Private Equity: Strategies For 2010 Opportunities in Healthcare Information Technology (HCIT) February 11 th 2010: 10:00 am PST / 1:00 pm EST

Private Equity: Strategies For 2010 Opportunities in Healthcare Information Technology (HCIT) February 11 th 2010: 10:00 am PST / 1:00 pm EST

Overview Webinar Protocol Webinar Purpose Opportunities in Healthcare Information Technology (HCIT) Ali Tabibian, Managing Director, GTK Partners Tristan Sigerson, Director, Growthink Views from The Field Mr. Dave Diamond, CEO, InTUUN Mr. Jack Smyth, CEO, Spring Medical Systems Conclusions

Conference Call Protocol 1. 45 Minute Conference Call 2. Questions/comments as we go: Type in utilizing GoToWebinar toolbar 3. After Call: Survey feedback Within 2 hours after the call, you will receive, via email, copies of the reviewed slides and a recording of the presentation **This presentation does not constitute a general offering or solicitation to purchase or acquire securities.

Purpose of this Webinar 1. To share best practices of investing in emerging technology companies Because it is good for you Because it is good for America and the world 2. To evaluate where money is being made (and where it is not being made) in healthcare information technology (HCIT) As a subset of Growthink s portfolio approach to emerging technology investing

Agenda Brief Overview of Healthcare IT Industry and Market Billing: Current Fragmentation and Drivers of Consolidation Billing: Financings, M&A Trends and Drivers of Valuation What Strategic Buyers are Saying Options Voices from the field: CEO, InTUUN, Dave Diamond CEO, Spring Medical Systems, Jack Smyth 5 Growthink s Analysis of the RCM Market

Three Core Contentions 1. Recession-Proof Sector 2. Best investment opportunities are in the Revenue Cycle Management (RCM) sector 3. Successful Companies ARE Organized Around the Physician s BOTTOM LINE 6 Growthink s Analysis of the RCM Market

Healthcare IT & Services is a $25.2 Billion a year business, growing at 16% Healthcare IT and Services Practice Management Systems (PMS) Electronic Health Records (EHR) Revenue Cycle Management Applications (RCM) Services (Transcription, Billing, IT) Market Size (2009) $1.9 Billion $4.8 Billion $238.1 Million $18 Billion Projected Growth 9% 16% 11% 12% Market Leaders: Hospitals & Large Practices McKesson, GE, Cerner, Epic, Siemens, Eclipsys McKesson, GE, Epic, Siemens, Eclipsys Ingenix, Emdeon, GE, McKesson, Carecentric Perot Systems, ACS, WiPro, Apollo HealthStreet Market Leaders: Small Practices eclinicalworks, eclinicalworks, emd s, Allscripts- Mysis, Sources: Growthink Research,Gartner, Kalorama, ResearchandMarkets, Company Filings Athenahealth Highly fragmented 7 Growthink s Analysis of the RCM Market

Revenue Cycle Management is Consolidating Horizontally The processes below are managed by a variety of stakeholders including: in-house, outsourced, software, outsourced off-shore. Many of these processes have begun to merge horizontally, and will continue to do so to maximize efficiency and provide a comprehensive service offering Pre-Encounter Patient Doctor Encounter Back-Office Administration Pre- Adjudication Adjudication Post- Adjudication Eligibility Medical Necessity Referral Authorization Patient Self Registry Benefit Authorization Patient Portals Denial Management Utilization Management Coding Regulatory Compliance Practice Mgmt. System Charge Master Bad Debt Mgmt. A/R Mgmt. EDI Denial Mgmt Contact Mgmt Billing Claims Editing Mail Room Re-pricing Claims Edit Fraud Detection Coordination of Benefits Fulfillment Post Payment Review COB Subrogation Data Mining & Analytics Provider Flow Payer Flow 8

The Sector is Growing Healthcare Third-Party Billing Industry 2002 2011 ($Billions) with Year-Over-Year growth % Source: Packaged Facts, 2007 9 Growtihnk s Analysis of the RCM Market

The Billing / RCM Space has been consolidating rapidly over the last 5 years Number of Firms, 2003-2008 4,500 4,000 3,500 4,000 Firms 3,000 2,500 2,000 1,500 1,000 500 0 1,800 2003 2008 4,000 Firms 5 Years Ago, 1,800 now 10 Growthink s Analysis of the RCM Market

Because the Barriers to Consolidation are Broken Barrier Then Now Comments Process Paper-based Electronic Technology Client-Server SaaS Remote management of rules engines Channel Complexity of Billing Process Off-shore Capability Popularity of Software-based PMS systems Personal relationships of proprietors in the community Direct Sales, Channel Partners, VARs Low High Through technology, able to share rules across customer base. Expensive for smaller firms to keep current Very limited Availability of sophisticated, English speaking off-shore resources Low High (90% adoption) Electronic input of critical information allows for scale of business and management by remote resources 11

Athenahealth Inc: Improving Efficiency Through Scale Athenahealth Number of Physicians and Gross Margins, 2006-2009 Operating Metrics Q12002 Q12009 Change Client DAR 59 44.5-14.5 days FPR 81% 92% +11% As physician customers have doubled, gross margins have improved by 9%, with even larger margins forecasted in the near-term 12

RCM Companies $10MM+ Revenue With the right software platform and management team, there is significant opportunity to scale the business through $2MM - $5MM acquisitions Availability of private equity and leverage options can enhance the balance sheet to speed roll-up Attractive earn-out, equity and target held note transactions can be structured For every $15MM in revenue, exit valuation grows by 1X Revenue (i.e. $15MM Revenue Company valued at 2X, $30MM Revenue Company valued at 3X) For companies without the desire to scale quickly, there are very attractive exit options Less than $10MM in Revenue Evaluate effectiveness and scalability of software and team Develop concrete execution plan to achieve $10MM critical mass point Consider specialty practices and regional market share, both are attractive to mid-tier buyers 13 Growthink s Analysis of the RCM Market

Ali Tabibian GTK Partners Powerful transaction drivers Regulatory change Market size Fragmentation, especially along geographic lines Consolidation will leave many niches under-served Shouldn t just be focused on the new serving the new Thousands and thousands for fish in the sea Look out for rollup strategies Pay for scale Buyers will want a small asset to have Über-technology, otherwise $50MM+ of revenues Scale arbitrage: a company will pick up 1.5-2x EBITDA multiple points as it grows beyond $5MM and $10MM EBITDA 14

BPO Firms Large provider of outsourced IT services as well as BPO Current systems are good at maintaining data, but getting systems to aggregate data from disparate sources within a healthcare ecosystem (the kind needed for accurate billing) is difficult. Looking for RCM companies with $50MM+ and strong competencies in specialty services. Large cap Off-Shore BPO The market is very fragmented, they have been having difficulty finding attractive assets of meaningful size. Considering lowering criteria of $40MM in revenue to gain entry to U.S. market Looking for acquisitions that allow for a foothold into healthcare clients that they can sell their other services around (IT outsourcing, application development, RCM), turning small clients into large ones SaaS/Cloud-based models are attractive 15 Growthink s Analysis of the RCM Market

Large Cap HIT Large Cap provider of HIT in addition to a number of the healthcare products/services Covered in virtually every aspect of HIT, with the goal of disease management by managing a continuum of care from a variety of providers Looking for more acquisition opportunities in Revenue Cycle Management, more customization to specialty practices with increased efficiencies Large Cap provider of HIT and medical equipment Very interested in disease management, none of the big players have figured this out The economy has slowed their business, and have been positioning solutions around ROI, which include an increased RCM functionality Looking to acquire RCM around specialty practices and software and services that can improve overall workflow 16 Growthink s Analysis of the RCM Market

Pure Revenue Cycle Management Large provider of RCM and services for providers, payers and the government See the need for firms to be able to manage RCM for providers and payers, and help integrate and create the link between the two for greater efficiencies Very acquisitive, more than 40 acquisitions since 1996 Looking for hospital and facility focused RCM acquisitions, possibly an EHR solution for large physician groups to integrate across their customer base Bolt-on buys of assets with $10MM-$50MM in revenue with a 50/50 mix between technology and services 17 Growthink s Analysis of the RCM Market

Pure-Play Provider Revenue Cycle Management $40MM - $60MM Company Rolling Up RCM s Looking for good RCM assets with between $5MM - $30MM in revenue, EBITDA Margin of 20% - 30% and management teams to stay on. Disciplined in valuations at 1x-2x Revenue, and 6x-8x EBITDA Private Equity backed $20MM - $40MM Company offering holistic view to RCM, integrating healthcare ecosystems around RCM Have developed offshore capabilities Are typically hired by hospitals who need to organize feeder physicians Providers are looking for: Speed, execution and expertise Clinical data can be a hindrance for managing RCM. As soon we start dealing with the CIO/CMO, we are done. They strictly work with CEO s who want to improve the performance of their business Considering acquisitions to grow business, vertically integrating some aspects of what they do Private Equity backed 18

Growthink s Analysis of the RCM Market The Revenue Cycle Management Food Chain 19

Voices from the Field InTUUN CEO, Dave Diamond Spring Medical Systems CEO, Jack Smyth 20 Growthink s Analysis of the RCM Market

InTUUN Systems CEO: Dave Diamond Focused on the independent physician Electronic health records and practice management software plus Health information exchange plus Outsourced billing plus Clinical pathway solutions focused on a single patient health record Back-end business services: incentive-aligned medical billing and collections, IT services, credentialing, contracting and referrals Founded in 2007; currently based in Reno, NV with 17 employees Supporting 200+ physicians, 20 facilities, 4 States Revenue traction with angel funding to date, closing $5MM financing Three-year exclusive partner of the IPA Association of America 21 Growthink s Analysis of the RCM Market

Spring Medical Systems, CEO, Jack Smyth Houston-based provider of Electronic Health Records (EHR) software and services for small and medium-sized physician practices Doctor-focused software 700+ current physician practices, 5000 users within 39 specialties, 47 states and 8 foreign countries 22 Growthink s Analysis of the RCM Market

Three Core Contentions 1. Recession Proof Sector 2. Best investment opportunities are in the Revenue Cycle Management (RCM) sector 3. Successful Companies ARE Organized Around the Physicians BOTTOM LINE 23 Growthink s Analysis of the RCM Market

To Learn More Questions / Discussion Return our survey Contact: Stacey Polychronis: 310-954-2013 Email: stacey.p@growthink.com