Health Database to Be A Rallying Point for M&A: Technology, health care, and information players are seenlinking up to reap payoffs in the “sea change” project

By the middle of the next decade the government hopes to have in operation a massive database housing the medical histories of all Americans. Completion of the project will require years of development and data collection, billions of dollars, and resolution of numerous controversies, the most explosive being the potential for breaching the historic walls around patient privacy. The undertaking is so massive that no single company or agency has the complete range of skills and resources to build the base and make it work. And that is a sure-fire sparkplug for creation of blue-chip, multi-skill corporate alliances and an outburst of acquisitions to get the job done. Calling the project a “sea change in the area of health information,” Tom Manning, a global leader in Bain & Co.’s information technology practice, expects it to be executed by a “best-of- breed consortium that would work around common standards and common objectives.” While the group may be led by an IT giant, it would likely to include a number of smaller firms that “have quite a lot to contribute in their specialized ways.” If the most fundamental required skill is large systems design, he points out that the full complement could include data collection, storage, security, and data mining in the IT area alone. Other skillsets would extend into medical research and data analysis, claims processing and payments, and strategic solutions, to name a few in areas bridging IT and health care. That enormous diversity is exemplified by the full name of the project – the National Health Care Outcomes Data Base. The most widely touted result is real-time patient information – allergies, prior surgeries, medicine dosages – so physicians can combat mistakes and prescribe optimum treatment. But Manning says the data also should be constructed so it can be extracted, analyzed, and compared to reduce costs, determine effectiveness of treatments, and generate economic solutions. “In the end, this is only data unless you find ways to better use it and understand it,” Manning notes. The challenges to the diverse design team, he adds, include addressing three key issues – complexity, accuracy, and the highly charged matter of privacy. “This is a very large-scale system and the complexity of constructing it and enabling it to function smoothly is awesome,” he says. Degree of accuracy is not an option, moreover, because misinformation can lead to patient deaths so “accuracy is paramount in its design.” Security is critical because confidential health information might be an open book to others who might use it inappropriately, he notes. Because the project is in its earliest stages, it’s hard to get a fix on exactly where m&a fits in, but Manning sees a wide range of possibilities. The bigger firms that might want to lead the consortium likely are considering filling in gaps in their capabilities to “present the best profile for getting into the project.” While smaller firms probably can’t add great scale, even through acquisitions, they can use m&a to “strengthen their best of breed characteristics,” he says. Manning also suggests that the project will trigger a strong deal volume centered on the data analysis area, which he cuts into three broad categories. One sector, he says, tracks information on drugs, therapies, surgical procedures, devices, etc., before FDA approval, adding that many pharmaceutical companies rely on those types of firms to help manage and document their clinical trials. They could be attractive targets because of their skills in collecting, reporting, and analyzing data in a regulated environment. The class that tracks results after FDA approval will, Manning says, come under increased pressure to be better in collection and storage of data as well as in analyzing and linking subsets, like comparing medicinal usage to claims. This will require bigger companies with more skills that could be acquirers or could be targeted by a wide range of firms, including business information operations trying to enter the health field. The final area includes financial payments and claims administrators that will need greater capabilities to compare treatment efficacy and efficiency and produce solutions that “make the most sense for health care in this country.” Manning even sees a role for private equity firms that might see opportunities to roll up skills into a single company with both diversity and scale. “They are very good at playing on inefficiencies in the marketplace,” he points out. Copyright 2004 Thomson Media Inc. All Rights Reserved. http://www.thomsonmedia.com http://www.majournal.com