In this edition of #CareTalk, CareCentrix CEO John Driscoll and I have a little fun at the expense of our neighbors to the North. Will Canada build a wall along its Southern border to keep out US patients?
(0:43) Are Canadians right to worry that Americans are going to clean out their pharmacies, leaving nothing for the locals?
(1:43) What are “authorized generics” and are they a good idea?
(3:22) Are skilled nursing facilities a piggybank for accountable care organizations?
You’re a middle market private equity firm that’s just signed an LOI with a profitable and growing healthcare company. What started as a proprietary deal turned into a competitive process and you had to stretch toward the top end of your valuation range to win. Now you have a few weeks to complete the due diligence process and close the deal. A boutique consulting firm specializing in M&A for healthcare companies may be your best bet to assist.
What help do you need?
When middle market PE firms hire consultants for commercial due diligence of healthcare companies they usually have a few objectives:
To generate insights on topics that are critical to the investment thesis. There are often macro questions, such as the fate of healthcare reform after an election or the speed of adoption of a new technology. Then there are questions about the competitive landscape and specific competitors, and about market demand and the needs and satisfaction levels of key customers. Sometimes the potential buyer also needs an assessment of the management team and company processes. A PE firm can do some of this work itself, but often finds it useful to leverage additional resources and skill sets, such as the ability to extract valuable information from players throughout the industry on an unnamed basis.
To gain access to an objective third party that can play the role of a constructive skeptic and thought partner, making sure that investors don’t let their desire to close the deal cloud their judgment. The best consultants have the instinct, gravitas and wisdom to challenge consensus thinking and are willing to point out potential pitfalls in a deal and to counsel against proceeding when needed, even if the potential buyer doesn’t seem to appreciate it at the time.
To prepare for a fast start after closing by generating and validating compelling strategic initiatives and tactics.
To get as much high quality support as possible in a tight timeframe while staying within a reasonable budget.
What firm to hire?
Premier strategy consulting firms such as McKinsey, Boston Consulting Group, and Bain have strong due diligence practices serving PE firms. There are solid reasons for their success. These firms can:
Mobilize large teams of highly intelligent consultants around the world to gather and analyze data. They hire the best and brightest from business schools and undergraduate programs.
Leverage their knowledge base and industry networks built from hundreds or even thousands of relevant client assignments. Their proposals often reflect the perspectives and data they have assembled over the years.
Produce high-grade graphical presentations, with professional staff dedicated to consistent, visually pleasing outputs.
Offer their brand name as a seal of approval, which is reassuring to investment committees.
But boutique firms, typically consisting of 3 to 20 professionals, represent a superior due diligence option for middle market private equity firms. Why?
Consultants at boutique firms are often former senior professionals from the big, premier firms. The consultants performing the data gathering and analysis are frequently more experienced than the partners from the big firms, who are mainly selling and managing client relationships while fresh graduates staff the cases. A boutique firm’s consultants don’t need time to get up to speed, which is crucial when the project is only a few weeks long.
Boutique firm consultants are generally better than their big firm peers at thinking like investors and board members. Many gain this perspective by serving as board members of PE or VC-backed companies and as LPs in PE and VC funds. This profile makes it more likely that the consultant will approach the work with a practical, focused mindset, crisply addressing the questions that really matter. This differs from the classic strategy consulting project that employs elegant but often theoretical approaches. In select cases a consulting team member from a boutique firm is appointed to the board as an independent director post-closing, something that is generally not possible with a big firm.
Certain boutique consultants are entrepreneurial and commercially astute. When appropriate, they highlight opportunities for post-closing business development and partnering to help the new owners hit the ground running. Compared with the big firms, there are fewer constraints on introducing clients to one another and aligning with the PE firm for commercial success.
Professional fees for the engagement are usually a fraction of what the big firms charge. There are multiple reasons for this. Boutique teams are smaller and flatter because there are no trainees. Consulting veterans don’t need mid-level managers to watch over them. Everyone on the team pulls their weight; no one is there just to boost the billings. There are fewer fixed overheads like HR, administrative staff and downtown offices to cover, and boutiques are not charging a premium for their brand name. All this means that boutique firms can pay staff as well as the premier firms while still offering compelling value to clients.
I co-founded the company that became Health Business Group back in 2001. At that time most of our clients were former colleagues from my days at Boston Consulting Group who had moved into PE firms or senior management roles at companies. After being on the inside they understood our value proposition. Over the next few years we attracted new business from referrals and networking. Recently, we have been pleased to receive a number of qualified inbound inquiries from our website contact page, which represents a change in how clients find consultants. Middle market PE shops are searching the web specifically for boutique healthcare consulting firms to perform due diligence. After interviewing us and checking our references, they often bring us on board and are pleased with the working relationship and results.
Bruce Jenner’s transition to Caitlyn Jenner has brought transgender issues quickly to the fore. What I had not realized is that major employers and the federal government are well on their way toward providing coverage for transition-related health care. I’m not in a position to comment on the adequacy of the coverage, but just want to make the point that it’s advanced faster than I thought.
According to Business Insurance (Transgender benefits gain attention of employers), the Office of Personnel Management recently required Federal Employee Benefit Plan providers to cover transition-related care, citing an emerging consensus that such treatment is medically necessary.
About half of large employers offer transgender-related surgical coverage compared with 5 percent in 2007, according to a National Business Group on Health survey.
Transgender-related benefits are varied, and include “mental health counseling, hormone replacement therapy and gender reassignment surgery. Some employers… include coverage for facial feminization or reducing the Adam’s apple…” Not every employer offers all categories of benefits.
Private employers aren’t required by law to offer such benefits, but they have various motivations. They include:
An increasing belief that such coverage is medically necessary, and therefore in keeping with the overall philosophy of health insurance
A desire to increase competitive positioning in recruiting –including for employees that do not themselves expect to use such coverage but are looking for employers that are progressive
A realization that the overall costs are likely to be small, typically less than 0.5% of total health care costs
A defensive view that not offering such benefits could lead to discrimination claims
I don’t typically think about insurance benefits being in the social and cultural vanguard, but at least based on this example that may not be a fair assessment.
Early in 2014 I interviewed Massachusetts Governor-elect Charlie Baker (and all the other candidates) about healthcare policy. Now that he’s won the election I have re-posted the interview. I hope to interview him again in the coming months.
Baker has tremendous, relevant experience in healthcare. He was CEO of Harvard Pilgrim Health Care and Secretary of Health and Human Services before that. Healthcare is a huge issue for Massachusetts, so it’s great to have someone at the helm with that background.
Excerpts from the interview are below. The full transcript is available here.
Question 1: Does Chapter 224 represent the right approach to addressing rising health care costs? If not, where does it miss the mark and what would you do differently?
Baker expresses openness to this approach, but only if the Commission and administrators can address three main issues he sees as “fundamental to dealing with the rising cost of healthcare”:
Lack of transparency regarding price and performance. Price variations are “known to many people who currently work in the system, but are not known to those actually receiving the service.”
224 must address the “…roughly 5% of the population who account for 50% of healthcare expenditures.” These are people managing multiple chronic illnesses, who end up “pinballing all over the healthcare system”.
224 has the potential: “to move us in the opposite direction” due to the “enormous amount of administrivia in healthcare.” The state should focus on working with the provider community to reduce the amount of “non value-added” paperwork and bureaucracy within the current system. “There’s a lot of money we’re chewing up that isn’t really adding very much to the patient experience.”
Question 2: Certain provider systems in Massachusetts are reimbursed significantly more than others for the same services even though there are virtually no differences in quality. Does the state have a part to play in addressing these disparities?
Baker believes the state already has the power to “make the system more transparent.” He thinks the state should be “a lot more aggressive” about making information publicly available.
He says providers that do a good job at offering a reasonable price for services should be “rewarded…and given the public recognition they deserve…”
Baker highlights disparities in reimbursements for the same services between Medicare, Medicaid, and private payers, which are known to those within the health care system, but not the general public. “The more sunshine the better. If everybody looks at [this issue] and says we’re fine with it, that’s one thing. But that ought to be something the people are made aware of.”
Question 3: More than a dozen state agencies have a role in health care. Is there an opportunity to consolidate or rationalize them?
Baker is critical of the state’s approach to addressing healthcare issues, saying: “…when we have a problem, we create a new agency.” He believes this approach has the effect of “fragmenting a lot of the decision-making, a lot of the data collection, and a lot of the regulatory activity across multiple agencies.”
Baker says that this leads to conflicting regulatory directions coming from multiple agencies.
He says “there is a big opportunity, to rationalize the way the state works with, and relates to, all the players in the system.”
Question 4: Government policy has encouraged adoption of electronic medical records. However many providers complain about the systems and the benefits have been slow to materialize. Should state government play a role in helping to realize the promise of health information technology?
Baker says the most important role the government can play in this area is requiring provider organizations to use interoperable technology for electronic medical records.
He says the trend has been to develop closed systems that work within providers, but “don’t connect and communicate with anybody else’s system.”
Baker states: “Electronic medical records need to be able to share data with other provider organizations”, and he believes that patients should not be “responsible for owning and carrying around their medical records from…provider to provider.”
Question 5: Hepatitis C is 3 or 4 times more common than HIV. New drugs that can cure the infection are coming on the market this year but they are very expensive. What role should the state play in ensuring that residents are tested, linked to care, and have access to these new medications?
Baker says: “it depends on facts that I don’t believe are currently available to us.” Once more information is collected the state can develop conclusions about best practices using models that have been proven to work in other areas.
He cites his experience in state government, especially the development of strong community-based networks to ensure universal access to vaccines for children. For Hepatitis C, he would “develop a delivery strategy that builds on some of the successes we’ve had with joint efforts with the provider community and the plans before.”
Question 6: There are multiple health care related ballot questions. What are your thoughts about them?
[Note, these ballot questions were withdrawn this summer after the legislature took action.]
Baker says he believes the state “has capacity to create more transparency,” but indicates that he needs to spend more time to get a better understanding on what the state has the ability to accomplish, and whether a ballot question is the best route to address transparency in hospital financial reporting.
On nurse staffing ratios, Baker says “there’s nobody who likes, admires, and appreciates nurses more than me.” When he was in state government he pursued a number of initiatives to help nurses “significantly broaden their portfolio with respect to what they were able and capable of doing under existing and proposed state law and regulation.”
He states that before making a decision on the ballot question, he would seek input from the nursing community, so that his actions don’t “freeze in place the notion that we absolutely, positively, know and understand what it is we think nurses should be doing…”
Question 7: How did your experience as CEO of Harvard Pilgrim Health Care prepare you to be Governor?
Baker says his eight years working in state government and his ten years as CEO of Harvard Pilgrim Health Care give him unique qualifications.
He describes two major things he learned from his past work:
“You have to be able to create a culture of accountability. Set the bar high, hire really good people, and work with the people you have.” But he states that the most important move is to “come up with metrics and ways to monitor performance, and then expect people to perform and achieve to that level.”
The second thing is to create “a real culture of service.” This, he says, is why “Harvard Pilgrim went from receivership to number one in the country for member satisfaction when I was there.” Baker says: “I would like to bring that same maniacal approach to dramatically enhancing and improving the state’s ability to think about service and to deliver service on behalf of the people of the Commonwealth”.
Baker continues: “I would very much like to have the chance to turn Massachusetts into a national model around its ability to deliver a high quality service experience for everybody; people who are looking to get permits, people who are looking to get questions answered, people who are looking for guidance with respect to regulatory policy, and all the rest. “
Question 8: Much of the emphasis in health care reform is on adult patients. Is there a need for a specific focus on children’s health?
Baker says: “Massachusetts has done a good job of covering both its adults and its kids, but I worry about the impact these federal reform laws are going to have on the ability to continue the things that have worked here. And I have been disappointed by the inability of the Health Connector to get anything done, and to work for the people who need to rely on the Connector to get their coverage.”
He continues: “I’m a huge believer in expanding the capacity and support for primary care. That includes pediatrics, which I think is an area that has been neglected by the healthcare system over the course of the past decade or so.”
Question 9: Is there anything you’d like to add?
“I bring a unique blend of public and private sector experience to this job. I’ve been able to demonstrate my capacity to lead and to succeed as a manager and as a leader in healthcare over the course of the past 20 years. I think that’s a really important area for us as we go forward as a state, not just in terms of quality and cost, but also as a major employer and a major source of innovation and entrepreneurship in Massachusetts.”
”I’m a big believer in discipline and focus. I will bring an aggressive approach to making sure the state’s assets are well-managed, if people choose to give me the opportunity to serve as their Governor in 2015 and beyond.”
Welcome one and all to the 53rd running of the HealthCare SocialMedia Review #HCSM. Social media in healthcare is going more and more mainstream, so there’s plenty of good new stuff to profile.
Bad hair day? Wax Impressions offers advice on how to handle a social media crisis. Hint: Don’t wait around doing nothing!
Type a doctor’s name into Google and chances are you’ll find dozens of links, many for physician ratings sites. What’s a poor practice to do to exert some influence on the message? Joe Chierotti has some practical ideas.
Twitter’s new profile has implications for marketers, including those in healthcare. Marie Ennis-O’Connor explains what’s new and what one should do.
Doctors’ lounges are pretty empty these days, but cloud-based lounge equivalents show some promise for keeping up with the latest medical knowledge (and gossip, too). Practice Fusion’s blog advises docs to get their own e-librarian, be social, and gamify. Gamify? I thought that was something you did at the gym.
Whether docs are into it or not the drug pushers are trying gamification with consumers. Zyrtec has a Facebook App that lets allergy sufferers walk a fake dog through a fake park, reports Create Conversation. I wonder if we’ll see any of the generic makers of Zyrtec (cetirizine) put out a cut-rate version of the app, perhaps in black and white.
And finally, MD Connect share five ways docs can used LinkedIn to market their practices. Good stuff.
That’s it for today! Sam Welch at brandgagement is up next!