behavioral health industry presentation to mhca
DESCRIPTION
I presented at the MHCA conference earlier this year. These are my slides for that presentation.TRANSCRIPT
The Behavioral Health Industry From The Behavioral Health Industry From Wall Street’s Point Of ViewWall Street’s Point Of ViewMHCA 2010 Summer ConferenceMHCA 2010 Summer ConferenceAugust 19, 2010August 19, 2010
Anthony DeemMarket Research AssociateHospitals, Medical/Rx Distribution, Dental, Pharmacy Benefit [email protected]
Key Points Of DiscussionKey Points Of Discussion Overview of Cleveland Research CompanyOverview of Cleveland Research Company Overview of freestanding inpatient behavioral health Overview of freestanding inpatient behavioral health
marketmarket How do investors track the performance of the market? How do investors track the performance of the market? Recent trends and outlook on performance.Recent trends and outlook on performance. Inpatient providers are growing (acquisitions, capacity Inpatient providers are growing (acquisitions, capacity
expansion, etc)expansion, etc) Industry Outlook Industry Outlook
State budget issues – pros and cons. State budget issues – pros and cons. Mental Health ParityMental Health Parity Healthcare reform is a significant positive for the Healthcare reform is a significant positive for the
industryindustry MHCA/CRC partnership MHCA/CRC partnership
Who is Cleveland Research?Who is Cleveland Research?
In June 2006, 43 of us started a new equity research In June 2006, 43 of us started a new equity research firm to form CRC (original firm started in 1996), and firm to form CRC (original firm started in 1996), and we now have ~70 employees (over 45 in research).we now have ~70 employees (over 45 in research).
Stock Market ResearchStock Market Research
What Sets us Apart?What Sets us Apart?
Which Sectors Does CRC Cover?Which Sectors Does CRC Cover?
ConsumerConsumer
IndustrialIndustrial
Health CareHealth Care
TechnologyTechnology
Who Do We Research?Who Do We Research? HospitalsHospitals
Universal Health Universal Health Services Services
Psychiatric SolutionsPsychiatric Solutions LifePoint HospitalsLifePoint Hospitals Community Health Community Health
SystemsSystems
Medical/Rx DistributionMedical/Rx Distribution Cardinal HealthCardinal Health McKesson McKesson
CorporationCorporation Amerisource BergenAmerisource Bergen PSS World MedicalPSS World Medical
DentalDental Henry ScheinHenry Schein Patterson CompaniesPatterson Companies DentsplyDentsply Sirona DentalSirona Dental
Pharmacy Benefit Pharmacy Benefit ManagementManagement Express ScriptsExpress Scripts Medco Health Medco Health
SolutionsSolutions CVS/CaremarkCVS/Caremark
How Do We Do Our Research?How Do We Do Our Research?
We talk to: We talk to: Management of Private CompaniesManagement of Private Companies Individuals In The Markets Where UHS and Individuals In The Markets Where UHS and
PSYS OperatePSYS OperateMedicaid Agencies & Insurance CompaniesMedicaid Agencies & Insurance CompaniesReferral SourcesReferral SourcesConsultantsConsultants
Inpatient Behavioral Health Inpatient Behavioral Health Industry OverviewIndustry Overview
Inpatient Market Is Highly AttractiveInpatient Market Is Highly Attractive $20 billion domestic market$20 billion domestic market 73 million people with diagnosable mental 73 million people with diagnosable mental
illnessesillnesses Capacity rationalization in early 1990’s created Capacity rationalization in early 1990’s created
imbalance of supply/demandimbalance of supply/demand Solid pricing and admission growth trendsSolid pricing and admission growth trends Bad debt exposure is minimalBad debt exposure is minimal Low competition from outpatient settingLow competition from outpatient setting Healthcare reform and parity are both positive Healthcare reform and parity are both positive
regulatory developmentsregulatory developments
What Matters To Investors?What Matters To Investors?
Organic GrowthOrganic GrowthRevenue GrowthRevenue Growth
Pricing GrowthPricing GrowthVolume GrowthVolume GrowthPatient Day Growth Patient Day Growth Length Of StayLength Of Stay
Profit Margin Expansion Profit Margin Expansion
Profitable Acquisitions Profitable Acquisitions
Recent Trends – Pricing GrowthRecent Trends – Pricing GrowthMedicare/Medicaid pricing growth has leveled off.Medicare/Medicaid pricing growth has leveled off.
Managed care remains strong. Managed care remains strong.
Payer % of Revenue FY08 Increase FY09 Increase FY10 IncreaseCommercial/Private/HMO 35% 7% 7% 7%Medicaid 29% 3% 2% 0%State Agencies 15% 3% 3% 3%Medicare 13% 9% 4% 2%Third Party 8% 5% 3% 3%
Total 100% 5% 4% 3%
Source: Company reports, Cleveland Research
Psychiatric SolutionsPricing Growth Trends
PPS Was A Positive For Freestanding PPS Was A Positive For Freestanding Facilities But A Negative For AcuteFacilities But A Negative For Acute
Acute-Based Psychiatric Units Revenue Per Day & Operating Margin Analysis
$0
$300
$600
$900
$1,200
2004 2005 2006 2007 2008
-100.0%
-80.0%
-60.0%
-40.0%
-20.0%
0.0%
Average Revenue Per Day Average Operating MarginSource: Cleveland Research
Pricing Growth (cont’d)Pricing Growth (cont’d)
Note: Figures are slightly skewed driven by strong acute volume (higher revenue per patient day)Note: Figures are slightly skewed driven by strong acute volume (higher revenue per patient day)
$520
$550
$575 $582
$593 $605
$552
$576
$599
$623
$639
$653
$520
$540
$560
$580
$600
$620
$640
$660
2006 2007 2008 2009 FY10E FY11E
PSYS UHSSource: Company Reports, Cleveland Research
Revenue Per Patient DayPSYS & UHS
Recent Trends – Admission GrowthRecent Trends – Admission Growth
Demand for inpatient services remains highDemand for inpatient services remains high
2.4% 2.2%
4.5%
6.8% 6.6%
5%
3.6%4.3%
6.4%
2.2%
4.1% 4.2%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
2006 2007 2008 2009 FY10E FY11E
PSYS UHSSource: Company Reports, Cleveland Research
Admission Growth PSYS & UHS
Recent Trends – Length of StayRecent Trends – Length of Stay
LOS is under pressure due to Medicaid and acuteLOS is under pressure due to Medicaid and acute
expansion/demandexpansion/demand
1.0%
-0.8%
-1.9%
-3.5%
-2.3%-2.0%
0.0%
-3.3%
-1.0%
-0.2% -0.5% -0.5%
-4.0%-3.5%-3.0%-2.5%-2.0%-1.5%-1.0%-0.5%0.0%0.5%1.0%1.5%
2006 2007 2008 2009 FY10E FY11E
PSYS UHS
Length of StayPSYS & UHS
Source: Company Reports, Cleveland Research
Recent Trends – Revenue GrowthRecent Trends – Revenue Growth
Revenue growth has trended down slightly due to pricing but Revenue growth has trended down slightly due to pricing but
remains strong overallremains strong overall
8.9%
6.5%
8.0%
5.1%
5.9% 6.0%
8.1%7.4% 7.6%
3.9%
5.8% 5.8%
0.0%1.0%2.0%3.0%4.0%5.0%6.0%7.0%8.0%9.0%
10.0%
2006 2007 2008 2009 FY10E FY11E
PSYS UHSSource: Company Reports, Cleveland Research
Same-Facility Revenue Growth PSYS & UHS
Recent Trends – Profit MarginsRecent Trends – Profit Margins
Profit margin expansion has been robustProfit margin expansion has been robust
20.5% 20.8%21.6%
22.8%22.9% 23.3%
25.1%
26.7%
18.0%
19.0%
20.0%
21.0%
22.0%
23.0%
24.0%
25.0%
26.0%
27.0%
28.0%
2007 2008 2009 YTD-2010
PSYS UHS
Profit MarginsPSYS & UHS
Source: Company Reports
Bed ExpansionBed Expansion
Bed expansion initiatives are driven by high demand andBed expansion initiatives are driven by high demand and
capacity constraints. capacity constraints.
Psychiatric Solutions Annual Bed Expansion
104
380
339310
158
0
100
200
300
400
2006 2007 2008 2009 2010Source: Company reports, Cleveland Research
PSYS & UHS Are MergingPSYS & UHS Are Merging UHS distinguishes itself in the market UHS distinguishes itself in the market
differently than other for profit publicly differently than other for profit publicly traded operators given the presence in traded operators given the presence in behavioral health, which will only get bigger behavioral health, which will only get bigger from here. from here.
UHS outbid private equity UHS outbid private equity UHS believes the industry provides UHS believes the industry provides
compelling growth opportunity which is why compelling growth opportunity which is why they made a $3.1 billion acquisitionthey made a $3.1 billion acquisition
The deal is highly favorable to UHS and its The deal is highly favorable to UHS and its shareholders.shareholders.
PSYS & UHS Are Merging PSYS & UHS Are Merging (cont’d)(cont’d)
State# of
Facilities # of Beds% of Total Facilities
% of Total Beds
Florida 19 1,848 10% 10%Texas 14 1,668 7% 9%Pennsylvania 10 1,323 5% 7%Virginia 9 1,248 5% 6%Georgia 12 1,186 6% 6%Tennessee 11 930 6% 5%Illinois 5 902 3% 5%Utah 6 838 3% 4%California 14 613 7% 3%South Carolina 8 605 4% 3%Other 88 8,050 45% 42%
TOTAL 196 19,211 100% 100%
Source: Company Reports
Behavioral Portfolio Analysis - Post PSYS Transaction Universal Health Services, Inc.
Florida, Texas, Pennsylvania and Virginia will be the company’s largest markets
PSYS & UHS Are Merging PSYS & UHS Are Merging (cont’d)(cont’d)
From a revenue standpoint, we believe 70% of UHS pro forma behavioral revenue will be acute and its bed mix will be 54% RTC and 46% acute.
% of Revenue % of BedsAcute 70% 46%Residential Treatment Centers 30% 54%
Total 100% 100%
Source: Company Reports, Cleveland Research
Behavioral Revenue & Bed Mix Post PSYS
Universal Health Services
Industry Outlook. What Now? Industry Outlook. What Now?
State budget pressures are a riskState budget pressures are a risk The inpatient industry relies significantly The inpatient industry relies significantly
on public fundingon public fundingState Agency & Medicaid funding is State Agency & Medicaid funding is 50% of PSYS’s revenue50% of PSYS’s revenue
A weak economy and mental health parity A weak economy and mental health parity are both near term positives for the are both near term positives for the industry industry
Reform is a meaningful tailwind beginning Reform is a meaningful tailwind beginning in 2014in 2014
State Budget Cuts State Budget Cuts A Double Edged Sword?A Double Edged Sword?
0% 20% 40% 60% 80% 100%
Reduce Administrative Expenses
Hiring Freezes
Reduce Funds to Community
Reduce Services
Reduce number served
Employee Furloughs
Close hospitals/wards
Restrict population served
Close state hospitals
December-09 April-09
State Mental Health Associations Responses To Budget Cuts
Source: NASMHPD Research Institute
Mental Health Parity Mental Health Parity Viewed as a positive driver to commercial inpatient
demand. 113 million people currently have parity. The
incremental benefit to providers comes from self insured plans, where parity didn’t apply before. That is millions more lives.
Facilities typically have 30 inpatient days, 20 outpatient visits is the standard policy, whereas med/surg they don’t have those limits, so those limits will go away.
The law is intended to remove higher co-pay/deductible requirements
Healthcare ReformHealthcare Reform Reform is a meaningful positive for Reform is a meaningful positive for
the industrythe industry Elimination of charity careElimination of charity care The for profit market has very low The for profit market has very low
exposure to uninsured population exposure to uninsured population currently, which will create currently, which will create volume upside.volume upside.2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E
Newly Insured Population
Medicaid & CHIP -1 -2 -3 10 15 17 16 16 16
Employer 3 3 3 4 1 -3 -3 -3 -4
Other -2 -3 -5 -5 -5 -5
Exchanges 8 13 21 23 24 24
Total Insured With Reform 217 220 221 222 244 251 256 257 259 258
Change vs. No Reform 0% 1% 0% 0% 9% 12% 13% 14% 14% 14%
Source: CBO, Morningstar
Increases To Insured Population
Healthcare Reform
MHCA & Cleveland MHCA & Cleveland ResearchResearch New collaboration aimed at gathering industry New collaboration aimed at gathering industry
datadata Complete confidentiality for MHCA members at Complete confidentiality for MHCA members at
all times – the goal of the survey is to better all times – the goal of the survey is to better educate industry participants about current educate industry participants about current trends, NOT gain insight into individual trends, NOT gain insight into individual company performancecompany performance
Ongoing time series data that helps to identify Ongoing time series data that helps to identify key inflection points and address important key inflection points and address important issues issues
Actual anecdotal commentary from membersActual anecdotal commentary from members Aggregation of data into a comprehensive report Aggregation of data into a comprehensive report
which will be circulated to all MHCA memberswhich will be circulated to all MHCA members
Thank You!Thank You!
Email: Email: [email protected]@cleveland-research.com
Call: (216) 649-7232Call: (216) 649-7232