141009 dhc check up bill james
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The document discusses the challenges and innovations within the U.S. healthcare system, particularly in the realm of digital healthcare and analytics. It highlights the importance of disruptive technologies and patient engagement, while also addressing the need for advanced data architectures to improve care outcomes. Key trends indicate that companies with a strong data-driven focus are positioned for success amidst evolving healthcare dynamics.
141009 dhc check up bill james
- 1. Steven A. Rubis rubiss@stifel.com (202) 778-4780 Stifel Equity Trading Desk (800) 424-8870 Industry Update Digital Healthcare Check Up: Paging Bill James; Statistician Needed in OR Stat! The Affordable Care Act (ACA) represents a major impetus for the U.S. Healthcare system to become more efficient, primarily through improving care and reducing costs. We recently attended the Health Analytics Summit 2014 (HAS14), hosted by Health Catalyst, which focused on how analytics can be brought to bear, primarily in the acute care setting, to achieve better care and reduced costs. We believe the U.S. Healthcare System faces two primary problems associated with bringing analytics to bear in the clinic: (1) the lack of understanding around which performance metrics may drive the greatest impact, and (2) cultural problems. Advanced statistics and predictive analytics seem to be permeating nearly every industry, but healthcare remains behind the curve for the most part. Our current electronic foundation provides a strong transactional structure, but fails at collecting a complete picture about the care that is provided. Recent examples include the failure of nurses and doctors communicating effectively via the EHR about the possibilities of a patient being at risk of exhibiting signs of the Ebola virus. Furthermore, physicians continue to complain that EHRs provide a hindrance rather than an impetus to efficiency. Either healthcare professionals do a poor job of entering data, or EHRs lack the true data architecture to drive advanced analytics. An important point made by Dale Sanders, Senior Vice President, Strategy, at Health Catalyst was the healthcare system lacks key data around healthcare outcomes to drive accurate predictive analytics models. In our view, healthcare continues to await the arrival of advanced statisticians who can drive analytics in a similar fashion as Bill James did for advanced analytics in baseball. We think Health Catalyst seeks to fill the analytics void in healthcare, which will be a major theme in years to come. We provide our thoughts on key trends and topics from HAS14, below. More Disruption Please! Our channel checks with people in the healthcare industry over the past several months lead us to believe that disruption is building and the status quo will likely face significant change. We believe innovative solutions to many of our problems will likely evolve from smaller entities rather than large cumbersome bureaucracies. Additionally, investors should pay special attention to technologists from other industries attempting to solve problems in the healthcare setting. We believe the fresh perspective will likely be instrumental in driving change over time. Investors should favor those public companies that embrace change and seek to facilitate new ways of solving problems or providing insights to clients. Investment Hypothesis: We continue to recommend the companies in our coverage universe that exhibit a proprietary technological advantage and benefit from a data driven and analytics focus culture. In our view, the best examples of such companies include: athenahealth (ATHN: $130.02, Buy), Everyday Health (EVDY: $12.74, Buy), and Medidata Solutions (MDSO: $42.64, Buy). We believe these companies exhibit a strong focus on driving insight from data to their respective clients in order to improve their clients' performance. In our view, advanced analytics will represent a key investment theme over the next three to five years in Healthcare IT, and analytics capabilities will likely become a key differentiator between success and failure for many Healthcare IT companies. Prices are as of 10/8/14 close. Continued on page 2. . . . . . October 9, 2014 Internet & Media Digital Healthcare Stifel does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. All relevant disclosures and certifications appear on pages 7 - 8 of this report.
- 2. Patient Engagement Represents Difficult Low Hanging Fruit: One presentation focused on the importance of patient engagement as a key driver of improvement for the hospital. The message was that patient engagement is as simple as showing patients respect, better communication between staff, and exhibiting a positive or happy demeanor; essentially, it is about helping to alleviate the major stress factors associated with coming to the hospital not only for the family, but also the patient’s family, too. Margin Pressure May Disrupt the EHR Monetization Standard: According to an April 2014 report from Moody’s, the median operating margin for a non-profit hospital was 2.2%. Given the move toward value based purchasing, one can see how margin pressures may likely lead to a disruption in the EHR market. Some hospital CIOs we spoke with suggested that EHR vendors need to adjust their revenue model by sharing risk with hospital clients. Based on our discussions, we believe that EHR monetization could mimic Infrastructure-as-a-Service (IaaS), where users essentially pay according to utilization of the EHR versus a high installation fee and monthly maintenance fee. A key theme was that current EHRs do not represent the standard going forward. Several times we heard how EHRs will need to change in order to maintain their position in the system. We believe the opportunity exists for small, nimble innovators to develop products where large, traditional EHR vendors may exhibit holes in their offerings. The task of the small innovator is to develop an offering so compelling that CIOs do not “turn off” your solution once the EHR vendor develops something similar. Additionally, some presenters suggested that hospitals have not realized the leverage they can exert over EHR vendors. Should hospitals and health systems realize their place in the power structure we could see significant disruption. Data Architecture: A key theme revolved around the fact that healthcare generates a lot of data, but that we do not necessarily know how to harness the data effectively. A common cry is that technologists spend significant time developing advanced technology for marketing rather than healthcare. We think a key problem likely lies in data architecture and the ability to organize and codify data from disparate systems and data sets in order to apply advanced analytics. In our view, those that can discuss how data is collected and organized and how it fits together in an orderly or meaningful way will likely develop successful solutions. The Value Equation = Quality / Cost: Several speakers from major health systems, Allina and Texas Childrens’, discussed the value equation. An interesting point was that many healthcare administrators erroneously believe that an impetus to lower costs equates to lowering quality of care as well. The presenters pointed out healthcare providers should focus on improving quality rather than reducing costs to achieve the optimal outcome. The Irony of Big Data in Healthcare: An interesting comparison made by Dale Sanders revolved around big data. Specifically, a Boeing 787 making a cross country flight collects nearly 500GBs of continuous data over a six hour flight. In healthcare, the average patient generates nearly 100MBs in a year. Certainly, patients taken in aggregate as a community drive big data, but in our view, Mr. Sanders’ comparison suggests that healthcare should be able to achieve robust advanced analytics that provide meaningful insights. Of note, Mr. Sanders also pointed out that healthcare could also benefit from simply suggestive analytics, Page 2 Internet & Media Digital Healthcare October 9, 2014
- 3. as we need better data to drive strong predictive analytics. Simply being able to recommend between several options will go a long way in terms of improving care outcomes and reducing costs. News and Notes from Digital Healthcare Collecting from Patients: Consumerism’s Double Edged Sword. Recently, Bloomberg Businessweek looked at the trend of hospitals seeking upfront payments from patients. We believe this phenomenon illustrates the double- edged sword of consumerism in healthcare. On one hand, employers and health plans are able to better manage risks and costs by pushing cost and care decisions to consumers. Many seem to laud consumerism as a way to equal healthcare and healthcare for all through lower cost health plans. What goes overlooked is that high deductible health plans results in a consumer gambling on his, her, or their family’s health. According to the Kaiser Family Foundation, roughly 41% of American workers receiving coverage from their employer have a deductible of $1,000 or more, which is up from 10% of the U.S. work force in 2006. According to the Robert Wood Johnson Foundation, the average deductible of “silver” plans under the ACA totals $2,267. At the same time, hospitals are having more trouble collecting from patients. According to the American Hospital Association, uncompensated care reached $46 billion in 2012, which represents roughly 6% of expenses. Anecdotally, we have heard stories of patients electing against non-threatening surgeries (think orthopedics) when they realize how much money may be required up front. In May, my 3 year-old son received a new set of ear tubes and his adenoids removed; I was required to bring $1,500 to the surgery center. We think high deductible health plans seem to treat the symptom rather than problem. Essentially, we have given the masses low cost health care, but cost reductions may occur due to lack of utilization rather than better care. We believe the double-edge sword of consumerism will remain a problem for hospitals for years to come. What the Dallas Ebola Patient Means for EHRs. Recently, the first case of Ebola diagnosed in the United States occurred in Dallas at Texas Health Presbyterian Hospital, part of Texas Health Resources. While the diagnosis of the first Ebola patient in the U.S. was significant, even more so was the snafu the hospital experienced in allowing the patient to leave the hospital after the patient’s initial visit. Initially, Texas Health Resources cited problems around care coordination due to its EHR; there seemed to be a flaw between how the physician and nursing portions of the EHR interacted. We note that Texas Health Resources has since backed off of blaming its EHR. Nevertheless, we believe the damage has been done. In our view, the Dallas Ebola patient represents the fact that one or several “black swan” type events could be looming that drive radical change throughout the traditional EHR industry. We believe perception will be enough to drive change, especially when a significant societal health risk may be involved. Apple’s HealthKit Ecosystem Grows: 23 Apps That Connect to HealthKit: Since Apple (AAPL: $100.80, Buy, covered by our colleague Aaron Rakers) unveiled HealthKit over the summer and then officially in early September, healthcare technologists and companies have been focused on how to connect or leverage the app in their own offering. Recently, mobi health news provided a list of 23 apps that connect to Apple’s HealthKit. The list comprises two parts: 16 Page 3 Internet & Media Digital Healthcare October 9, 2014
- 4. apps hand-picked by Apple, and another seven apps that also connect to HealthKit. Among the 16 picked by Apple, include: Centered, UP by Jawbone, FitStar Personal Trainer, Calorie Counter & Diet Tracker, Human, Noom Coach: Weight Loss, Run with MapMyRun+, Yummly Recipes, Fitnet Personal Fitness Workouts, MotionX 24/7, Carrot Fit, Zova – Workouts for women, 7 Minute Workout, Omvana – Meditation for Everyone, WebMD. The other seven apps integrating with HealthKit include: iHealth, Lark, HumanaVitality, AmWell, drchrono, HealthLoop, FitPort, and RunGap. Many of these apps seem to allow consumers to utilize their HealthKit data within the integrated app. We are particularly intrigued by the AmWell app due to the telehealth component of the app. Can Sensor Technologies Drive Contextually Relevant and Personalized Treatment? Boehringer Ingelheim, a leader in digital health innovation, recently announced a pilot testing Propeller Health’s sensor technology. The two entities will test Propeller Health’s sensor technology with Boehringer Ingelheim’s Respimat inhaler. Propeller Health’s sensor technology attaches to the inhaler device and allows a user to track time and place of inhaler usage. The sensor also allows users to track data around symptoms or medication adherence. Propeller’s goal is to provide contextually relevant, personally meaningful interventions for patients in the moment. We note that previously Boehringer Ingelheim has been involved with digital health companies such as Ayogo, AdhereTech, and Healthrageous. Investors can participate in the Propeller story via Safeguard Scientifics as the company recently closed a series B investment in Propeller Health. Facebook Says Me Too to Using Healthcare to drive Engagement: Media sources are reporting that Facebook (FB: $77.52, Buy, covered by our colleague Scott Devitt) continues to explore how it can enter the healthcare arena similar to rivals Apple and Google. Reports say that Facebook remains in the planning stages with product ideas focusing on “support communities” and “preventative care” apps. We note that “support communities” are quite successful. For example, Healthline uses Facebook to power its “You Got This” campaign for Multiple Sclerosis, which boasts 20,000 MS sufferers. PatientsLikeMe represents a successful standalone social network for disease sufferers to connect and share tips and experiences. While we have no doubt that Facebook could likely generate significant interest in “support communities” we think monetizing said communities will be difficult. Currently, Facebook remains out of bounds for biopharmaceutical advertisers due to FDA regulations. The requirement to allow comments on all Facebook pages keeps biopharmaceutical advertisers at bay because of the inherent risks associated with comments. Biopharmaceutical advertisers seek to avoid off-label or unsubstantiated claims regarding a drug posted by Facebook users, as such comments land the biopharmaceutical advertiser in the FDA penalty box. Medidata Solutions Hires Mike Capone as Chief Operating Officer (COO). Recently, Medidata announced the hiring of Mike Capone as COO, reporting directly to CEO Tarek Sherif and president Glen de Vries. Mr. Capone’s responsibilities will involve product development, professional services, go-to- market and day-to-day operations. Previously, he served as corporate vice president and chief information officer (CIO) for ADP. We look forward to seeing how Mr. Capone will shape Medidata’s focus on clients beyond the top biopharmaceutical companies. Page 4 Internet & Media Digital Healthcare October 9, 2014
- 5. Walmart Teams With DirectHealth for Healthcare Sign-Ups. Recently, Wal- Mart (WMT: $78.24, Hold, covered by our colleague David Schick) announced a partnership with DirectHealth.com to help provide easier health plan enrollment for consumers. The partnership will launch the Healthcare Begins Here campaign, which represents an in-store program designed to educate consumers on their healthcare options. Consumers will be able to shop, compare, and enroll plans via the DirectHealth.com website or via telephone. Additionally, DirectHealth.com will provide independent, licensed insurance agents in 2,700 Wal-Mart stores to offer in person enrollment and to provide education and guidance on health plan products. We believe the Wal-Mart / DirectHealth.com partnership may represent a compelling offering during the 2015 Open Enrollment Period (OEP). Based on our discussions with Enroll America, we note that low income populations typically respond better to personal communication. Therefore, we believe providing independent, licensed insurance agents in 2,700 Wal-Mart stores across America may result in significant health plan sign ups. In our view, the partnership may further limit eHealth’s opportunity to sign up new IFP members that were previously uninsured. Additionally, the partnership may hinder eHealth’s (EHTH: $22.09, Sell) ability to sign up Medicare consumers in lower income locations. Additionally, we recommend investors listen to the replay of our conference call with Adam Stalker, National Digital Director, of non-profit Enroll America. The conference call titled: Preparing for Open Enrollment 2015: An Overview of Enroll America” can be accessed by dialing (800) 332-6854 for domestic investors, or (973) 528-0005 for international investors, and utilizing the passcode 968745. The call replay will be available until October 15, 2014. Walgreens and WebMD: Interesting Partnership, but Indicative of Some of Our Larger Concerns. Walgreens and WebMD (WBMD: $38.23, Hold) recently announced a partnership to integrate some of WebMD’s content and lifestyle & condition management programs with Walgreens’ retail experience. The key link between the two entities will revolve around Walgreens’ Balance Rewards loyalty card program, as Walgreens’ consumers will be able to accrue points for usage of WebMD’s Healthy Target mobile app. Additionally, Walgreens’ consumers will be able to access prescription refill functionality and clinic scheduling via WebMD’s desktop and mobile offerings. Walgreens will incorporate WebMD content around topic areas, including: allergy, healthy eating, skincare, fitness, healthy aging, emotional health, heart health, cold & flu, sleep, and oral health. Additionally, Walgreens will offer virtual wellness-coaching programs from WebMD in areas such as: smoking cessation, weight management, nutrition, exercise, stress management, emotional health, diabetes, and heart disease. We applaud WebMD for announcing what appears to be an interesting partnership with a high profile brand such as Walgreens. Nevertheless, we have concerns with the partnership as described in WebMD’s press release. First, what are the economics associated with providing the core value driver of WebMD Health Services to Walgreens’ customers? The core value driver of WebMD Health Services revolves around the communicable cost savings associated with the wellness-coaching programs being made available to Walgreens consumers. If these programs are being made available to Walgreens’ consumers, why would a health plan or employer seek to offer and Page 5 Internet & Media Digital Healthcare October 9, 2014
- 6. pay for these programs for their members or employees? The press release did not disclose financial terms of the agreement. Secondly, the agreement seems to have a have CPG focus, at least around the services and content WebMD will provide to Walgreens. A major question investors should ask is whether WebMD is trying to become a more health and lifestyle brand. Walgreens seems to be utilizing health & wellness related content and solutions rather than some of the biopharma focused content. Ultimately, we think the deal is likely more important to WebMD than to Walgreens in terms of long-term success. We think WebMD needs the Walgreens rewards program to help solve its engagement issue. In our view, Walgreens likely sees WebMD as a simple way to add an additional touch point with consumers. In our view, the deal illustrates the waning excitement around standalone Health & Wellness solutions. Our channel checks of human resources executives at top U.S. employers suggest that benefits design offerings such as Castlight Health are becoming a more important offering. Entities such as Castlight Health provide cost transparency and a true means to managing health care related costs for an employer across an employee base. We are not sure how strong an incentive Balance Rewards provides when one needs to achieve 5,000 points to accrue $5 in savings. In our view, other entities are creating more compelling incentive plans to drive healthy behavior, e.g. SeeChangeHealth. Additionally, a major question will be how many of the 83 million Balance Reward customers, as of October 21, 2013, are included in WebMD’s roughly 64 million unique monthly visitors? Page 6 Internet & Media Digital Healthcare October 9, 2014
- 7. Important Disclosures and Certifications I, Steven A. Rubis, certify that the views expressed in this research report accurately reflect my personal views about the subject securities or issuers; and I, Steven A. Rubis, certify that no part of my compensation was, is, or will be directly or indirectly related to the specific recommendations or views contained in this research report. For our European Conflicts Management Policy go to the research page at www.stifel.com. For applicable current disclosures for all covered companies please visit the Research Page at www.stifel.com or write to the Stifel Research Department at the following address. Stifel Research Department Stifel, Nicolaus & Company, Incorporated. One South Street 16th Floor Baltimore, Md. 21202 Stifel research analysts receive compensation that is based upon (among other factors) Stifel's overall investment banking revenues. Our investment rating system is three tiered, defined as follows: BUY -For U.S. securities we expect the stock to outperform the S&P 500 by more than 10% over the next 12 months. For Canadian securities we expect the stock to outperform the S&P/TSX Composite Index by more than 10% over the next 12 months. For other non-U.S. securities we expect the stock to outperform the MSCI World Index by more than 10% over the next 12 months. For yield-sensitive securities, we expect a total return in excess of 12% over the next 12 months for U.S. securities as compared to the S&P 500, for Canadian securities as compared to the S&P/TSX Composite Index, and for other non-U.S. securities as compared to the MSCI World Index. HOLD -For U.S. securities we expect the stock to perform within 10% (plus or minus) of the S&P 500 over the next 12 months. For Canadian securities we expect the stock to perform within 10% (plus or minus) of the S&P/TSX Composite Index. For other non-U.S. securities we expect the stock to perform within 10% (plus or minus) of the MSCI World Index. A Hold rating is also used for yield-sensitive securities where we are comfortable with the safety of the dividend, but believe that upside in the share price is limited. SELL -For U.S. securities we expect the stock to underperform the S&P 500 by more than 10% over the next 12 months and believe the stock could decline in value. For Canadian securities we expect the stock to underperform the S&P/TSX Composite Index by more than 10% over the next 12 months and believe the stock could decline in value. For other non-U.S. securities we expect the stock to underperform the MSCI World Index by more than 10% over the next 12 months and believe the stock could decline in value. Of the securities we rate, 52% are rated Buy, 46% are rated Hold, and 2% are rated Sell. Within the last 12 months, Stifel or an affiliate has provided investment banking services for 21%, 8% and 0% of the companies whose shares are rated Buy, Hold and Sell, respectively. Additional Disclosures Please visit the Research Page at www.stifel.com for the current research disclosures and respective target price methodology applicable to the companies mentioned in this publication that are within Stifel's coverage universe. For a discussion of risks to target price please see our stand-alone company reports and notes for all Buy-rated stocks. The information contained herein has been prepared from sources believed to be reliable but is not guaranteed by us and is not a complete summary or statement of all available data, nor is it considered an offer to buy or sell any securities referred to herein. Opinions expressed are subject to change without notice and do not take into account the particular investment objectives, financial situation or needs of individual investors. Employees of Stifel or its affiliates may, at times, release written or oral commentary, technical analysis or trading strategies that differ from the opinions expressed within. Past performance should not and cannot be viewed as an indicator of future performance. Stifel is a multi-disciplined financial services firm that regularly seeks investment banking assignments and compensation from issuers for services including, but not limited to, acting as an underwriter in an offering or financial advisor in a merger or acquisition, or serving as a placement agent in private transactions. These materials have been approved by Stifel Nicolaus Europe Limited, authorized and regulated by the Financial Conduct Authority (FCA) in the UK, in connection with its distribution to professional clients and eligible counterparties in the European Page 7 Internet & Media Digital Healthcare October 9, 2014
- 8. Economic Area. (Stifel Nicolaus Europe Limited home office: London +44 20 7557 6030.) No investments or services mentioned are available in the European Economic Area to retail clients or to anyone in Canada other than a Designated Institution. This investment research report is classified as objective for the purposes of the FCA rules. Please contact a Stifel entity in your jurisdiction if you require additional information. Additional Information Available Upon Request © 2014 Stifel, Nicolaus & Company, Incorporated, One South Street, Baltimore, MD 21202. All rights reserved. Page 8 Internet & Media Digital Healthcare October 9, 2014