Health Care Data Providers Are Becoming Attractive Targets, Thanks to the Affordable Care Act

Driven by the Affordable Care Act, medical professionals are taking on new technology to help manage finances and organize patient data, which has put software developers in play in the sector and driven M&A activity. “The dominant trend is the growing demand for next-generation business intelligence tools,” says Arvindh Kumar, Thoma Bravo principal. “Health care analytics companies are playing a critical role in bridging information gaps.”

The Chicago-based private equity firm recently closed a deal for MedeAnalytics Inc., and Kumar serves on the board of directors. Located in Emeryville, California, MedeAnalytics, provides cloud-based financial performance analytics for the health care industry. The company’s products are used by more than 1,500 health care organizations and are designed to improve cost management and patient outcomes. Thoma Bravo is also invested in Mediware Information Systems Inc., which provides medical software to health care facilities to manage information related to patient treatment, including prescribing medication.

Government regulations have changed the landscape of the health care industry, especially how providers and insurance companies receive information and how medical professionals get paid, which has created a need for technology to streamline those processes.

“With health care reform, there’s greater emphasis on outcomes,” says Scott Perricelli, LLR Partners partner. There are a lot of resources being exerted because the government has been pushing them. “The government has driven a lot of the technology implementation.”

In 2014, LLR paid $30 million for a stake in Phreesia Payment Services. Phreesia, based in New York, provides data management and electronic payment services to health care companies to help them streamline workflow. LLR, based in Philadelphia, has remained active in the space. In 2015, the firm sold health care data company IOD Inc. to medical information services distributor HealthPort. That deal was backed with an investment from private equity firm New Mountain Capital.

Thoma Bravo and LLR say that M&A in health care data will remain robust. “We will continue to look for these types of companies,” says Perricelli. Kumar says Thoma Bravo will look for deals in the “end markets with strong tailwinds and where increased health care data transparency is needed by customers.”

A similar deal in the space is health care technology company Indegene’s acquisition of analytics provider SmartCare from Vantage Point Inc. Indegene says the purchase comes at a time when health care companies need assistance navigating through government related changes.

“U.S. health care organizations are facing unprecedented pressures to improve outcomes and address changing reimbursement models,” said Rajesh Nair, Indegene president when the deal was announced. Smartcare is designed to help medical professionals with clinical and financial data by entering information into one database.

Health care data technology is not only designed to help providers manage finances, but also patient information. Medical professionals are under pressure to improve patient results with fewer financial resources, which is another trend driving deal activity in the health care analytics space.

In addition to saving money, medical facilities need technology that will help them improve patient treatment. One way providers have been doing so is trying to eye risks in the population. “Data can help providers, payers and the government create better standards in health care delivery and prevention, but it’s a challenge to truly harness it. Though plentiful, health data today often isn’t connected among providers across the continuum of care,” says Michael Alkire, COO of Premier Inc. (Nasdaq: PINC).

Insurance companies have been demanding more clinical information from health care providers. “The main trend driving M&A providers and non-providers alike is the transition from fee-for service to pay-for-quality, which has become the new normal in health care,” says Alkire. “These reforms are moving providers toward alternative payment models to support population health, such as accountable care organizations (ACOs)."

Premier, headquartered in Charlotte, North Carolina, provides data and analytic services to 3,600 hospitals and 120,000 providers. The company recently reached a deal to buy CECity Inc. for $400 million. Pittsburgh-based CECity is a software distributor that looks to help health care companies improve operations. Premier has been very active in dealmaking lately. Aside from CECity, the company has acquired InflowHealth LLC, a software developer that focuses on improving operational and financial performance of physician practices. InflowHealth’s software collects financial and operational data from physicians and medical groups across the U.S. and calculates exactly where improvements can be made. Premier also paid $65 million for Healthcare Insights LLC, a financial software maker for hospitals and other health care systems.

“These acquisitions have strengthened and expanded our capabilities to help our health systems and our member physician enterprise groups improve their performance and prepare for the rapidly growing value-based environment,” Alkire adds.

Premier is not the only strategic buyer that has been looking for deals in the space. Medical technology provider Computer Programs and Systems Inc. (Nasdaq: CPSI) is adding health care software company Healthland Holding Inc. from Francisco Partners for $250 million in cash and stock. The purchase includes Healthland’s American HealthTech Inc. and Rycan Technologies Inc. subsidiaries. Healthland provides software to rural and community hospitals that is designed to help them manage their finances, along with patient data and medical records, so they can improve patient treatment and results. Francisco acquired Healthland in 2007.

IMS Health (NYSE: IMS) is another strategic buyer that has been making deals. The company recently acquired Dataline Software, which provides analytics to the health care industry. Brighton, England-based Dataline’s software technology creates data analysis and visualizations. In 2015, IMS acquired Cegedim’s strategic data business. Danbury, Connecticut-based IMS Health provides cloud-based software to health care companies that will hopefully provide additional insights to diseases, treatments, costs and outcomes. IMS customers include pharmaceutical, consumer health and medical device manufacturers.

Both strategic buyers and private equity firms are going to remain aggressive in seeking health care data targets. “I would expect us to continue to look for the right capabilities, and if we find them and the investment makes sense, we’ll move forward on those acquisitions,” says Alkire. “We will maintain our active and aggressive acquisition pipeline.”