| March 30, 2019

Change Healthcare files for an IPO to cover over $5billion in debts

Anca Spanu

Anca's career in journalism spans over 2 decades. She has served as staff writer, editor and deputy chief editor at... Anca's career in journalism spans over 2 decades. She has served as staff writer, editor and deputy chief editor at various media outlets all over the world. At Healthcare Weekly, Anca writes about current events, innovations in the healthcare space and events/ conferences with a focus on investing & startups.

Initial public offerings remain the tool of choice for many companies in the healthcare industry that intend to expand operations by acquiring capital or to pay off existing debts.

Change Healthcare has filed a prospectus with the Securities and Exchange Commission (SEC) for a $100 million initial public offering (IPO), hoping to cover over $5billion worth of debts.

Change Healthcare business, which is now privately owned, is backed by investment firm Blackstone Group (NYSE:BX) and by private equity group Hellman & Friedman.

 

Joint underwriters enlisted for the offering are Barclays Capital Inc., Goldman Sachs & Co. LLC and J.P. Morgan Securities LLC are the representatives of the underwriters.

Law firms who prepared the filing include Simpson Thacher & Bartlett and Ropes & Gray, of Washington, D.C., and Boston, respectively. For some numbers, auditors and former auditors mentioned are E&Y and Deloitte.

Data and analytics-driven solutions for better healthcare

Founded in 2005, the Nashville-based company offers data and analytics-driven solutions to insure better clinical, financial and patient engagement outcomes. This is accomplished through its comprehensive suite of software, analytics, technology-enabled services, and network solutions.

Change Healthcare operates in key areas of the healthcare delivery and payments system, including, according to its filing, patient/member access; treatment/documentation; reimbursement; and, post-payment/communication.

As per the SEC filing, the number of shares Change Healthcare wants to offer, as well as the price range of the offering have not yet been established. Barclays, Goldman Sachs and J.P. Morgan are the joint underwriters on the IPO deal.

The filings provide in depth information about Change Healthcare’s pact with McKesson. They also depict a fair image of forces at work in healthcare delivery, benefits and technology (including financial HCIT) as the roles providers, payers and consumers have within the healthcare industry evolve and adapt to society’s constant changes.

The team and the company’s selling points

Among factors heightening its market opportunity, the company points to:

  • Wasteful spending, spanning fraud, overtreatment, administrative waste etc.
  • Chronically ill and higher risk patients are growing in numbers, especially among Americans over age 65.
  • Increased patient consumerism in healthcare, which also brings increased patient financial responsibility.
  • Growing penetration of value-based care and reimbursement models, all of which “require a high level of documentation, robust data, sophisticated payment attribution capabilities and advanced analytics that can adapt to new rules and goals to ensure compliance. Further, solutions seek to optimize the design, implementation and monitoring of care delivery throughout an episode of care.”

The team leading Change Healthcare is strong.  Among the company’s senior executives are: Neil de Crescenzo IV – CEO; Loretta A. Cecil – EVP and General Counsel; Fredrik Eliasson – recently appointed as EVP and CFO; Rod O’Reilly – EVP and president for software and analytics, and Alex Choy – EVP-R&D and CIO.

The joint venture with McKesson Corporation, the sole asset of the deal

The company said in its filing that Change Healthcare Inc.’s sole asset is its interest in Change Healthcare LLC, the joint venture created in 2016 through efforts of McKesson Corporation (contributing the majority of its Technology Solutions segment) and Change Healthcare Performance Inc. (contributing most of then-parent HCIT Holdings legacy business).

Since McKesson, which acquired iUS Oncology and Celesio in 2010, became a global healthcare leader with more than $179 billion in annual revenue, has exit and related options to eventually exercise at some point, it is still difficult to determine the overall impact of the original complex deal and the proposed IPO.

According to the filing, in part, Change Healthcare Inc. and McKesson each hold a “50% voting interest in the Joint Venture, with equal representation on the Joint Venture’s board of directors and with all major operating, investing and financial activities requiring the consent of both members.”

Technology infrastructure is also important for the company, which explains in the filling that the “Intelligent Healthcare Platform (‘IHP’) provides a cloud-based, robust, and agile platform” for the needed solutions. “The IHP enables us to innovate with our customers and partners and to anticipate and meet customer needs. We continue to employ advanced technology to support our expansive network.”

The company says its innovation efforts are “supported by more than 1,800 technology professionals including PhDs, masters-level health policy experts, design professionals, data scientists, programmers and statisticians in our research & development centers located in key markets such as Silicon Valley, Seattle, Boston, Philadelphia, Nashville, Minneapolis and Tel Aviv.”

Innovation and plans for future acquisitions

In the filings, the company also cites among its recent innovations, the launch of “a blockchain solution that supports approximately 20 million transactions per day. By leveraging blockchain technology, a client can query the status and full event history of a claim in real-time, accurately tracking the status of claims submission and remittance across the complete claim lifecycle and creating data records to track a patient’s episodes of care. In addition to improving transparency and efficiency, the incorporation of blockchain technology enables greater auditability, traceability, and trust – all for better revenue cycle management.”

At the end of last year, the company had approximately 14,000 employees and 30,000 customers. It provides solutions supporting approximately 2,200 government and commercial payer connections, 900,000 physicians, 118,000 dentists, 33,000 pharmacies, 5,500 hospitals and 600 laboratories.

The impact the company has on the healthcare system is huge, since the network it services  transacts clinical records for over 112 million unique patients, which is more than one-third of the estimated total U.S. population. The company is working with industry-leading technology companies, including AWS, Google, Adobe and Microsoft, to reach with new, innovative solutions.

The company asserts that, as indicated by the 14 acquisitions it made during the past six years, it plans to remain acquisitive.


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