The Health Care Investor : Healthcare Lawyers & Attorneys for Life Science Companies & Investors

For many healthcare companies, when it is time to sell or refinance their business, finding an investment bank that fits the needs, philosophies and goals of the seller can be an important component for success during the sale/refinance process.   Earlier this year, Barclays PLC represented biopharmaceuticals company Ception Therapeutics, Inc. as it closed the $250 million sale of 100% of its capital stock to Cephalon, Inc., arguably helping Ception to achieve optimal pricing. Likewise, in 2006, when hospital system HCA went private via a $33 billion management leveraged buyout, the largest in history at the time, Merrill Lynch Healthcare Investment Banking Group acted as financial advisor to HCA through the process, likely increasing HCA shareholders’ return.  

Utilizing an investment bank is not necessary for all companies in all transactions, but an investment bank can help the seller successfully market the business and attract the right potential investors/buyers and ultimately can result in not only a more lucrative deal but a transaction that otherwise meets the seller’s goals. Assessing which investment bank is right for a seller can be a daunting process, but there a few key questions that you as the seller can pose to your leadership when evaluating the various banks in order to find the bank that will ultimately meet your needs.  In a recent article authored by Krist Werling, Scott Becker and me, we addressed a number of questions that a seller should consider during the selection process.

One of the first key questions a seller should ask is this:  How well versed is the investment banker in your particular industry?  Not only are there investment banks that specialize in healthcare (either boutique investment banks that focus on healthcare or healthcare divisions of larger more diverse investment banks) but some investment banks have specialized experience and knowledge about a particular industry within healthcare such as surgery centers, imaging facilities, etc.   For example, Bank of America-Merrill Lynch, William Blair, Goldman Sachs, Morgan Stanley, JP Morgan and others have significant health care banking groups within their larger investment banking segments and have made headlines with some of the most substantial healthcare M&A deals in the past calendar year, including Pfizer’s purchase of Wyeth for $66.2 million, Roche Holding’s acquisition of the remaining 44% of Genentech and Merck’s purchase of Schering Plough. Middle market more general investment banks like Dresner Partners also often have healthcare experience.  Other banks like Cain Brothers, Leerink Swann and Edgemont Capital Partners have the advantage of focusing nearly exclusively on health care services. Working with an investment bank that understands the complexities of your industry enables the bankers to jump right into a transaction without the need for you to educate them about your industry or to explain basic fundamentals about your business.

The seller should also ask Does the bank understand your individual company as an entity with a unique model, management team and philosophy?   Have they taken the time to get to know your corporate culture and special aspects of your product and service delivery and do they appreciate the ways in which your company differs from your industry competitors?

The seller should further consider Is investment banking a main focus of the company?  We generally caution people against hiring parties to do investment banking services where this is not a core part of their efforts.   For example, one client hired a big four accounting/consulting firm a few years ago to help sell its specialty pharmaceutical business. Investment banking was a newer business line for the big four firm. After months without good results, the client hired William Blair, a company that does focus in investment banking and in part in healthcare and had much better results: i.e. the client ultimately completed a transaction which exceeded essentially all of its targets. 

There are a number of additional considerations when selecting the right investment bank discussed in the article.  In future posts, we will address these questions.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Yesterday, CMS issued a release regarding the much anticipated final rule laying out the new bundled prospective payment system (PPS) for renal dialysis facilities.  The rule itself was published on July 23, 2010.  Under the new  PPS, CMS will make a single bundled payment to the dialysis facility for each dialysis treatment that will cover all renal dialysis services and home dialysis commencing on January 1, 2011.  It replaces the current system which pays facilities a composite rate for a defined set of items and services, while paying separately for drugs, laboratory tests, or other services that are not included in the composite rate.   At the same time, CMS issued a proposed rule that would create a new Quality Incentive Program (QIP) for dialysis services that will link a facility’s payment to how well it meets the QIP performance standards, which will be discussed in a separate blog post.  
 
Currently and through the remainder of this year, Medicare makes a composite rate payment to ESRD facilities for furnishing outpatient maintenance dialysis in the facility or in the beneficiary’s home.  The composite rate payment covers dialysis treatment costs and certain routinely furnished ESRD-related drugs, laboratory tests, and supplies.  The Medicare Improvements for Patients and Providers Act of 2008 (MIPPA)   required  CMS to develop a new, fully bundled prospective payment system for renal dialysis services to replace the existing composite rate payment methodology.

According to the CMS issuance, CMS received nearly 1500 public comments in response to the ESRD PPS proposed rule that appeared in the September 29, 2009 Federal Register.  Among the major concerns raised by the comments were the proposals surrounding payment for home dialysis training; inclusion of additional payment adjustments for patient characteristics in the payment methodology; and inclusion of former Part D prescription drugs related to ESRD treatment in the payment bundle.   In the final rule CMS: 
 
 1) Creates a home or self-care dialysis training payment adjustment specifically directed to patients trained by facilities certified to provide home dialysis training. 


 2)  Finalizes payment adjustments for dialysis treatments furnished to adults for patient age, body surface area, and body mass index, onset of dialysis, and certain co-morbidities, but does not finalize adjustments for the patient’s sex or the patient’s race or ethnicity. 


 3)   Finalizes a payment adjustment for dialysis treatments furnished to pediatric patients, based on patient age and dialysis modality, but not co-morbidities.  


 4)   Finalizes a definition for renal dialysis services that includes ESRD-related oral-only drugs, but postpones payment for such drugs under the ESRD PPS until Jan. 1, 2014.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

This blog post is the second in a series examining the potential impact of health reform on medical device companies.  The first post can be accessed here. 

1.                  Payment Reductions. The Healthcare Reform Act did not include direct payment reductions that apply to specific types of medical devices, however there are provider payment reductions that will indirectly affect medical device manufacturers. For example, total payment reductions to hospitals during 2011 are expected to be in the range of.35% less than 2010 payments, according to the American Hospital Association.The Congressional Budget Office estimates that this will amount to $112.9 billion in hospital payment reductions over the next ten years. These reimbursement reductions will directly affect hospital budgets for certain types of capital spending and for spending related to devices that are not reimbursed as part of a Diagnostic Related Group. Device manufacturers should understand their customers’ budgets so they can anticipate whether their hospital and other provider customers may decrease their budget allocations for device purchases.

2.                  Stricter Fraud and Abuse Scrutiny. The Healthcare Reform Act amends certain federal fraud and abuse laws. Specifically, the Act amended the False Claims Act (“FCA”), the Anti-Kickback Statute (“AKS”) and the Federal Sentencing Guidelines. The FCA subjects a person to monetary penalties and/or imprisonment for knowingly and willfully falsifying, concealing or covering up a material fact, making materially false representations, or using a document known to contain any materially false statement. More significant to medical device manufacturers is the elimination of the FCA’s “Public Disclosure Bar.” The Public Disclosure Bar prevented a qui tam plaintiff from using publically available information as the basis for a claim against an entity suspected of violating the FCA. The removal of this bar will increase the potential financial reward for certain qui tam plaintiffs. Therefore, the number of claims brought against medical device manufactures will likely increase significantly. 

3.                  Shared Cost-Savings Reimbursement Programs. The Healthcare Reform Act sets forth certain reimbursement programs focused on rewarding providers for reducing the cost of care, including the formation of so called accountable care organizations, or “ACOs,” and extends an existing gainsharing demonstration program. An ACO is essentially an organization of physicians and other healthcare providers that is assigned a population of Medicare beneficiaries and is paid a share of savings achieved through coordinated care efforts, provided certain quality standards are achieved. Additionally, the Act authorized extension of the gainsharing demonstration program. While ACOs and gainsharing programs are not expected to have an immediate impact on medical device manufacturers, if these types of organizations gain traction, the utilization of certain devices and procedures may decrease. Device manufacturers that are preparing future sales projections should be aware of the development of these organizations and the potential impact thereof. 

4.                  Medical Device Innovation Funding.  The Healthcare Reform Act included funding for grant monies to spur medical device innovation. The grant program, called the Cures Acceleration Network, enables the Director of the National Institutes of Health to award grants in order to promote innovation in technology supporting advanced research, development and production of so called “high need cures,” including through the development of medical products. To receive grant money, an entity must submit an application containing detailed information about the project for which the entity is seeking the grant, contribute non-federal funds to the project in the amount of $1 for every $3 awarded under the grant, and must also issue a final report at the end of the project describing the project outcomes. The award maximum is $15 million per project for the first fiscal year that the project is funded, with the possibility of receiving additional monies of up to $15 million in the subsequent fiscal year. Currently, Congress has authorized $500 million for the program for fiscal year 2010. In addition to the grant program, the Healthcare Reform Act authorized the Qualifying Therapeutic Discovery Project, which grants a tax credit for any taxable year in an amount equal to 50% of the investment in any qualifying project. 

5.                  Pay for Quality. The Healthcare Reform Act includes numerous new initiatives pursuant to which provider reimbursement will be increased or decreased depending on the quality of care that providers are able to demonstrate. For example, Section 3008 of the Act provides that hospitals in the top quartile with respect to national rates of hospital acquired conditions will have their Medicare payments for all discharges reduced by 1%. Similarly, Section 3007 of the Act directs the Secretary to develop and implement a system where physicians are paid additional amounts for providing quality health outcomes for Medicare beneficiaries at a lower cost. These changes to payment systems will occur over an extended time period, but demonstrate that the CMS is moving toward a system focused less on payment for individual services, and more on paying for efficient, high quality, low cost care. Even more so than in the past, to successfully market devices, manufacturers will be required to demonstrate that hospitals and healthcare providers can improve efficiency, quality and value through the use of their medical devices. 

• Email This
• Print
• Comments
• Trackbacks
• Share Link

As investors consider potential investments, it is important to take into account the future impact of the recently passed health reform legislation. This blog post is part I of an itemization of 10 areas of the health reform bill that will likely have an impact on companies that manufacture medical devices and supplies. Some of these effects may be positive and some may be negative – but any investor in a device company should be aware of these areas of the health reform legislation. 

1.                  Expanded Coverage. The primary purpose of the Healthcare Reform Act was to expand coverage to a broader range of patients in the United States. In part, the Act accomplishes this expansion through a significant broadening of the eligibility criteria for enrollment in Medicaid.  Specifically, the Medicaid expansion enables most individuals with incomes of less than 133% of the Federal Poverty Level to enroll in the Medicaid program. Additionally, the mandatory insurance requirement and broader availability of health insurance through Health Benefit Exchanges will help to ensure that there are more patients that have access to health care. Increases in access to care may result in a positive near-term impact on some device manufacturers, as a result of the increased demand for medical services. 

2.                  Future Cuts? The Act does not contain significant changes to reimbursement methodologies or major decreases in reimbursement for healthcare providers. Therefore, Congress will likely be back at the table within the next three to ten years to address the cost issues that are attendant with the expansion of availability of healthcare services. It is unclear how Congress will address these cost issues, but one possibility is that it will decrease reimbursement in the future. Device manufacturers that are in high-tech, high-cost niches should begin to plan for potential reimbursement reductions in their sector. Additionally, it will be important for all device manufacturers to be able to differentiate their products as providing true clinical benefits instead of simply building a “better mousetrap.” 

3.                  Medical Device “Tax”. The Act included new “industry fees” or taxes that are applicable to pharmaceutical and medical device manufacturers, insurance companies, and pharmacy benefit managers. The medical device fee is effective 2012, and manufacturers of a medical devices will be required to pay 2.3% of the sales price for such device as an industry fee. The definition of a “taxable medical device” includes any device that is defined in Section 201(h) of the Federal Food, Drug and Cosmetic Act and is intended for human use. A limited number of medical devices, including eyeglasses, contact lenses, hearing aids and any other device that is determined by Centers for Medicare and Medicaid Services (“CMS”) to meet the “retail exception,” are exempted from this fee. Unlike the pharmaceutical fee, the medical device fee applies to all manufactures, regardless of size and revenue levels.

4.                  Comparative Effectiveness. The Act laid the groundwork for future inclusion of comparative effectiveness measures when CMS makes payment decisions by funding a new independent entity called the Patient Centered Outcomes Research Institute (“PCORI”). The PCORI will study the effectiveness of various services, products and therapies and will issue reports regarding their effectiveness. The reports that are generated by PCORI may be relied on by CMS or other third party payors making decisions about payment, coverage and treatment. 

5.         Physician Payment Sunshine Act. The Healthcare Reform Act included the Physician Payment Sunshine Act. This will require covered manufacturers that make a payment or other transfer of value to a physician or teaching hospital to report such payments annually in electronic form. Payments or transfers of value include consulting fees, payments for clinical trial participation, charitable donations, royalties and a variety of payments that may be made to physicians and teaching hospitals. There are some payments that are exempted from the disclosure obligations. These exempted payments include annual aggregate payments to a recipient of less than one-hundred dollars and individual payments of less than ten dollars, payments that are made entirely through market research organizations, and the provision of samples to a physician or teaching hospital for the benefit of patients. 

• Email This
• Print
• Comments (1)
• Trackbacks
• Share Link

On May 26th, CMS released a proposed rule setting out new credentialing and privileging processes for physicians and other healthcare professionals who provide telemedicine services, a move which may lesson burdens on healthcare providers considering telemedicine options. Further, next week CMS is expected to release an additional proposed rule re additional services which may be reimbursed by Medicare if provided via telemedicine. Both rules, if they become law, could increase opportunities for growth in telemedicine companies.

Proposed Rule re Cross-Credentialing

Prior to January 1, 1999, Medicare coverage for services delivered via a telecommunications system was limited to services that did not require a face-to-face encounter under the traditional model of medical care, such as interpretation of an x-ray or electrocardiogram or electroencephalogram tracing, and cardiac pacemaker analysis. Then on October 1, 2001, section 223 of the Medicare, Medicaid and SCHIP Benefits Improvement Protection Act of 2000 significantly expanded Medicare telemedicine services services to include consultations, office visits, office psychiatry services, and certain other services that have been added over the years. However, in addition to state licensure and other issues faced by hospitals and physicians providing these services, one challenge for hospitals has been the process of granting credentials to these physicians. Under existing Medicare Conditions of Participation (CoP), the governing body of a hospital must make all privileging decisions based upon the recommendations of its staff, after the staff has examined and verified the credentials of practitioners applying for privileges. Thus a hospital must conduct individual appraisals of its prospective members and examine the credentials of each candidate to make a privileging recommendation to the governing body. Hospitals may use third-party credentialing verification organizations, but the governing body remains responsible for the privileging decisions.

By contrast, the proposed rule released on May 26th would allow the governing body of a hospital whose patients receive telemedicine services to grant privileges based on recommendations from its medical staff, which, in turn, would rely on information provided by the distant-site hospital. In the proposed rule, CMS would require the local hospital to verify that:

1. The distant-site hospital is a Medicare-participating hospital.

2. The physician is privileged at his own hospital and that the distant-site hospital provides the local hospital a current list of the physician’s privileges.

3. The physician holds a license issued or recognized by the state in which the local hospital is located.

4. The local hospital has evidence that the distant-site hospital conducts an internal review of the physician’s performance of his privileges.

The local hospital must provide relevant information to the distant-site hospital for its use in periodically evaluating the physician, including all adverse events that might have resulted from telemedicine services provided by the physician to the local hospital’s patients, as well as all complaints the local hospital has received about the physician. CMS believes its proposal would "allow for the advancement of telemedicine nationwide while still protecting the health and safety of patients." CMS is currently taking comments on the proposed rule through July 26th.

Anticipated Proposed Rule re Additional Telemedicine Services

According to the American Telemedicine Association, on or about July 13th CMS is expected to release an additional proposed rule re additional services which may be reimbursed by Medicare if provided via telemedicine. At a minimum, these two proposed rules suggest a greater degree of acceptance of telemedicine services than ever before. If the proposed rules becomes law, many hospitals will likely take advantage of such cross-credentialing options and opportunities to bill Medicare for additional telemedicine services, and telemedicine providers may flourish in the process.

• Email This
• Print
• Comments
• Trackbacks
• Share Link