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Healthcare Payer Services Market Analysis – August 2017

Emerging shift from Fee-for-Service care to Value-Based Reimbursement model results in new challenges for the dynamic Healthcare Payer Services Industry

As a direct result of the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA), traditional fee-for-service payments are being replaced with a financial incentive framework that rewards improved quality, outcomes and cost This transition to value-based care creates new challenges in which care providers will now have to emphasize patient outcomes compared to the traditional volume based approach. Recognizing that low-cost services will be fundamental to their success, numerous industry leaders are meeting these challenges by lowering administrative costs and restructuring their practices to deliver more efficient systems to record and foster successful patient outcomes. These regulatory changes have led to an increase in acquisitions that promote a more patient-focused health insurance business model.

Over the past seven years, our Healthcare Payer Services Index has generally tracked the S&P 500 Index. Given the dynamic nature and complexity of changes in the health insurance industry, the companies that have been more active in pursuing inorganic growth have been able to stay ahead of the competition.

The median revenue multiple for public companies in the space has risen to 2.4x vs 1.7x in 2015 while EBITDA multiples have jumped to 14.0x for the last-twelve months, from 11.2x in 2015. Median reported valuation multiples from M&A transactions over the past year are 1.7x revenue and 18x EBITDA, though these are skewed high, since usually only the larger deals report multiples. Smaller transactions would command lower multiples.

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