Revenue Cycle Quarterly
Revenue Cycle Quarterly, an initiative by Novistra Capital, is a curated newsletter to keep you updated about the US Healthcare RCM Industry. In our second edition for the year, we bring you the latest trends, developments and insights, along with select M&A transactions that happened during the second quarter of 2021. This edition includes a special feature deep dive into market size and trends.
Covid-19 cases in the US continued to decline with increased vaccination uptake. Concurrently, hospitals have witnessed an uptick in elective procedures. Still, providers are predicted to lose $53.0 billion to $122.0 billion in 2021 after losing at least $323.1 billion in 2020. The federal government, through the HHS administered Provider Relief Fund, extended deadlines for utilization of distributed funds. Additionally, recent studies show that the Price Transparency Rule is not being followed by hospitals, leading legislators to call for HHS audit and enforcement.
The Covid-19 pandemic has accelerated innovation, and healthcare providers are increasingly adopting technology to manage workflow and processing challenges. AI/ ML use cases are extending beyond data analytics and automation to preventive care for better healthcare outcomes. The increase in data collected from health records has boosted the adoption of cloud infrastructure to manage the large volume of data and increase IT bandwidth. However, interoperability remains key to integrate, store, draw insights and streamline the disparate data sets, for improving care quality, predictions, diagnostics, research and cost reduction.
The RCM industry witnessed heightened M&A activity in Q2 2021 as compared to the preceding quarter. Strategic buyers, including few US-listed healthcare IT/ technology companies, accounted for a major share of these transactions as they sought to integrate additional capabilities such as AI/ ML, automation and analytics with existing platform frameworks. PE/ funds continued add-on acquisitions to strengthen their digital health offerings. We expect strong M&A activity in 2H 2021 with elevated adoption of digital technologies and shifting focus towards patient-centric care.
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About Novistra
Novistra Capital is a boutique M&A and PE advisory group with a strong focus on the Healthcare Revenue Cycle Management Industry. Founded in 2010, Novistra has a team of experienced professionals, located across 4 offices in the US, UK and India. Please contact the following members of the Novistra team to discuss strategic options for your company.
Ripun Jai Mehta
Managing Partner
ripun.mehta@novistra.com
(646) 645 1935
Pankaj Arora
Managing Director
pankaj.arora@novistra.com
(917) 460 0659
Peter X. Li
Managing Director
peter.li@novistra.com
(917) 250 8605
Jeffrey Neustadt
Senior Associate
jeffrey.neustadt@novistra.com
(437) 234 1151
Latest News & Developments
Hospitals not complying with HHS Price Transparency Rule
According to a Kaiser Family Foundation (KFF) analysis, many hospitals are not complying with the HHS price transparency rule, now six months since its passage. The federal rule calls to improve price competition by revealing how much health plans pay for health services. Hospitals must prominently post prices, including hospital gross charge, discounted rate, and payer-specific negotiated rates, in a machine-readable format and with consumer facing tool.
The study, analyzing data from the two largest hospitals in each state and D.C, found that that most hospitals are not in compliance. Although ~80% of hospitals provided gross charge information, many did not provide payer-specific negotiated rates. Only 35% of hospitals displayed payer-negotiated rates in a machine-readable format. Within compliant hospitals, lack of data standardization made comparing prices nearly impossible.
For example, some hospitals included professional fees in listed prices, while others did not. Hospitals had blocked information from Google, and others buried the information deep in their websites.
As a result of these reports, ranking members on the US House Energy and Commerce Committee wrote a letter urging HHS to enforce the rule, including the amount of civil penalty, and to conduct regular audits of hospitals for compliance.
Health systems optimizing revenue capture through RCM technology
A recent study funded by RCM technology company AKASA found that 75% of health systems deployed RCM technology or underwent active technology deployments during the COVID-19 pandemic. 40% of respondents said their organizations utilized technology to transition to fully remote work, following social distancing and quarantine requirements.
To decrease costs, most hospitals and health systems are considering transitioning to a more permanent work-from-home employment. Another 40% responded that their RCM technology projects have been delayed by requirements limiting on-site consultants and knowledge transfer.
About a third of health care systems do not use RCM automation at all. However, RCM automation is still a priority for over 50% of respondents and they plan to automate their processes by the end of this year. RCM automation has become a must-have for healthcare organizations facing increasingly complex payer rules and regulations, new modes of delivery (i.e. telehealth), and a potential uptick in denials after the pandemic.
Cloud Computing becoming key enabler for better health outcomes
Healthcare providers and health systems worldwide are increasingly leveraging cloud technology to manage and
find solutions to some of their challenging problems, including population health, care coordination and data
security.
Advanced cloud computing has bolstered innovation in medical research by enabling researchers
access to relevant, de-identified datasets under strict controls. During the pandemic, leading research
organizations and pharmaceutical companies partnered with cloud partners and leveraged genomic and patient
data to help develop novel diagnostics, treatment and vaccine programs. Improving computing power and
database capabilities are making preventive population health analytics a reality.
The biggest barrier to physicians is the lack of interoperability among various health systems. As the world shifts
towards value-based care, AI and machine learning, paired with data interoperability, will improve patient
outcomes while driving operational efficiency to lower the overall cost of care.
Payers increasing focus on Artificial Intelligence & Machine Learning
The COVID-19 pandemic has led to an increase in payer adoption of virtual health and AI-based technology and innovation. 64% of health insurance executives reported an accelerated adoption of virtual health and another 53% reported an acceleration in adoption of AI and ML practices, while 42% said that the pandemic has helped facilitate the adoption of value-based care arrangements. Around 50% of healthcare payers have an innovation lab and believe AI and machine learning will drive innovation forward. However, 53% believe healthcare startups will lead the way in driving big technology innovation.
The pandemic has helped to drive changes in adoption of technologies, as mental and cultural barriers in terms of adoption are no longer being seen as issues. The challenges to innovation and technology are currently more technological than cultural in nature. And there is an increase in provider adoption of value-based arrangements that has been facilitated by regulatory and payment reforms.
Strong M&A activity in Q2 2021
*All figures in $ millions, except valuation multiples
Select M&A Transactions in the RCM Industry
Software solutions provider and acquirer, N. Harris Computer Corp. (Harris) announced the acquisition of Ingenious Med. Harris’ focus is to acquire businesses with growth potential, provide expert management and build them for the future. Ingenious Med offers a point-of-care platform that optimizes physician performance through revenue optimization, data intelligence, and workflow automation. It has facilitated more than 200 million patient encounters across over 70% of largest US health systems and physician management companies. Financial details of the deal were not disclosed.
Joining Harris will provide Ingenious Med with the platform to continue innovating for their clinicians and improving outcomes for their patients and their healthcare systems. Ingenious Med’s strategy and their platforms align with the vision and goals of Harris’ healthcare portfolio, which is to help physician practices and health systems gain insights from healthcare data and to create value across all aspects of patient care. Majority investor in Ingenious Med, North Bridge will exit following the transaction.
US-listed community healthcare solutions company, CPSI, announced the acquisition of coding solutions company, TruCode. It provides configurable knowledge-based software that provides coders, CDI specialists and auditors the flexibility to code according to their knowledge, preferences and experience. Financial details of the deal were not disclosed.
TruCode’s cloud-based medical coding solution will be bundled with CPSI’s TruBridge solutions and services to enhance revenue cycle performance for healthcare organizations of all sizes. From a financial standpoint, TruCode’s 99% recurring revenue model, customer retention rates in excess of 95%, and Adjusted EBITDA margins in excess of 45% support CPSI’s strategy of growing a more diverse recurring revenue base and driving margin expansion.
The addition of TruCode is expected to expand CPSI’s consolidated EBITDA margins by roughly 130 bps, and with the potential for another $1.0 million of adjusted EBITDA from capitalization of software development costs.
Provider of outsourced revenue cycle management services and practice management solutions, Duvasawko / abeo, announced the completion of a strategic merger with Gottlieb, a provider of RCM solutions to emergency and hospital medicine groups. Gottileb provides end-to-end RCM solutions and full suite of practice optimization solutions though its subsidiary, Praxi Physician Management to for hospital and independent physician groups, specializing in Emergency Medicine and Hospitalist practices. Financial details of the deal were not disclosed.
The transaction combines two similarly aligned RCM players, dedicated to providing a premium, customer-centric service with a proven record of improving customer collections. Duvasawko / abeo will leverage Gottileb’s robust technology and service platforms and the RCM expertise of Gottileb’s leadership team including, President, Craig Radulovich. Management of both companies will continue to serve in the combined company and will remain meaningful shareholders.
In what is one of the largest transactions in the healthcare IT space, Microsoft announced the acquisition of Nuance Communications for $19 billion. Nuance is a pioneer in AI-based conversational AI technology solutions, trusted by 77% of U.S. hospitals and 85% of the Fortune 100 companies worldwide. Over the past three years, Nuance has streamlined its portfolio to focus on the healthcare and enterprise AI segments, where there has been accelerated demand for advanced conversational AI and ambient solutions.
Beyond healthcare, Nuance provides AI and customer engagement solutions across Interactive Voice Response (IVR), virtual assistants, and digital and biometric solutions. The acquisition builds upon the successful existing partnership between the companies since 2019. By augmenting the Microsoft Cloud for Healthcare with Nuance’s solutions, as well Nuance’s expertise and relationships with EHR systems providers, Microsoft will be better able to empower healthcare providers through the power of ambient clinical intelligence and other Microsoft cloud services.
Special Feature: Market Research Deep Dive
Transitioning Healthcare Industry Creating Significant RCM Tailwinds1
($ in bn)
RCM industry to experience significant growth due to transition to value-based care and increasing costs, leading to margin compression for providers and therefore renewed focus on maximizing revenue capture
• Rising costs forcing providers to re-examine and maximize revenue capture
• Increasing complexity of coding & billing leading to techenabled solutions driven by artificial intelligence, machine learning, and robotic process automation
• Industry-wide trend toward outsourcing non-core processes to increase profitability
• Enormous short-term stress created by COVID-19 throughout HC system, providers increasingly rely on RCM partners to provide adequate revenue collections.
Expected Changes in Healthcare RCM During 2021 Due To COVID-19 in the U.S.2
Surveyed responses from 38 RCM providers
RCM Companies Benefiting from Automation in 20203
AI Use in HC Applications (U.S.) as of 20204
HCIT M&A Volume5
2020 M&A Deal Volume – Buyer Distribution5
RCM Industry outperformed the S&P500 in Q2 2021
*RCM Industry is the market capitalization weighted index comprising of companies: Cerner, CHANGE, CPSI, Craneware, Health Catalyst, Health Stream, NextGen, Nuance, Premier, R1, Vocera and MTBC (CareCloud)
Public Comparable Company Analysis – RCM Industry
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Information presented in this document is for informational, educational and illustrative purposes only. While the information in this document is from sources believed to be reliable, Novistra makes no representations or warranties, express or implied, as to whether the information is accurate or complete and Novistra assumes no responsibility for independent verification of such information. Facts and views presented in this document have not been reviewed by, and may not reflect information known to, professionals of other Novistra business areas. In addition, the analyses in this document are narrowly focused and are not intended to provide a complete analysis of any matter.
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