Catalyst FAQ on Health Care

When and why did Catalyst get interested in health care? 

Approximately three years ago Catalyst realized that it was shutting itself off from a large segment of growth equity investment opportunities by not developing an expertise in and ultimately making investments in health care. Health care spending currently represents ~20% of U.S. GDP and IDC estimates that health care information technology (HCIT) is a $66 billion market in the US ($169 billion globally). Beyond the large market opportunity, we concluded that recent legislative incentives, the need to reduce costs and expand coverage and the aging of the population are catalysts for new business opportunities. These forces, combined with broader technology trends (cloud, smart phones, mobile native, broadband adoption and the internet of things) are tailwinds driving a new generation of high growth companies.

How did you decide to focus on the physician practice management software space? 

The HITECH act (part of the 2009 stimulus legislation) and the Patient Protection and Affordable Care Act (the “ACA”, aka “Obamacare”) have particularly catalyzed the physician practice management software market. First, the HITECH act set the requirement that physicians adopt electronic medical records (“EMR”) systems. In addition, the ACA has incentivized the creation of Accountable Care Organizations (“ACOs”) as a cost saving measure, whereby medical professionals get paid for outcomes rather than volume of procedures. To enable the data analytics to support ACOs, a procedure coding system called ICD-10 will be implemented that increased the number of procedure codes over 5x from 13,000 to 68,000. Implementing ICD-10 is a major undertaking for a physicians’ office and prompts a reevaluation of the billing, or revenue cycle management (“RCM”) system. If you’re thinking of adding an EMR and replacing you’re RCM system, then you might as well explore adding practice management (“PM”) software. The trio of EMR, RCM and PM software is powerful combination, and lends itself to specialization by practice vertical. (For additional reading, please see our physician practice research note from November 2011 and a subsequent update note from September 2013. You can find them on the research section of our website.

Tell us about your first direct health care investment from earlier this year, Clinicient? 

Clinicient, based in Portland, Oregon, helps outpatient rehabilitation therapy businesses grow with confidence by providing a combination of cloud-based EMR, practice management and revenue cycle management solutions that optimize the entire care cycle from patient to payment. With nearly $1 billion in payments under management, Clinicient’s solution maximizes payment while enabling therapists to deliver superior clinical outcomes that enhance the value of therapy to patient population health management.

What makes you excited about Clinicient opportunity and long-term growth potential? 

As with other Catalyst portfolio companies, the decision to back Clinicient involved a combination of a great product, in the right market, at the right time, and led by the right management team. Clinicient’s

platform was designed by practicing outpatient therapists and they maintain an active physical therapist as a member of their executive team. This allows all the features of the platform – scheduling, documentation, billing, collections and reporting to be designed to match the actual workflow of therapists. We also concluded that the increasing complexity around billing codes, compliance guidelines and changing payer models would spearhead adaption by the 60% of clinics still using paper documentation as well as those using lightweight solutions that don’t directly integrate documentation and billing. Finally, we were excited that concurrent with our investment, Clinicient Chairman Rick Jung would join the company full-time as CEO and augment a strong team lead by Founder and President Jim Plymale. We believe the pair offers an unbeatable combination of domain knowledge, operational expertise and an evangelical passion to alleviate the administrative burden for outpatient therapists so they can have more time to focus on positive outcomes for their clients.

What are areas of health care that you are currently evaluating? 

We continue to be interested in administrative software tools for both providers and payers that improve efficiency throughout the health care cycle from service delivery to outcomes-based reimbursement – typically software and services that enable the collection of more revenue, lower expenses, shorten payment cycles and allow for stronger relationships with patients. Additionally, we are evaluating remote patient monitoring, population health management, consumer engagement (Health and Wellness Market Map) and decision support around data analytics.

Can you remind me of some of your other investment criteria? 

Catalyst is looking to invest $10-$30 million in companies with at least $10 million of run-rate revenue (or a clear path to that amount) that offer a differenced product or service in tech-enabled services broadly. We look for proven business models, with a preference for recurring revenue from a diversified customer base. We do also support companies with advertising-based and transactional revenue models.

Who should I contact at Catalyst about health care opportunities? 

You can send business plans to Susan ([email protected]) and Rob ([email protected]).

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