Cost management company MultiPlan promised to narrow the gap between high out-of-network provider bills and the amount traditional insurers would pay. But less than a year after their $11 billion IPO, political winds threaten the stability of its base business.
The New York-based firm has traditionally operated as a preferred provider organization, or PPO, facilitating payments between 1.2 million providers and 700 payers. Through this network services business, MultiPlan collects a payment—often a percentage of the discount negotiated from the original provider's bill—for each healthcare transaction it facilitates. Historically, the bulk of MultiPlan's revenue generated was from out-of-network bills being repriced for lower than typical out-of-network rates.
The surprise billing ban promises to upend this business, either forcing the company to pivot its offerings, or face irrelevancy, said Loren Adler, associate director of the University of California-Brookings Schaeffer Initiative for Health Policy.
"I've never gotten to be what I consider a full understanding of exactly how on Earth they plan on still making money once surprise billing is illegal," Adler said.
Come January 1, 2022, the No Surprises Act bars surprise billing for emergency services and high out-of-network cost-sharing, forcing providers and payers to agree on a price or take the dispute up with an independent arbitrator. The law builds on some states' previous regulations by enforcing the mandate for self-insured customers, as well as extends protection to fully-insured individuals who live in the 20 states with no surprise bill laws on the books.
MultiPlan did not respond to interview requests about how the new federal mandate could impact its business. But it has said that it expects the federal law to cut about 10% of its revenue. A series of articles on its website points to the idea that their service will still be relevant, but their payment calculations may need to evolve in response to the No Surprises Act.
Going public
MultiPlan launched in 1980 as an answer to growing problem posed by insurers' narrow networks: if a member traveled from Chicago to Indianapolis, had an accident and sought care, they likely went to an out-of-network provider. To help insurers negotiate service rates down , MultiPlan formed a shadow network of negotiated rates with providers who fell outside most insurance plans, and sold this network to other insurers.
By 2006, MultiPlan boasted the largest PPO network in the country, and counted the largest 10 insurers in the country as customers. The Affordable Care Act kickstarted MultiPlan's business in 2010 by mandating that insurers cover out-of-network emergency services. At the same time, a crop of new insurtechs entered the market, and MultiPlan offered these smaller companies easy access to a large network of providers.
From 2006 to 2016, MultiPlan changed hands between private equity firms four times, with its value growing sevenfold. Along the way, it also made large acquisitions of competitors like Viant and NCN, eventually dominating the out-of-network repricing and rental network markets.
In July 2020, the company went public through an $11 billion merger with a special-purpose acquisition company, or SPAC, with some analysts questioning whether the deal was done to solve a looming bond maturity problem, rather than as a growth opportunity by investors. At the time, the company said it was pivoting from relying on its network-based services to providing analytics and payment integrity tools, in part, as a response to the threat of a surprise billing ban. Investors said they planned to grow MultiPlan's diverse business lines, as well as target new payers beyond traditional insurers.
The company used the cash from its IPO to purchase HST for $140 million in November 2020 and Discovery Health Partners for $155 million in March, and touted these deals as a way to grow its business beyond network services, which is declining.
During the company's most-recent first quarter ended March 31, MultiPlan generated $69.4 million from its network services, a 5.7% drop from the $73.6 million reported during the same time last year. The company's analytics and payment integrity services offset these declines, however, increasing the company's revenue by 1.1% year-over-year to $254.9 million. But MultiPlan's business mix has not changed much since the company's SPAC announcement, with network services continuing to represent about 30% of its revenue—leaving investors questioning the growth potential of the company.
"Depending on how the mediation process works out, you wouldn't need a company like MultiPlan to say, 'OK, we're going to fight this one, we're not going to fight this one,'" said Matt Wolf, a senior healthcare analyst at RSM. "That's a big part of what those payment integrity and data analytics services offer."
The transition in the company's offering comes after a short-seller report alleged that Multiplan's largest customer, UnitedHealth Group, was phasing MultiPlan out of its services, and speculated that Minnetonka, Minn.-based UnitedHealthcare could represent a third of MultiPlan's total business. Many investors believe the company is developing an in-house alternative to MultiPlan—a June policy document from UnitedHealthcare describes Naviguard as its "lead out-of-network offering" for employers to resolve disputes with providers. UnitedHealthcare declined to comment on its relationship with MultiPlan, but listed how it planned to pivot its operations to the surprise billing ban. The document notes that it plans to lean on Naviguard, and does not mention MultiPlan. MultiPlan, for its part, has said its relationship with UnitedHealthcare continues to grow and that any assertion otherwise is false.
"I would never count UnitedHealthcare or Optum out of anything," Wolf said.
Some have speculated that the real value MultiPlan provided insurers was to serve as a "legal shield," allowing payers to blame low reimbursement rates on the company's algorithms as a way to avoid penalties from states and courts. MultiPlan has faced more than 200 federal lawsuits since 1988, according to the government's electronic case management system Pacer. There are currently 35 open lawsuits against MultiPlan, some of which have been consolidated. Many complaints come from behavioral health providers and emergency department doctors accusing MultiPlan of recommending reimbursements at below-market rates. UnitedHealthcare has recently unveiled policies attempting to restrict payments to these types of clinicians—one policy change caused MultiPlan's stock price to dive 25% in just a week. If MultiPlan is found liable of these allegations, it could face high legal payouts that add another challenge to its business, Adler said.
"The argument is, 'Look, we use MultiPlan, they tell us what the fair rate is and, therefore, that's sort of like, 'Clearly I paid a fair rate, this independent organization tells me it's a fair rate," Adler said. "But again, right, they don't need that legal shield anymore. Because now it's very clear what they owe for these services."
Still, legislative changes and legal issues don't have to lead to MultiPlan's demise.
Through the No Surprises Act, payers and providers' dispute is moved to baseball-style arbitration after 30 days of negotiation, with an independent arbitrator deciding between an insurer's offer and a clinician's bid, said Erin Duffy, a research scientist at the USC Schaeffer Center for Health Policy & Economics. MultiPlan could monetize its large pool of historical claims data to help arbitrators determine a fair rate.
Payers and providers could also consult MultiPlan when deciding what their initial offer should be, providing a short-term boost to MultiPlan's bottom line. Long-term, however, Duffy expects players across the healthcare industry to agree on rates for most common procedures, with the threat of an arbitrator pushing more providers in-network and an independent decision maker only being used to decide payment for rare procedures.
"I don't think that the services that MultiPlan provides will change very much, but I think their algorithms will probably adjust to this new market benchmark that arbitrators are instructed to consider: the median in-network allowed amount," Duffy said.
