R1 RCM's expense growth outpaces revenue in final quarter of 2017

Revenue-cycle management company R1 RCM reported a net loss in the final quarter of 2017, its financial results dampened by mounting expenses.

The Chicago-based company, which is closely linked to the Ascension health system, reported a net loss of $40.2 million in the fourth quarter of 2017, down from net income of $13.2 million for the same period in 2016. Net services revenue increased 32% during that time to $140.3 million from $106.2 million in the third quarter of 2016. R1 CEO Joe Flanagan said the fourth quarter of 2017 was the company's sixth consecutive quarter of revenue growth.

The company's total operating expenses, however, dwarfed that increase, jumping by 83% in the fourth quarter of 2017 compared with the same time in 2016: $144 million from $78.6 million. Almost 90% of R1's operating expenses are generated from the cost of services.

Ascension, a part-owner of the company, remains the company's biggest customer, according to its annual report. For 2017, 2016 and 2015, net services revenue from hospitals affiliated with Ascension accounted for 90%, 78% and 45% of R1 RCM's total net services revenue, respectively.

In its forward-looking statements, R1 said it plans to generate between $850 million and $900 million in revenue in 2018, an increase from previous estimates. The company also projects an operating loss of $30 million to $55 million and adjusted earnings before interest, taxes, depreciation and amortization of $50 million to $55 million. Those predictions are subject to the company's planned acquisition of Intermedix Corp., expected to close in the second quarter of 2018.

Chris Ricaurte, the company's CFO, told investors in an earnings call Friday that the company expects to shoulder $25 million in on-boarding costs in the first half of 2018 related to its newest business deals, including the expansion on its partnerships with Intermountain Healthcare and Ascension and its recently announced relationship with Ascension's Presence Health. R1 expects the majority of EBITDA contribution from those deals to show up in the second half of this year, he said.

"I'm pleased with the progress we made in 2017 and feel we are well positioned to deliver on our commitments for 2018," Ricaurte said.

Overall in 2017, R1's net services revenue declined to $450 million, from $592.6 million in 2016. The company's expenses also increased significantly year-over-year, to $477.3 million in 2017 from $295 million in 2016.

An edited version of this story can also be found in Modern Healthcare's March 12 print edition.