Surescripts has its eye on future M&A, including in the data analytics and medical benefits markets, CEO Frank Harvey said.
TPG bought a majority stake in health information network Surescripts to fuel more investment in its technology solutions and possible M&A deals, the companies announced Tuesday.TPG is investing in Surescripts through TPG Capital, the firm’s U.S. and European private equity platform.Financial details of the deal were not disclosed.The transaction is subject to customary regulatory approvals.Surescripts, which dominates the e-prescribing market, has a unique ownership structure —half owned by the National Community Pharmacies Association and the National Association of Chain Drug Stores and half owned by Express Scripts and CVS Caremark.Frank Harvey, Surescripts CEO, told Fierce Healthcare that all its existing shareholders are "still at the cap table.""The majority position is being taken by TPG, but all of our current shareholders are very bullish on the on the future of the company. They just felt that with the right sort of partner in the majority position, we'd be able to do so much more and move so much faster," Harvey said in an interview. "Given the state of healthcare in the U.S., the administrative burden that physicians feel, the issues that patients face with prior authorizations and all the other things, there's a need for a lot of investment and continuing to do the things we've done right."To illustrate Surescripts' reach in the market, in 2023, the company connected 2.14 million healthcare professionals and provider organizations which conducted 23.8 billion network transactions. Those electronic transactions often replace time-consuming faxes and phone calls with electronic access to information, according to the company. The company's technology electronically sends prescription information from providers to pharmacies and details medication histories, as well as products for checking patients’ prescription coverage. Surescripts' e-prescribing network reaches almost every U.S. patient -- the company claims 99% of the U.S. population is represented in its master patient index.Business Insider reported back in April that Surescripts was exploring a sale. Harvey, who took the CEO role at Surescripts in June 2022, said the company began looking at strategic options two years ago."This has been almost a two-year journey now. In our strategic planning session several years ago, the board looked at the many issues facing healthcare and what was the best way for Surescripts to extend what we're doing and continue to solve more problems in healthcare. We were looking at who the right majority owner would be to bring into the company to help us that way, both from a financial standpoint, to be able to have the wherewithal to be able to make additional investments in the company, both organically as well as on the M&A side, but also someone that shared the same values," Harvey said.He added, "That was really the top of the line, sharing the same values and being as mission-driven as we are. We looked over a number of companies that we met with through that two-year cycle. TPG really rose to the top. You look at historically, the companies they've invested in, the growth they've experienced, the good things that they've been able to do, both in their healthcare portfolio and in their technology portfolio. It became an obvious choice with with TPG at the end of the day."TPG’s investment enable Surescripts to scale existing solutions while advancing new innovative technologies, Harvey said.With TPG’s investment, Surescripts will focus on developing an array of solutions addressing healthcare’s biggest challenges, the company said. This investment will accelerate Surescripts’ ability to scale existing e-prescribing solutions as well as tools for benefits and authorizations and clinical interoperability.Harvey ticked off several areas where Surescripts wanted to invest further in technology and solutions."We want to continue to refine the prescribing process and continue to improve the quality of that. We're looking at those areas also where there's a lot of administrative burden currently in the system that are tying up providers and creating roadblocks for patients. One of the obvious areas is around preauthorization, and the delays that patients face, the delays and administrative burden that both providers and as well as pharmacists face, and we want to help solve a lot of those problems," he noted.He added, "Given the fact that 99% of the U.S. population is transacted across the Surescripts network, given our reach, virtually every physician, every pharmacy, the vast majority of health systems, over 24 billion transactions, we think that Surescripts is really the best place, of any company, to really help solve these issues across the healthcare ecosystem."As far as future M&A, Harvey said Surescripts is keeping its eye on data analytics companies. "That's an area we think is ripe for more. Billions of dollars have been invested in data insights, with not a lot to show for it in a lot of cases. We think we're best positioned to do things there. The right data insights company is a potential acquisition for us," he said, adding that Surescripts also is interested in expanding its solutions into the medical benefits space.The company also could make more investments in artificial intelligence and machine learning technologies."We were built on early AI, machine learning. It's been integrated into the Surescripts platform since day one," Harvey said. "We think generative AI is extremely interesting. We think there are places that it will have an impact. I will say we're being cautious about that because there is still hallucinations and other things with it. So we think finding the right place, whereas there's still a human involved in that transaction, is the right place for investment. That could be a potential acquisition area as well in the future." As asset management firm, TPG has $229 billion of assets under management and investment. Its made big investments in healthcare and health tech, including buying healthcare IT company Nextech from Thomas H. Lee Partners for $1.4 billion last year. Two years ago, TPG Capital bought Change Healthcare's claims-editing business, ClaimsXten, for $2.2 billion.“We have long admired Surescripts for its central role in revolutionizing how clinicians care for their patients, and we recognize the potential that exists to continue transforming health intelligence sharing and patient care,” said Katherine Wood and Art Heidrich, Partners at TPG, in a statement.Private equity deals in healthcare are under increasing scrutiny by healthcare researchers and the federal government over concerns about corporate consolidation. Earlier this year, the Biden administration launched a multi-agency investigation into private equity firms’ and other corporate owners increasing influence over healthcare.The Department of Justice has tried to block big healthcare deals in the past, such when it tried to block UnitedHealth Group’s acquisition of Change Healthcare on the grounds of competitive harm.The Federal Trade Commission sued Surescripts in 2019, charging the health information company with illegally monopolizing the e-prescribing market. The FTC alleges that the company employed "illegal vertical and horizontal restraints in order to maintain its monopolies over two e-prescribing markets: routing and eligibility."The FTC and Surescripts reached a settlement in July 2023. The settlement terms prohibit Surescripts from the various exclusionary conduct alleged in the 2019 case, both within the routing and eligibility markets as well as across Surescripts’ medication history services and on-demand formulary services. At the time, Surescripts said the FTC’s case had “significant factual errors about Surescripts’ business and mischaracterizations about the economic realities of the e-prescribing market.”A PE buy for Surescripts could raise less scrutiny than a sale to a large payer.As a buyer, private equity firm TPG represents a partner that “shares the same mission” as Surescripts, ‘to improve the quality of healthcare, reduce the cost of healthcare and to improve patient safety,” Harvey said.“With TPG, we've found that the other thing that was important was to look at the history of the firm we partnered with and see how had worked with other companies in the past, how the companies they invested in had grown and contributed in the right way. I can say, certainly with TPG, we found the right partner that shares our same vision, which is that there are issues in healthcare that Surescripts is best positioned to solve and they want to invest in Surescripts to help us solve those problems,” he said.TripleTree served as the exclusive financial advisor to Surescripts for this transaction. Cleary Gottlieb Steen & Hamilton served as legal counsel for Surescripts. Evercore, J.P. Morgan Securities LLC, and Deutsche Bank acted as financial advisors to TPG, and Kirkland & Ellis LLP served as legal counsel