Healthcare Technology - 2020 Outlook: From "Hype & Hope" to a Potential Healthcare Transformation - Credit Suisse | PLUS
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
8 January 2020
Equity Research
Americas | United States
Healthcare Technology
2020 Outlook: From “Hype & Hope” to a
Potential Healthcare Transformation
Healthcare Technology | Sector Forecast
In this note, we discuss trends we believe are likely to drive digital health growth and healthcare
Research Analysts
innovations in 2020, updates from unconventional players entering or expanding in healthcare,
4Q earnings and 2020 outlook expectations for our HCIT covered names, and key takeaways Jailendra Singh
from our surveys of investors and industry stakeholders on expectations around various 212 325 8121
developments in digital health and healthcare IT heading into 2020. (See our video here). jailendra.singh@credit-suisse.com
Several Themes, but One Goal – Make Healthcare More Accessible & Affordable. In Jermaine Brown
2019, we saw significant progress in several digital health areas with a primary goal of 212 325 8125
jermaine.brown@credit-suisse.com
making healthcare either more accessible or more affordable with the industry continuing to
shift away from just curing disease in the short term (focusing on 5% of population) toward
disease prevention & overall well-being in the LT (focus on total population). Heading into
2020, the key trends likely to drive digital health growth include acceleration in employer
activists, further virtual care & AI adoption, continuing focus on social determinants, primary
care reinvention, a need to address $1 trillion waste in the U.S. Healthcare system etc.
Our Surveys Suggest Both Industry Stakeholders and Investors Bullish on Virtual
Care/Telemedicine. We surveyed 237 HC industry stakeholders (42% C-Level execs) &
45 institutional investors on expectations around various developments in digital health and
HCIT heading into 2020. Virtual Care & Data analytics were the top two technologies
investors were most excited about, while industry stakeholders picked Virtual Care and
AI/Machine Learning. Application of Blockchain & Augmented Reality/Virtual Reality were
technologies both investors and industry stakeholders were least excited about. Finally, both
groups see a slow transition from FFS to Value-Based Care and the lack of reimbursement
clarity as biggest hurdles for the adoption/awareness of Digital Health/HC Innovations.
4Q19/2020 Outlook Expectations for Our Covered Names. We believe expectations
for both EHTH and TDOC are for strong beats in 4Q. EHTH should benefit from a
continuing growth in MA and recent investments, increase in online order fulfillment etc.
TDOC should benefit from a full quarter benefit from the UNH contract, and an above-
average flu season. Expectations are relatively modest for HMSY, PINC, CHNG, & TVTY.
With respect to 2020 outlook, we see EHTH’s rev growth guidance exceeding cons growth
expectation of 25% (though our survey indicates buy-side expectations are closer to 30%).
For TDOC, we see organic rev growth guidance of 23-25% (cons: 25%). TVTY & HMSY
are also expected to issue guidance. For HMSY, in particular, we see guidance coming in
ahead of cons primarily driven by the Accent acq (closed late Dec & not reflected in cons).
Reviewing Models Heading Into 4Q Earnings. We are reinstating coverage of HMSY
following the recently closed acquisition of Accent. Specifically, we are raising our 2020
revenue, EBITDA, and EPS estimates by $50 mln, $10 mln, and $0.05, respectively. We
are also updating our EHTH model to reflect more gradual improvement in EBITDA margins
than we previously expected in 2020 and beyond. Specifically, our 2020 EBITDA estimate
is now $113.8 mln vs $150.7 mln previously and 2020 EPS estimate is $2.92 vs $3.82,
prev. Our 2020 revenue estimate remains unchanged at $530 mln.
DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS,
LEGAL ENTITY DISCLOSURE AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit Suisse 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.
8 January 2020 Investor Survey Indicated TDOC and EHTH Most Preferred Names Heading Into 2020. According to our investor survey referenced above, TDOC, EHTH and HCAT were the most preferred HCIT names heading into 2020. Long-only investors picked TDOC as their most preferred HCIT name, while hedge-funds picked EHTH. Further, LVGO, TDOC and CHNG were the least preferred HCIT names heading into 2020. Long-only investors picked LVGO and CHNG as their least preferred HCIT names heading into 2020, while hedge-funds picked TDOC. Overall, heading into 2020, around 41% of investor respondents are bullish, 14% bearish, and 45% are neutral on the HCIT space. Among Long-only investors, 46% of respondents are bullish on the HCIT space, while among hedge-funds, only 29% of investor respondents are bullish. Views from Survey Respondents on Private Digital Health/HCIT Companies. When asked about the private Healthcare IT & Digital Health companies they are most excited about, investor respondents selected One Medical, followed by American Well and CityMD. Our industry stakeholders also picked American Well as the number one choice, followed by Iora Health and One Medical. Finally, Amazon was selected by both investors and industry stakeholders as their top pick when asked about a non-traditional company most likely to make a significant progress in healthcare in 2020. Healthcare Technology 2
8 January 2020 Table of Contents 4Q19/2020 Outlook for Our Covered Names 5 eHealth (EHTH) ............................................................................................................ 5 Change Healthcare (CHNG) ........................................................................................... 6 HMS Holdings (HMSY) .................................................................................................. 8 Tivity Health (TVTY) ..................................................................................................... 10 Teladoc Health (TDOC) ................................................................................................ 11 Premier (PINC) ............................................................................................................ 14 Investor Outlook Survey - Most Preferred and Least Preferred Publicly Traded HCIT Companies Heading Into 2020 16 Key Takeaways from Our 2020 Digital Health Outlook Survey of Investor & Industry Stakeholders 19 Excitement Around Virtual Care Across the Board .......................................................... 19 Not Much Love for Blockchain and AR/VR for Now ....................................................... 19 Slow Transition to Value-Based Care, Lack of Customer Awareness, & Reimbursement Clarity Seen As Major Hurdles for Digital Health Adoption ............................................... 20 Private Companies Respondents Are Most Excited About ............................................... 21 Expectations Around Non-Traditional Companies Entering or Expanding in Healthcare ...... 22 Trends to Drive Digital Health Growth and Healthcare Innovations in 2020 24 Acceleration in Employer Activists ................................................................................. 24 Increasing Focus on Virtual Care ................................................................................... 25 Artificial Intelligence Applications Continue to Rise .......................................................... 30 Technologies/Innovations Focused on Social Determinants Continue to Gain Traction ...... 31 Primary Care Reinvention Gaining Momentum ................................................................ 33 5G - The Next Generation of Cellular Technology ........................................................... 33 Waste in the US Health Care System Approaching $1 Trillion ......................................... 33 The Long March Towards Value-based Care to Continue ................................................ 34 Increasing Reliance on Technology & Data Implies Vulnerability to Cyberattacks ............... 36 Use of Blockchain in Healthcare ................................................................................... 37 Updates from Unconventional Players Entering Healthcare Market 39 Alphabet/Google ......................................................................................................... 39 Amazon ....................................................................................................................... 39 Apple .......................................................................................................................... 41 Best Buy ..................................................................................................................... 41 Facebook .................................................................................................................... 42 IBM ............................................................................................................................ 42 Lyft & Uber ................................................................................................................. 43 Healthcare Technology 3
8 January 2020 Microsoft ..................................................................................................................... 43 Walmart ...................................................................................................................... 45 Digital Health Funding, IPOs, & M&As 46 Digital Health Venture Funding ..................................................................................... 46 HCIT IPOs .................................................................................................................. 47 M&A Involving Digital Health/HCIT Companies .............................................................. 47 Price Performance and Valuation 49 Our Most Popular Reports in 2019 50 Appendix 51 Catalysts in 2020 For Our Covered HCIT Names ........................................................... 51 Hospitals/Health Systems That Launched Telehealth Services in 2019 ........................... 52 Health Systems That Implemented EHR Systems in 2019 .............................................. 56 Largest Data Breaches In 2019 .................................................................................... 58 Digital Health M&A Deals In 2019 ................................................................................ 59 Survey Respondents Mix .............................................................................................. 61 eHealth 63 HMS Holdings Corp 67 Other Financial Models 71 Healthcare Technology 4
8 January 2020 4Q19/2020 Outlook for Our Covered Names eHealth (EHTH) 4Q19 Expectations EHTH is not presenting at the JPMorgan Healthcare conference but is likely to preannounce its 4Q results in the 2H of January. However, the company does not plan to issue a formal 2020 outlook until its 4Q19 detailed earnings results in February. Based on our investor conversations and the survey results from our EHTH Bull/Bear lunch debate in New York City in mid-Dec, we believe investors already expect EHTH to post 4Q revenue well ahead of the company’s implied outlook “at or above” $181 mln and consensus of $195 mln. Our Bull/Bear debate survey results indicated expectations for 2019 revenues at $414 mln, on average, implying 4Q19 revenues of $210 mln. Likewise, our survey results indicated expectations for 2019 EBITDA at $79 mln, on average, implying 4Q19 EBITDA of $88 mln (vs consensus of $82 mln and the implied 4Q outlook of $74-$79 mln). We hosted EHTH management for investor meetings in Europe in the second week of December (see our note: Plenty of Runway for Growth; Management Meeting Takeaways). EHTH did not provide any significant update on its Annual Enrollment Period (AEP) during the NDR. However, management then noted that, based on trends the company saw in the last two weeks of AEP, the company had increased confidence in its outlook of at or above the high end of its revenue guidance of $365-$385 mln. We expect EHTH’s results to exceed the current consensus and at least track current investor expectations on both revenue and EBITDA. 2020 & LT Outlook As noted, eHealth does not plan to issue a formal 2020 outlook until its 4Q19 detailed earnings results in February. With respect to Y/Y revenue growth guidance expectations for 2020, our bull/bear survey suggested investor expectations of around 30% growth, on average. Assuming EHTH posts 2019 revenues of $415 mln, a 30% Y/Y growth would imply 2020 revenue outlook of $540 mln. Even if the company puts the 30% growth at the high end of its revenue growth outlook and issues the guidance with a typical $20 mln range, the implied 2020 revenue outlook of $520-$540 mln would still be ahead of the current consensus of $499 mln. With 2019 baseline results trending higher, underlying industry trends remaining favorable, improving returns on the company’s recent investments, and another step-up in peak agent count in 2020, we remain comfortable with our above consensus 2020 revenue estimate of $530 mln. With respect to its LT tailwind outlook of $1 bln in revenue and $350 mln of EBITDA (35% EBITDA margin), EHTH has indicated multiple times over the past few months that its revenue projections are trending ahead of its tailwind revenue outlook. The company does not plan to host its investor day in 2020 but will update its LT outlook at some point during 2Q19. 2019 Share Price Performance Despite reporting better than expected results, EHTH shares were volatile during 2019. The shares were affected by “Medicare For All” regaining some focus in August/September as poll results suggested former Vice President Joe Biden losing some ground relative to Senators Bernie Sanders and Elizabeth Warren. However, shares have seen a strong recovery since hitting around mid-$50s in mid-October. We believe this strong bounce back in EHTH shares has been driven by “Medicare for All” noise fading, strong outlook from the CMS on 2020 MA enrollment, EHTH’s strong 3Q19 results, and its bullish commentary around 4Q19. Like the other Democratic contenders, Senator Warren somewhat softened her position on Medicare for All by noting in November that she would not pursue Medicare-for-all legislation until her third year in the White House. Healthcare Technology 5
8 January 2020
Figure 1: EHTH’s Price Performance in 2019 Figure 2: EHTH’s Short Interest Trends in 2019
$120 25.0%
$105
20.0%
$90
15.0%
$75
10.0%
$60
5.0%
$45
$30 0.0%
Source: FactSet Source: FactSet
Model & PT Updates
With this note, we are updating our model and refining our EBITDA margin assumptions to
reflect more gradual improvement than what we previously anticipated. While we remain
comfortable with our $530 mln revenue estimate for 2020, we are lowering our EBITDA margin
estimate for 2020 through 2023. As a result, our 2020 EBITDA estimate is now $113.8 mln vs
vs $150.7 mln, previously, and our 2021 EBITDA estimate is $167.5 mln vs $217.8 mln,
previously. Our 2020 EPS estimate is now $2.92 vs $3.82 previously and 2021 EPS estimate
is now $4.00 vs $5.20 previously. With our revenue estimates and our PT basis of 5x our 2021
revenue estimate largely unchanged, our price target remains $134.
Our Reports on EHTH in 2019
Plenty of Runway for Growth; Management Meeting Takeaways
Continuing Challenges with Plan Finder Could Present an Opportunity
Bullish on Both Near-Term and Long-Term Growth Prospects; Dinner Meeting Takeaways
Positive AEP Trends Mean the Company Sees Its 2019 Results “At or Above” the Outlook
Q&A Our Way: Stage is Set for a Strong AEP
3Q19 Ahead on Better Than Expected Tail Revenue; Implied 4Q Likely Conservative
2019 Revenue Seen at the High End of Outlook; Feeling Good About the Trends
Narrowing Down the Concerns; Risk-Reward Attractive At Current Levels
CMS’ Update on MA Trends in 2020 Generating Some Investor Questions; Our Quick
Thoughts
Perspective on CMS Plan Finder Announcement
Asking the Right Questions
A Growth Story Shielded from Market Turbulence & Macro Noise
Q&A Our Way: This Train Continues to Pick-Up Steam
Solid 2Q19, Above Heightened Expectations
Skating To Where the Puck is Going; Initiate with an Outperform
Change Healthcare (CHNG)
4QCY19/3QFY20 Expectations
CHNG’s current fiscal year (FY20) ends March 31, 20120.
We expect CHNG 3QFY20 solutions revenue and EBITDA to track our expectations of $810.6
mln and $231 mln, respectively, which compares with the current consensus of $810 mln and
Healthcare Technology 68 January 2020 $232 mln, respectively. We expect the company’s Software and Analytics segment revenue to grow modestly at up 0.5% Y/Y in the quarter as the segment’s revenue growth continues to be impacted by the initial phase for enterprise imaging solution, product combinations/eliminations to reduce overlap, and rationalization of connected analytics business. We are expecting a 1% Y/Y revenue growth in the company’s network solutions segment, and a 5% Y/Y revenue decline in the company’s technology enabled services segment. The company’s TES segment revenue trend is expected to be unfavorably impacted by the impact of ASC 606 accounting standard getting pulled forward from FY3Q to FY2Q. We expect CHNG’s EBITDA margins improving from 30.6% in 3QFY19 to 30.8% in 3QFY20. We do not expect CHNG to preannounce or provide any update to its FY20/FY21 outlooks. FY21 Outlook CHNG has already issued its FY21 outlook of revenue growth at 4-6% and EBITDA growth at 6-8%, versus 1-2% revenue and up 6-8% EBITDA growth in FY20. The company has been architecting the entire organization to hit its 4-6% revenue growth target in FY21 by focusing on imaging, services business, and exiting some of its underperforming assets such as connected analytics, etc. Overall, while the revenue growth in FY20 is expected to be subdued, management remains confident and has a clear line of sight for its 4-6% revenue growth outlook for FY21. In fact, excluding some of the company’s restructuring and initiatives, the company is already at 4-6% revenue growth. In the long-run, we believe there are several potential upside opportunities relative to the company’s current revenue and EBITDA outlooks. Specifically, there still remains significant cross-selling opportunities within its businesses. In fact, as part of its process of merging with MCK’s assets, the company conducted an evaluation which concluded that full penetration (in terms of all the services the combined company would sell or provide) of its top 50 providers and top 50 payors would yield incremental annual revenue of $2.5 bln. Some of the recent wins the company highlighted on the FY2Q20 earnings call were the result of those cross-selling and/or up-selling opportunities. Additionally, in the long-run, there are opportunities with the pricing in the company’s businesses (which would be additive to 4-6% revenue growth). The company should also benefit from all the innovations it is bringing to the market. CHNG has an internal 5-year LT target. Once the company has delivered on its short-term commitment of going from 1-2% top-line growth in FY20 to 4-6% growth in FY21, it might consider setting out the LT growth objectives for the company (at some point during FY21). With respect to its EBITDA growth outlook of 6-8% Y/Y in FY20 and FY21, management notes that synergies are one of the key growth drivers in FY20. However, in FY21, the company plans to reinvest some of these synergies back into the business. 2019 Share Price Performance CHNG shares were volatile in 2019 post its IPO (priced at $13 below its original range of $16- $19) in late June primarily on three concerns: a) Lack of visibility for FY21 growth targets given the subdued revenue growth in FY20; b) High leverage; and c) Liquidity event related to MCK’s and PE’s ownerships. With the company reporting two strong quarters and management’s consistent positive tone related to FY20, investors have gotten more comfortable with the company’s FY21 growth targets. In fact, we hosted CHNG management for a series of investor meetings in San Francisco in mid-November (see our note: Clear Line of Sight for Growth in FY21 & Beyond; Management Meetings Takeaways). We walked away from the meetings feeling incrementally positive about the acceleration in the company’s top-line growth in both the short-term and long-term as well as the company’s ability to de-lever. With 6-8% EBITDA growth, no working capital drag, Y/Y decline in integration expenses, and steady CapEx ratio, management sees its FCF improving significantly Y/Y in FY21. CHNG is committed to its leverage target of around 4.0x and deleveraging target of 0.5x annually. Once the company hits its leverage target, it would reassess its next plan of action in terms of deleveraging further or focusing more on M&A opportunities. However, the liquidity event related to MCK’s ownership sale continues to remain a near-term overhang for shares. Healthcare Technology 7
8 January 2020
Figure 3: CHNG’s Price Performance in 2019 Figure 4: CHNG’s Short Interest Trends in 2019
$18 25.0%
20.0%
$16
15.0%
$14
10.0%
$12
5.0%
$10
0.0%
Source: FactSet Source: FactSet
Model & PT Updates
With this note, we are maintaining our revenue, EBITDA, and EPS estimates for FY20 and
FY21. Our PT remains $18, which is based on 9.5x our CY21 EBITDA estimate.
Our Reports on CHNG in 2019
Contracts Wins Further Solidify Management’s Growth Objectives
Clear Line of Sight for Growth in FY21 & Beyond; Management Meetings Takeaways
Q&A Our Way: Investments Yielding Results; New Business Wins Bode Well for FY21
Outlook
A Clean Beat Across the Board; FY2Q20 Revenues and EBITDA Ahead
Q&A Our Way: Moving in the Right Direction
There Is No Second Chance to Make a First Impression; Strong First Quarter Post IPO
CHNG Cautions Against Trying to Read Too Much into MCK’s Results; Our Thoughts
Investments Today Pave the Way for a Bright Future; Initiating with an Outperform, $18 TP
HMS Holdings (HMSY)
4Q19 Expectations
Two of the large PBMs HMSY sends eligibility PBMs claims or eligibility data to process had
some technical challenges in 3Q19. As a result, the work which HMSY management thought
was likely to get done in the quarter got pushed out. The company expects a pretty strong
rebound in its COB business in 4Q, and still expects its COB business to be up low to mid-
single digit for 2019 (in-line with the original guidance). Overall, we estimate the COB revenue
in 4Q to grow 12.5% Y/Y.
The Payment Integrity (PI) segment was up nicely (22.5% Y/Y) in 3Q19. However, the
Population Health Management (PHM) segment’s YTD performance has been below the
company’s expectations as the company’s go-to market strategy has not been as effective.
Thus, the company has pivoted and shifted the strategy and is now adding a new salesforce
dedicated to the PHM segment. While the company expects some PHM segment revenue
shortfall in 3Q to be recovered in future quarters, HMSY reduced its 2019 guidance by the
same amount as the miss in the quarter. The company notes that the guidance reduction
reflects the fact that it could take more time to collect the revenue. Additionally, there are
always capacity issues in terms of how many claims can be processed. We are estimating a
20% Y/Y growth in the PI segment and a 1% Y/Y growth in PHM segment in 4Q19.
Healthcare Technology 88 January 2020
Overall, we expect the company to meet our 4Q19 revenue estimate of $170 mln (Cons:
$170.7 mln), which compares with the implied guidance of $167-$177 mln and our EBITDA
estimate of $48 mln (Cons: $48.7 mln), which compares with the implied guidance of $47-$52
mln.
2020 Outlook
On December 23rd, HMS Holdings announced the acquisition of Accent, a payment accuracy
and cost containment business, from Intrado Corporation for $155 million. Accent generated
$50 mln of revenues on a TTM basis, and its margins are comparable to HMSY’s margins. The
company’s release also noted that Accent has a solid history of positive operating profitability
and cash flows. The company will pay for the acquisition using cash on hand. The transaction
price implies 3.1x Accent’s TTM revenues. Assuming Accent’s margins are similar to 26.4%
YTD core EBITDA margin (excluding reserve releases and 3Q19 Gain on Investment), the
transaction price implies 10.7x our estimated TTM EBITDA. As discussed below, our estimates
including the Accent deal are $720 mln, $205 mln, and $1.36 for revenue, EBITDA and EPS
for 2020, respectively. We expect the company’s outlook to bracket our expectations. The
current consensus excludes the Accent deal as of now.
2019 Share Price Performance
HMSY shares generally had a stable year until its disappointing 3Q19 results. After the
company missed its revenue and earnings expectations and cut its full year outlook, HMSY
shares declined close to 19%. Shares saw some recovery in November but again came under
modest pressure after there were some discussions around UNH moving some of the COB
business away from HMSY to Performant Financial. HMSY management did clarify that the
UNH-HMSY contract transition for the Medicaid reclamation in COB happened prior to 2Q19.
While HMSY did not talk about the revenue loss related to the contract, the company
highlighted its strong 1H19 results for its COB business (up 15.5% Y/Y in 1Q and up 4.3%
Y/Y in 2Q) despite the contract transition. Management also notes that the underperformance
in the COB business in 3Q19 was not related to this contract loss.
Figure 5: HMSY’s Price Performance in 2019 Figure 6: HMSY’s Short Interest Trends in 2019
$45 4.5%
4.0%
$40 3.5%
3.0%
$35
2.5%
2.0%
$30
1.5%
1.0%
$25
0.5%
$20 0.0%
Source: FactSet Source: FactSet
Model & PT Updates
We are updating our model to reflect the Accent deal. We are raising our 2020 revenue
estimates by roughly $50 mln (80% PI and 20% COB) to $720 mln. We are also raising our
EBITDA estimates by $10 mln to $205 mln and EPS by $0.05 to $1.36. Our $34 PT is based
on 14x our 2021 EBITDA estimates.
Our Reports on HMSY in 2019
Management Offers Some Clarifying Comments on the UNH Contract
Dinner Meeting Takeaways: No Fundamental Change in the Biz, 3Q Blip Temporary
Healthcare Technology 98 January 2020
Q&A Our Way: 3Q a Setback, but LT Outlook Remains Intact
3Q Below, Guidance Reduced; A Quarter With More Questions Than Answers
A Strategic Deal To Enhance PHM Positioning
Management Offers Perspective on RAC Revenue Related Disclosures in 10-Q
Q&A Our Way: Strong End to 1H, Feeling Good About 2H
Steady Trends at COB + Rebound in PI + RAC Reserve Benefit = Strong “Beat & Raise”
Q2
Well Positioned to Address Industry Trends; Assuming Coverage with Outperform
Tivity Health (TVTY)
4Q19 Expectations
We initiated coverage on Tivity Health last week (see our note: Bullish on Healthcare Segment,
but Nutrisystem Deal Yet to Prove Its Worth; Initiating with a Neutral Rating). TVTY is
presenting at the JPMorgan Healthcare conference but is unlikely to preannounce its 4Q results
(or issue its 2020 outlook) since the company won’t have enough data from the 2020 diet
season. However, the company could provide some update on SilverSneakers eligible lives
(post the AEP) and might make some qualitative commentary around the preliminary results
TVTY is seeing around the diet season.
We expect TVTY to meet or exceed its implied healthcare segment 4Q revenue guidance of
$151.3-$156.3 mln (CSe/Cons: $154/$157 mln). We conservatively estimate a 0.9% Y/Y
revenue growth in SilverSneakers (vs 1.6% in 3Q19 and 0.5% in 2Q19), and could very well
be a source of upside in the quarter. However, we expect the company’s Nutrition segment to
continue to drag overall results. 4Q is typically the weakest sales season for the Nutrition
segment. The company’s guidance implies 4Q revenue range of $117.6-$127.6 mln (both CSe
and Consensus at $119 mln). Our expectation of a Y/Y decline of 7.9% in the company’s
Nutrition segment compares with a 9.6% Y/Y decline in 3Q19 and a 4.4% decline in 2Q19.
Further, we expect TVTY to meet our 4Q19 EBITDA estimate of $64.3 mln (Cons: $64 mln),
which compares with the company’s implied 4Q19 EBITDA outlook of $62.3-$72.3 mln.
2020 & LT Outlook
We expect the company to issue its 2020 outlook along with its 4Q earnings release. The
company has already indicated that it expects its Healthcare segment revenues to be up high
single digit/low double digit range in 2020 despite another Y/Y headwind related to UNH
moving some of its individual MA lives away from SilverSneakers. Further, the company has also
noted in the past that it expects its number of eligible lives for SilverSneakers at around 16-
16.5 mln. The company is targeting five million members for total enrollment (a growth of
around 38% vs 3.6 million currently) and 1.8 million (a growth of 50% vs 1.2 million currently)
active monthly participants by 2020. The current consensus for the Healthcare segment
revenue is $686 mln (CSe: $684 mln).
With respect to the company’s Nutrition segment, our 2020 revenue estimate of $629.5 mln is
below the current consensus of $650 mln. As we noted in our initiation report, after several
years of strong double-digit top-line growth, Nutrisystem has experienced a decline in its
revenues over the past two years, primarily driven by fewer new customer starts, a critical
component in the weight loss management industry. Despite the company’s recent initiatives to
bolster Nutrisystem’s legacy business, it remains to be seen if these efforts are enough to drive
a turnaround.
Overall, our 2020 revenue estimate of $1.314 bln compares with the consensus of $1.327 bln.
We believe any variance in the company’s guidance relative to our expectations is likely to be
driven by the company’s Nutrition segment.
Healthcare Technology 108 January 2020
2019 Share Price Performance
While TVTY shares declined 32% on the day of Nutrisystem deal announcement in December
of 2018, shares remained under pressure in 1H19 as the company’s diet season trends in
1Q19 fell short of expectations. In 2Q19, the company lowered its outlook for the Nutrition
segment as the company’s direct-to-consumer nutrition business continued to face challenges.
However, the company’s continuing strong results in its Healthcare segment as well as the
extension of UNH’s Group MA lives contract drove a rally in shares in 2H19. In December of
2019, TVTY shares again declined after the departure of Dawn Zier, the former COO of Tivity
Health and the former CEO of Nutrisystem.
Figure 7: TVTY’s Price Performance in 2019 Figure 8: TVTY’s Short Interest Trends in 2019
$26 45.0%
40.0%
35.0%
$22 30.0%
25.0%
20.0%
$18 15.0%
10.0%
5.0%
$14
0.0%
Source: FactSet Source: FactSet
Model & PT Updates
With this note, we are maintaining our revenue, EBITDA, and EPS estimates for 2020 and
2021. Our PT remains $22, which is based on 7.5x our 2021 EBITDA estimate.
Teladoc Health (TDOC)
4Q19 Expectations
Based on our conversation with investors, there are expectations for a 4Q preannouncement
(and a preliminary 2020 outlook) at the JPMorgan Healthcare conference next week. TDOC did
issue its year ahead outlook when the company presented at this conference in 2018 but just
reaffirmed 4Q without providing any update on the year ahead look when the company
presented in 2019. Overall, we see a high likelihood of TDOC’s revenues coming in at the high
end or higher than its quarterly outlook of $149-$153 mln (CSe/consensus of $151.8/$151.7
mln) primarily driven by higher than average Flu activity in the quarter. TDOC has noted in past
that a strong flu season can lift its visits by 5-10%. However, with Flu activity having an impact
on the company’s gross margin (driven by an increase in unpaid visits), we see TDOC’s 4Q
EBITDA largely tracking expectations (CSe/Consensus: $14.3/$13.2 mln and outlook of
$11.5-$15.5 mln).
By way of background, nationwide during Week 52 (per the CDC), the percentage of outpatient
visits for flu-like illness was 6.9% for the week ending December 28th (vs. 5.1% in the prior
week), according to the CDC’s most recent FluView report. This figure surpasses the national
baseline of 2.4% (“a reference point CDC uses based on the previous three seasons”),
approaching levels last seen in the 2017-2018 season (which peaked at 7.5%). ILI has been at
or above the national baseline for eight weeks with all regions at or above their baselines.
According to a press release from MDLive in the first week of November, its virtual doctor visits
for patients with cold and flu symptoms were expected to reach record levels this flu season.
The projections, based on MDLIVE’s own AI-based predictive analytics that have been
Healthcare Technology 118 January 2020 highlighted by Microsoft, showed that flu-related visits could increase by 43% from a year ago and would be the highest volume of patient visits during the annual flu season since MDLIVE’s founding in 2006. MDLIVE’s models then predicted the peak flu season to begin in the U.S. in November, and MDLIVE’s own utilization was expected to peak in January. MDLIVE argues that Telemedicine is ideal for patients and providers during a busy flu season. In fact, flu is an appropriate condition that a doctor can diagnose by an assessment of a patient’s symptoms conducted via a convenient virtual visit. This also helps to address the overcrowding of urgent care clinics and ERs during the flu season. In addition, telemedicine makes good health sense for not only those seeking assistance from a virtual care provider, but for the general population as well. Because a patient experiencing flu-like symptoms can consult with a provider without needing to enter a crowded clinic or ER, the patient avoids coming in contact with additional germs as well as spreading their own. Figure 9: Percentage of ILI Visits Source: CDC 2020 Outlook At the JPMorgan Healthcare conference next week, TDOC should at least provide additional update on its RFPs, bookings etc. for 2020. However, as noted there are expectations that the company might provide a preliminary 2020 outlook at the conference. The current revenue consensus of $685.4 mln (CSe: $668.6 mln) represents a Y/Y growth of 25% (CSe: 22%). TDOC’s LT revenue growth target is 20-30%. Excluding incremental contributions from Advance Medical, the initial 2019 outlook implied organic revenue growth in the low-20% range as the company’s strong guidance around 2019 membership and visits was partially offset by the pricing drag related to the new business roll-outs. For the three quarters reported in 2019, TDOC has reported organic revenue growth of 23%, 24%, and 24%, respectively. We believe the company’s initial 2020 outlook is likely to put the mid-point of the outlook at around 23-24%. We also believe the incremental revenue related to the UNH contract is already reflected in TDOC’s LT revenue growth target and could represent close to 4-5% of Y/Y growth in 2020. With a possibility of the Flu season peaking earlier than what we saw last year, there is a likelihood that management might want to capture some Flu related Y/Y headwind in its 2020 outlook. 2019 Share Price Performance TDOC shares were volatile in 1H2019 driven by the company’s initial 2019 outlook falling short of consensus, NCQA certification related noise, concerns around the pricing trends, and lack of any substantial update on the UNH contracts. However, shares recovered in 2H19 as management struck a positive tone with respect to the 2020 selling season, the company Healthcare Technology 12
8 January 2020
provided announced UNH contract win (and provided additional contract details), and investors
became bullish on strong organic growth trends in 2020.
Figure 10: TDOC’s Price Performance in 2019 Figure 11: TDOC’s Short Interest Trends in 2019
$90 40.0%
35.0%
$80
30.0%
$70 25.0%
20.0%
$60
15.0%
$50 10.0%
5.0%
$40
0.0%
Source: FactSet Source: FactSet
Model & PT Updates
With this note, we are maintaining our revenue, EBITDA, and EPS estimates for 2020 and
2021. Our PT remains $76, which is based on 7.5x our 2021 revenue estimate.
Our Reports on TDOC in 2019
Comments Around Utilization, Payment Parity, & Other Trends
Offers Updates on Selling Season, UNH Contract Rollout, and PMPM Expectations
Q&A Our Way: Good Visibility Into 2020
A Beat and Raise Qtr Driven by Strong Visits Trends; UNH Contract Rollout Drags Pricing
Livongo Integrates Virtual Care Into Its Platform; Our Thoughts Post Management Call
Updating Model to Better Reflect UNH Contract Details
Management Offers a Further Sneak Peek Into the UNH Contract
Fact Checking; Management Weighs in on Noise Around HIIQ Relationship
Q&A Our Way: Selling Season Comments & Organic Revenue Growth Drivers Elaborated
Q2 Tracks Expectations; Positive 2020 Selling Season Commentary
What Are We Hearing? Thoughts on Shares' Weakness
Where Are Expectations for the UNH Contract?
Company’s Perspective on the CFO Announcement
Shares Weak on No Apparent News
Management Weighs In on NCQA Update
Q&A Our Way: Expressing Confidence About 2020 Growth Prospects
No Major Surprises in Q1; Q2 Outlook Brackets Consensus, 2019 Outlook Reiterated
Likely A Quiet Quarter; Thoughts on Timing of Various Catalysts
Another ST Extension for NCQA Certification
A Quick Check With Management on MédecinDirect Deal & NCQA Certification
Q&A Our Way: Digging Into 2019 Assumptions and Potential 2020 Tailwinds
2019 Guidance Shortfall Offsets Strong 4Q Results
4Q Should Track Expectations; 2019 Outlook and CFO Update In Focus
Healthcare Technology 138 January 2020
2019 Outlook To Wait; Provides Update on Recent Client Wins & UNH Contract
Expansion
Premier (PINC)
4QCY19/2QFY20 Expectations
PINC reported an 8% Y/Y revenue growth in its Supply Chain Services segment (including a
6% Y/Y growth in net admin fees). The company attributed better than expected growth in
admin fees to favorable utilization trends, better than expected performance in the company’s
capital group purchasing contract portfolio, benefits related to the company’s SURPASS and
ASCEND collaborations, and the company’s other initiatives. Additionally, the segment
benefited from a strong growth in the company’s direct sourcing business (up 10% Y/Y), which
was partly timing related. Post FY1Q results, the company maintained its guidance for the
segment. However, if some of the favorable trends (primarily related to utilization) continued in
FY2Q20, it could push results ahead of our expectations. However, for now, we are modelling
the supply chain segment revenue to moderate from a growth of 7.8% in FY1Q20 to a growth
of 4.1% in FY2Q20. Likewise, we expect the segment EBITDA growth to moderate from up
9.4% to 6.5%. For Performance Services segment, we expect the pressure to continue.
Specifically, we expect the segment revenues to decline 11% Y/Y and EBITDA to decline
roughly 36% Y/Y in FY2Q20. All in, our consolidated revenue and EBITDA estimates are
$305.8 mln (Cons: $307 mln) and $137.2 mln (Cons: $139 mln), respectively, for FY2Q20.
FY2020/FY21 Outlook
Given PINC’s fiscal year ends June 30, we do not expect the company to provide any outlook
for its FY21 at this point. We also expect the company to maintain its FY20 outlook.
2019 Share Price Performance
PINC shares were volatile during 2019 given all the uncertainty around the company’s
Performance Services segment. However, shares saw a steep decline post a short report in late
September. The short report focused on the pending renewal of the company’s two large
contracts and its implications for the company’s shareback etc. A strong FY2Q20 and the
renewal one of the two large clients helped shares rally. In late Nov, PINC shares saw some
further positive move after Dealreporter reported that Premier is running a process to potentially
sell the company. We believe a private equity transaction makes more sense than a strategic
transaction. PINC doesn’t necessarily fit (in terms of add-on capabilities) within the portfolio of a
potential strategic buyer’s portfolio given the nature of its business. On the flip side, a financial
sponsor can inject capital, realign the leadership, and transform PINC into a much more
technology forward company to drive some potential growth in the company’s performance
services business. We also highlighted concerns around some pending contract renewals and
ownership structure & its implications for the fees shareback. More recently, PINC shares
declined after a PE Hub article noted that the sale process is on hold for six months as the
company determines how the current member ownership structure would roll into an equity
structure with the new entity.
Healthcare Technology 148 January 2020
Figure 12: PINC’s Price Performance in 2019 Figure 13: PINC’s Short Interest Trends in 2019
18.0%
$45
16.0%
14.0%
$40
12.0%
10.0%
$35
8.0%
6.0%
$30 4.0%
2.0%
$25 0.0%
Source: FactSet Source: FactSet
Model & PT Updates
With this note, we are maintaining our revenue, EBITDA, and EPS estimates for FY20 and
FY21. Our PT remains $42, which is based on 13x our CY21 EPS estimates and 8x our CY21
EBITDA estimate.
Our Reports on PINC in 2019
LBO Math Works, But Some Near-Term Hurdles to Overcome
Q&A Our Way: Discussions Around FY1Q20 Growth Drivers, Contracts Wins, & Other
Initiatives
FY1Q20 Ahead as Better than Expected Supply Chain Segment More than Offset
Performance Service Segment Miss
Takeaways From Our Conversations with Management & Industry Experts on the Pending
Contract Renewals
A Quick Check with Management on PDPRA (Section 109) & Quarterly Cadence
Q&A Our Way: Moving Parts in FY20 Outlook Discussed in Detail
FY4Q19 Results and FY20 Outlook Largely As Expected
Waiting For the Tide To Turn; Neutral View
Healthcare Technology 158 January 2020
Investor Outlook Survey - Most Preferred and
Least Preferred Publicly Traded HCIT
Companies Heading Into 2020
In the text and charts that follow, we discuss investor sentiment on the HCIT industry and the
publicly-traded HCIT names investors are most and least excited about heading into 2020. The
results are based on our survey of 45 institutional investor clients (40% Hedge Funds, 58%
Long-only). See appendix for the respondents mix for the survey.
Around 41% of our investor respondents were bullish on HCIT, 14% were bearish and 45%
were neutral heading into 2020.
Figure 14: What is your general view on the Healthcare IT sector for 2020?
Bearish
14%
Bullish
41%
Neutral
45%
Source: Credit Suisse
Among Long-only investors, 46% of respondents were bullish on HCIT, while among Hedge-
funds, only 29% of respondents were bullish.
Figure 15: What is your general view on the Healthcare IT Figure 16: What is your general view on the Healthcare IT
sector for 2020? – Long Only sector for 2020? – Hedge Fund
Bearish Bearish
12% 18%
Bullish
29%
Bullish
46%
Neutral
42%
Neutral
53%
Source: Credit Suisse Source: Credit Suisse
According to our survey, TDOC, EHTH and HCAT were the most preferred HCIT names
heading into 2020.
Healthcare Technology 168 January 2020
Figure 17: Which of these HCIT names are you most bullish on heading into 2020?
33.3%
31.1%
20.0%
15.6% 15.6%
8.9% 8.9% 8.9% 8.9%
6.7%
TDOC EHTH HCAT HQY CHNG CERN LVGO EVH RCM PHR
Source: Credit Suisse
Long-only investors picked TDOC as their most preferred HCIT name heading into 2020, while
hedge funds picked EHTH.
Figure 18: Which of these HCIT names are you most bullish on Figure 19: Which of these HCIT names are you most bullish on
heading into 2020? - Long-Only Investors heading into 2020? - Hedge Funds
44.4%
38.5%
26.9% 27.8%
23.1% 23.1%
15.4% 16.7%
11.1% 11.1%
TDOC HCAT EHTH HQY CHNG EHTH TDOC CHNG HCAT EVH
Source: Credit Suisse Source: Credit Suisse
According to our survey, LVGO, TDOC and CHNG were the least preferred HCIT names
heading into 2020.
Healthcare Technology 178 January 2020
Figure 20: Which of these HCIT names are you most bearish on heading into 2020?
22.2% 22.2%
17.8%
15.6%
13.3% 13.3%
11.1% 11.1% 11.1%
8.9%
LVGO TDOC CHNG None of the CSLT EVH CERN HIIQ PINC TVTY
above
Source: Credit Suisse
Long-only investors picked LVGO and CHNG as their least preferred HCIT names while Hedge
Funds picked TDOC as their least preferred HCIT name.
Figure 21: Which of these HCIT names are you most bearish on Figure 22: Which of these HCIT names are you most bearish on
heading into 2020? - Long-Only Investors heading into 2020? - Hedge Funds
23.1% 23.1%
38.9%
15.4% 15.4% 15.4%
22.2%
16.7% 16.7%
11.1%
LVGO CHNG CSLT None of the EVH
above TDOC LVGO CERN HIIQ CSLT
Source: Credit Suisse Source: Credit Suisse
Healthcare Technology 188 January 2020
Key Takeaways from Our 2020 Digital Health
Outlook Survey of Investor & Industry
Stakeholders
In the text and charts that follow, we highlight key takeaways from our 2020 outlook survey of
both investors as well as industry stakeholders on expectations around various developments in
digital health and healthcare IT. We surveyed 237 industry stakeholders (43% C-Level
executives at Healthcare firms) and 45 institutional investor clients (40% Hedge Funds, 58%
Long-only). See appendix for the respondents mix for two surveys.
Excitement Around Virtual Care Across the Board
Around 58% of investor respondents selected “Virtual Care/Telemedicine” as the
technology/innovation they are most excited about. Data Analytics was selected by roughly
51% of investor respondents, while 38% of investor respondents selected
Technologies/Innovations Focused on Improving Efficiency/Accuracy of Clinical Trials.
Figure 23: With respect to Healthcare IT & Digital Health in 2020, which of the technologies/innovations below are you MOST
excited about? – Investor Respondents
57.8%
51.1%
37.8% 37.8% 33.3% 31.1% 31.1%
15.6% 15.6% 11.1%
Genomics
Population Health
Technologies/Innovati
Cybersecurity
Virtual Care /
Intelligence/Machine
Data Analytics
risk-based physician,
Changes in Physician
Engagement/navigati
Telemedicine
(direct primary care,
Healthcare Delivery
Related Innovations
Practice Ownership
Efficiency/Accuracy
engagement, etc.)
Management
ons Focuses on
Trials
on Platforms
Employee
physician
Learning
Improving
Artificial
of Clinical
Source: Credit Suisse
Among industry stakeholders, roughly 57% of respondents selected “Virtual Care/Telemedicine”
as their top choice, followed by Artificial Intelligence/Machine Learning (55% of respondents),
and Data Analytics (49% of respondents).
Figure 24: With respect to Healthcare IT & Digital Health in 2020, which of the technologies/innovations below are you MOST
excited about? – Industry Stakeholder Respondents
57.0% 55.3%
48.5% 44.7%
33.8%
25.3%
19.4% 16.0%
10.5% 9.3%
Genomics
Population Health
Intelligence/Machine
Internet of Medical
Data Analytics
risk-based physician,
Technologies/Innovati
Virtual Care /
Changes in Physician
Engagement/navigati
Telemedicine
(direct primary care,
Healthcare Delivery
Related Innovations
Practice Ownership
Efficiency/Accuracy
engagement, etc.)
Management
ons Focuses on
of Clinical Trials
on Platforms
Things*
Employee
physician
Learning
Improving
Artificial
Source: Credit Suisse
Not Much Love for Blockchain and AR/VR for Now
Around 64% of investor respondents selected “Blockchain” as the technology/innovation they
are least excited about when it comes to healthcare. Augmented Reality/Virtual Reality was
Healthcare Technology 198 January 2020
selected by roughly 47% of investor respondents, while 31% of investor respondents selected
Internet of Medical Things.
Figure 25: With respect to Healthcare IT & Digital Health in 2020, which of the technologies/innovations below are you LEAST
excited about? – Investor Respondents
64.4%
46.7%
31.1%
22.2% 17.8% 13.3% 11.1% 11.1% 8.9% 6.7%
Genomics
Blockchain
Intelligence/Machine
Cybersecurity
Internet of Medical
Changes in Physician
Population Health
Reality/Virtual Reality
Virtual Care /
Engagement/navigati
Telemedicine
Practice Ownership
Management
on Platforms
Augmented
Employee
Things
Learning
Artificial
Source: Credit Suisse
Among industry stakeholders, roughly 44% of respondents selected Blockchain as their top
choice for the technology they were least excited about, followed by Augmented Reality/Virtual
Reality and innovations related to Changes in Physician practices/ownerships.
Figure 26: With respect to Healthcare IT & Digital Health in 2020, which of the technologies/innovations below are you LEAST
excited about? – Industry Stakeholder Respondents
44.3%
40.5%
36.3%
21.9% 20.7% 20.3% 17.3% 15.2%
7.2% 6.3%
Genomics
Blockchain
Internet of Medical
Cybersecurity
Population Health
Technologies/Innovati
Intelligence/Machine
Reality/Virtual Reality
Changes in Physician
Engagement/navigati
Practice Ownership
Efficiency/Accuracy
Management
ons Focuses on
of Clinical Trials
on Platforms
Augmented
Employee
Things
Learning
Improving
Artificial
Source: Credit Suisse
Slow Transition to Value-Based Care, Lack of
Customer Awareness, & Reimbursement Clarity Seen
As Major Hurdles for Digital Health Adoption
Around 36% of investor respondents selected “Slow Transition from Fee for Service to Value-
Based Care” as the biggest hurdle for the adoption/awareness of Digital Health/Healthcare
Innovations. “Lack of Customer Adoption/Awareness” was also selected by roughly 36% of
investor respondents, while 33% of investor respondents selected Reimbursement
Environment/Clarity.
Healthcare Technology 208 January 2020
Figure 27: Which of these do you see as the biggest hurdles for the adoption/awareness of Digital Health/Healthcare
Innovations? – Investor Respondents
35.6% 35.6%
33.3%
24.4%
22.2%
17.8%
11.1% 11.1%
8.9%
Slow Transition from Lack of Customer Reimbursement Limited Near-Term ROI Diverse Interests Regulatory Hurdles Lack of Capital Among Cybersecurity Privacy
Fee for Service to Adoption/Awareness Environment/Clarity Among Stakeholders Providers
Value-Based Care
Source: Credit Suisse
Among industry stakeholders, roughly 38% of respondents selected “Slow Transition from Fee
for Service to Value-Based Care” as the biggest hurdle for the adoption/awareness of Digital
Health/Healthcare Innovations followed by Reimbursement Environment/Clarity (35% of
respondents) and Lack of Customer Adoption/Awareness (32% of respondents).
Figure 28: Which of these do you see as the biggest hurdles for the adoption/awareness of Digital Health/Healthcare
Innovations? – Industry Stakeholder Respondents
37.6%
34.6%
32.1%
28.3%
24.9%
22.4%
7.6%
5.1% 4.2%
Slow Transition from Reimbursement Lack of Customer Regulatory Hurdles Limited Near-Term ROI Diverse Interests Lack of Capital Among Privacy Cybersecurity
Fee for Service to Environment/Clarity Adoption/Awareness Among Stakeholders Providers
Value-Based Care
Source: Credit Suisse
Private Companies Respondents Are Most Excited
About
Around 29% of investor respondents selected One Medical when asked about the private
Healthcare IT & Digital Health companies they are most excited about. American Well was
selected by roughly 18% of investor respondents, while 18% of investor respondents also
selected CityMD.
Healthcare Technology 218 January 2020
Figure 29: Which of these private Healthcare IT & Digital Health companies are you most excited about? – Investor Respondents
28.9%
17.8% 17.8%
13.3%
11.1%
8.9%
6.7% 6.7% 6.7% 6.7%
One Medical American Well CityMD Iora Health Doctor on ZocDoc Cedar Gate RxAdvance Omada Health 98point6
Demand Technologies
Source: Credit Suisse
Among industry stakeholders, roughly 13% of respondents selected American Well, followed by
Iora Health at 12% and One Medical at 11%.
Figure 30: Which of these private Healthcare IT & Digital Health companies are you most excited about? – Industry Stakeholder
Respondents
13.1%
12.2%
11.4% 11.4%
9.3%
8.0% 8.0%
7.2% 7.2% 7.2%
American Well Iora Health One Medical Doctor on VillageMD Grand Rounds Altruista Health Omada Health RxAdvance 98point6
Demand
Source: Credit Suisse
Expectations Around Non-Traditional Companies
Entering or Expanding in Healthcare
Around 62% of investor respondents selected Amazon when asked about the non-traditional
companies making a significant progress in healthcare in 2020. Google/Alphabet was selected
by roughly 49% of investor respondents, while 36% of investor respondents selected Apple.
Healthcare Technology 228 January 2020
Figure 31: Which of these non-traditional healthcare companies do you expect to make significant progress in healthcare in 2020?
– Investor Respondents
62.2%
48.9%
35.6%
24.4%
13.3%
8.9%
2.2% 0.0% 0.0% 0.0%
Amazon (including Google/Alphabet Apple Walmart Microsoft IBM Best Buy Uber Lyft Facebook
Haven)
Source: Credit Suisse
Among industry stakeholders, roughly 68% of respondents selected Amazon, followed by
Google/Alphabet at 40% and Walmart at 37%.
Figure 32: Which of these non-traditional healthcare companies do you expect to make significant progress in healthcare in 2020?
– Industry Stakeholder Respondents
67.9%
39.7% 37.1% 34.2%
16.5%
6.3% 5.5% 5.5% 5.1% 2.1%
Amazon (including Google/Alphabet Walmart Apple Microsoft Best Buy Uber Lyft IBM Facebook
Haven)
Source: Credit Suisse
Healthcare Technology 238 January 2020
Trends to Drive Digital Health Growth and
Healthcare Innovations in 2020
In the text and charts that follow, we discuss in detail some of the key trends we believe are
likely to drive the digital health growth and healthcare innovations in 2020.
Acceleration in Employer Activists
Employers are placing a greater emphasis on health culture, creating a workplace environment
that encourages employees to live healthier lives and, therefore, be more productive at work.
Employers are increasingly focused on affordability and improving access to quality care and
total wellbeing of employees. A small portion of the population is responsible for a large
percentage of total health spending (roughly 5% of population driving more than 50% of
healthcare spending). However, employers are recognizing that focusing only on the highest-
cost and highest-risk patients is very well turning out to be driving while looking in the rear-view
mirror.
Despite employers’ efforts to control utilization through various tools (higher employee cost
sharing, shift to CDHPs, etc.), medical cost trend continues to outpaces general inflation. As a
result, employers are increasingly putting employees at the center of their health and wellbeing
strategies. This has led to what PwC’s Health Research Institute (HRI) coins as an emergence
of “employer activists.” In fact, according to a Large Employers’ Health Care Strategy and Plan
Design Survey conducted by National Business Group on Health in May/June of 2019, around
36% of employer respondents saw their health care strategy becoming an integral part of their
workforce strategy as investments in health and well-being are considered key to deploying the
most engaged, productive and competitive workforce possible. This figure was up from 27% in
the 2018 survey.
In a large group employer survey we conducted in the summer of 2019, we asked benefit
managers to pick their top three priorities over the next three years. Some 78% of employer
respondents noted employee well-being (enhancing employees’ physical, emotional, financial
and social wellbeing), followed by clinical conditions (improving the health of employees and
reducing the costs for key chronic conditions) and a healthy workplace (creating a workplace
environment that encourages healthy living).
Figure 33: Over the next three years, what are your top three priorities?
Employee wellbeing: Enhancing employees’ physical, emotional, financial and social wellbeing 78%
Clinical conditions: Improving the health of employees and reducing the costs for key chronic conditions 60%
Healthy workplace: Creating a workplace environment that encourages healthy living 51%
Employee experience: Promoting employee involvement in workplace, technological and physical
32%
environments
Healthy technology solutions: Adoption of connected devices, enhanced enrollment and integrated
28%
platforms and processes to improve care delivery, and health analytics
Source: Credit Suisse
The top three conditions which are currently a major concern for employers are
hypertension/high blood pressure (31% of respondents), metabolic syndrome/diabetes (30%
of respondents), and cancer (27% of respondents). Interestingly, National Accounts see
musculoskeletal disease (44% of National Account respondents) as their top condition of
concern for employers. In fact, employers’ healthcare spending on individuals with chronic
diseases is nearly four-times that for healthy workers.
Healthcare Technology 24You can also read
