Say there's a business making $100 of EBITDA. (Earnings before interest, taxes, depreciation, and amortization). John wants to buy it, and demand for the business sets the price at 6 times EBITDA this year, or $600. That's an EBITDA multiple of 6.0x. Next year, more people want to buy it and so the purchase price jumps to 6.5 times EBITDA, or $650. That's how Houlihan Lokey Howard & Zukin, whose product is financial advice, computes the industry's earnings potential.

"Earnings quality and margins within managed care are very attractive and that has led to a robust mergers and acquisitions environment," says Mark Francis, director of the health care group at Houlihan.

Profit margins aren't the only healthy indicator. Stocks in managed health care plans and preferred provider organizations all posted second-quarter gains.

Managed care stocks rose 17 percent, compared with 15 percent for the S&P 500. Small managed care organizations did best, up 37 percent, while large MCOs posted gains of 14 percent. There were exceptions, however: Pacificare and Humana appreciated 104 and 57 percent, respectively.

Houlihan reports that the sector's "earnings quality remains generally good."

The company says that "Managed care companies continue to report strong operating results. The sector is seeing commercial rate increases of 13 to 14 percent net of benefit buy-downs and moderating medical cost trends in the 11 to 12 percent range. The slower growth in medical costs is a direct result of slowing drug costs and decreasing inpatient medical costs."

SOURCE: HEALTHCARE QUARTERLY UPDATE, HOULIHAN LOKEY HOWARD & ZUKIN, 2003

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There’s a lot more going on in health care than mergers (Aetna-Humana, Anthem-Cigna) creating huge players. Hundreds of insurers operate in 50 different states. Self-insured employers, ACA public exchanges, Medicare Advantage, and Medicaid managed care plans crowd an increasingly complex market.

Major health care players are determined to make health information exchanges (HIEs) work. The push toward value-based payment alone almost guarantees that HIEs will be tweaked, poked, prodded, and overhauled until they deliver on their promise. The goal: straight talk from and among tech systems.

They bring a different mindset. They’re willing to work in teams and focus on the sort of evidence-based medicine that can guide health care’s transformation into a system based on value. One question: How well will this new generation of data-driven MDs deal with patients?

The surge of new MS treatments have been for the relapsing-remitting form of the disease. There’s hope for sufferers of a different form of MS. By homing in on CD20-positive B cells, ocrelizumab is able to knock them out and other aberrant B cells circulating in the bloodstream.

A flood of tests have insurers ramping up prior authorization and utilization review. Information overload is a problem. As doctors struggle to keep up, health plans need to get ahead of the development of the technology in order to successfully manage genetic testing appropriately.

Having the data is one thing. Knowing how to use it is another. Applying its computational power to the data, a company called RowdMap puts providers into high-, medium-, and low-value buckets compared with peers in their markets, using specific benchmarks to show why outliers differ from the norm.
Competition among manufacturers, industry consolidation, and capitalization on me-too drugs are cranking up generic and branded drug prices. This increase has compelled PBMs, health plan sponsors, and retail pharmacies to find novel ways to turn a profit, often at the expense of the consumer.
The development of recombinant DNA and other technologies has added a new dimension to care. These medications have revolutionized the treatment of rheumatoid arthritis and many of the other 80 or so autoimmune diseases. But they can be budget busters and have a tricky side effect profile.

Shelley Slade
Vogel, Slade & Goldstein

Hub programs have emerged as a profitable new line of business in the sales and distribution side of the pharmaceutical industry that has got more than its fair share of wheeling and dealing. But they spell trouble if they spark collusion, threaten patients, or waste federal dollars.

More companies are self-insuring—and it’s not just large employers that are striking out on their own. The percentage of employers who fully self-insure increased by 44% in 1999 to 63% in 2015. Self-insurance may give employers more control over benefit packages, and stop-loss protects them against uncapped liability.