HiMSS and the Healthcare IT Market (“HIT”)
We recently attended the 2013 Healthcare Information and Management Systems Society (“HiMSS”) conference and exhibition in New Orleans. The event hosted over 1,000 exhibitors and 30,000+ attendees at the Convention Center, which stretches over a half mile. To put this in perspective, the number of exhibitors exceeded the also recent RSA security conference by over 3x. Some key takeaways as follows:
1. Changes in Healthcare are Driving the Importance of Data
The healthcare industry, across promoters, payers, providers, and purchasers, is undergoing rapid change. Re-election of President Obama re-affirmed the implementation of the Patient Protection and Affordable Care Act (“PPACA”), driving significant change for the healthcare industry and more specifically HIT. The PPACA shifts medical services reimbursement from fee-for-service to bundle payments. Simply, bundled care reimburses hospitals and physicians for expected cost of clinically-defined episodes of care. This is distantly different from the legacy fee-for-service where medical services are reimbursed separately on a per-visit or per treatment basis. Bundled care encourages and financial requires providers to provide efficient and effective care that keeps patients out of medical facilities, as compared to short-term focused, often expensive, and sometimes redundant medical services as with fee-for-service. A key to success within the bundled payment structure is access and use of information, helping the treatment strategy and in order to measure and reward results.
2. Bundled Payment Creating Market Demand for HIT
In order deliver and track bundled care, providers require information such as patients’ medical history, potential for medical complications, and readmission risk. Hospitals and physicians will leverage this information to improve diagnoses and treatments, as well as recognize when patients need to be referred to specialists. Providers will also use HIT to improve reporting, monitoring, and support ongoing medical monitoring after hospital stay in order to reduce readmission risk.
3. Paradigm Shift Will continue to Drive HIT Investment
Below are select submarkets and technologies that (i) demonstrated significant buzz at HiMSS, (ii) boasted a large or growing number of vendors, and (iii) we believe will realize increased investment and M&A interest in the coming years.
Electronic Health Records (“EHR”) – EHR IT solutions offer significant benefits to bundled payment operations. Two select benefits include (i) access to patient health record history to make more informed diagnoses and treatments and (ii) tracking, logging, and alerting of real-time treatments in order to enforce standard operating procedures and identify / utilize best practices. EHR is a highly fragmented solutions provider market, which was as exemplified by the significant number of vendors at the HiMSS show.
Interoperability – There is a long-road ahead for reaching seamless transfer of data across disparate, and in some cases related, HIT systems owned by different organizations. These workflow environments span public-to-public, public-to-private, and private-to-private interoperability needs. This sets a daunting task for HIT companies trying to develop interoperability solutions in a health market that has little in the way of common IT standards. The interoperability market is growing at a rapid pace, and the buzz grew even more prominent at HiMSS 2013 as compared to HiMSS 2012. A significant number of exhibitors demonstrated new technologies and solutions to integrate components of the vast, diversified systems running within and across providers and payers.
Big Data / Predictive Analytics – Various levels of technological sophistication fall within the “big data” tag-line that is taking the healthcare industry by storm. These traverse the ability to analyze and display vast amounts of historical data into useful, sometimes federally required, reports and dashboards; to analyzing outcomes and determining the best medical treatments; to using predictive analytics to forecast reoccurrence rates, medical complications, and high risk patients. The maturities of these sub-markets are generally typified by the sophistication and complexity of the HIT solution. As such, it wasn’t surprising to see a significant number of information dashboard and “big data” analysis solutions at HiMSS; conversely, there were far fewer high-impact, predictive analytics solutions which demonstrated the youth of this sub-market.
4. Changes Yields Opportunity, and Opportunity Motivates M&A
Integration of EHR – Federal incentives to adopt, implement, upgrade, or demonstrate meaningful use of EHR technology has created a sizeable market for the HIT integration. We anticipate selective M&A activity in the near-term for integration providers given potential revenue downturn once these systems have been integrated. In addition, there is likely to be less focus on acquiring EHR software developers given the relative maturity of this market.
Development of State and Federal Exchanges – The PPACA requirement for states to have either self- or Federally-developed health insurance exchanges is driving demand for commercial companies and government contractors to build the IT infrastructure to support exchange operations. We anticipate some M&A activity over the next few years given strong state and Federal funding for exchange IT development, and less activity once the exchanges are in place.
Interoperability – There is a daunting road ahead for creating interoperability amongst disparate EHR, state exchange, and Federal health systems. The long-term market opportunity for these requirements is attracting considerable M&A interest as companies and investors enter the sector or acquire to increase market share.
Data Analytics – The continued shift from paper to electronic storage of patients’ medical records is exponentially increasing the amount of healthcare data. The HIT big data analytics market, focused on drawing actionable conclusions from vast information, is in its infancy with substantial growth expectations. Interestingly, the high level of software sophistication needed to analyze such monumental amounts of information is an issue across many markets. In addition to significant long-term M&A activity for pure HIT big data solutions providers, we would expect acquisitions of analytics companies focused on other sectors, followed by reapplication of acquired technology into new HIT solutions.