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Current Trends in Health Care M&A: An Update

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In this follow up to their December 2022 podcast, Jennifer Mannino, Managing Director, Berkeley Research Group, and Jennifer Rangel, Partner, Holland & Knight LLP, discuss some of the M&A trends and patterns they are currently seeing. They cover private equity rollups, telehealth after the Public Health Emergency ends, Amazon and other retailers entering the health care market, and compliance considerations in the evolving digital health environment. Sponsored by BRG.

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Speaker 1:

The following message and support for A H L A is provided by Berkeley Research Group, a global consulting firm that helps organizations advance in the areas of disputes and investigations, corporate finance and strategy and operations. B R G helps clients stay ahead of what's next. For more information, visit think brg.com.

Speaker 2:

This is Jennifer Manino with Berkeley Research Group, along with Jennifer Rangal, a healthcare partner at the law firm of Holland. And Knight. Jennifer's. So nice to be with you again.

Speaker 3:

So nice to be with you again too.

Speaker 2:

So we had an insightful conversation during the last quarter, last year, I think it was, uh, December, um, 2022. And now here we are in the first quarter, uh, 2023. Happy New Year. And, uh, curious Jennifer, on what you're seeing in the market and what's, uh, what do you think private equity focusing on versus where strategics or strategic buyers are spending their time?

Speaker 3:

Um, that's a great question. You know, I, we're continuing to see a lot of private equity rollups, so in all sorts of different areas, both specialty and even pri, you know, primary care is becoming more, um, prevalent with a lot of, uh, rollups as well. So that's continuing to be an issue or, uh, not really an issue. Um, a source of, um, of work. And then, um, I think we're also seeing a lot of activity in the innovation and digital health space. Um, I was just on a call today with a, um, more strategic investor client, um, and that was their primary focus. And so we're seeing a lot of activity both in telehealth, but also in other areas, uh, where digital health and more innovation kind of intersect. You know, things focus more on, um, value-based care and expansions of how people can provide services in kinda new and different ways and really address the whole patient or whole individual's health overall, and kind of manage that, uh, which is important for everyone's viewpoint. I mean, payers are interested in that. So I'm seeing activity there, but also, um, certainly providers and then we're seeing just the technology space that's really starting to focus more and more in this area.

Speaker 2:

So I I, do you think Covid 19 just paved the way for this kind of expansion? I mean, we're seeing a lot of consolidation in telehealth. I know, um, you, you've seen similar observations, but did you know covid 19, uh, create this expansion into digital health? Or maybe it made it even easier to enter, um, that marketplace. Um, and, and I'm also curious what you think about the fact that, um, the national public health emergency mandate and ends in May, and how does all that come into play?

Speaker 3:

Yes, absolutely. I think it all comes into play. I think, uh, the, I think Covid kind of created this kind of perfect storm of opening people's eyes to use of telehealth in a way that they maybe weren't thinking about it before. We were already seeing an expansion just for convenience, but now we're seeing primary care being delivered via telehealth, whereas it originally started out as more, more just urgent care. I think, uh, the pandemic led to a greater need for behavioral healthcare, and a lot of that is being provided via tele teletherapy, telehealth, different types of, um, digital ways of doing that. So I, I certainly think it accelerated the pace at which digital health is growing and things like remote patient monitoring, which was starting, you know, certainly pre pandemic, um, has just continued to grow and people are much more accepting of it. Um, I do think that it'll be really interesting to see, you know, what happens as, uh, the, uh, public health emergency ends and, you know, coming up here very soon, and the few states that still have public health emergencies like Texas will end as well. Um, so a lot of the flexibilities that we had in place are gonna go away. Now, in a lot of states, some of the state flexibilities had already gone away, but there were still, there were still some, and certainly you had Medicare reimbursement flexibilities that expanded the ability to access it for that population. So, although there have been some changes, um, I do think we're gonna see some interesting things in infectious today. Um, the DEA proposed a regulation under the Ryan, um, height Act, which involves, um, prescribing and controlled substances via telemedicine. Haven't had time to read it in depth, but it just, uh, it was just, uh, put out this morning. It hasn't, I don't even think it's been officially published yet. So it was just the early release. But that, that's been an issue because they were flexibilities that allowed physicians to prescribe controlled substances via telehealth and waived that statute and regulation during the public health emergency. But with that ending, now, this regulation is aimed at kind of looking at, well, what do we do about people who started their relationship via telehealth? And there was no in-person visit, which is typically required under the statute. So I, that's one instance where they're trying to kind of address the timeframe of the public health emergency and then figure out, well, what do we do about it going forward? While we're trying to kind of balance the concerns over over prescribing of controlled substances and fraud and abuse concerns with wanting to allow flexibilities where it really is a medically, you know, there's a medical need for doing so.

Speaker 2:

Right. I mean, I, I was kind of thinking through, um, with Amazon Clinic being a big player.

Speaker 3:

Yes.

Speaker 2:

Uh, you know, how, you know, what does the competition look like? How does that space look like? Are, you know, are health our health systems making these kind of investments in, um, digital health? Is it private equity looking for these kinds of investments? It seems that, um, you know, the, it's a game changer with Amazon Clinic being in the market now.

Speaker 3:

Yes. With the Amazon acquisition was really interesting cuz I think what we're seeing is more and more, you know, retailers, um, whether they're online or, or not at really getting into the healthcare space, and there's been so many, you know, very strategic acquisitions over the, for the end of last year that I think will just continue. You know, I don't think it's just, um, you know, online retailers or, um, you know, the large big box stores that are looking at these sorts of things. Certainly we're seeing strategic investments. I think you'll see, you'll see you're, we're seeing certainly health systems are very interested in digital health. There were, there's been some kind of smaller partnerships I've seen where they've really kind of gotten involved with looking at things like, um, primary care, um, via telehealth. Um, you know, I found, I was talking just very recently to a client that they are focused on, uh, staffing in rural hospital and in, you know, on, on Indian reservations. And they, what they do is they kind of do locum tenons, but via telehealth, uh, which was kind of in so very interesting. Basically, they're able to reach areas that you, they they're not able to reach otherwise.

Speaker 2:

Oh, that's, yeah, that's, uh, that's interesting. Uh, you know, I'm, I'm, uh, wondering where compliance will go as far as like establishing compliance programs, but then how, how's the government actually going to regulate this virtual environment versus, you know, the, the physical environments?

Speaker 3:

Yeah, I think that's a really interesting question, and it'll be interesting to see how compliance evolves in this kind of new, new electronic digital field. Um, I mean, certainly we're, one thing we're seeing in the enforcement area coming out of, um, you know, in the post covid world is, is now a lot of audits and reviews of teletherapy and things that are in telehealth that was happening during the pandemic and, you know, wasn't anything necessary. Uh, especially some of the ones you've seen lately are, are more focused on, you know, genetic testing mm-hmm.<affirmative> telehealth to qualify for that. So I think we'll continue to see enforcement, uh, as we always deal with anything kind of new and emerging. But I, I do think it's gonna take, it takes time to kind of figure out how to, you know, how, how to approach it. So it's definitely, there's gonna be a learning curve, but compliance remains in as, you know, remains important. So I think whether you're, you know, I think what's interesting is a lot of these telehealth companies started out, you know, they were startups and they didn't necessarily have the, um, budget for full compliance reviews. And when you're looking at something with a 50 state footprint, you have to think things through everything like core practice and medicine, nurse practitioners, scope of practice, you know, fee splitting front uses. Um, it's a lot. And I think that it oftentimes they wait until they get to and get enough funding to be able to undertake that review. So I think there's a lot of risk in that time period from the startup phase till they can actually really be sure they're in full compliance, which is, you know, certainly fraught with risk. But

Speaker 2:

Is there a baseline, I'm sure anyone who listens to this podcast, um, you know, they'll fall between the range of, um, startup having grown the startup or being a, you know, a more sophisticated model. Is there a baseline that they need to be concerned with, not only from a regulatory perspective, but even from an investor perspective, right, because absolutely, you know, investors are, um, doing their, um, due diligence and, um, and regular regulators are keeping a close watch on, um, this marketplace. And, and no one wants to be the, the poster child of, um, you know, how to unearth fraud from a small telehealth to again, a, you know, a, uh, sophisticated, uh, business. So is there, is there a baseline, um, versus, you know, what, uh, compliance program should look like in the eyes of the regulators versus the eyes of an investor?

Speaker 3:

Yes. I think, I mean, I think for one thing, if you're, if it's a budgeting issue and you can't look at all 50 states, uh, and this is very much a state by state issue with federal law later on top of it as well, and you've got hipaa, that component state law, privacy. So typically, you know, we would advi we advise them to look at all every state that they're operating in. But if that is not possible or if they're trying to do some sort of phased approach, our, my recommendation is typically let's look at the most restrictive states and make sure that you're in compliance with the most restrictive states that we're aware of. Um, and then if you're doing that everywhere, that certainly lowers your risk from a compliance perspective. So if you know that you've got core proximate medicine issues in 26 approximately states, then um, plan, you know, plan, plan for that and put a consistent approach in place. Uh, so, so those sorts of things I think help is just kind of thinking that through. And then, I mean, you can get a lot of great guidance on compli what a compliance policy and code of ethics and programs should look at. There's so much guidance out there, including the OIGs guidance. So there, I think there are ways to, to do that and, and try to put those pieces in place without, you know, a huge, necessarily a huge expense. I think the biggest thing risk is certainly making sure that you've got processes in place to comply, particularly with reimbursement. Um, and, and looking at where some of the bigger risk areas are, like contracting with physicians and providers, thinking about where you might have a kickback or stock law risk, kind of thinking about those larger statutes and then, um, dealing with the states on a, you know, looking at the more restrictive states first.

Speaker 2:

Yeah, that's great advice. Um, well, I, you know, I definitely appreciate, um, your time and I'm, I'm really, you know, I'm excited about, um, digital health, grateful that, you know, we get to experience the evolution more grateful that we're in that space and we get to, uh, see it from a compliance and due diligence perspective. Is there anything of you are projecting for this year that, um, you know, is going to affect these, um, this guidance that you refer to not only OIG guidance, but the state's to regulations? Because it, it sounds that, um, every state is, you know, has a different mandate and, uh, I'm just curious what, what you think is, is, uh, coming down the pipe?

Speaker 3:

Yeah, I mean, I think it is, it's interesting because, you know, there's been a, a concern that there would be, you know, less deals. Certainly saw some of that towards the end of last year. Although we've seen some of these larger strategic deals certainly are, are active, um, this year so far, and we're nearing the end of February. It's been pretty active in, in my world. Um, I've seen more transactions picking up than certainly than we anticipated. Um, and I do think they're in a wide range of things from just add-on transactions to, uh, more strategic transactions. I think I'm still seeing, seeing private equity looking closely at digital health too, um, as well as kind of continuing to grow, you know, their, their networks they're already working in. So I think that'll continue. I don't know, it's, it's, um, it's, it'd be interesting to see what happens cuz I think that it hasn't really played out, at least in my experience, in my little world, uh, the way that we were concerned it would. So certainly I'm still seeing deal activity and a lot of interest. I do think though, because of the compliance world, enforcement risk, when there's a kind of more of a slowdown in the economy, um, I, I do think that investors are being very cautious and thoughtful in, in their investments and they are looking very closely at compliance. They're doing careful diligence and really, um, thinking, thinking through I think an investment and how does it fit with their company. Um, if they're for an institutional client, they might be looking to expand new lines of business. I think they're trying to be very thoughtful in that. And I think, so I do think that diligence is becoming, and it's always been important, but it is certainly takes on, you know, more careful importance and depending on the market and when you're given that overall concerns with enforcement.

Speaker 2:

Yeah, I think we're seeing, uh, similar trends, um, on the, on the due diligence side from meaning from financial, regulatory, um, and even with the investigations that we do, uh, you know, we're seeing a lot of activity and rollups, uh, longer timeline on new platforms. And I think it's just, you know, the sign of the times, um, this year where, uh, not to say that there wasn't a mindful approach before, but we don't just see a big rush to close. And definitely a focus in that post merger integration, again, from a compliance perspective. And I know that our team's, uh, you know, legal and, uh, regulatory and investigations work closely together. Um, I appreciate your time, Jennifer Ring of Holland tonight. It's always a great pleasure to, um, speak to you and hear your insights.

Speaker 3:

Thank you so much.

Speaker 4:

Thank you for listening. If you enjoy this episode, be sure to subscribe to a H L A speaking of health law wherever you get your podcasts. To learn more about a H L A and the educational resources available to the health law community, visit American health law.org.