The long-awaited opinion issued in late June by the U.S. Supreme Court clarified the constitutionality of the Patient Protection and Affordable Care Act of 2010 (“PPACA”). The Court ruled that the requirement that every American carry health insurance is a tax and as a result, is constitutional. The ruling permits the federal government to pursue a broad expansion of the Medicaid health program for the poor.
When you wade through the opinions of the supporters and non-supporters, all agree that the real winners with healthcare reform, regardless of the final details, will be those who can control costs, provide the same service at lower costs, and provide better care with better outcomes without increasing cost.
In anticipation of the October 2012 change, by the Center for Medicare and Medicaid Services (CMS), to a value or outcome based reimbursement, hospitals have been snapping up physician practices. The goal of the consolidation is to align interests, improve patient outcomes, and lower overall expenses associated with hospitalizations. The development of Accountable Care Organizations (ACO) under the new law will only add to service provider consolidation over the next year, as skilled nursing facilities, ambulatory surgical centers and home health providers await the implementation of same value-based reimbursement schedules from CMS.
In an effort to prepare for the heightened requirement to improve the efficiency of the system, healthcare providers have invested impressive amounts into electronic medical records and other health care information technologies. As a result, the healthcare technology and software (e-Health) sector has experienced significant merger & acquisition and investment activity.
According to data collected by Capital IQ, the e-Health sector has experienced just over 70 announced merger or acquisition transactions through the first half of 2012. At this rate this sector is on target to eclipse the past three year historical average by over 30%.
Interest in e-Health by private equity firms is also evident by the pickup in the acquisitions made by PE firms. Pitchbook reports that through the first half of 2012, technology systems have accounted for 20% of the health care industry M & A deals, up from just 12% in 2011.
The increased interest in e-Health is even more pronounced when looking at the capital invested in this sector. According to Dow Jones VentureSource, venture capital investors poured $633 million into medical software and information services in 2011, which is the highest level of investments the sector has attracted since 2001, when $759 million was raised.
While implementation of new IT systems by healthcare providers will certainly slow, there will always be the need to update and upgrade the systems as the healthcare industry continues to transform. Additionally, with the implementation of enhanced state-of-the-art IT operating systems, health care providers now have access to a wealth of data and information they previously did not have readily available. This access to timely information allows the industry to utilize advanced analytics and business intelligence to drive decisions and changes to operations.
E-Health will continue to be an indispensable part of the transformation of healthcare operations. The research firm BCC (Business Communications Company) estimates that the total clinical healthcare IT market is projected to grow from $7.4 billion in 2011 to nearly $17.5 billion in 2016 – increasing at a compound annual growth rate (CAGR) of 18.7% over the next five years. This growth will surely continue to fuel investment by the growth capital markets and will feed consolidation and merger & acquisition activity.
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