I’ve resisted writing about the Industry in the Cloud activities in healthcare, until now, for a few reasons. First, the topic is daunting. There is so much jargon and complexity that I did not want to wade into the swamp. Second, and equally important, it just does not excite me. I hate going to see the doctor, I hate hospitals, I hate insurance companies, etc. Third, there is already so much written on the topic.
But, at the end of the day, healthcare is: 17% of our GDP (and source of more than 17% of our needless paperwork), under tremendous pressure to automate, a prime target for Big Data, and a fertile ground for several types of Industry in the Cloud (IC) providers. Finally, when my friend and expert investor, Tom Sabel, says I should write about it, I do.
I’m not a healthcare expert and do not pretend to be. So, dear reader, if you are, feel free to correct and add as you see fit. As I look at the landscape of IC providers in healthcare, I see several different segments:
- ICs focused on the exchange of clinical data through Electronic Medical Records and Health Information Exchanges
- ICs focused on the claims and payments part of the process–connecting payers (insurance companies) and providers (hospitals, doctors offices) (including Revenue Cycle Management)
- ICs focused on the supply chain of the provider (hospital)
- ICs focused on the clinical trials process in pharma
This area tends to get the most press as the Recovery Act included incentive payments for care providers to attain “meaningful use” of electronic medical records. The EMR software providers differ by size of practice, specialty, etc. but they are folks like McKesson, GE, AthenaHealth, Cerner, NextGen, Meditech and the list goes on and on. Definitely a crazy hot area where the competition must be brutal. The exchange of data between these systems should drive down medical costs by reducing errors, improving quality measures, and eliminating paperwork. Once all of this data is digitized, Big Data proponents are excited about their ability to mine the data for all sorts of findings.
Payments and Claims
These systems are closely related to the EMR systems above and are also provided by some of the same vendors. But these systems are more focused on the process of submitting claims and getting reimbursement from insurance companies for services provided. (This where Emdeon, which I have written about previously, plays.) Not unlike the procure to pay market in other categories, some companies specialize more the in the network part of the offering (where Emdeon started) and some focus more on the applications end for either the provider or payer. Navicure, MedAssets, Avisena and many more focus on what is called “Revenue Cycle Management” which is the “order to cash process” for doctors–meaning “how the heck am I going to get paid for those services I just provided”. A bunch of payers (including Highmark) just joined together to buy a network called NaviNet that will also play in this space, which has been so good to Emdeon.
I tend to like any space that has large, hard to deal with payers and small providers desperate to be paid. There is almost always an opportunity for someone to make a nice buck. Sad, but true.
Provider Supply Chain Automation
A little less is written about these ICs. The first type of IC in this space was the GPO who helped the fragmented provider (hospital) industry buy more effectively from larger, more concentrated suppliers, like GE, Abbott, JandJ, Medtronic, etc. This is definitely a market in which the sellers have the concentration, not the buyers. GPOs have included Premier, MedAssets, Novation, HealthTrust Purchasing Group, Broadlane, Amerinet and others. (About 7 GPOs purchase 80% of the supplies used by all providers, generating fees of over $2 billion annually.) Some of these GPOs started to offer technology on top of their leveraged contracts, such as purchase to pay technology. In fact, MedAssets tries to help providers on both the revenue cycle part of their business and the supply chain–historically a very difficult thing for an IC to attempt. The following chart from MedAssets depicts the idea:
In addition, the marketplace created buy the suppliers, GHX, early on bought one of the marketplaces formed by the GPOs (Neoforma) and has created what must be a very interesting company with ownership mainly of the large suppliers, but also of some of the large providers and their GPOs. GHX is private, but said to be doing quite well. Those must be really interesting board meetings!
A clinical trial is a massive experiment cutting across a pharmaceutical company, the FDA, healthcare providers, individual doctors, outsourced Clinical Research Organizations (CROs), and patients. Patients and their doctors have to be recruited to participate, data collected carefully, accurate bills submitted and payments made on time to the doctors–especially the ones who have proven their ability to bring in patients and treat them properly. It is a segment that is a part of the overall healthcare market, yet with distinct needs. Overall, it looks like many large project-based “plan to pay” processes.
Players in the space (called CTMS) include Oracle which bought a pure-play provider, Phase Forward, in 2010, Medidata Solutions, StudyManager, Perceptive Informatics (which is a technology subsidiary of one of the CROs), ClearTrials and a gaggle of others. (Disclosure: I do own stock in Medidata Solutions, but I cannot remember exactly why.)
I hope by identifying these four somewhat distinct segments in which SaaS providers are trying to tie together various industry participants, I have provided a little more clarity to this gigantic segment of our economy. It is clearly a vibrant area that has and will create and sustain several ICs with revenues in excess of $500-$1 billion.