Employer Health: Direct Healthcare Providers

A multi-part series on investment opportunities in employer health businesses

With healthcare costs continuing to climb, a host of innovative businesses have emerged to help employers better manage those expenses while improving employee wellness and satisfaction.

In this article series, Harris Williams senior professionals from our Healthcare & Life Sciences (HCLS) Group explore the key subsectors of the growing employer health industry.

Here, James Clark, a managing director, and Nick Owens, a director, explore the increasingly relevant and steadily growing direct healthcare segment, what makes it appealing to investors, and which four qualities set the most promising providers apart.

More Relevant and Valuable Than Ever

Worksite clinics are actually a decades-old concept: The country’s largest managed care organization, Kaiser Permanente, grew from the clinics that were formed to provide care for shipyard and steel mill workers at Henry Kaiser’s manufacturing facilities before World War II.

In recent years, worksite clinics have become increasingly popular. Employers have viewed them as a way to increase employee productivity and control cost and service quality in the face of ballooning healthcare spending. One-third of organizations with 5000 employees or more now provide general medical services at or near the worksite (up from 24% in 2012), with growing penetration across industries (Figure 1).While impressive, that still leaves significant room for growth.

Figure 1: Growth in worksite or near-site clinics

directhealthcare-graph2-web_0.png

Source: Mercer’s National Survey of Employer-Sponsored Health Plans

The $2.7 billion market for direct healthcare service is expected to reach $4.0 billion by 2021 as more employers look to reduce healthcare costs, improve access and retain employees (Figure 2).2

Figure 2: Direct Healthcare Set to Reach $4.0 Billion

directhealthcare-graph3-web_0.png

Source: Kaiser Family Foundation, Willis Watson

Indeed, the COVID-19 crisis has highlighted direct healthcare providers’ substantial value proposition for employers and amplified their appeal to potential buyers, say Clark and Owens.

“The leaders in this space have been incorporating telehealth and virtual health platforms prior to COVID-19, which has enabled them to smoothly transition to a world in which so many people are working from home,” says Owens. “Many direct healthcare providers can provide care for people more easily and safely than conventional physicians’ offices thanks to their advanced adoption of telehealth technologies and practices.”

Owens adds that some providers have also used their technology platforms to provide employee amenities such as at-home fitness classes. Telehealth adoption also enables many direct healthcare providers to provide around-the-clock care, something of particular value to employers and employees during COVID-19.

This is not strictly a telehealth story, however. “Leading providers in the space have also begun to open near-site offices within employee communities,” notes Clark. “That’s a very relevant offering with so many people not going into offices right now.”

A near-site strategy helps mitigate risk associated with a potential longer-term trend of some portion of the workforce permanently moving to a work-from-home environment. Near-site facilities provide even more convenient access points for employees and enable direct healthcare for family members, increasing the value proposition to employees and further enabling employers to control healthcare spend. 

Addressing a Growing Need in the U.S. Health System

Even prior to COVID-19, worksite clinics have delivered a wealth of benefits to employers and their employees, including lower healthcare costs, improved coordination of care, greater employee productivity and improved employee recruiting and retention. According to the National Association of Worksite Health Centers, half of employers reported a return of 1.5x or higher after implementing direct clinic programs. 

bigstock-medicine-doctor-s-working-plac-98538215_0.jpgBetter coordination in service delivery contributes to lower overall costs through the reduction in unnecessary specialty care and emergency room diversions. In a 2016 Johns Hopkins survey, providers with on- or near-site clinics reported a 64% reduction in medical care costs and a 63% reduction in the use of the emergency room. There is also significant downstream value realized through the prevention of chronic disease. Shortages of primary care access in parts of the U.S. create long wait times and delayed treatment, which increases the prevalence of chronic disease. Establishing direct healthcare clinics allows employers to ensure access to care for their covered population. 

Other non-direct cost benefits are substantial. For instance, on-site and near-site clinics improve employee productivity through easier and more convenient access to care and faster time to treatment. According to the National Association of Worksite Health Centers, 97% of direct clinics have an average wait time of less than 10 minutes. And Johns Hopkins reports a nearly 70% reduction in time lost by employees leaving work to see an outside medical provider.

The employer can also significantly impact employee well-being on many levels. Direct clinics allow employers to influence both physical and emotional well-being, particularly if the worksite clinic offers behavioral and mental health services. This is an important opportunity: Just 41% of employers believe current benefits programs meet employee needs, while 83% think it is important to enhance overall well-being in the coming years.3

A strong value proposition for employers paired with considerable investments in clinics further boosts the “stickiness” of direct healthcare providers, as well as their appeal to potential buyers. “We definitely saw that appeal during the sale of Premise Health,” notes Clark, citing the provider as an exemplar of an innovative direct healthcare player.

Four Qualities of Leading Direct Healthcare Providers

What should buyers be looking for in this segment? Four key factors enable leading direct healthcare providers to outpace competitors and achieve outsized growth.

  1. Diverse service offering: Clinics can range from a single nurse to the full replacement of primary and preventive care, fitness, physical therapy, chiropractic care, dental, mental health and pharmacy services. The more diverse the offering, the greater benefit the clinic can bring to employers and employees. For example, 66% of surveyed employers will emphasize mental and behavioral health over the next three years,4 and clinics with a diverse offering can serve these needs. 

  2. Ability to demonstrate improved health outcomes and other benefits: Operators that can show improvement along key metrics have an attractive story to propel their growth. Investors look for those operators that can track and demonstrate benefits, such better employee health, lower cost to the employer or better adherence to wellness programs. Other critical metrics include employee productivity improvement, such as reduction in lost work days, efficiency, such as average wait times, and employee engagement and satisfaction. Robust analytics and data management capabilities are essential to achieving this level of visibility. They also can enable digitized health records and lab results as well as mobile phone scheduling, all of which allow operators to expand their reach for large employers.

  3. Diverse Access Points: gettyimages-1188431778.jpgHow can direct healthcare providers stay relevant in a world where so many more people are working from home? By making it easier to access services via near-site clinics and telehealth. Going forward, successful direct healthcare providers will operate more clinics in the communities where employees live, providing an attractive alternative to public healthcare access points. They will also provide telehealth programs that leverage their existing physician base and directly integrate into electronic health record systems, enabling consistent tracking of data required for population health management. Telehealth is expected to grow significantly in coming years, with 89% of employers expecting to offer coverage for telehealth services by 2021, up from 72% in 2019.5 Providers that have well-established virtual health platforms will be best positioned to reach a broader universe of covered lives in the post-COVID-19 landscape. 

  4. Ability to extend to risk-taking payment model: Innovative leaders in the sector have begun to explore risk-based payment models, which compensate them for improved outcomes. A prerequisite for taking risk is a proven ability to accurately track data, improve outcomes and control costs across a population. These risk-based payment models enable direct healthcare providers to share in some of the savings generated for employers, thereby enhancing profit margins. 

Conclusion

A valuable employee benefit for decades, direct health has rapidly gained relevance since the onset of the COVID-19 crisis. With advanced adoption of telehealth and easily accessible office locations, direct healthcare providers make it easy for businesses to keep their employees happier and healthier, during and after a pandemic.

They also can deliver better, more coordinated care at a lower cost than traditional healthcare providers, earning them a protected spot in many providers’ rosters of key vendors. To tap into the growing value of this opportunity, potential buyers should prioritize assets with four key qualities that set them apart from others.

Click here to read the first article in this series.


Published July 2020
Sources:
1. “Worksite Medical Clinics: 2018 Survey Report,” Mercer LLC, 2018. 
2. Kaiser Family Foundation, Willis Watson.
3. “Best Practices in Healthcare Employer Survey,” Willis Towers Watson, 2019.
4. ibid.
5. ibid.
 

Investment banking services are provided by Harris Williams LLC (“Harris Williams”). Harris Williams is a registered broker-dealer and member of FINRA and SIPC. Harris Williams & Co. Ltd is a private limited company incorporated under English law with its registered office at 8th Floor, 20 Farringdon Street, London EC4A 4AB, UK, registered with the Registrar of Companies for England and Wales (registration number 07078852). Harris Williams & Co. Ltd is authorized and regulated by the Financial Conduct Authority. Harris Williams & Co. Corporate Finance Advisors GmbH is registered in the commercial register of the local court of Frankfurt am Main, Germany, under HRB 107540. The registered address is Bockenheimer Landstrasse 33-35, 60325 Frankfurt am Main, Germany (email address: hwgermany@harriswilliams.com). Geschäftsführer/Directors: Jeffery H. Perkins, Paul Poggi. (VAT No. DE321666994). Harris Williams is a trade name under which Harris Williams LLC, Harris Williams & Co. Ltd and Harris Williams & Co. Corporate Finance Advisors GmbH conduct business.

The information and views contained in this presentation have been prepared in part by Harris Williams. Harris Williams is a subsidiary of PNC Bank, National Association (“PNC”), and this presentation also contains information and views provided by PNC. This presentation does not purport to be comprehensive or to contain all the information that a recipient may need in order to evaluate any investment or potential transaction. This presentation is not a research report, as such term is defined by applicable law and regulations, and is provided for informational purposes only. Any and all information, including estimates, projections and other forward-looking statements, presented in this document may involve various assumptions and significant elements of subjective judgment and analysis which may or may not be correct. Harris Williams has not independently verified, and neither Harris Williams nor any other person will independently verify, any of the information, estimates, projections or forward-looking statements contained herein or the assumptions on which they are based. The information contained in this document is made as of the date hereof unless stated otherwise. Harris Williams does not expect to update or otherwise revise this document nor provide any additional information, nor correct any inaccuracies herein which may become apparent.

The information contained herein is believed by Harris Williams to be reliable but Harris Williams makes no representation or warranty as to the accuracy or completeness of such information, and information contained herein that is based on material prepared by others may involve significant elements of subjective judgment and analysis which may or may not be correct. Opinions, estimates and projections in this presentation constitute Harris Williams’ judgment and are subject to change without notice.

This presentation is not to be construed as an offer to buy or sell or a solicitation of an offer to buy or sell any financial instruments or to participate in any particular transaction, nor shall this presentation form the basis of any contract. It does not constitute and should not be construed as an endorsement or recommendation of any entities’ products or services.

No part of this material may be copied or duplicated in any form or by any means, or redistributed, without Harris Williams’ prior written consent.