BenefitFocus IPO Just Keeps on Giving

September 13, 2013

(Reprinted from the Sept. 9 issue of Health Plan Market Trends).

BenefitFocus (Charleston, SC), which is seeking to raise up to $127 million in an initial public offering, revealed in a securities filing mounting losses and a few of those uncomfortable disclosures that should make investors think twice.

For starters, the offering is for 4.5 million shares at between $21.50 and $24.50 per share before underwriters’ commissions.  BenefitFocus is offering 3 million of the shares and selling shareholder Goldman Sachs—which owns 66% of the company—is offering 1.5 million.  That means a third of the proceeds from the offering after underwriters’ commissions go to Goldman.  BenefitFocus will use its share for working capital and to fund expansion.

Goldman is also the lead underwriter.  Assuming the sale of another 675,000 shares by the selling shareholder—i.e., Goldman—to cover over-allotments, then about 42% of the proceeds after underwriters’ commission would go to Goldman.

Goldman would still control BenefitFocus after the IPO, with nearly 52% of outstanding shares.  BenefitFocus chairman Mason Holland and chief executive Shawn Jenkins would still own 12% each after the offering, and Oak Park Investments would own 10%.  All told, the directors and executives of the company would own about 82% of shares following the IPO.  Of 24 million outstanding shares after the IPO, 19.8 million would be restricted.

‘Material Weakness’ in BenefiFocus Accounting

Here’s another tidbit.  According to the IPO filing, BenefitFocus “identified a material weakness in connection with preparation of our 2012 financial statements.”  BenefitFocus offers private exchange software and other technology that helps people evaluate health coverage options and manage their benefits.  Its clients are employers and health plans.

Because its platform is sold on a subscription basis, recognition of revenues is spread over the life of a contract or estimated length of a relationship with a client.  In 2011, the company increased the estimated length of certain relationships—forcing it to spread its deferred revenues out over a longer period.  The upshot: lower-than-expected recognized revenues and higher-than-expected losses in 2011 and 2012.

BenefitFocus reported a net loss of $15.2 million though six months of 2013, up from $10.4 million a year earlier.  Combined net loss for 2010 through 2012 topped $32 million.  Without the material weakness, net loss would have improved by $5.8 million in 2011 and $2.8 million in 2012. Accumulated deficit is $187 million.

Here’s more.  BenefitFocus rents office space for its corporate headquarters in Charleston, SC, from Daniel Island Executive Center—with nearly $48 million in payments still due over the life of two 15-year leases expiring in 2021 and 2024.  Holland owns Holland Properties, which owns a majority of Daniel Island Executive Center.  Jenkins owns the rest.  Holland also owns a majority of North American Jet Charter Group, which provides chartered jet service to BenefitFocus.

Insurer and Employer Segments

BenefitFocus has two segments.  Its insurer segment accounts for more than 60% of revenues and was profitable from 2010 through 2012; although it slipped into the red through six months of 2013.  The employer segment, which has been growing at a much faster pace, accounts for the remainder of revenues.  Losses in the employer segment topped $12 million through six months of 2013.

Clearly, this is a company that needs to sell investors on its growth potential. Through six months of 2013, revenues were $48.2 million, up 25%.  For the full year 2012, revenues were $81.7 million, up 19%.  The company had 37 insurer clients, up 12%, including Aetna, Blue Cross Blue Shield of Kansas City, BCBS of South Carolina and WellPoint.  It also had 348 employer clients as of June 30, 2013, up 46% from a year earlier, including Bon Secours Health System, Brooks Brothers, Columbia Sportswear and Fender Musical Instruments.  The company says it had served 20 million consumers on its platform as of June 2013.

It’s a promising market, but also a highly competitive one.  BenefitFocus lists as competitors in the employer space software vendors SAP, Oracle/PeopleSoft and Infor/Lawson; the private exchanges of Aon/Hewitt and Towers Watson; and payroll companies like ADP and Paychex.  In the insurance market, competitors include traditional payer vendors like Trizetto and DST Health Solutions—as well as the plans themselves, many of which have built internal benefit management solutions.

On the bright side, BenefitFocus has very little debt.  But all-in-all, this is an IPO that’s hard to get excited about.



EMR Adoption Is Rising — But You Knew That

December 5, 2011

A Centers for Disease Control and Prevention survey shows that adoption of electronic medical records and electronic health records is rising among office-based physicians.  Keep in mind that the word “adoption” means different things to different people (see the definitions used by CDC), and we still lag other nations by a lot.


U.S. Lags in Electronic Medical Record Use

October 19, 2011

From the Commonwealth Fund:

Aetna to Use Medicity to Push ActiveHealth Apps to Providers

March 30, 2011

Aetna Inc. (Hartford, CT) will use the acquisition of health information exchange company Medicity as a platform for pushing clinical decision-support applications to providers – a cornerstone of the company’s ACO strategy – according to Meg McCarthy, executive vice president of innovation.  McCarthy made the comments at the Next Generation in Managed Care IT forum in New York this week, noting that while Medicity has a “good, strong core business,” the strategy is to leverage the Medicity platform to offer applications from Aetna’s ActiveHealth clinical decision-support division.  Expanded coverage appears in this month’s ACO Market News.

Why IT Will Rule the Future of Health Plans

January 13, 2011

It is my view that managed care information technology will play an increasingly important role in the future survival and success of health plans.  That’s why I’m happy to announce such a strong agenda of speakers for our second annual Next Generation in Managed Care IT conference, Monday, March 28, 2011 in New York City.  (Yes, I know, this is basically an ad I’m writing here; but last year’s event was sold out, so I thought I’d give you all a heads up).

Here’s the line-up of speakers and the agenda.  I’ll be moderating the day’s proceedings.  (Despite that, you really should attend; it’s going to be an information-packed day).  Click here to register.

Keynote Speakers

Joseph Brand, Chief Technology Officer, Horizon BCBS of New Jersey

Meg McCarthy, EVP of Innovation, Aetna Inc.

Bill Wray, CIO, BCBS of Rhode Island


Featured Speakers

Anne-Marie Audet, VP, Quality, Improvement , Efficiency, Commonwealth Fund

Peter Goff, Acting Senior Director, IT, Alameda Alliance For Health

Pamela Larson, Director, Consumer Health, Kaiser Permanente

Tom Lutzow, CEO, Independent Health Plan

Carl Mercurio, President, Corporate Research Group

John Moore, Managing Partner, Chilmark Research

Jeffrey Pankow, Director IT, Excellus BCBS

Troy Stillwagon, Director of Information Systems, Scott & White Health Plan
Jessica Zabbo, Provider Technology Supervisor, BCBS of Rhode Island 

mHealth in 2011?

January 6, 2011

mHealth is #49 on JWT’s list of 100 Things to Watch Out for in 2011 (Hat tip: Infectious Greed), right between #48 Matcha (i.e., Japanese green tea powder, which isn’t nearly as unpalatable as natto, but still not high on my list of treats) and #50 Michael Jackson Lives On.  Notes JWT:

Look for mobile health apps to help improve health care and change the way patients and their physicians interact (think doctors using smartphones to access patients’ medical histories, patients monitoring their own blood pressure and glucose levels)….With 500 million people forecast to be using mobile health apps by 2015, global opportunities in this market are valued at as much as $60 billion.

I’ll watch.  But with mobile browser usage at just 3% of total browser usage — and healthcare a subset of that — my guess is 2011 is way too early for mHealth.  Of course, given that I still can’t figure out if my mobile phone has a speakerphone feature, perhaps I’m not the best guy to make this call.

What’s Availity Worth?

December 13, 2010

Assuming the going rate for healthcare information exchanges (e.g., Medicity, Axolotl) is eight to 10 times revenues, Carl McDonald of Citi posits that Availity could be worth about $1 billion.  Aetna announced it was acquiring Medicity for a fat $500 million, while UnitedHealth bought Axolotl for a undisclosed sum.  Humana owns 22% of Availity, which suggests its stake could be worth more than $200 million, McDonald says, or about 2% of Humana’s market cap.

Analysis: Aetna Jumps into HIE Market Acquiring Medicity

December 8, 2010

by John Moore
Chilmark Research

First it was United Health Group’s (UHG) Ingenix Division’s acquisition of leading HIE vendor (and top competitor to Medicity) Axolotl. Then this morning Aetna counters by acquiring Medicity. In just a few short months these two payers have completely changed the landscape of the HIE market by acquiring the two leading HIE vendors in the market today. Now that both of these vendors are in the hands of payers what are the implications both to the HIE market and more broadly the healthcare sector? Following is our assessment based on our continuing research of the HIE market and a number of interviews today, not only with the Aetna and Medicity, but also several other active participants in the HIE market.

The Deal:
Aetna acquired Medicity for a King’s ransom of $500M, a handsome multiple of Medicity’s 2010 gross revenue. Medicity will operate as a separate entity under the Aetna brand maintaining its current headquarters in Utah. According to Medicity, initial conversations began in late October/early November and quickly accelerated to the deal announced today. Aetna plans to close the deal before the end of year. As part of the deal, the senior management team of Medicity has agreed to stay in place for the next few years.

The Motivation:
While some may argue that Aetna was simply looking to counter the move by UHG or Aetna’s new CEO was looking to make a mark, Chilmark sees a more thoughtful and strategic move at play here which in the end may justify the price paid.

With the passage of the healthcare reform and subsequent actions by CMS, the industry is moving towards a shared risk payment model based on Accountable Care Organizations (ACOs) and Patient Centered Medical Home (PCMH). The implications are many-fold but a couple of big ones are:

Self-insured employers will begin directly contracting with ACOs, relegating payers to the low margin role of a third party claims administrator (TPA). This is already starting to happen and will accelerate in the future. Therefore, payers need to rethink what their value-add is to the market in this changing landscape to maintain healthy margins. It appears that both UHG and Aetna see their role as leveraging their core competency in IT as both of these companies have been clear leaders among payers in the innovative and effective use of IT.

As new payment models are introduced and IDNs move to an ACO model, diagnosis-related groups (DRGs) will expand their definition in both directions and these ACOs will need solutions to help them more effectively manage risk across an expanded definition of care. This is a daunting challenge for IDNs who today struggle with just managing their physicians and affiliated practices, let alone risk. This will likely force closer relationships between ACOs and payers as a payer’s core competency is indeed managing risk and ACOs look to tap that expertise.

The Outcome:
For Aetna it’s quite clear: Link Medicity to their care management/CDS solution, ActiveHealth, to deliver best practice medicine at the point of care thereby morphing Medicity’s existing market presence and network from one of just data pipes, to intelligent pipes. Also, having ownership of Medicity may allow Aetna the opportunity to obtain much better, timely and accurate population health data to more effectively manage risk and concurrently create more personalize benefit plans for their customers.

For Medicity it is less clear. Yes, they now have a huge public company backing them and viability will no longer be an issue, but there is that thorny issue of payers being so close to clinical data, something that makes many in the industry uncomfortable. In the near-term, Medicity will likely lose several prospects to competitors and several current customers may rethink their relationship with Medicity going forward. Both Aetna and Medicity will need to be extremely artful in their messaging to the market to belay fears and minimize these defections for at least in the case of the Ingenix/Axolotl deal, Ingenix had a history of neutrality and their solutions are used by many payers. But in the case of Aetna/Medicity, Aetna has less of a track-record demonstrating such neutrality.

For the broader market there are a few clear outcomes:

  1. Analytics will play an ever increasing role in healthcare as we digitize the sector through the HITECH Act and the accelerated adoption and use of standards (e.g. IHE stack in HIE market).
  2. Administrative and clinical data will increasingly become co-mingled as healthcare/payment reform takes hold. The solutions available today to assist with managing that data and delivering it where it is needed when it is needed are still immature. Acquisitions such as this and others to come will focus on addressing this need/opportunity.
  3. The high valuations paid for both Axolotl and Medicity are reminiscent of the dot-com days of yore though unlike those dot-com brethren, both Axolotl and Medicity had clear brand equity, were neck and neck leaders in the HIE market and have impressive customer-bases. The few independent HIE vendors left are likely thinking big acquisition thoughts of their own but those may be pre-mature as leaders in any market always get the highest valuation. But what is certain is that in 12-18 months time there will likely not be an independent HIE vendor left in the market.

UnitedHealth vs. McKesson

August 26, 2010

Solid – albeit cheerleading – take by Bloomberg on how UnitedHealth and McKesson are looking to cash in on the need among health insurers to upgrade information technology systems to meet the requirements of healthcare reform.  The article quotes a Gartner analyst stating that in general the technology push could lead to acquisitions of care management companies like Click4Care and ZeOmega.  I’ll agree with that.  I’ll also agree that healthcare reform is creating some exciting momentum.  Just remember this is not a nut cracked by simply buying a fancy, paperless care management system.  Hat tip: Credit Suisse

Meaningful Use Perspectives and Resources

July 23, 2010

July 15, 2010 by John Moore  

Everyone seems to have an opinion, or at least has written something, about the final Meaningful Use (MU) Rules that were released on July 13th.  Of the multitude of posts and articles out there on the net, there the top three to get you started are:

  1. ONC Chief, David Blumenthal’s article in the New England Journal of Medicine that was published on the same day wherein Blumenthal provides a clear abstract of the rules (the actual rules are 864 pgs in length and not a bad read if you have the time) in a easy to read and understand format.
  2. Next, head over to the Dell website for a post by their own Dr. Kevin Fickenscher who gives an excellent background on the broader HITECH Act, the origination of the MU rules as well as taking a look at companion rules for Certification of EHRs and the new Privacy & Security rules that were also recently released.
  3. Last, but certainly not least is a visit to John Halamka’s site where he provides a freely available, with no need to provide attribution, deck of slides that gives the big picture view of the final MU rules.

With such great resources out on the net, we at Chilmark Research see little need to write an in-depth review of these rules. That being said, we will provide some quick points of analysis.

1) Clearly, HHS listened to the market and the 2,000 comments it received and has relaxed the final MU rules significantly.  If any provider or hospital is still complaining, well they may be the type to complain no matter what.  These rules, while still challenging for some, are certainly doable.  Time to stop talking and get down to work.

2) Thankfully, probably to the chagrin of payers, the requirements to conduct administrative functions (eligibility checking and claims processing) from within the EHR has been removed.  This has always been a fairly silly requirement as today, much of this process is already done electronically through the Patient Management (PM) system. So no need to duplicate it within the EHR, besides which it would have been tough for many an EHR company to build out this functionality in such a relatively short timeframe.

3) The consumer engagement sections of the MU rules also saw some relaxation, but it was reasonable.  What may prove more interesting here is the new requirement within the certification rules for EHRs that they provide health education resources for consumers within the context of their platform.  This may prove to be a real money maker for the likes of health content providers such as A.D.A.M, Healthwise, WebMD, among others.

4) While understandable that there was some pull-back on health information exchange as we saw in the draft MU rules, we were quite surprised that it was completely eliminated in the final rules for Stage 1.  HHS claims that this was done due to the lack of maturity in the HIE market.  Well, yes and no.  There indeed may not be a lot of multi-stakeholder, publicly-led HIEs today that are actively exchanging data, whether regional or state level, but there is a robust market for private HIEs.  It is unfortunate that HHS pulled back on this one for “information sharing for care coordination” was one of the primary precepts of the original HITECH legislation.  Sure, will likely see something within Stage 2, but that does not get clinicians familiar with the concept today.

5) What really caught us by surprise is a reference in the MU rules (pg 39 to be exact) wherein HHS states that they will not discuss the future direction of Stage 3 at all.  Nothing. Nada.  Does this portend a complete pull-back from Stage 3?  Hard to say, but it is clear that HHS wants to see how well Stages 1 & 2 go over in the market before it makes any further demands on providers and the EHR vendors that serve them.

6) Along with the release of MU rules, HHS also released the final rules for EHR certification.  While having not delved into these deeply, yet, the whole concept of “certification” is fraught with challenges, primary among them, technology lock-in.  It is here where Chilmark believes we will see the greatest challenges to indeed create an environment that fosters innovation, providing clinicians with tools they will readily wish to use while at the same time providing some level of certification. Frankly, we do not believe it can be done. Congress really wrapped an albatross around the neck of HHS when they wrote that into the legislation.

What were they thinking?

E-Prescribing Soars in 2009

April 7, 2010

I’ve been wanting to comment on SureScripts’ 2009 National Progress Report on E-Prescribing released earlier this month, which shows that e-script volume nearly tripled to 190 million in 2009.  My official comment is, “Wow!”  Granted, this still represents less than 20% of total script volume in the U.S. — and most of the e-prescribing activity is in larger, non-rural healthcare settings.  Still, the figures do suggest that e-prescribing is heading for a tipping point.  The only surprise is that it’s taken so long to ramp-up – especially given that e-prescribing clearly has the potential to reduce cost and enhance quality of care. 

‘Managed Care, HIT & ARRA’

April 2, 2010

I had promised you a brief write-up of our recent managed care information technology conference in New York.  Luckily for me, John Moore of Chilmark Research — who spoke at the event — did a very nice write-up and even better agreed to let us reprint here: 


Managed Care, HIT & ARRA

March 30, 2010 by John Moore   

Yesterday, had the privilege to attend and present to a packed audience in New York City for CRG’s conference: IT & the Future of Managed Care: The Next Wave. Unlike most conferences I attend that are predominately focused on either the provider consumer sector of the healthcare market (tomorrow its the local New England HIMSS Chapter’s Annual Event), this event was for payers.  In light of the recent passage of the Healthcare Reform Act, ARRA and the move to digitize providers, they had a lot on their minds, particularly with regards to their future role in the digitization of medical records…. 

Key Event Take-Aways: 

Payers are struggling to develop new cost control models.  The Patient Centered Medical Home (PCMH) is attracting a lot of attention, lots of pilot studies currently underway or will be launched this year.  Remains to be seen as to true efficacy of this care model. 

Telehealth is definitely ramping up, or at least some of the more innovative payers are looking to use telehealth in rural settings. (Of course, we have heard this so many times before and it remains to be seen if this time it is for real, but Cisco among others is making a big push, and with payers behind it, it may actually take hold). 

Payers want to introduce best practices (comparative effectiveness) into the clinician’s workflow to insure that clinicians are complying to well-regarded and uniform standards of care.  Again, objective is to lower costs of care and improve outcomes.  Challenge, however is that clinicians are trained to deal with variability, they thrive on it.  Best practices, standards of care, etc., run counter to clinician training/culture. 

Providing cost transparency/comparisons to consumers to allow them to consider costs as a variable in their healthcare decision making is difficult in many regions of the country as providers do not wish to be compared on costs and are reluctant to share such information. 

Payers, as they have been for a number of years, are promoting collaborative care but are still running into significant challenges in making this happen.  The usual obstacles stand in their way, primary among them is data ownership and trust.  Payers are hopeful that HIE initiatives via ARRA and in the future CMS penalties will finally break this log-jam. 

Significant interest in what Google Health and HealthVault are doing and where are they headed.  Few that I talked to are ready to commit (allow their members to export their claims data) to either platform, but they are having some pretty serious discussions internally as to what they should do. Surprisingly, (then again maybe not) no one at his event ever mentioned Dossia. 

This was a well-run event with some excellent presentations.  Certainly plenty of hand-wringing in the audience as this sector grapples with both healthcare reform and the digitization of the provider sector.  What role payers will play in the future is fairly well-spelled out in the Healthcare Reform Act. Lesser known is what role payers will play within the context of healthcare IT.  Payers believe that they can play an important role in facilitating care (via telehealth, care coordination or clinical decision support tools) but as I told the audience in one of my closing comments: 

Clinicians do respect the role that payers can play to a point, but there is still a level of distrust and do not expect a clinician to allow you to enter the exam room.  Keeping that in mind and respecting it will instill a level of good will that can lead to more fruitful interactions/collaborations in the future.


Managed Care IT Conference

March 28, 2010

I’ll be out Monday at our annual Managed Healthcare Industry Forum on Emerging Technology (See Agenda), but I’ll report on the event later in the week.

Emdeon and Beyond

February 9, 2010

Here’s some interesting data from Emdeon chief executive George Lazenby on adoption of electronic healthcare transactions.  Lazenby, who spoke at the annual UBS healthcare conference, said less than half of Emdeon’s transactions are done electronically — broken down as follows:

Claims: 80-85% electronic (essentially all batch)

Eligibility checks: 34% to 40% electronic (real-time and batch)

Claims status and payment authorization: 15% (real-time and batch)

Remittance: 10%

He described the process of printing and mailing provider payment checks after receiving an electronic claim (essentially converting from electronic to paper) as “ridiculous.”  Lazenby said Emdeon is the market share leader in physician revenue cycle management and is number two in hospital RCM.

VHA, EMRs and Rising Costs

August 26, 2009

The Veteran’s Health Administration has been praised for its ability to deliver high-quality healthcare while controlling costs in part through the use of electronic medical records.

The Congressional Budget Office has released an analysis titled Quality Initiatives Undertaken by the Veteran’s Health Administration, which offers some interesting thoughts on the topic.  (Note: VistA is VHA’s healthcare information technology system, which includes an EMR).

Some proponents of the veterans’ health system have suggested that VistA has helped the Veterans Health Administration hold down cost growth when compared with other federal health programs, such as Medicare. But such comparisons are difficult to make. The substantial changes in VHA’s structure and in eligibility for care make it particularly difficult to interpret such metrics as cost per enrollee when enrollment was rising dramatically from 1999 through 2002….(CBO) adjusted enrollment data to account for changes in the mix of enrollees and found that VHA’s spending per enrollee was relatively flat from 1999 through 2002, but since that date it has risen about as rapidly as spending per enrollee in the Medicare program. It is likely that rapid increases in annual appropriations for VHA, efforts to reduce waiting lists within the system, and expansion of mental health and other specialized services have contributed to the recent growth in spending per enrollee. 

VHA Spending
Here are some other interesting bits of information from the study. 

Did you know?…Of the 8 million VHA enrollees, 31% also have private health insurance (79% have some type of non-VHA coverage, e.g., private, Medicare, Medicaid, Medigap or Tricare).

Did you know?…VistA source code is available free from VHA.  Healthcare organizations must pay any adaptation, installation and training costs, which can be considerable.  But the software is proven.  Just ask Midland Hospital (Midland, TX).

Did you know?…Along with VistA, other factors in VHA’s dramatic improvement in quality included implementation of an external peer review program, performance incentives, and “the reorganization of VHA from a centralized system to a set of regional networks funded on a capitated basis—that is, based on the number and type of patients each network serves, rather than on the number of medical procedures performed or on historical budgets.”

Did you know?…VHA’s integrated delivery system includes 150 medical centers, 900+ outpatient clinics, and facilities for counseling and long-term care. In 2008, VHA treated 5.1 million or 22% of the nation’s veterans, at a cost topping $40 billion.

U.K. EMR’s Hard Lessons

August 20, 2009

Interesting piece in the Financial Times on the possible death of the U.K.’s national electronic medical record initiative–a program conservatives have vowed to scrap if they win the next general election.  Lesson 1: Getting everyone wired in healthcare isn’t easy.

Under a Conservative government, development of the local record – exchangeable between primary care physicians and their local hospitals – would continue. Nationally, clinicians would still be able to seek access to it when needed from the doctors who would hold it locally. But the idea of a national database of patients’ records, instantly available in an emergency from anywhere in the country, would disappear….

The Conservatives’ decision to scrap the central database is a symbolic moment for a £12bn ($20bn, €14bn) programme that has struggled to deliver from day one. It is currently running at least four years late – and there looks to be no chance in the foreseeable future of its delivering quite what was promised.

So what went wrong? Too much ambition, too much speed, too much centralisation, too little local ownership and not enough choice have been just some of the problems.

Emdeon IPO: Proceed With Caution

August 11, 2009

If you believe The Wall Street Journal, there’s a lot of buzz about the IPO of revenue cycle management company Emdeon, which is planned for this week.  Why?  I don’t know. 

That’s not to say the stock won’t pop as investors salivate over the prospect of billions of dollars in stimulus spending and growing healthcare information technology investment.  But this offering shows all the signs of stakeholders looking to cash in on the favorable market perceptions surrounding healthcare IT.

“The motivation behind the public offering seems to be heavily skewed in favor of its existing stakeholders, not the company itself,” says Morningstar analyst Alex Morozov, adding, “I’d be very wary of Emdeon’s future prospects.”

Why the skepticism?  For starters, Emdeon comes with a lot of baggage: $800 million in debt, $156.8 million in deferred tax liabilities, and $1.6 billion in goodwill and intangible assets. (Intangibles and goodwill make up 75% of total assets).

Margins are tight.  The company posted 2008 net income of just $9.2 million on revenues of $856.3 million — a scant 1% net margin.  Things were better through six months of 2009, with net margin at 3% on revenues of $444 million.  Annual revenue growth rate, meanwhile, has been in the single-digits.

Yes, there’s an upside.  But given the highly competitive nature of the healthcare IT market, the uncertainties surrounding healthcare reform, and the fact that Emdeon is as much about administrative paper pushing as anything else, this is an investment to pursue with caution, not excitement.

Plus, I’m skeptical anytime a transaction is so complicated it requires two organizational diagrams just to tell me who owns what pre-IPO and who will own what post-IPO. 

Public shareholders would own close to 19% of Emdeon following the IPO.  The rest would be owned largely by affiliates of private equity firms General Atlantic and Hellman & Friedman. Emdeon in turn would own 77% of its principal operating unit EBS Master, while affiliates of H&F would own nearly 20% and management, employees and others about 3%.

Thus, Emdeon’s net income would be reduced 23% to reflect the share of EBS profits attributable to others.  Remember that 3% net margin through six months of 2009?  That would be 4% without the prorated reduction in Emdeon’s earnings

Where do the IPO proceeds go?

Assuming an offering price of $14.50, Emdeon expects to raise $142.7 million in net proceeds from the sale of up to 24.7 million Class A shares.  The company said it would use the proceeds for working capital – and perhaps acquisitions or to pay down debt.

About $5 million of the net proceeds would go to Emdeon chief executive George Lazenby, chief financial officer Bob Newport, and executive vice presidents Gary Stuart and Phillip Hardin in exchange for a portion of their EBS equity. Emdeon expects certain tax advantages from these exchanges; however, 85% of any tax savings would be attributable to sellers of the EBS equity.

Furthermore, owners of EBS equity would be issued 26.4 million shares of Class B common stock, which would be convertible to Class A stock on a one-to-one basis; again, any tax advantages would be 85% attributable to the Class B shareholders.  Fully diluted shares outstanding would be 114.9 million, suggesting the company is valuing itself at $1.7 billion.

And you thought a night’s stay in the hospital costs a lot.

Addition (Aug 13, 2009; 10:57 a.m.): On Aug. 12, Emdeom successfully completed an initial public offering of 23.7 million shares of common stock for $15.50 per share.  Shares closed at $16.52, up 6.6%.

What’s the Difference Between George W. Bush and His Cousin Jonathan Bush?

August 6, 2009

Jonathan Bush started a successful business.

Bush is co-founder of AthenaHealth (Watertown, MA), which helps physicians improve billing, collection and work-flows through the use of software delivered via the Internet.  (Click here for an Q&A with Bush and here for his appearance on CNBC; note: he’s kind-of loud).

Athena reported second-quarter revenues of $46.7 million, up 42% from a year earlier, and net income of $3 million, up 7%.  Some 2Q09 milestones:

  • 13,591 active physicians using athenaCollector, up 31%
  • 20,323 active medical providers using athenaCollector, up 50%
  • 1,043 active medical providers using athenaClinicals, up 109%
  • 624 active physicians, using athenaClinicals, up 70%

One of the things that impressed me about Athena early on was management always seemed to have a strong grasp of the challenges facing physician groups and the promises and limitations of   technology — in short, they know what works and what doesn’t. 

That understanding could have broader implications now that the Obama Administration has appointed Athena co-founder Todd Park, 36, to chief technology officer for the U.S.  Dept. of Health and Human Services.  Park was also a big Obama campaign donor and a senior fellow for the liberal Center for American Progress.

Oh well, at least he knows what he’s talking about.

UnitedHealth Processes 60 Billion Transactions Annually

July 2, 2009

UnitedHealth Group has published a white paper titled Health Care Cost Containment – How Technology Can Cut Red Tape and Simplify Health Care Administration, which provides some interesting ideas on how IT can reduce healthcare costs.  Perhaps the most interesting part, however, are the details about United”s own operations:

UnitedHealth Group’s 12,000 technology professionals oversee 30 terabytes of health care data and invest seven million hours annually in application development. In funding and arranging $115 billion of health care we interact with over 5000 hospitals and 650,000 physicians across the country. Each year our technology systems process 60 billion transactions and support 82 million calls, routed to 20,000 customer service agents….

UnitedHealth Group now has 30 million magnetic swipe cards in circulation that would eliminate much red tape for patients, but full adoption will require greater uptake of matching technology by doctors’ offices and hospitals across the nation….

UnitedHealth Group’s OptumHealth 2008 survey of physician practices found that 20 percent of physicians were submitting all claims electronically, 6 percent were receiving all remittance advices electronically and only 3 percent were receiving all payments electronically. Larger numbers of physicians were using a combination of paper-based and electronic systems: 68 percent for submitting claims, 57 percent for receiving remittance advices and 47 percent for receiving payments. When asked what prevented them from fuller adoption of electronic claims processing and payment, those surveyed cited physicians’ preference and the lack of a reliable, easy-to-use system that encompassed all payers….

UnitedHealth Group’s commercial business already delivers 55 percent of claims payments and remittances electronically to more than 400,000 health care professionals nationwide. The largest electronic claims payment systems include Emdeon, Payformance and OptumHealth Electronic Payments and Statements.

(Hat tip: Scott Fidel, Deutsche Bank)

Good News, Bad News for Healthcare IT

December 15, 2008

Corporate Research Group just completed its report on emerging information technology in healthcare, and the results were hardly surprising. 

The good news is that the technology really does seem to work.  Whether it’s e-prescribing, electronic medical records or real-time claims adjudication, providers and payers can point to solid examples of how technology is reducing administrative costs and improving quality. 

Increased use of generic drugs, fewer adverse drug reactions, and improved adherence to disease management programs are just a few examples. 

The bad news?  Rollout of these technologies remains painfully slow and scattered.  In many cases, providers are reluctant to pay for and install new systems unless they receive subsidies from health plans, government or others.

E-prescribing script volume still represents just 2% of the total number of scripts written annually in the U.S.   EMR adoption is growing, but the healthcare community has just barely scratched the surface when it comes to the potential benefits.  As for real-time claims, they make up less than 1% of the total claims adjudicated in the U.S.; although real-time eligibility checks have been growing rapidly.

Our concern is that in these tough economic times, cash-strapped healthcare organizations will find it even harder to invest in information technology.  That would be bad for eveyone.

All the Small Things Make Healthcare IT Big

September 23, 2008

If there’s one thing I get from reading the newly released report “Trends and Innovations in Health Information Technology,” from America’s Health Insurance Plans, is that there is no single big thing happening in healthcare information technology.  Instead, there are lots of initiatives of varying scale and scope that together hold the possibility of dramatic change, and dare I say it, real progress in wiring America’s healthcare system. 

I’ve been covering healthcare IT since the eHealth boom and bust that coincided roughly with the Internet bubble.  It’s been a long road back.  And despite the cheerleading by the AHIP report, which states that “from 2003 to today, health IT in the U.S. has undergone a complete transformation,” there is still a long way to go. 

The key, I think, is to ignore the totality of over-hyped visions of what healthcare IT can achieve, and instead focus on the nuts and bolts technologies that bring real efficiencies, savings and improved quality.  “Some of the things we’ve been talking about all these years we’re starting to be able to actually do,” a representative from a major IT vendor told me recently.  I think she might actually be right.

Don’t Fear the Reaper; But as for the Blue Screen of Death…

August 27, 2008


Is The ePrescribing Revolution Finally Here?

August 26, 2008

We’ve been asking this question for about a decade now.  And every time we hook up with Glen Tullman, chairman of e-prescribing company Allscripts Healthcare Solutions, we ask him.  The stock market still blows hot and cold on the concept.  Despite recent gains, shares in Allscripts are down about 26% for the year.  But given some favorable tailwinds driving e-prescribing, we thought you might be interested in this Aug. 25, 2008 video of Tullman being interviewed by Jim Cramer on Mad Money about the future of Allscripts.  And for additional perspective, here’s our video interview  of Tullman back in October 2007 at the Nasdaq Market Site covering some similar themes.

In The ‘You’ve Got To Be Kidding’ Category

August 26, 2008

The readers of Modern Healthcare have voted Revolution Health chairman and America Online founder Steve Case this year’s most powerful man in healthcare.  I guess controlling an 18-month-old web site built largely on acquisitions makes you pretty powerful these days. 

Don’t get me wrong.  I’m sure Case is a spirited entrepreneur and a man with a vision.  And his health and wellness site is piling up the usage stats.  But the most powerful man in healthcare?  That’s a stretch.  It’s a stretch even if you include Revolution’s investments in retail clinic provider RediClinic and online health insurance agent Extend Health.  Frankly, I’d like to know which if any of these operations are actually making money.  Memo to Steve: please email me a balance sheet and an income statement. 

By the way, number two on this year’s list is Eric Schmidt, chairman of Google.  Number three: Bill Gates, chairman of Microsoft.  Both Google and Microsoft are trying to do something philosophically similar to Revolution, i.e., increase the role of technology and consumerism in healthcare. 

You certainly can’t rule out these big boys.  But there’s an awful a lot of hype here.  Remind me again how Microsoft has fared over the years in content development, cable television, interactive TV, and its hostile bid for Yahoo!  And how did the merger of AOL and Time Warner fare at the nexus of online, media and entertainment?  Yeah, that’s what I thought.

Way Cool iPhone Apps for Your Health

August 22, 2008

Dude, you can now use your iPhone to access all kinds of web-based health and wellness applications and information.  As this article in the Chicago Tribune points out, you can view your health records, store digital x-rays of your broken foot, and research medications you’re taking.  Or you can, like, just call your doctor instead.


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