Growth Predicted for FY 21& Beyond

Credit Suisse hosted Change Healthcare (CHNG) Neil de Crescenzo CEO & President, Fredrik Eliasson, Chief Financial Officer, and Evan Smith Senior VP of Investor Relations, at investor meetings in San Francisco. The company is architecting the organization to hit the 4-6% revenue growth target in FY 21 which will begin April 1, 2020.

Change Healthcare’s focus is on imaging, services business, and but sees exiting some of their under performing assets such as connected analytics etc. Management also notes that significant cross-selling opportunities still remain within their businesses and sees potential upside from innovations that the company is going to bring to the market.

Management talked about the company’s client relationships and how new contracts would further expand those relationships. The company also sees their customers looking for fewer vendors especially since some of the companies that have merged have their own ideas on to improve their efficiency and cost savings.

In the Payment Integrity (PI) business, the company sees the need not only for fewer vendors but the need for capable partners and long term partnerships. The company sees Cotiviti and Equian as their primary competitors in this market. However, with United Healthcare’s acquisition of Equian, it remains to be seen how much traction Equian will get from other payers.

In FYQ2, Change Healthcare was awarded more than a $15 million PI contract with one of the largest health plans in the country to support their entire book of business. The company took this business away from one of the other two large competitors in the market.

Management notes that their superior solution approach and customer service excellence makes the company the logical payment accuracy partner for the nation’s largest and most advanced health plans and in fact, 19 of the top 20 plans use the company’s payment accuracy solutions.

Management sees only Cotiviti and Inovalon as their major competitors in the risk adjustment business. The company differs from their competitors for two reasons. The company’s access to clinical data helps their health plan clients optimize the risk adjustment, plus the company is able to put that logic on their network earlier in the process.

Management believes that the company’s use of AI-first approach gives a competitive edge over some of their large competitors in this field. Customers are able to get paid accurately within a complex regulatory environment through end-to-end risk adjustment solutions incorporating chart retrieval, analytics, coding submission etc. The proprietary technology and expertise assists health plans convert their source data and manage errors to facilitate timely and accurate submission to HHS.

The company’s advanced analytics are used by health plans to evaluate the documented health status of their enrollees and identify gaps between health status, provider documentation, and reported quality and risk scores. The company optimizes reimbursement with natural language processing coding technology to more accurately identify Hierarchical Condition Categories (HCC) which are commonly missed or coded improperly in manual reviews.

“Dx Gap Advisor” was introduced in 2018. Dx Gap Advisor embeds the company’s risk view analytics scoring engine in the company’s intelligent healthcare network. This enables potentially missing diagnosis codes to be detected so providers can review and confirm an individual’s medical record information.

This year Change Healthcare partnered with Health Fidelity to offer a risk adjustment solution that embeds natural language processing and machine learning technology into their risk adjustment coding. This helps Medicare Advantage, ACA commercial, and Medicaid payers to increase claim accuracy and to better address compliance obligations. So far, management reports that Health Fidelity’s LP engine has demonstrated very high sensitivity in identifying ICD and HCC codes.

As a result of the company’s capabilities in the risk adjustment business, the company won a contract worth approximately $20 million over 3 years with one of the largest payers in the country with additional expansion opportunities across risk adjustment and electronic payments across the client’s entire book of business.

An update on the enterprise imaging market in the community and for-profit hospital chain segment shows that Change Healthcare and GE each have about 16% of the market share in the enterprise imaging market in the community and for-profit hospital chain segment.

The company continues to assess strategic options for their connected analytics business which roughly generates $100 million in revenues. However, the business has been a drag on the company’s Y/Y growth in FY 20. The company believes that exiting the business should help the company’s growth trends going forward.

Credit Suisse experts summed up the meeting feeling incrementally positive about the acceleration in the company’s top-line growth in both the short term and long term as well as the company’s ability to deliver. While the liquidity event related to McKesson’s ownership sale remains a near term overhang, the experts believe Change Healthcare shares are trading at an attractive valuation and are an attractive investment opportunity for investors with a long-term perspective.

For more information or to provide feedback, email Jailendra Singh, or call 212-326-8121.

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