Splash 4 Partners--Telemedicin'e Mainstream Emergence

Telemedicine’s Mainstream Emergence

Traditional Healthcare Staffing Models & Where/HowTelemedicine Fits

Drivers of Adoption

Market Size & Penetration

How Telemedicine Providers are Finding Success

Contact Us:

Jacob Grosshandler [email protected] Grosshandler [email protected]

Copyright © 2015 – 2016 Splash 4 Partners, LLC

The Emerging Telemedicine Services Industry

Splash 4 Partners (“S4P”) was recently engaged by ahealthcare focused investment fund to help diligencethe telemedicine services industry in support of itsinvestment in a company in the space. The followingpages include a few high-level highlights from S4P’sanalysis of the telemedicine services industry andconversations with industry participants.

Contact S4P to leverage our principals’ years ofexperience in private equity, lending, andmanagement consulting to enhance your diligencefindings and improve your business.


Industry Backdrop: The Healthcare Staffing Market


Sources: S4P Analysis, IHS, Harris Williams, Brocair Partners, IBIS World.

Growing physician shortages coupled with the accelerated rate of telemedicine adoption in recent years ischanging the how healthcare is delivered. Long-term winners will be those companies that find ways toeffectively recruit, retain, and deploy increasingly scarce skilled healthcare labor within and across specialties.

Outsourced HC Staffing(Managed Service &

Temp Staffing)

Telemedicine

Healthcare ProviderDirect Employment

Hospital toHospitalStaffing

$10.5 billion in revenuegenerated from permanentand temporary placement

40% of all clients in theindustry are hospitals

Telemedicine generated$645 million in revenue in

the U.S. in 2014

U.S. telemedicine market isexpected to triple by 2018 to

$1.9 billion

The Outsourced Healthcare Staffing Market

Demand Driver: Physician Shortages 2014 to 2025


Source: S4P analysis; IHS. The Complexities of Physician Supply & Demand Projections 2014 to 2025: 2016 update, Merrit Hawkins 2015 Recruiting Survey.

Aging demographics, accelerating physician retirement rates, increased rates of specialization, and a highernumber of insured are all contributing to physician shortages in the U.S. This will increase reliance on healthcarestaffing firms and telemedicine services used by healthcare organizations.

61,700 to 94,700

Shortfall ofPhysicians by 2025

2015’s Largest RecurringRecruitment Assignments

Family Physicians General Internists Psychiatrists

60% to 64% ofProjected Physician

Shortages are in Non-Primary Care

Specialties

2015’s Fastest GrowingRecruitment Assignments

NPs & PAs OB/GYNs Cardiologists/

Pulmonologists

25,300 to 33,200

Shortfall ofSurgeons by 2025

Telemedicine Adoption & Market Penetration


“I have a relationship with a locum tenens group out of St. Louis andJacksonville. They have been around for 20 years, and in the last few [years],they have seen declining revenue. So, they called me up to help them finddoctors who could deliver care via telemedicine as more of their clientsdemanded. They are looking to telemedicine to be a bigger part of theirbusiness. A lot of guys that service the hospitals are.”

--Medical Staffing Recruiter (S4P Interview)

“The adoption curve is shortening. It has gone from ‘if I’m going to adopt’ to‘when I’m going to adopt.’ ”

--Executive of a Direct to Provider Telemedicine Service (S4P Interview)

Telemedicine Adoption & Market Penetration

Source: American Telemedicine Association, http://www.americantelemed.org/about-telemedicine/faqs#.Vz79wfkrKM8,http://content.healthaffairs.org/content/33/2/207.abstract?version, and S4P analysis.

Of All U.S. Hospitals Are UsingSome Form of Telemedicine

>3,500

Sites Using TelemedicineServices

~200

Telemedicine Networksin the U.S.

>50%


The American Telemedicine Association estimates there are ~200 telemedicine networks in the U.S. providingconnectivity and services to over 3,500 sites with more than half of all hospitals using some form of telemedicine.

A 2014 study published in Health Affairs using American Hospital Association’s 2012 annual survey data of acute care hospitalsdemonstrated that 42% of hospitals reported having telemedicine capabilities of some kind.

As Epic and Cerner expand their telemedicine integration into their EMRs, more hospital systems will be able to load balance using theirown existing labor pools.

$245

$645

$1,900

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

$1,600

$1,800

$2,000

2013 2015 2018(P)

U.S. Telemedicine Market Revenue ($ mm)

62% CAGR

43% CAGR

2.15.4

14.5

21.5

16.6

26.9

0.0

5.0

10.0

15.0

20.0

25.0

30.0

2015 2020(P)

# of Virtual Consults (mm)

PCP Visits Specialty Consults Total

Telemedicine Market Size & Growth


The telemedicine market increased 2.7x from 2013 to 2015 and is forecasted to nearly triple in size again by 2018. In a recent survey of healthcare providers, two-thirds of respondents reported telemedicine as a top or high priority for their organizations.(1)

The same survey noted that 39% of respondents have a dedicated telemedicine program manager (a 28% increase from just one yearbefore).(1)

Source: IBIS World, Ernst & Young. Healthcare Industry Post, 2015 HIS Analytics Report, Advisory Board, Reach Health’s 2016 U.S. Telemedicine Industry Benchmark Survey, S4P analysis.(1) Survey included 390 participants with more than 90% coming from hospitals. Participants were skewed towards not-for-profit entities (only 18% of respondents were for-profitorganizations).

Organizations Utilizing Telemedicine


HospitalsPrisons

Long Term CareHome Health

Hospice

Schools (K-12)Universities

Pharmacies

Companies withCorporate Wellness

Plans

Department ofDefense & the VA

Centers forMedicare &

MedicaidServices

Customer Segments & Services in Telemedicine


The telemedicine market can broadly be segmented into two areas based on who the contracting customer is /who orders the services. Splash 4 Partner’s primary diligence focus was on the direct to provider telemedicine segment. However, S4P’s discussions with industry

participants noted that direct to patient telemedicine services are increasingly commoditized. This has driven leaders like American Wellto market their IT portals to healthcare organizations looking to license the technology as a DIY consumer facing direct to patient service.

A medical professional within a healthcarefacility orders the telemedicine service fora patient. The telemedicine providerviews the direct and primary customer asthe contracted healthcare facility.

B-2-B sales process Greatest telemedicine adoption has been

in acute care settings, but applicationsbeyond that exist

Direct to Provider Telemedicine Direct to Patient Telemedicine

A patient directly initiatives the consult.The telemedicine provider views thepatient as the direct and primarycustomer.

B-2-C or B-2-B-C sales process Most thought of for primary care type of

applications / consults, but applicationsbeyond that exist

Many more market entrants appearfocused on the direct to patient model

1 2

Healthcare Staffing & Telemedicine


Healthcare staffing businesses are increasingly building and/or adopting telemedicine as a solution to service hospitals.With ubiquitous and cost effective technology, in many instances the differentiation is found in being able to recruit,retain, credential, manage, and deploy skilled healthcare labor across specialties demanded by clients.

Example HCStaffing Co. Company Summary Headline

ECI HealthcarePartners

ECI provides 2,300 board certified physiciansspecializing in emergency medicine, internalmedicine, & pediatrics to hospitals across 30 states.

MDLIVE™ Forges Exclusive Partnership with ECI HealthcarePartners to Create the Nation’s Largest Telehealth Network January 9, 2013

Envision Healthcare Envision employs 35,000 medical professionalsacross 41 states to serve 4,600 healthcareorganizations.

Envision Healthcare and InTouch Health Partners to ProvideComprehensive Telemedicine Clinical Services July 22, 2015

SchumacherClinical Partners

Schumacher has 1,700 employees serving 5,000healthcare providers (~260 hospitals) in 28 states.

SG Launches Significant Advancement in Telehealth October 8, 2015

TeamHealth TeamHealth provides more than 13,000 medicalprofessionals to over 990 hospitals in 47 states.

TeamHealth Partners with Carena Inc., to Launch VirtualStaffing Program June 22, 2015

Partnering for Success (Examples)


Market share in the healthcare industry is increasingly found through partnerships. Successful direct to providertelemedicine services are following suit.

TelemedicineProvider

PartneringOrganization Description of Partnership / Strategic Move

Mayo Clinic CareNetwork

Tucson MedicalCenter

Tucscon Medical Center receives tele-stroke services from the MayoClinic. These services were then extended to members of the SouthernArizona Hospital Alliance, which was developed around Tucson MedicalCenter to increase its patient flow.

Stanford MedicalCenter

Epic Utilizing a feature in the system’s EHR (Epic), Stanford Medical Center isable to provide primary and urgent care teleconsults via Epic.

vRad Mednax Mednax, a large provider of outsourced physician services, purchasedvRad, one of the largest teleradiology providers, in 2015 for $500 millionfor its first foray into telemedicine.

Limiting Factors for Telemedicine Adoption & Use


There are four primary growth limiting factors in telemedicine. Many of these factors are producing far lessheadwinds when compared to the recent past.

ReimbursementRates

State Licensing& Hospital

Credentialing(1)

Reimbursement from third party payors for telemedicine services has and continues to lag. Despite this, both direct topatient and direct to provider telemedicine providers have front run the investment and are currently seeingreimbursements catch up to the industry. There are now parity reimbursement laws in place ~30 states.

State medical licensing boards limit the geographic reach healthcare providers have to practice. Getting physicianslicensed across multiple non-reciprocal states and credentialed and privileged at each individual healthcare facility takesconsiderable time, expense, and effort. This creates temporal shortages of doctors and other medical staff.

State RegulationHistoric restrictions protecting the localization of healthcare services has limited the adoption of telemedicine services.However, greater physician shortages coupled with greater financial constraints for smaller healthcare providers has ledmany states to ease restrictions and accelerate adoption of telemedicine.

Shortage of SkilledHealthcare Labor

As noted earlier in this report, a shortage of between 62,000 and 95,000 physicians is expected between now and 2025.Regulation that localizes the labor of healthcare professionals exacerbates the growing shortages by region. Hospitalsand other healthcare organizations increasingly compete for skilled labor in order to service greater volumes of patients,often across a number of specialties.

Source: http://www.thune.senate.gov/public/index.cfm/2016/2/bipartisan-team-of-senators-introduces-legislation-to-expand-telehealth-services-improve-health-outcomes-and-reduce-costs.(1) The Connect for Health Act, currently in front of Congress, is a bill that would help accelerate licensing across states and facilitate the delivery of services delivered viatelemedicine. Additionally, this bill would improve reimbursement coverage from CMS.

Other Questions & Themes Splash 4 Partners Explored Who are the key providers of telemedicine services and technology? What is the market penetration rate (i) for hospitals using telemedicine & (ii) across specialty area? What are the prominent models hospitals use to deliver / consume telemedicine services (e.g., DIY, hub & spoke, etc.)? Considerations among competing telemedicine business models, including delivery models, pricing, etc. How are hospitals acquiring / selecting telehealth providers? How are telehealth providers finding success in client acquisition? How rivalrous are direct to patient telehealth providers at present to direct to providers telehealth providers? Industry perspectives on the future of telemedicine in hospitals. Reimbursement trends and considerations in telemedicine. Scale implications and profit sustainability in the telemedicine model.


About Splash 4 PartnersSplash 4 Partners supports middle market businesses and financialsponsors by accelerating growth and increasing profits. We provideactionable insights and data driven solutions to executives andinvestors in the health, wellness, education, and informationtechnology industries that:

Identify new strategies to capture market share

Expand existing relationships with current customers

Explore evolving competitive dynamics of a market, and

Align the firm’s capital structure with its long term objectivesContact Us:Jacob Grosshandler [email protected] Grosshandler [email protected]


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Splash 4 Partners--Telemedicin'e Mainstream Emergence