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Accounts Receivable Management (ARM)

Regulation F is coming!

In Q3 2021, CAS witnessed ARM players dedicate a significant amount of time and resources to prepare for the implementation of Regulation F on November 30, 2021. This is a massive regulatory overhaul that will have reverberations across the industry (and be discussed in this newsletter) for quarters to come.  

To start, one of the largest announcements of Q3 is the CFPB announcing the implementation of Regulation F on November 30th. This regulation addresses communication in connection with debt collectors and lists prohibitions on abuse, false representation, or unfair practices in debt collections. With this action going into place, a number of changes are expected to occur, particularly in regard to how companies collect payment and their efficiency. The first is the importance of inbound calling and capitalizing on their chance to collect payment. Many companies can use their existing technology with outbound communication efforts (i.e., text and email communication tools) and translate it to an inbound communication stream. One of the initial ways companies may do this is by identifying the caller before and connecting them straight to an agent rather than an interactive voice response. As a result, customers can easily resolve their debt with the agents and spend less time on hold. 

Another modification that is likely to develop is the idea of valuing consumers’ preferences where outreach is concerned. In general, individuals who do not pick up their phones are usually not trying to avoid payments; rather, they do not wish to feel pressured by a phone call. A study performed by Intelligent Contacts shows a higher rate of preference for emails with a link that the recipient can click to pay. McKinsey also led a study with 1,000 delinquent customers and found that compared to digital channels (i.e., text and email), traditional outreach methods (i.e., voice and letter) elicited 18 percent fewer responses with accounts 30 days past due. With increased regulation under Regulation F, companies can focus on prioritizing the means of outreach that best suits their customers, which helps gives companies the highest probability of receiving their payment while reducing the outbound outreach. 

In terms of M&A activity, Regulation F could lead to an increase in a company’s spending, specifically in the technology and compliance realms. Companies will likely look to invest more capital into their technology solutions in order to comply as well as optimize their outreach strategies. To ensure they are adhering to the new policies, companies might also be more inclined to invest in their compliance and legal teams. CAS expects to see a continuation of consolidation within the ARM industry as the costs become too burdensome for smaller agencies.

Additionally, ARM companies were seeing inflation begin to impact prices of goods/services and liquidation rates. On an annual basis, according to the New York Times, the consumer price index (CPI) rose 5.4% in September from a year ago, mainly driven by supply chain issues. In terms of cash availability, consumers have been in a relatively stable position due to stimulus checks, saving during the pandemic as regular life was put on pause, and Federal Reserve Chair Jerome Powell announcing low-interest rates (below 2 percent for the immediate term). Looking to the future, the Fed indicated that they would raise rates if they saw evidence that the economy is experiencing higher inflation. If interest rates are to increase, consumers may not be willing to take on more debt. 

The CFPB issued their analysis, “The Consumer Credit Card Market” in September 2021, which showed that credit card debt declined by more than $100 billion between 2019 and 2020, as cus

tomers paid down their debt. The same analysis from the CFPB illustrated the technology driven communication strategies taken by credit issuers surveyed for the study. In the 2019 version of the survey, less than 66 percent of the credit issuers were pushing text or email communication strategies to delinquent consumers. By comparison, in the 2020 issuance, that number grew closer to 100 percent. 

Facebook announced that it will launch a new program, Facebook Invoice Fast Track, to help small businesses collect on unpaid invoices. Potentially, this program could be a future entry into the consumer debt collection industry. Facebook has stated that they will give immediate cash for services invoiced while charging a 1 percent fee from the funds they collect. With Regulation F stating that debt collectors can start communication with individuals via social media, Facebook or other larger technology companies with massive consumer footprints may begin to enter the ARM space.

Furthermore, another large federal development that has arisen is that student loan servicers are exiting the federal system. Navient (NASDAQ: NAVI) became the latest servicer to reveal its plans to exit the system, stating that it will transfer all of its loan accounts to Maximus. Some speculation exists around why Navient departed, but the most probable answers are current Federal Student Aid Chief Operating Officer for the Department of Education (and first appointed Director of the CFPB) Richard Cordray’s plan to strengthen oversight of the industry. Moreover people such as Senator Warren are pressuring student-loan companies for bad practices. In terms of future outlook in the industry, President Biden announced students will begin paying their student loans as of February 1, 2021. Many borrowers may not be eager to repay their loans, as they believed they can disappear under the mass student loan forgiveness program. This may lead to overhauls in collections in Q1 2022 and is an area of focus for all of the ARM vertical. 

On the state level, California will now begin to accept applications to confirm that ARM service providers are in compliance with the newly enacted Debt Collection Licensing Act (DCLA). DCLA requires anyone engaging in debt collection within California to be licensed. Prior to this law, California was one of 16 states that did not require licensed debt collectors. By adding this law, borrowers can file complaints and enforce violations the Department of Financial Protection and Innovation (DFPI) finds necessary. In addition, the DFPI provides a single location to check whether companies are licensed or not while also listing license suspensions or revocations. All of these updates benefit the consumers and allow them to safely ensure they are making payments to a trusted individual or company. Likewise, debt collection companies are now going to be forced to accurately track their collections to ensure they are not breaking any laws. As with the trend at the federal level, this increase in cost could lead to consolidation in the ARM vertical if this practice is adopted by additional states.

Along with the DCLA going into place, one of the key court cases of Q3 was Holmes vs Crown Asset Management. In the last few years, various consumer attorneys have taken advantage of Utah’s vague licensing statute by stating that debt buyers cannot file against consumers without holding a debt collection license, as they violated the FDCPA. However, the new federal interpretation of the Petitions Clause in the US Constitution gives debt buyers a means of disposing of similar lawsuits. Nonetheless, there is still an abundance of filings being made by consumer attorneys which are very similar to this case. This court decision should lead to less liability on behalf of companies and less money spent on legal defense – a rare win for the ARM industry. 

Parlaying off a major topic in Q2 Market Report, the ARM industry is still feeling the reverberations of the Hunstein vs. Preferred Collection and Management Services, Inc. Originally the case had the potential to be a “sky is falling” moment for the ARM industry, but the tenor has since changed. Because the ruling only impacted the States in the Eleventh Circuit jurisdiction (Alabama, Florida,

and Georgia), the actions taken by most agencies have been concentrated to that footprint. We have witnessed some agencies insourcing all of their lettering in those states. We have also observed a unique strategy whereupon some agencies are sending letters to counsel who are then, in turn, passing along to the letter vendor. In continuing to monitor the nuance to this ruling, we expect that agencies will discuss with the appropriate resources to minimize risk as we troll through this period of legislative uncertainty.    

The ARM industry has been everchanging with the enactment of Regulation F as well as new technological trends. With these changes, now seems to be a better time than ever to pursue M&A activity. Consolidation will keep occurring both due to new legislation and a need to keep spending on technology and compliance to keep up with competitors. In addition to the aforementioned, there have been labor/employee shortages throughout the country. Salesforce estimates that missing about 350,000 workers will cost their company $223 million by the holiday season. This is a high-paying technology company experiencing that shortage. In this time, it is more difficult than ever to find new employees, and due to inflation, burnout, and labor strikes, it becomes an even larger investment to obtain top talent. As the labor and cost issues remain prevalent, companies could look to M&A to find quality candidates, which may be less complicated than hiring in the current market.  

Customer Relationship Management (CRM)

In Q2 2021, the CRM

Technology and Automation Continue to Fuel Growth in the CRM Vertical as Companys Flex Towards Customer Demand

During the third quarter of 2021, the CRM industry continued to see an increase in M&A and capital raising activity. Noteworthy transactions include: Salesforce (CRM) completing its acquisition of Slack Technologies, Perficient’s acquisition of Talos Digital, and Black Knight’s acquisition of Top of Mind Networks. With the world continuing to become more virtually oriented, companies are now looking to advance their customer management and engagement experience to keep up with the increased demand for their online services. To accelerate growth, companies are pursuing M&A activity; this allows them to quickly expand the number of customers they are able to serve and provide access to new technology. These acquisitions will also grant companies the ability to consolidate their existing technologies to extend a larger and differentiated mix of service offerings.

In Q3 2021, the continuing trends of technology adoption and the expansion of the work from home environment, have contributed to the ongoing M&A activity in the CRM industry. Over the course of the pandemic, CRM firms have played a critical role as the world shifted to more of a virtual setting. Companies around the world recognized the value of shifting their approach to communicate more effectively with their customers and offer a high-quality customer service experience (in the channel of their choosing), further increasing the demand for diversified services. 

Global customer relationship management is expected to grow at a compound annual growth rate (CAGR) of 10.6 percent from 2021 to 2028 per Grandview Research, representing an attractive opportunity for CRM companies to capitalize on continued industry growth and find new avenues to generate revenue. The projected growth can be attributed to several factors. During Q3, rising demand was reported for automated engagement with customers, improving the scope of digital operations. In addition, improving customer experience and services are the factors driving the demand for CRM solutions across various industries globally. 

Developments in cloud computing technology, the emergence of serverless computing and hybrid cloud computing, and the availability of various service models such as SaaS, Infrastructure as a Service (IaaS), and Platform as a Service (PaaS) are projected to drive the CRM market growth over the forecast period. The development of new technologies is imperative for companies in the CRM industry to grow, given that the industry is based on the ability of companies to tailor to the needs of their demanding customers. 

Along with the sector specific factors, the effects of COVID-19 and the work from home environment continue to shape the future of the CRM market. Government mandate of Work from Home (WFH) policies has driven organizations to focus on more effective ways of engaging with clients and consumers in a remote working environment. This is anticipated to drive the adoption and implementation of CRM solutions, as businesses look to adopt or further utilize these service offerings to serve buyers, drive sales engagement, and increase employee productivity. 

The CRM sector is also experiencing new and enhanced types of technologies. Features like text, chat functions, and interactive virtual assistance (IVA/IVR) via AI bots are continuing to be upgraded by companies to make customer service a more quick, convenient experience. Cloud computing, which enables users to gain access to virtual servers over the internet, is being implemented on a wider scale. This is the basis of SaaS solution(s), where businesses and clients can access the CRM software over the internet. Given the trend of working from home, the advancement of accessing CRM software over the internet provides customers exactly what they need in order to work effectively from home. Customers may shift their spending to companies who provide this 

service. Social media monitoring is also being implemented by many companies in the sector. More CRM developers are adding features to their systems that can monitor conversations that are happening about their company on social media websites (e.g., Facebook, Twitter, and LinkedIn). Since social media is used by many consumers as a platform for evaluating companies, it seems sensible that companies are beginning to listen to the customers in their market to shift their strategy and develop technologies which tailor to their customer preferences. Other trends include things like chatbots and active listening, such as natural language processing (NLP), natural language understanding (NLU) fueling natural language generation (NLG), and conversational tools to further improve customer interactions. Customers want to solve their issues quickly and with ease in a format that they prefer, hence why companies must prioritize developing a seamless omnichannel solution for connecting with their customers. 

Another crucial trend to highlight in the CRM industry is the emphasis on automation, which has also made an impact on headcount for customers. For customer care teams dealing with high volumes of incoming communications, expectations for shorter response times, difficulty finding and hiring good agents, and seasonal traffic spikes to contend with, call center automation has become a highly sought after solution. According to Harrison Interactive, 89 percent of consumers have switched to doing business with a competitor following a poor customer experience. For companies to handle large amounts of inbound calls, they need to switch to an automated virtual solution that can support this high amount of incoming call traffic. The use of automation will also reduce reliance on finding workers to manually connect with customers, allowing for firms to create a quality customer experience for more customers. Without the ability to automate when it comes to customer service, customers will simply use another company. For eCommerce and digital marketing teams, quick and seamless replies to incoming emails is also important. Forrester research has shown that over half of U.S. shoppers will abandon their online carts if they cannot find a quick answer to their question. To succeed amongst other companies, marketers need customer support automation as their secret weapon. Providing answers and resolutions that are quick and accurate make a big impact on shoppers’ experiences and loyalty. 

Overall, the CRM industry continued to see consolidation via M&A activity. CAS expects companies to consolidate via M&A activity to expand and manage increasing customer service demands. In addition, CRM companies will continue to innovate via automation and virtual customer interactions to create better and more convenient customer experiences.

Revenue Cycle Management (RCM)

Reverberations of the Ongoing COVID-19 Pandemic are Fueling Change in the RCM Industry as we Adapt to a New Normal

The reprieve for hospital systems was unfortunately short-lived as the resurgence of COVID cases late summer and fall 2021 has once again led to major disruptions for U.S. hospitals and health systems. After bottoming out in late June 2021 (6/25/21), new admissions of patients with confirmed COVID-19 across the U.S. only two months later (8/27/21) increased north of 6.7x to 3.71 per 100,000 population (from 0.55), per data from the CDC. This figure has since been cut in half to 1.85 per 100,000 but still represents elevated capacity [and does not take into account existing patients – considering the average stay typically ranges from 7-14 days and can extend 30 days or longer if put on a ventilator (Source)]. Despite providers having greater knowledge of treatment strategies, the influx of patients continues to cause issues for health systems, as capacity and bed utilization create a strain on other resources.

Similar to trends we witnessed early in the pandemic, elective surgeries are being put on hold in select regions, which takes a major toll on providers revenue streams. States like Washington and Idaho who dealt (and are dealing) with hospitals being overwhelmed with coronavirus patients, had reduced capacity for patients with other ailments (including elective surgeries). These deferred procedures (as illustrated earlier in the pandemic) are expected to negatively impact referral volumes of more profitable accounts and have had a material impact the bottom line for providers. Part of resource strain stems from being understaffed – something we are seeing across the entire labor market – and a dynamic that is only intensifying as a result of vaccine mandates. In New York, about 84 percent of all New York hospital workers have been fully vaccinated, but still tens of thousands of healthcare workers are at risk of losing their employment because of their choice to not get the vaccine. 

Given the dynamics created by the pandemic, technology and automation have become increasingly important and even more so within the RCM department. A recent survey from AKASA, which surveyed around 400 chief financial officers and revenue cycle leaders at hospitals and health systems in the United States, showed that the number of health systems using revenue cycle automation has increased by 12 percent since last year alone. The critical factors leading to adoption have been administrative task automation and improving the consumer experience. As a point of reference, the 2020 InstaMed Trends in Healthcare Payments Report outlined that around half of consumers surveyed reported that they preferred electronic communication for bills and paying the bills online. The hope for implementing such technology solutions is to create an easier process for consumers to view and pay statements (and increase the likelihood of cash receipts). Compared to other industries, despite the slow adoption rate of technology for health systems, technology and automation have become essential to optimizing recoveries.

Technology adoption has also become critical to influencing the trend towards revenue integrity. Revenue integrity is the goal of using ethical business practices and policies to achieve three critical organizational imperatives: operational efficiency, compliance, and optimal earned reimbursement and payment. Within the last five years, Navigant conducted a study of 125 hospitals found that around 25 percent of healthcare CFOs and revenue executives feel that revenue integrity is a major priority for them. CAS predicts that this figure has only increased since the study was conducted. One way that companies are increasing their revenue integrity is through AI solutions. AI is an important part of the RCM process because it allows providers to collect reimbursement and process data in a faster manner. AI can sift through data and make tasks more efficient for companies. One company that has taken a major strategic initiative toward AI solutions is 3M with their partnership with Waystar. Waystar has data on over 500,000 providers and 40 percent of the U.S. 

population with its claims processing platform, representing a wealth of data. CAS forecasts this trend to only accelerate further as automation becomes vital during a time when the labor force and operating margins are stretched thin.

The inevitable trend of automation is being pushed to the forefront in part due to the labor shortage in the United States. Healthcare providers are turning toward automated revenue collection processes to augment lower staffing levels – a gap being filled by RCM technology providers. For a point of reference, David Ralston, who is a Vice President of Revenue Cycle at Jackson Hospital in Montgomery, Alabama, feels that less people are pursuing careers in RCM and there is an increasing need for automated RCM solutions. Ralston hopes that over time that providers will not only implement RCM solutions to help their front-end processes (automated bill payment and collection), but also their back-end solutions to send out more accurate claims that will have a lower denial rate. Ralston’s view on automating their RCM solutions is not unique and will likely pave the way for more healthcare providers to implement RCM solutions because of the efficiency it provides and need it fills.


Despite the urgency and focus on staffing shortages and efficiency improvements, RCM departments are also diverting attention to the new ruling from the HHS (Department of Health and Human Services), which sets forth the maximum penalty for violations of patient-billing regulations that take effect January 1, 2022. The goal of the new ruling is to increase the transparency between providers and consumers. The new ruling, which was initiated through the No Surprises Act, sets new guidelines and penalties for violations of the No Surprises Act. The enforcement of the new ruling will come from the state level with a maximum penalty of $10,000 for each violation. For the providers, this measure can be partially solved with additional automation to maximize compliance to the standards. Currently, 33 states have comprehensive or partial surprise-billing protections for consumers before this ruling was proposed. Creating smart and logical processes that are enhanced by technology (internally or externally) is becoming increasingly important to providers.


Furthermore, healthcare remains a highly politicized topic, which creates an environment ripe for additional regulation and changes. In a study published by JAMA, which was conducted from 2009-2020, it found that the majority of the medical debt in collections is concentrated in low-income neighborhoods, southern parts of the United States, and states that refused to expand Medicaid coverage under the Affordable Care Act. On the opposition, in the past 12 months, Medicaid expansion states have seen a sharp decrease in medical bills sent to collections. Researchers estimated that 26 million Americans still lack healthcare coverage mainly because of state legislators’ refusal of the Affordable Care Act. The high costs of hospital stays related to COVID are providing an example of the high cost of care. The lack of healthcare coverage leads to high out of pocket expenses, but even those with insurance are still experiencing large copays and high deductibles. This has been a topic of focus for Congress, including the $1.9 trillion American Rescue Plan, which provides subsidies for insurance premiums. While Congress remains busy with a host of agenda items they wish to tackle, new policies around healthcare subsidies and regulation would not be out of the realm of possibilities.

CAS continues to see the strong pathway for M&A within the healthcare RCM market as technology utilization becomes increasingly critical to maintain compliance, margins and standards of care. Traditional service-based RCM businesses – event those that are well-tenured with their clients – are being forced to quickly adapt to ensure they remain competitive among the new technology products being offered to healthcare providers. This dynamic continues to bring new entrants and buyers into the market in an effort to solve what has become an increasing market opportunity. We anticipate this trend to continue well into next year (and beyond).

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