Potential legislative enforcement and sector maturity may cool M&A this upcoming year.
RCM Deal value & Count for full Year 2022
The revenue cycle management vertical experienced some cooling off in the fourth quarter of 2022 as the industry matures and consolidation continues. Many private-equity-backed companies are pursuing a roll up strategy in this space to circumvent the challenging sales cycle of providing non-core services to health providers.
As previously mentioned, increasing interest rates and lessened public-market and private-debt appetite, points to an assumed drop in M&A activity in the RCM space for 2023. Strategic mergers among large participants, however, may hold steady. This would be similar to what we saw in the second half of 2022 with Revecore & Kemberton by GrowthCurve Capital and Coronis Health & MiraMed Global Services by Veritas Capital.
Legislative enforcement and potential effects
Just before the New Year, six senators penned a letter to the CEOs of Synchrony and Wells Fargo regarding concerns about the cost and function of medical debt credit cards. Their primary issues? The potentially predatory lending practices within these product lines. Echoing the sentiment, the CFPB issued a bulletin regarding medical bill obligations.
Interestingly, a report from the CDC showed that the number of families struggling to make payments on medical bills fell from 14% in 2019 to 10.8% in 2021. This was predominantly driven by the increase in government incentives during the COVID-19 pandemic-—Coronavirus Aid, Relief and Economic Security Act, or CARES having been the main driver.
However, a secondary impact of this study has come to light. Data from Gallup shows that the percentage of families delaying healthcare treatment is also increasing year over year at a significant rate: 26% in 2021 to 38% in 2023. That is the largest year-over-year increase in the 22 years they have been tracking this data! Expect continued legislative interference in the near future.
Speaking of medical billing concerns, a study conducted between a partnership of Hanover Research and Zelis shows that 41% of consumers surveyed who had at least one medical billing error in the last five years were significantly frustrated with the remedies provided to address said error.
To alleviate and address those errors the federal government established an independent dispute resolution process portal—and they were quickly inundated with complaints, seeing over 4X the expected disputes in the period from April 15, 2022 – September 30, 2022 per data furnished by the Department of Labor, Department of Health & Human Services, and the Department of the Treasury.
These disputes and backlogs are currently being worked out, but this situation articulates the hurdles of enacting wholesale change like the “No Surprises Act” (NSA) in something as complex as healthcare services. Multiple lawsuits that have stemmed from the aforementioned disputes, but nothing that has driven wholesale change, yet. This is a trend that we at CAS will continue to monitor through the upcoming year as the revenue cycle is impacted by changes.
RCM opportunities through necessity
It’s not just the billing disputes mentioned above putting a thorn in the side of accountants, owners, and investors. Supply chain and inflation concerns are hitting margins hard for hospitals. Because of this, a recent survey done by KPMG is projecting M&A activity to increase amongst regional healthcare providers.
Large consolidators will need to look outside of their locales to avoid antitrust concerns. These mergers will promote a ripple-effect of opportunities for RCM companies to expand organically and grow wallet share—if they remain as the incumbent provider after the merger, of course.
RCM Deal of Note: In Q4 2022, Carenet Health acquired Stericycle Communication Solutions—an exact example of what we at CAS have been saying all along: healthcare providers are consolidating vendors and moving towards technology that gives patients a better experience. This trend will continue and be a big driver of company mergers in 2023.
Our advice? Find and join forces with complimentary RCM companies so you can offer healthcare providers a more complete package of services.
Q4 2022 Noteworthy Transactions:
Knowtion Health acquired Amplus Group
Carenet Health acquired Stericycle, Inc.