Head-turning Announcement Presents Both Opportunities and Challenges for Smaller ARM and RCM Specialty Firms

Last week, revenue cycle management (RCM) behemoth Conifer Health Solutions announced it was selected by University Medical Center, Inc. (UMC), based in Louisville, Kentucky, to provide the University of Louisville Hospital and the James Graham Brown Cancer Center with an end-to-end revenue cycle solution, including patient access, enrollment and eligibility, clinical documentation improvement, health information management and accounts receivable management (ARM) services. This head-turning announcement presents both opportunities and challenges for smaller ARM and RCM specialty firms. 

The July 13 announcement stated UMC selected Conifer for its “deep expertise as a single-source RCM provider that delivers value to hospital and health system clients through better business outcomes, including optimized revenue cycle operations and improved clinical and financial performance.” Other stand-alone RCM providers deliver many similar services listed in this announcement, and will argue they provide a better service than the larger, more renowned provider. While this may be true, nearly all ARM and RCM firms simply can’t improve clinical performance with the continually rising expense margins derived from advances in an ever-changing competitive healthcare environment. Even if smaller firms provide all of the services that their larger competitor does and perform well within the dynamics of the market, the recovery manager at the hospital will have to explain to some higher-up that he/she hired a smaller firm instead of larger one. The old adage “no one ever got fired for hiring IBM” may apply.

Stephen M. Mooney, president and CEO of Conifer Health, stated in the announcement, “As healthcare providers face significant local market pressures, complexities and regulatory challenges, they need a partner that can help them deliver better outcomes at a lower cost while improving the patient experience and overall access to care.” Let’s break this statement apart to examine it. First, we cannot dispute that hospitals, clinics, physician groups and other healthcare providers are being challenged by swift and dramatic changes to their market. The implementation of the Health Information Technology for Economic and Clinical Health (HITECH) Act, which passed into law less than a decade ago, and the continued uncertainty with regard to the seemingly ever-lasting saga surrounding the Affordable Care Act (ACA), among other things, leaves many members operating within the various segments of the U.S. healthcare market anxious about the future. The HITECH Act effectively incentivized healthcare providers to adopt and implement technologically-advanced electronic health systems and records, which I’m sure we’ve all experienced now with a vast majority of physicians and medical personnel noting everything on a laptop or tablet instead of a notebook or pad. This came with high upfront costs, but should presumably lead to lower operating costs going forward and fewer mistakes and false reimbursement claims. Additionally, the ACA has been the hottest topic in U.S. politics since it was passed into law in 2010, but after seven years of argument, there’s no clear solution forward right now, creating significant uncertainty for health insurers, healthcare providers, and consumers alike.

Second, Mr. Mooney stated that healthcare providers are in need of “lower cost” RCM solutions. While most CFOs fixate on cost, what healthcare providers actually need is a more effective RCM service provider that can handle their needs effectively on a cost-effective basis. This means their net returns, inclusive of costs, exceed current performance levels. That’s where many recovery managers across the spectrum of credit-granting market segments, including commercial banks, credit unions, utilities providers, and governments, among many others, sometimes fall short in their selection process for outsourced solutions. Instead of fixating on cost, they should concentrate on the overall return their outsourced solution delivers. This is a lot easier said than done when recovery managers are pressured by CFOs to reduce vendor costs even if they risk achieving less desirable overall performance.

However, the overwhelming trend among healthcare providers to outsource end-to-end RCM services is still great news for smaller ARM and RCM specialty firms, even if they aren’t landing as many contracts as the likes of Conifer or Optum of UnitedHealth Group. Although a greater proportion of healthcare providers are choosing the larger RCM providers, the overall number of opportunities available are still growing among the thousands of various healthcare providers across the nation as they continue implementing more complex electronic health systems and adjust to the greater regulatory-stringent environment.

This may also benefit the smaller company as it relates to M&A because if this firm has long-term and desirable clients, operates on highly profitable basis, and possesses a strong leadership team, among many other variables, its owner(s) now has a plausible exit strategy should s/he choose to capitalize on the investment opportunity. Not only could smaller business owners sell their operations to the larger behemoths seeking to acquire a better performing competitor, the company may also be desirable as a stand-alone investment for private equity firms seeking to capitalize on favorable market conditions by acquiring, or investing into, a top performer in a growth industry – a trend we’ve continually seen.

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