7.7x 7.2x 20.8% 14.6% 37.0x 26.9x Healthcare Information Technology Allscripts Healthcare Solutions, Inc , x 12.9x 4.6% 17.4% NM NM athenahealth, Inc , x 27.6x 7.8% 18.2% NM NM Cerner Corporation , x 15.7x 28.4% 32.3% 48.6x 35.4x Computer Programs & Systems Inc x 11.7x 24.7% 20.8% 22.0x 19.5x MedAssets, Inc , x 9.5x 29.1% 30.7% 55.7x 37.6x Merge Healthcare Incorporated x 14.0x 16.8% 21.6% NM NM Quality Systems Inc x 11.4x 10.4% 15.0% NM 44.5x Streamline Health Solutions, Inc x 27.0x (34.6%) (8.6%) 5.0x 7.0x Median 18.5x 12.3x 13.6% 19.5% 35.3x 35.4x Median EBITDA Multiples Healthcare Information Technology 25.0x 20.0x 14.7x 20.5x 16.4x 16.2x 17.1x 16.5x 19.0x 18.5x 15.0x 13.2x 10.0x 5.0x 0.0x Average of Medians (16.9x) Page 8 8

9 Public Market Data (cont.) Company 6/30/ Week Enterprise EV/EBITDA EBITDA Margin Market Cap/Earnings Close (2) High Low Value (EV) (3) LTM NFY LTM NFY LTM NFY Healthcare Staffing AMN Healthcare Services Inc , x 12.3x 9.1% 10.1% 32.3x 25.5x Cross Country Healthcare, Inc x 14.3x 3.3% 4.3% 18.3x 33.3x On Assignment Inc , x 9.9x 10.0% 11.6% 21.5x 25.4x Team Health Holdings, Inc , x 14.8x 10.0% 10.5% 46.7x 39.2x Median 16.3x 13.3x 9.6% 10.3% 26.9x 29.4x Home Care / Hospice Addus HomeCare Corporation x 11.0x 7.4% 8.0% 24.4x 22.9x Almost Family Inc x 10.7x 6.5% 7.5% 22.5x 18.8x Amedisys Inc , x 13.0x 7.4% 8.9% 196.8x x Chemed Corp , x 10.5x 13.7% 14.8% 21.1x 20.5x LHC Group, Inc x 10.2x 9.5% 9.2% 25.0x 21.7x Median 12.3x 10.7x 7.4% 8.9% 22.5x 20.5x Page 9 9

10 Public Market Data (cont.) Company 6/30/ Week Enterprise EV/EBITDA EBITDA Margin Market Cap/Earnings Close (2) High Low Value (EV) (3) LTM NFY LTM NFY LTM NFY Long Term Care AdCare Health Systems, Inc x NA 4.5% NM 4.2x NA Diversicare Healthcare Services Inc x NA 5.7% NM 16.4x NA National Healthcare Corp x NA 11.9% NM 17.4x NA The Ensign Group, Inc , x 9.2x 8.3% 10.5% 26.6x 20.7x Median 10.8x 9.2x 7.0% 10.5% 16.9x 20.7x Managed Care Aetna Inc , x 9.3x 8.6% 9.1% 19.1x 17.8x Centene Corp , x 11.4x 3.9% 3.6% 28.1x 27.9x Cigna Corp , x 11.0x 10.7% 10.8% 19.6x 18.8x Health Net, Inc , x 7.8x 2.4% 3.5% 58.7x 21.2x Humana Inc , x 10.9x 5.0% 5.2% 22.1x 21.6x Magellan Health, Inc , x 6.5x 5.8% 6.2% 31.5x 41.6x Molina Healthcare, Inc , x 5.6x 3.6% 3.6% 33.1x 26.4x Triple S Management Corporation x 9.2x 3.6% 2.1% 10.5x NA UnitedHealth Group Incorporated , x 9.7x 8.9% 8.5% 19.0x 19.1x Universal American Corp x 25.0x (0.4%) 2.0% 41.2x 53.1x WellCare Health Plans, Inc , x 6.1x 2.9% 4.1% 38.8x 28.1x Anthem, Inc , x 11.2x 8.6% 6.8% 15.2x 15.9x Median 9.6x 9.5x 4.5% 4.6% 20.9x 21.2x Page

11 Public Market Data (cont.) Company 6/30/ Week Enterprise EV/EBITDA EBITDA Margin Market Cap/Earnings Close (2) High Low Value (EV) (3) LTM NFY LTM NFY LTM NFY Pharmacy Management BioScrip, Inc x 15.2x (4.4%) 4.3% 1.8x 5.9x Catamaran Corporation , x 17.7x 4.0% 3.8% 46.6x 39.2x Express Scripts Holding Company , x 10.9x 6.6% 6.7% 30.6x 25.7x Omnicare Inc , x 14.0x 11.0% 11.4% 53.3x 26.1x PharMerica Corporation , x 9.4x 6.7% 6.9% 87.2x 23.2x Median 11.2x 14.0x 6.6% 6.7% 46.6x 25.7x Surgicenters/Rehabilitation AmSurg Corp , x 13.8x 27.3% 18.6% 58.9x 25.2x Hanger, Inc , x 8.2x 14.7% 15.2% 13.7x 14.0x HEALTHSOUTH Corp , x 9.7x 23.8% 23.0% 19.3x 19.7x Select Medical Holdings Corporation , x 9.6x 11.6% 12.3% 17.3x 17.8x US Physical Therapy Inc x 15.0x 17.1% 15.0% 32.7x 29.6x Nobilis Health Corp x NA 12.0% NM 17.3x NA Median 10.5x 8.3x 15.2% 14.1% 14.4x 15.8x Page

12 Segments of the Healthcare Services Industry Defined Acute Care Hospitals: This industry segment includes hospitals and other healthcare providers that focus on short-term treatment for severe injuries or illnesses. Healthcare reform, reimbursement trends, electronic records, and nursing shortages are the top concerns faced by operators in the Acute Care Hospital industry. Healthcare reform will likely increase the number of insured patients, which will boost revenue. Other factors, such as aging population, will contribute to revenue growth over the next five years. Profitability will remain pressured as labor costs rise; however, the industry s profit margin will get a boost from the increasing number of people who have health insurance. Assisted Living: The Assisted Living industry segment is made up of a variety of senior care services, including assisted living facilities, continuing care retirement communities, nursing homes, and elderly and disabled services. The number of elderly Americans is anticipated to continue to expand in the coming years, which will stimulate demand within the industry. However, Medicare and Medicaid reimbursement cuts are expected to severely limit the growth of the industry. Furthermore, a recovery from the housing market downturn over the past five years will boost revenues as more of the aging American population is able to afford the transition into assisted living accommodations. Care Management/Cost Containment: Companies in this industry segment reduce the overall cost of medical treatment by establishing controls across many providers of healthcare services for the use of expensive procedures, in-patient admission criteria, the lengths of stay, and other factors affecting the cost of care. Importantly, a company in this industry may represent a number of physician practices, laboratories and/or other service providers. This gives them much more leverage than a single physician practice would have in negotiating reimbursement prices with insurance companies or government medical programs. The cost of providing healthcare services has risen as a result of new technologies, malpractice insurance rates, and labor costs. However, insurance companies and the government continue to lower their reimbursement rates. The demand for companies in this industry is expected to increase as healthcare service providers utilize industry companies to operate more efficiently and to avoid severe margin pressure from reduced reimbursement fees from large insurance entities. Clinical Laboratories: This industry segment consists of companies that conduct analytic services to provide healthcare practitioners with information concerning the onset, severity and cause of patients physical ailments. While the industry has long been an essential component of healthcare, the aging population and ongoing progress toward preventive care has further boosted revenue over the past five years. During the next five years, the Clinical Laboratories industry is expected to benefit from healthcare reform and the aging U.S. population. As many laboratories consolidate, operators will increasingly compete on the basis of price with hospitals that provide industry services in-house. In particular, large laboratories are acquiring smaller labs that provide either routine or specialized services, such as biomarkers. Also, as more patients seek an individually tailored healthcare plan, demand for high-margin molecular testing, such as with regard to genetics, will cause industry profit to increase. Page

13 Segments of the Healthcare Services Industry (cont.) Diagnostic Imaging: Diagnostic imaging involves the use of non-invasive procedures to generate representations of internal anatomy and function that can be recorded on film or digitized for display on a video monitor. Diagnostic imaging procedures facilitate the early diagnosis and treatment of diseases and disorders and may reduce unnecessary invasive procedures, often minimizing the cost and amount of care for patients. It is estimated that the national imaging market in the U.S. is $100 billion annually, with projected mid-single digit growth for MRI, CT and PET/CT over the next several years. This growth will be driven by the aging of the U.S. population, wider physician and payor acceptance for imaging technologies, and greater consumer and physician awareness of diagnostic screening capabilities. Healthcare Information Technology: This industry provides technology solutions to optimize processes and help eliminate errors, variance, and waste for healthcare organizations. Companies in this industry provide computer software-based solutions that help hospitals and physician groups improve efficiencies and business processes across the enterprise to enhance and protect revenues. This industry is poised for further growth going forward. Ongoing contributors to growth in this industry include: incentives in the American Recovery and Reinvestment Act; a shift away from feefor-service or volume-based reimbursement towards value-based or outcomes-based reimbursement; and a shift in the U.S. marketplace towards a preference for a single platform across inpatient and ambulatory settings. Healthcare Staffing: The healthcare staffing industry is faced with the challenge of orchestrating care in an increasingly complex and converging healthcare labor market. Acceleration of industry growth is forecasted for 2014 as healthcare staffing continues to benefit from the secular growth in total healthcare jobs due to an aging population and the buildup of staff at healthcare companies in preparation for as many as 20 million newly insured individuals due to healthcare reform. Home Care/Hospice: The Home Care/Hospice industry is becoming one of the fastest-growing healthcare industries in the U.S.. The industry saves patients billions of dollars every year by treating them in their homes instead of in hospitals. An aging population, the prevalence of chronic disease, growing physician acceptance of home care, medical advancements, and a movement toward costefficient treatment options from public and private payers continue to foster industry growth. costs. Long-Term Care: The Long-Term Care industry provides long-term skilled nursing care and social services in residential facilities. The profitability of the long-term care facilities depends on efficient operations, as revenue per patient is largely controlled by Medicare and Medicaid. The industry is forecast to grow in the five years to 2018, largely due to an improving economic environment, an aging population, favorable healthcare reform legislation, and new service offerings. Page

14 Segments of the Healthcare Services Industry (cont.) Managed Care: The term managed care is used in the U.S. to describe a variety of techniques intended to reduce the cost of providing health benefits and improve the quality of care. The Managed Care industry has been characterized by slow growth over the five years to 2013, as a result of reduced employer coverage and per capita disposable income. However, consistent increases in healthcare expenditure, or medical cost inflation, have continued to drive industry growth. Despite this growth, cost increases and new legislation mandating minimum medical loss ratios have pressured profit for operators. Industry revenue will remain highly correlated with total health expenditure, which is expected to continue its trend upward from 2013 to Yet, the industry s average profit margin is forecast to decline due to increased compliance costs caused by the healthcare reform. Pharmacy Management: This industry includes firms that provide pharmacy benefit management services. Industry firms are third-party administrators of government and employer-sponsored prescription drug programs. They are primarily responsible for processing and paying prescription drug claims. Though it felt the recession's effects, the Pharmacy Benefit Management industry has recovered quickly and is poised to grow on the back of rising insurance coverage and increased physician visits, which will yield a higher number of prescriptions filled. As the median age of the U.S. population continues to rise, more Americans will rely on medications, increasing demand for the industry's services from insurers and employer-sponsored coverage plans. Surgicenters/Rehabilitation: The Surgicenters and Rehabilitation industry focuses on orthopedics. Surgicenters are establishments that provide surgical and emergency care services on an outpatient basis. This includes the provision of services such as orthoscopic, cataract surgery and setting broken bones. Rehabilitation centers provide follow-up physical therapy and other treatment and activities to help patients regain or improve mental or physical functionality following an injury or illness. Looking ahead, industry growth is expected to accelerate because of legislation and improving economic conditions. The introduction of the Patient Protection and Affordable Care Act will extent healthcare to a number of Americans, which will hasten increasing demand for the industry. Page

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