Consumer Healthcare: Checking the Pulse of Investors and Operators

The Harris Williams Consumer Group and Healthcare & Life Sciences Group surveyed consumer healthcare investors and operators in March 2020 and once again in September. We also maintain open and active dialogues with the sector’s leading investors and operators.

Here, senior bankers from both groups team up to discuss how sentiment has changed over that timeframe, how operators have responded to the challenges of the pandemic, and the single-most-important factor for investors seeking high-performing assets in the space.

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M&A Environment¹

There have been a little over 1,170 M&A transactions in the healthcare and life sciences (HCLS) industry since the beginning of 2020, worth roughly $1.2 billion, compared with approximately $233 billion for all of 2019.

Notable recent transactions include the acquisition of Dermira Inc. (NasdaqGS:DERM) by Eli Lilly and Company (NYSE:LLY), InTouch Technologies Inc. by Teladoc Health (NYSE:TDOC) and Decision Resources Inc. by Clarivate Analytics Plc. (NYSE:CCC).

Public Company Performance¹

Stock prices increased for many healthcare and life sciences companies during the past three months. In fact, the Harris Williams HCLS Composite Index increased 6.9%, while the S&P increased 4.9%. Notable sector increases include contract pharma manufacturing (increased 37.7%), assisted living (increased 30.2%) and specialty pharmacy (increased 26.9%).

Industry-wide stock prices have experienced slight decreases as a whole; however, the HCLS Composite Index showed a mild decrease over the past 12 months of 10.8%. At the category level, products and devices grew by 8.2% on average over the past 12 months, followed by provider-based services declining 8% and payor, provider and pharmacy support stock prices declining 9.6%. Specific stock price growth leaders over the past year include medical devices and products (24.4%), specialty managed care (20.6%), and home care, hospice and home infusion (20.4%).

Industry News

Amazon.com Inc., JPMorgan Chase & Co. and Berkshire Hathaway Inc. set out three years ago to join and transform healthcare. Instead, they struggled to solve even fundamental challenges, such as understanding what some kinds of care actually cost. Haven, the joint venture they set up together in 2018 to use technology and find new ways to reduce costs for their combined 1.5 million employees, will end operations next month. The project cost the three companies roughly $100 million combined, people familiar with its budget said. From its inception, Haven faced challenges obtaining data, staff turnover, fuzzy goals and unexpected competition, according to current and former employees and executives at Haven and the partner companies. Those factors doomed the partnership from early on, those people said. Data was a central challenge.²

Hospitals face the new year with new requirements to post price information they have long sought to obscure: the actual prices negotiated with insurers and the discounts they offer their cash-paying customers. The move is part of a larger push by the Trump administration to use price transparency to curtail prices and create better-informed consumers. Yet, there is disagreement on whether it will do so. As of Jan. 1, facilities must publicly post on their websites prices for every service, drug and supply they provide. Next year, under a separate rule, health insurers must take similar steps. A related effort to force drugmakers to list their prices in advertisements was struck down by the courts.³

Providers are the most common targets for cyber criminals leveling attacks against the healthcare industry, with data breaches at provider organizations accounting for 79% of all those reported to the Department of Health and Human Services in the first 10 months of 2020, according to a new report from cybersecurity firm Fortified Health Security. Though the Covid-19 pandemic grabbed most headlines in 2020, patient data breaches, hacking incidents and IT shutdowns continued, providing several cautionary tales for the healthcare industry. From the malware attack that shut down 26-hospital Universal Health Services’ IT systems in September and October to an email hacking incident that exposed the information of close to 500,000 Aetna health plan members, stronger cybersecurity defenses are the need of the hour for healthcare entities nationwide.⁴

Key Credit Statistics²

Select Healthcare & Life Sciences Debt Offerings³

(by deal amount)

Top Equity Offerings⁴

(by proceeds)

Health | Why the Amazon, JPMorgan, Berkshire Venture Collapsed: ‘HealthCare Was Too Big a Problem’¹

Amazon.com Inc., JPMorgan Chase & Co. and Berkshire Hathaway Inc. set out three years ago to join and transform healthcare. Instead, they struggled to solve even fundamental challenges, such as understanding what some kinds of care actually cost. Haven, the joint venture they set up together in 2018 to use technology and find new ways to reduce costs for their combined 1.5 million employees, will end operations next month. The project cost the three companies roughly $100 million combined, people familiar with its budget said. From its inception, Haven faced challenges obtaining data, staff turnover, fuzzy goals and unexpected competition, according to current and former employees and executives at Haven and the partner companies. Those factors doomed the partnership from early on, those people said. Data was a central challenge. Haven struggled to aggregate and analyze information on healthcare costs for the three companies’ employees. Data concerns from the partners and resistance from insurers stymied Haven’s efforts to determine how much the companies paid for medical care, and why, the people said. Haven isn’t the first venture to struggle with the lack of transparency in healthcare costs and data, an issue that has long complicated government reform efforts and technology solutions. A new Trump administration rule, effective this year, is supposed to force greater disclosure of the rates negotiated between hospitals and insurers. As of Jan. 1, hospitals are required to publish the prices negotiated privately with each payer for 300 common services for easy use by consumers, and make public the same information for all their procedures in a format that can be read and analyzed by computers.

Read the article. 

Policy | Hospital Prices Just Got a Lot More Transparent. What Does This Mean for You?²

Hospitals face the new year with new requirements to post price information they have long sought to obscure: the actual prices negotiated with insurers and the discounts they offer their cash-paying customers. The move is part of a larger push by the Trump administration to use price transparency to curtail prices and create better-informed consumers. Yet, there is disagreement on whether it will do so. As of Jan. 1, facilities must publicly post on their websites prices for every service, drug and supply they provide. Next year, under a separate rule, health insurers must take similar steps. A related effort to force drug makers to list their prices in advertisements was struck down by the courts. With the new hospital rule, consumers should be able to see the tremendous variation in prices for the exact same care among hospitals, and get an estimate of what they will be charged for care — before they seek it. The new data requirements go well beyond the previous rule of requiring hospitals to post their “chargemasters,” hospital-generated list prices that bear little relation to what it costs a hospital to provide care and that few consumers or insurers actually pay. Instead, under the new rule put forward by the Trump administration, “these are the real prices in healthcare,” said Cynthia Fisher, founder and chairman of Patient Rights Advocate, a group that promotes price transparency. Here’s what consumers should know: What’s the Scope of the Intel? Each hospital must post publicly online — and in a machine-readable format easy to process by computers — several prices for every item and service they provide: gross charges; the actual, and most likely far lower, prices they’ve negotiated with insurers, including de-identified minimum and maximum negotiated charges; and the cash prices they offer patients who are uninsured or not using their insurance.

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Providers | Vast Majority of Data Breaches Reported to HHS Occur Among Providers³

Providers are the most common targets for cyber criminals leveling attacks against the healthcare industry, with data breaches at provider organizations accounting for 79% of all those reported to the Department of Health and Human Services in the first 10 months of 2020, according to a new report from cybersecurity firm Fortified Health Security. Though the Covid-19 pandemic grabbed most headlines in 2020, patient data breaches, hacking incidents and IT shutdowns continued, providing several cautionary tales for the healthcare industry. From the malware attack that shut down 26-hospital Universal Health Services’ IT systems in September and October to an email hacking incident that exposed the information of close to 500,000 Aetna health plan members, stronger cybersecurity defenses are the need of the hour for healthcare entities nationwide. From January to October last year, 513 healthcare organizations reported a breach of 500-plus patient records to the HHS’ Office for Civil Rights, which impacted about 23.5 million individuals, according to the Fortified Health Security report. The number of reported breaches jumped 18% from 435 breaches reported in the same period in 2019. The report gathered data and information from several sources, including the Office for Civil Rights. Of the 513 reported breaches, 404 occurred among providers, affecting approximately 13.5 million patients. This represents a 20% jump from January to October 2019, during which time 338 providers had reported breaches.

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1. WSJ
2. KHN
3. MedCityNews

1. FactSet

2. S&P

3. PNC Debt Capital Markets

4. Company Filings