7 thoughts on private equity in RCM

Financial buyers have made a strong showing in the revenue cycle management sector, as evidenced by the spike in mergers and acquisitions last year.

Below are seven thoughts on private equity activity in the RCM sector.

1. The need for RCM providers has grown substantially as payments for healthcare services have become increasingly complex, according to BDO Capital Advisors. Many healthcare providers are not well equipped to manage their revenue cycle internally, and have found it increasingly valuable to outsource billing services to RCM providers to increase cash flow and ensure accurate reimbursement.

2. Black Book projects the market for outsourced revenue cycle management will grow at a compound annual growth rate of 26.5 percent through 2018. The outsourcing market is expected to reach a value of $9.7 billion by 2018.

3. A well run revenue cycle can make or break the success of a health system, therefore the value of revenue cycle service providers in the industry is unquestioned. Geoffrey Cockrell, chairmen of the private equity group at McGuireWoods says, "there are a wide array of generalist private equity funds that would like to gain exposure in healthcare markets, but don't want to take on direct reimbursement risk. Revenue cycle companies present a great opportunity for these funds to make a solid investment without taking on risks they aren't prepared for."

4. During the past two years, private equity firms have been increasingly active in the RCM sector. In 2015, the mergers and acquisitions market for revenue cycle companies saw 47 transactions, with more than $3.2 billion exchanging hands, according to a report from Greenberg Advisors.

5. Some notable private equity deals in the RCM sector last year included Thoma Bravo's purchase of MedeAnalytics, Arlington Capital Partner's acquisition of Ontario Systems (for which NXT Capital supplied $39 million) and Edgewater Growth Capital Partner's portfolio Boulder Healthcare Solution's acquisition of The ROI Companies. 

6. In the first quarter of 2016, Pamplona Capital Management closed its acquisition of MedAssets for $2.7 billion. The transaction is one of what the company expects to be a series of acquisitions aimed at creating a single company capable of replacing the patchwork of vendors hospitals typically use for billing. In January, Pamplona made a strategic investment in Patientco, another technology vendor that provides payment services to the healthcare market.

7. RCM vendors have also been snapping up smaller players to shore up their end-to-end service offerings. For instance, last year RCM-provider Emdeon acquired both Altegra Health and Capario to expand its revenue cycle capabilities. The Emdeon-Altegra deal was valued at $910 million.

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