Avera Health is selling its clinician-to-clinician telehealth business Avera eCare to a private-equity firm in a deal expected to close this year.
Aquiline Capital Partners, a private equity firm based in New York and London, will acquire Avera eCare, which connects specialists to local clinicians at facilities across the U.S. The new owners will rename the operation Avel eCare and carve it out from its own business.
Some telehealth services previously operated by Avera eCare, such as Avera's virtual urgent care and specialty consultations, will remain with Sioux Falls, South Dakota-based Avera.
Avera launched Avera eCare in the 1990s, decades before the the COVID-19 crisis boosted telehealth adoption. Avera eCare provides behavioral health, emergency medicine, hospitalist, intensive care, pharmacy and senior care services to roughly 600 sites that include rural hospitals, outpatient clinics, long-term-care facilities and schools in 32 states.
Through Avera eCare, specialty physicians offer care management services and remote consultations to facilities that may not have enough specialists on staff.
Aquiline Capital Partners plans to broaden Avel eCare's services and expand to new markets. The companies expect to complete the deal in the fourth quarter.
"We took it as far as we could," said Tom Clark, Avera's chief strategy and growth officer. "The capital needed to take it to the next level was probably more than we really felt like we could do and still support the rest of our health ministry."
Most health systems don't own and develop their telehealth platforms. Instead, they purchase products and services from third-parties like Teladoc Health or Amwell. Selling its telehealth platform brings Avera Health in line with other health systems that built their own tools, Clark said.
"We're not getting out of telemedicine," Clark said. "Just because we're selling the platform doesn't mean we won't be using the platform."
Aquiline Capital Partners purchased all of Avera eCare and Avera won't retain an equity stake, said Clark, who would not divulge financial details about the transaction.
Avera eCare CEO Deanna Larson will remain at the helm and the business' more than 230 employees will keep their jobs, which will stay in Sioux Falls.
Telehealth investments are sky high right now. Telehealth companies raised $4.2 billion during the first half of the year, a 139% increase from the first six months of 2020. Telehealth investment accounted for nearly 30% of the $14.9 billion raised by all digital health companies, according to data from Mercom Capital Group, a market research firm. There were 25 mergers or acquisitions of telehealth companies during the first half of this year.
"Rght now is not a bad time to sell a telehealth business, given that we're probably coming off of the most successful year of telehealth," said Rick Kes, a partner and healthcare senior analyst at audit and consulting firm RSM.
While telehealth use has continued to decline since COVID-19 cases began growing more slowly, many experts still expect telehealth use to plateau at a higher level than before the pandemic. Telehealth giant Teladoc Health reported a 109% year-over-year revenue increase to $503.1 million and visits were up 28% to 3.5 million in the second quarter. The company still is not profitable and suffered a $135 million net loss.
There's been a "slow but emerging trend" of health systems building tools that are valuable to the market, but not necessarily part of their core business, said Paddy Padmanabhan, CEO of Damo Consulting. Providence in Renton, Washington, for example, has spun out multiple technologies it developed. Other health systems have recently sold services like hospice and home health units.
Selling an ancillary business can provide health systems with an influx of cash, while also letting them refocus that energy on their core business, Padmanabhan said.