Many financial buyers are looking for an entry point into the revenue cycle management industry while several strategic buyers are aiming to gain scale in the industry, according to a recent report from BDO Capital Advisors.
Here are six observations on the revenue cycle management industry from the BDO report.
1. The need for RCM providers is growing as payments for healthcare services are becoming increasingly complex, according to BDO. Healthcare providers are not well equipped to manage their revenue cycle internally, and they are increasingly using outsourced RCM providers to increase cash flow and ensure accurate reimbursement.
2. Healthcare RCM M&A activity was driven by strategic acquirers throughout 2014, with leading RCM service providers making strategic acquisitions to gain scale, according to the report.
3. To create end-to-end solutions, some well-established RCM firms are acquiring smaller firms that offer complementary services. BDO used Conifer Health Solutions' 2014 purchase of SPi Healthcare — a provider of RCM health information management and software solutions for independent and provider-owned physician practices —as an example. The report highlighted that the transaction "enhances Conifer's value proposition for physicians in a variety of care settings including integrated delivery networks, while securing Conifer's position as a sole-source provider of RCM to healthcare providers."
4. Private equity firms are becoming increasingly active in the RCM sector, according to BDO. Typical RCM business models "are very attractive to PE firms looking for platform acquisition opportunities," according to BDO.
5. Pricing for M&A transactions in the RCM industry is supported by high buyer demand and attractive growth opportunities, and PE firms competing with strategic buyers are driving prices higher, according to the report.
6. BDO believes EBITDA multiples, which remain in the double digits, and revenue multiples may peak in the next 12 to 18 months, "as incumbent firms buy or build solutions to satisfy their current product offering needs."
More articles on RCM:
Exit Planning: 5 things NOT to do when contemplating the sale of your RCM business
5 thoughts on revenue cycle management
Trends in the RCM environment: Q&A with Greenberg Advisors' CEO