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 third edition for the year, we bring you the latest industry trends, news, developments and insights, along with select M&A transactions that happened during the third quarter of 2021.
Due to the Delta variant, COVID-19 cases in the US rose sharply in many areas of the country. Operations and resources became more stretched in these COVID hotspots with hospitalization exceeding peak levels and ICU beds at full capacity. According to Fitch, hospitals, especially not-forprofits, will face near term margin pressure. In September, the Biden Administration passed a second interim rule to address concerns around the No Surprises Act signed late last year, which includes an independent payment resolution process for uninsured/ self-pay individuals.
Given the tough pandemic period, cost containment and ROI remain the top priority for both payers and providers. 95% of executives plan to increase their investment in AI as a cost-effective solution to deal with high patient volumes and staff shortages1. Companies are focusing on digital transformation to better manage cost of care/ delivery and are showing interest in enterprise technology that offers cost visibility, process automation, predictive analytics, end-to-end workflow management and digital tools for high-cost surgical treatments. The calls for data standardization and interoperability grow stronger as disjointed systems and disparate data sets weigh down the RCM industry’s transition to the cloud.
The RCM industry continued to experience strong M&A and private placement activity through Q3-21. Financial investors and PE-backed players led the pack as they pursued transactions in billing technology, HIM solutions, coding software, workflow applications, population health and consulting services. Strategic investors sought add-on acquisitions with complementary RCM offerings, furthering their strategies of geographic expansion and market segment diversification. We expect heightened deal activity to continue in Q4-21, as investors push to close deals before the looming increase in capital gains tax.
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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
Anuj Jaisinghani
Vice President
anuj.jaisinghani@novistra.com
(437) 234 1151
Latest News & Developments
Hospitals concerned about No Surprises Act
Surprise and balance billing can put a catastrophic dent on a patient’s financial position. The bipartisan No Surprises Act, a $1.4 trillion year-end spending bill, was passed in 2020 to eliminate surprise medical bills for emergency and scheduled care. The law, which will go into effect on January 1st, 2022, has raised concerns from hospitals that it fails to address the main problems driving high surprise medical bills, including payments for out-of-network care and instances of issuers/ plans failing to cover in-network necessary services.
Hospitals are also worried about meeting the rule’s requirements by 2022, stating that they lack sufficient time to prepare their billing departments and to deploy patient communications about the law.
In September of 2021, the Biden Administration unveiled a second interim final rule addressing several provisions in the No Surprises Act, including an independent dispute resolution process to determine out-ofnetwork rates. Most of the provisions outlined in the proposed rule will not take effect until January 1st, 2022.
The AMA has urged the Biden administration to delay the implementation so to allow full evaluation of policies that could have negative long-term implications for patients and the health care system.
Healthcare data standardization is the need of the hour
The US healthcare system is struggling to efficiently process patient data due to widespread duplicate, incomplete, inaccurate and outdated records. These problems hamper patient identification and matching processes, especially COVID-19 long haulers. Duplicate record creation cost approximately $6 billion during the initial outbreak of COVID-19 and has increased significantly during the pandemic.
According to a study by AHIMA, 80% of HIM professionals reported data standardization issues resulting in inaccurate and incomplete data. The debate about patient identification and matching should be seen within a broader context of digital transformation. Automation is prime for resolving duplicate record matching and provides multiple opportunities to sanitize data throughout the patient care journey.
While a third of healthcare systems do not use RCM automation at all, it remains a priority for over 50% of respondents, as they plan to automate their processes by the end of 2021.
Healthcare automation is the answer to improving quality of care
The Wakefield report on Internet of Healthcare, which surveyed 1,700 healthcare workers, concluded that the community is overburdened with administrative work. Manual data entry work has increased 50% during the past 12 months, affecting productivity of administrative staff and ultimately leading to increases in patient record errors.
Administrative staff suspect an average of 21% of patient records to have at least one error, and 91% of clinicians agree that improving administrative processes is the most urgent need to improve quality of care. 72% of clinicians expect this burden to get worse in the coming 12 months and 99% of executives admit that their organization relies on multiple systems for at least one process, with admin staff managing numerous individual processes across separate systems.
Automation can alleviate most of these problems. 99% of surveyed executives agree that the application of AI can empower employees to focus on more impactful work. Security concerns (57%) and data privacy concerns (53%) are executives’ top challenges to carrying to out AI efforts. However, concerns over AI are expected to be solved by AI itself: executives predict cybersecurity (55%) would most benefit from an adoption or expansion of AI, followed by claims management (54%) and billing/payment (49%).
Value-based payment models could help hospitals prepare for surges
According to industry experts, hospitals and health systems can implement value-based payment models to ensure preparedness for seasonal and pandemic capacity surges. Fee-for-service models reimburse hospitals depending on the volume of patients they treat, not the quality of patient outcomes. For this reason, hospitals are more likely to operate at full capacity on a normal basis to ensure maximum reimbursement. However, this leads to little leeway when hospitals experience patient surges during peak seasons.
Health systems should adopt a model that can easily adjust delivery to fit any circumstance, including pandemic related surges in capacity. Value-based payment model may give health systems more flexibility. Rather than dividing physicians’ time leading to the highest volume of completed services, health systems could refocus objectives to addressing patient needs and improving health outcomes. Under a value-based payment model, physicians are also less likely to transfer patients to high-margin care facilities if it is not medically necessary.
Strong M&A activity continues into Q3 2021
*All figures in $ millions, except valuation multiples
Select M&A Transactions in the RCM Industry
Healthcare technology focused private equity firm, Welsh, Carson, Anderson & Stowe (WCAS) announced the acquisition of Argos Health, a claims specialty revenue cycle partner. The company works with providers to drive reimbursement and increase claims recovery through services, including workers’ compensation, motor vehicle accident, ERISA, military claims, and additional complex cases. The financial details of the transaction were not disclosed.
WCAS will bring strong technical capabilities to drive increased automation in Argos’ operations and will support in expanding its reach and add further capabilities to further enhance its value proposition across a broad range of healthcare providers. WCAS believes that Argos Health has the potential to become a first-of-its-kind Specialized Revenue Integrity platform to help providers recover hard-tocapture payments of all types. Over the last 4 decades, WCAS has successfully invested approximately $10 billion in over 90 healthcare companies through its 13 private equity funds.
Baring Private Equity Asia (Baring) entered into a definitive agreement with Hinduja Global Solutions to buy Hinduja’s Healthcare Services Business (HGSH), which generated revenues of approximately $400 million in FY 2021. HGSH supports payers, providers, laboratories, durable medical equipment firms, and pharmaceutical companies through 20,000 employees across India, Philippines, US and Jamaica. The transaction is based on an enterprise value of $1.2 billion and will close before end of the year, subject to shareholder and regulatory approvals.
Hinduja Global is looking to change the business mix and becoming more technology-led and is hence divesting its healthcare services business. Upon transaction completion, Hinduja Global will divest all client contracts, employees, and assets related to HGSH, including infrastructure. Baring has strong expertise in the IT/ BPO sector and from a strategic point of view, this acquisition will strengthen its foothold in the space. Baring is active within the space, acquiring CitiusTech, a healthcare technology services and solutions player, and AGS Health, another RCM vendor.
GeBBS Healthcare, a ChrysCapital portfolio company and provider of technology-enabled RCM & Risk Adjustment Solutions for Healthcare Providers and Payers, announced the acquisition of Aviacode. The company, based in Hyderabad, India, provides medical coding and compliance services to healthcare providers, including hospitals, physician groups, surgery centers, imaging centers, and payers. The financial details of the transaction were not disclosed.
The transaction broadens the services, capabilities and geographical reach of both the companies and integrates a combined strength of 9,000 people across US, Philippines and India, with 2,000 AAPC/ HIMA certified coders and 60+ specialty. This acquisition aligns with GeBBS’ growth strategy, which will benefit its end-to-end RCM services, workflow/automation tools, and its geographic footprint through Aviacode clients. Also, GeBBS’ will expand its US-based delivery capabilities, as well as its medical coding/audit/CDI services portfolio via this acquisition.
Healthcare payments software company, Waystar, entered into an agreement to acquire Patientco, a provider of omnichannel patient payments, communications and communication software. Patientco’s platform facilitates more than $2 billion in patient responsibility annually and provides more than 30 million patients with estimates, payment plans, financing options, and consolidated statements. In 2021, Patientco received a Best in KLAS designation for Patient Financial Engagement Platforms. The financial details of the deal were not disclosed.
With this acquisition, Patientco will help Waystar enhance the patient financial experience and significantly reduce wasteful administrative costs, improving Waystar’s SaaS-based solutions with more accurate patient estimates, streamlined billing, and increased propensity to pay. The combination will accelerate digital transformation in the healthcare payments industry by simplifying the way patients engage with healthcare providers, increasing patient satisfaction and greater reimbursements.
RCM Industry underperformed the S&P500 in Q3 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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