Consolidation and strategic mergers to increase value proposition as hospitals and doctors scrutinize financial performance beyond the COVID-19 pandemic
By CAS April, 2022
The RCM vertical remained active in Q1 2022 from an M&A perspective, although deal volume and deal count were reduced compared to Q1 2021 per CAS. There is a significant degree of interest in the revenue cycle from industry participants from hospitals/health systems acquiring downstream vendors and value providers, strategic buyers looking to expand their revenue cycle offerings, and financial sponsors the like.
Hospitals are beginning to develop venture opportunities or partnering with equity sponsors (predominantly venture capital) to make investments in the healthcare space, but also in areas impacting the revenue cycle. As hospitals are experiencing a great deal of financial stress, they are forced to innovate and focus on efficiency. In recent times, this comes in the form of applying technology to aid either a human or a process. The revenue cycle, given its labor-intensive nature, is ripe for continued digitization and a shift to automation. Hospitals understand this and given their inorganic growth strategies, can often be a test environment or large client, all while controlling the expense even greater via ownership. Also, CAS has been observing a recent trend of hospitals making strategic hires from the for-profit sector, specifically overseeing functions such as vendor management or RCM outsourcing solutions. Key decision-makers coming from the for-profit side of the industry may have reverberations throughout the sector and provide opportunities that were once more difficult to penetrate.
Paying for healthcare is a reality in America, oftentimes more challenging than it needs to be. It can be a difficult or cumbersome experience for most. There is a great deal of dissatisfaction from the consumers, as evidenced by the more than 750,000 complaints the CFPB received in 2021. Healthcare providers understand this reality and are shifting attention to patient experience to clarify expenses and offer consumers the best information available. Technology is and will continue to be, a driving force. Given the overlap with the ARM vertical mentioned in the previous section, CAS possesses a wealth of knowledge on the back end of the revenue cycle. These companies, like first and third-party (self-pay) collections, are ripe for disruption. As you go further up the consumer lifecycle to companies in the electronic health records, patient portals, patient eligibility, and other consumer-facing applications, the emphasis on technology is greater. These companies are experiencing software disruption with integrations or APIs to larger revenue cycle value chain providers.
It’s not often that there is a cross-over between the hip hop community and the RCM vertical, but 2022 has continued to impress us with “unprecedented action”. The rapper Fat Joe was tapped by an advocacy group for an advertisement, Power to the Patients, calling on hospitals to comply with CMS price transparency rules. The rule he is referencing refers to the January 2021 rule passed aiming to make hospital pricing information readily available so patients can make more informed decisions. Despite the rule being passed over a year ago, only 14.3% of hospitals surveyed were compliant in a report from patientrightsadvocate.org. This trend of increased patient transparency on pricing, in concert with the No Surprises Act, will have implications on the revenue cycle, and of note, the potential increase in self-pay obligations for patients.
The industry is experiencing the same macroeconomic conditions as 2021 as the COVID-19 pandemic continues. Providers everywhere are overwhelmed with the continued changing regulation and requirements, labor shortages, and various other problems exist. The push to outsource or transform a fixed expense on their P&L to something variable is useful. This is no different in the revenue cycle as companies look to provide an efficient service to the provider to handle a non-core competency. We at CAS believe the M&A market in the revenue cycle will expand in 2022 and see continued trends of strategic mergers, hospitals investing, and financial buyers with specialization participating in the market.