Why R1 RCM's Q3 fell short of expectations, per its CEO

R1 RCM Chief Executive Officer Joe Flanagan recently cited three reasons the company's results fell short in the third quarter. 

The largest impact came in the form of lower incentive fee revenues, Mr. Flanagan said during the company's Nov. 8 earnings call, as transcribed by Seeking Alpha. Payer's reimbursement turnaround times have increased, which affects several performance metrics to which R1's incentive fees are tied. 

"We have initiated [a] detailed plan to reduce these turnaround times, including the following: increasing our operating standards for frequency of follow-up, engaging with payers via our provider customers to ensure accounts receivable are handled in a timely manner, and via Cloudmed expanding our capacity to respond to a marked increase in clinical review requests from payers," Mr. Flanagan said. 

He said he is confident payer turnaround times will improve, but they are expected to affect R1's performance into 2023. The incentive fee was also affected by volatility in key performance indicator metrics at two operating partner customers it began onboarding in 2021. 

"These customers have unique complexities, which is resulting in us taking longer to achieve our expected performance goal," Mr. Flanagan said.

The second reason he cited was related to lower net operating fees due to volumes and unfavorable consolidation in the emergency department physician space, he said. And the third reason Mr. Flanagan cited was the company increased its allowance for credit losses by $9.5 million to account for financial challenges facing one of its large emergency department aggregator customers. 

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