Private equity firms have set their sights on investing in revenue cycle management companies due to higher demand from providers for the services.
Investment firms have been involved in transactions across the approximate $5 trillion healthcare industry, taking stakes of various sizes in hospitals and health systems, physician groups and post-acute companies. Their interest in the payment technology companies that help providers improve their billing and collection operations appears to be on the upswing.
Workforce challenges following the COVID-19 pandemic and the Change Healthcare breach, along with more industry interest in artificial intelligence and automated operations, are behind much of that interest, said Eric Mayeda, managing partner for Chartis, a healthcare advisory firm.
Related: New Mountain Capital invests in Access Healthcare
“The Change Healthcare breach last year created a huge pain point for a lot of health systems,” Mayeda said. “There had been a bit of a trend prior to that of wanting to consolidate the vendor environment and eliminate certain point solutions. In some ways, [the breach] led to a reconsideration of that and a recognition of the importance of having some degree of redundancy.”
Among the deals last year was the all-cash $8.9 billion private equity buyout of R1 RCM by TowerBrook Capital Partners and Clayton Dubilier & Rice. It previously had received a $5.8 billion buyout offer from New Mountain Capital to acquire the remaining stake in R1 RCM that New Mountain did not already own. After that failed effort, New Mountain announced last month an unspecified investment in Access Healthcare, another revenue cycle management company.
Revenue cycle management, along with behavioral health, are considered two of the two most active spaces for investment interest on the provider side due in part to the large number of companies providing the services and their different offerings.
“There [is] a whole universe of services-focused and technology-enabled companies that support end-to-end solutions, like R1 RCM,” Mayeda said. “Then there are other companies that [offer] much more point solutions. They have a niche area of focus, complex claims or something like that. They do that only, and they do it well. So health systems or providers may contract with them for that specific use case…I mean, it's hundreds upon hundreds that do work across the space.”
