HEALTHCARE REVENUE CYCLE
MANAGEMENT
A TripleTree Industry Analysis
SPOTLIGHT REPORT
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Q4 2006
TABLE OF CONTENTS
INTRODUCTION
3
MACRO ECONOMIC DRIVERS
4
HEALTHCARE REVENUE CYCLE - SECTOR LANDSCAPE
6
Provider Landscape
7
Payer Landscape
10
NEW INDUSTRY DYNAMICS AFFECTING THE HEALTHCARE REVENUE CYCLE
12
Consumer-Driven Health
12
Government Reform & the Growing Retiree Health Benefit Crisis
17
Regulatory Challenges
19
Offshore Services
21
PUBLIC AND M&A VALUATIONS
22
Public Companies
23
Merger & Acquisition Activity
25
27
THE TRIPLETREE TEAM
29
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REVENUE CYCLE MANAGEMENT, PAGE 1
CONCLUSION
Q4 2006
INTRODUCTION
It is well-known that healthcare companies are facing extreme pressures to reduce the cost of healthcare
while also improving the quality of care for patients. These goals are the central focus of a wide array of
technology initiatives throughout the healthcare industry, both in terms of significant advancements in
clinical solutions and continued efforts to streamline administrative costs. This report will focus primarily on the administrative components that encompass the all-inclusive process of creating, submitting, analyzing, and ultimately paying for patient medical bills - a very broad set of administrative services that
are commonly referred to as healthcare revenue cycle management.
A recent study conducted by researchers at Harvard Medical School and Public Citizen estimated that
31% of the $1.3 trillion in U.S. outlays for healthcare in 2003 was devoted to administrative paperwork.
This stunningly high percentage of "friction" and "transaction costs" persists and has given rise to a renewed focus on eliminating waste and reducing costs through the application of technology and outsourced services. However, like any compelling cause in the healthcare industry, these efforts have frequently been challenged by the fractured and contentious nature of the industry itself, as well as
conflicting visions of new models that might be employed to solve the underlying problem. The result is
a vast and disjointed sub-industry of "revenue cycle" vendors that fall across several dozen distinct business niches.
In an effort to understand how various companies are approaching the opportunity, TripleTree has interviewed several dozen private and public companies in the sector to evaluate their strategies and solicit
input with regard to where emerging and established businesses are experiencing the most promising
growth opportunities. What we have discovered is a healthcare revenue cycle industry that contains several hundred companies, employing a wide range of business models and product and service offerings.
In the analysis that follows, we will examine the macro-economic drivers that are creating opportunities
for revenue cycle vendors, illustrate the sector competitive landscape within both the provider and payer
sides of the revenue cycle, and also explore several of the common business models that we see taking
hold within various sub-sectors. We will also highlight many of the "big picture" trends that are creating
ripple effects across the entire industry, including:
• the impact of Consumer-Driven Health (CDH) and how this new model is redefining
the fundamentals of the industry;
• new opportunities created by the government reform of Medicare and Medicaid;
• the promise of cost reduction garnered from off-shore services and technology-enabled
process automation and auto-adjudication; and
• how data collected in the revenue cycle may be used for other purposes, such as care
management and collaboration among industry stakeholders.
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REVENUE CYCLE MANAGEMENT, PAGE 3
• regulatory challenges and added complexities caused by the movement from ICD-9
to ICD-10 coding requirements;
Q4 2006
MACRO ECONOMIC DRIVERS
Before we begin our discussion on the various functions of the healthcare revenue cycle, it is important to understand the specific challenges facing
hospitals
and
physicians
providing
care
("providers"), as well as the insurance companies
and managed care organizations paying for these
services ("payers").
• Uninsured Patients:
It is no secret that healthcare costs have been increasing at an alarming rate over the last number of
years. By several measures, healthcare spending is
rising faster today than at any other point in history. In the provider market, rising costs and shrinking profit margins have created an unsustainable financial position for many healthcare organizations.
It is estimated that approximately one-third of all
U.S. hospitals are now operating on negative margins. 1 A number of factors are contributing to the
financial pressures facing providers in today's environment:
• Regulatory Pressures:
PAGE 4, REVENUE CYCLE MANAGEMENT
• Inefficient Administrative Processes: Redundant data collection, manual processes, and
repetitive rework of claims submissions all contribute to a diminishing bottom line. It has
been estimated that 30% of all physician claims
leave the office with errors; 15% somehow get
lost. These inefficiencies are compounded by
the complexity of the system. Consider that
many patients, especially seniors on Medicare,
have supplementary health coverage with multiple carriers. Many hospitals have reported that
as many as 80% of their claims invoke small
($100-$200) "secondary" claims that frequently
go uncollected or result in delays in reimbursement. The sheer volume of these small secondary claims can create a "death by a thousand
cuts" scenario that can have an enormous
impact on an institution's financial health.
These administrative inefficiencies are causing
providers to explore new ways to conduct their
operations more effectively to enhance their potential for long term financial viability.
1
Financial pressures are
compounded by the increasing number of uninsured patients seeking treatment. In 2002, 43.6
million uninsured Americans received $77 billion in services from emergency departments
and clinics, with waived fees accounting for $35
billion.
Government regulations such as Sarbanes Oxley, the Patriot Act,
and the Health Insurance Portability and
Accountability Act (HIPAA) have far reaching
implications for how healthcare organizations
will operate going forward.
For example,
HIPAA has added a new layer of technology and
training costs for companies struggling to
comply with its complex requirements.
Similarly, health insurers and administrators are
faced with their own set of challenges. Of the 5+
billion health care claims submitted each year in
the U.S., more than 25% are still submitted on
paper and processed manually. Labor intensive activities associated with claims processing and call
center operations have resulted in transaction processing costs as high as $25 per claim. These high
administrative costs can be attributed to a number
of internal and external market pressures:
• Legacy Systems and Business Processes:
Organizations using outdated processes and
legacy technologies are struggling with significant backlogs and an inability to accurately pay
claims in a timely fashion. Payers are facing increasing demand for more flexibility in plan
design and higher levels of service while simultaneously lowering costs.
• Limited Access to Capital: The ever-increasing volume of claims necessitates increasing
network capacity to support processing and additional compliance issues. In addition, the
trend towards more complex and expensive to
administer managed care, as well as high deduct-
American Hospital Association, “The Fragile State of Hospital Finances,” March 2005.
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ible HSA products, is creating considerable
pressure among small and medium-sized health
plans. While larger players in the health plan
industry may have the internal resources to
build and manage systems that keep pace with
these trends, limited access to capital has hindered the ability of smaller organizations to
scale as necessary to ensure efficient operations.
• Shifting Market Dynamics: Consumer-Driven
Health (CDH) represents the most dramatic
shift in the healthcare industry since the rise of
managed care. As CDH initiatives gain acceptance in the market, payer organizations must allocate significant resources to adapt their product
offerings,
internal
procedures,
and
supporting IT systems to meet this new demand.
The significant operational challenges facing
providers and payers have spawned the growth of
private software and outsourcing companies that
focus on improving the healthcare revenue cycle.
Although numerous vendors have offered financial,
administrative, and claims processing systems and
services for over twenty years, the intense scrutiny
on driving efficiencies and improved accountability
in the billing cycle has created a unique inflection
point for emerging growth companies.
REVENUE CYCLE MANAGEMENT, PAGE 5
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HEALTHCARE REVENUE CYCLE - SECTOR LANDSCAPE
The revenue cycle has historically consisted of dozens of disjointed processes within the payer and
provider environments. As illustrated in Figure 1, these tasks are performed across a multitude of software, systems, and paper-based functions. Significant resources are required to not only integrate these
systems, but also enable interoperability with pharmacy benefit managers (PBMs), third-party administrators (TPAs), and other third party technologies.
Figure 1: The Existing Healthcare Revenue Cycle - A Multitude of Intermediaries, Software, Systems & Paper
Provider Functions / Tasks
Payer Functions / Tasks
Payer Functions / Tasks
Provider Functions / Tasks
grat
ion
3rdP
arty
I
ion
Claims Edit
Coordinaton
of Benefits
Business
Business
Intelligence Fraud
Intelligence
Detection &
Solutions Management
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gra
t
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gra
Connectivity
Connectivity
ion
Financial Transaction
Processing System
Analytics
3rd
Par
ty I
nte
ty I
dPar
3r
Utilization
Review
Other
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Peripheral
Peripheral
Systems
Systems
ion
grat
Physician
Physician
Existing
Existing
Payer
Payer
Practice
Practice
Healthcare
Adjudication
Adjudication
Healthcare
Management
Management
System
System Revenue
Revenue Cycle
Cycle System
System
Accounting
Systems
OCR / Docu- Accounting
Systems
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Contracting &
Management
Decision
Decision
Support
Support
Systems
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n te
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Connectivity
Connectivity
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Electronic
Electronic
Medical
Medical
Records
Records
OCR / Document Mngt.
d ar
3r P
Coding Tools &
Scheduling
Scheduling
Services
Systems
Systems
Chargemaster
n te
Eligibility &
Authorizations
Claims Edit
Technology
Technology
Technology
Technology
EOB
Other
Other
Peripheral
Peripheral
Systems Referential
Content &
Systems
Tools
Medical Bill
Review
Technology vendors and outsourced service providers are utilitizing a variety of competing business models and value propositions to penetrate the payer and provider markets.
PAGE 6, REVENUE CYCLE MANAGEMENT
Source: TripleTree
While the landscape on both the provider and payer sides of the aisle has historically been highly fragmented, we are entering a heightened period of consolidation. We believe this consolidation will be
driven by both the financial markets, premised on continued interest in the private equity and public
markets in outsourcing and transaction processing businesses, as well as a fundamental demand in both
the provider and payer markets for a few leading players to coalesce a comprehensive service or product
offering that addresses the challenges that customers face as they struggle with the complex process of
paying for healthcare.
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PROVIDER LANDSCAPE
Although the numerous data and workflow elements that tie into the revenue cycle on the
provider side of the ledger are interrelated, today
these functional areas are frequently managed in
isolation. This reality is manifested in the out-
sourcing and software vendor community where
well over 200 independent companies focus on one
or more elements of the provider revenue cycle.
The large number of vendors serving the provider
market is compounded by the complex diversity of
business models that have emerged, even further
fractionalizing the landscape.
Figure 2: Provider Landscape - Business Models and Functional Niches
Representative
Business Models
Application
Software/SaaS
-End
PreFront
Pre-Encounter
-Encounter
Patient
/ DoctorEncounter
Encounter
Patient/Doctor
Patient/Doctor
Encounter
Coding, Regulatory
Compliance, Utilization
Management
Access Management, Scheduling, Eligibility
Management, Benefit Authorization, Medical
Necessity, ADT Systems, etc.
Back
-End
Back
Back-Office
-Office
Practice Management Systems, Denial Management,
Charge Master, Contract Management, EDI, Claims
Editing, etc.
Content /
Analytics
Business Process
Outsourcing
(BPO)
Reimbursement Management
and Claims Analysis
Outsourced Coding, Medical Record Abstracting,
Eligibility Management, Referral Authorization, Specialized Services ((e.g. Length
- -of-Stay Management,
and Benefit Authorization Processing
Concurrent Denial Management, Medicare
Compliance, etc.)
Blended IT
Outsourcing &
BPO
Offshore
Accounts Receivable Management, Bad Debt
Management, EDI, Clearing- Houses
Data Center Management, Application Management, Records & Document Management,
Transcription & Coding, and Billing/Accounts Receivable Management
N/A
Transcription, Coding, and Radiology
Billing and Accounts Receivable Management
Source: TripleTree
Other factors that contribute heavily to the level of market fragmentation include customer focus (i.e., small
physicians' offices, large physician group practices, hospitals, other ambulatory care centers, etc.) and specialization within certain payer environments (i.e., traditional managed care, Medicare, Medicaid).
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swers lie within the interrelation of the functional
areas themselves, as well as within a more fundamental transition that TripleTree frequently refers
to as the "convergence of technology and services."
HORIZONTAL INTEGRATION
We think the first, and on its surface, the most logical
force of consolidation will center on the horizontal
integration of functionality across the revenue cycle
workflow. Common sense dictates that an increased
level of integration across these functional areas will
enhance efficiencies and reduce the number of errors
that plague many provider organizations.
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REVENUE CYCLE MANAGEMENT, PAGE 7
In our efforts to pull together this report, we have
verified that most of the business categories identified in Figure 2 are filled with anywhere from 10 to
upwards of 30-40 independent companies. More
importantly, as we enter the fourth quarter of 2006,
we have found that the market has now matured to
the point where within this large universe of competitors there are a few leaders that are building
sufficient scale and reputation to become meaningful platforms for consolidation. The interesting
questions are as this consolidation picks up speed,
what pattern will it take, and what business model
attributes will characterize the leading businesses
in this sector 2-3 years from now. We think the an-
Q4 2006
Figure 3: Horizontal Integration
Pre -Encounter
PreEncounter Admin.
ì“Access
Access Mana
Management
gement ” ”
Back -Office
Back-Office
Administration
Patient -Doctor
Encounter
Concurrent
Concurrent
Denial
Denial
Mgmt.
Mgmt.
/ /
Length
Stay
Mgmt.
Length
of of
Stay
Mgmt.
Eligibility
Eligibility
Medical
Necessity
Referral
Authorization
Auth.
Patient
PatientSelf
Self
Registry
Registry
Utilization
Mgmt.
Benefit
Benefit
Authorization
Auth.
Patient
Patient
Portals&&
Portals
Self
-Service
Self
-Service
Kiosks
Kiosks
Regulatory
Government
Government/Regulatory
Compliance
Compliance
Compliance
Coding
Practice
Mgmt.
System
Charge
Master
Bad Debt
Mgmt.
A/R Mgmt.
EDI
Denial
Mgmt.
Contract
Mgmt.
Billing
Claims
Editing
PAGE 8, REVENUE CYCLE MANAGEMENT
Source: TripleTree
Although the notion of horizontally integrating
revenue cycle functionality makes sense, the reality
is that today only a small handful of companies participate in more than one silo, and to the extent
they do, the breadth of their offerings is generally
limited to the "pre-encounter," "patient encounter," or "back-office/post-encounter" grouping
of activities. There is tremendous value, however,
in capturing and processing accurate revenue cycle
data at the instant a potential patient contacts the
provider and then managing and integrating the
billing-related data elements for that patient from
the point of scheduling, through the doctor-patient
encounter, and through the billing and remittance
process. While this drives tremendous ROI within
the revenue cycle itself, properly managing patient
insurance information at the very front-end of the
process also serves as a "gate-keeper" for staff and
asset utilization within provider organizations. By
managing "revenue cycle" information on an integrated basis as each patient moves through the
healthcare delivery process, rather than as a postencounter administrative function, providers enjoy
numerous benefits that extend beyond enhancing
reimbursement rates and impact the efficiency of
the operation more broadly.
THE CONVERGENCE OF SaaS & BUSINESS
PROCESS OUTSOURCING
In addition to horizontal expansion, we are also in
a period where the lines of demarcation between
software/technology companies and services/outMINNEAPOLIS 952.253.5300
sourcing companies are continuing to be blurred.
In fact, essentially all of the business process outsourcing (BPO) firms focused in the healthcare
sector are heavily dependent upon either their
own, or third-party, technology and tools as the
primary means of driving efficiencies and maintaining margins. Although these "technology enabled
BPO" companies dominate most of the sectors outlined in Figures 2 & 3, we think it’s entirely possible that many stand-alone SaaS companies may ultimately be consolidated by much larger
outsourcing companies.
Although we have yet to see a large number of BPO
companies acquire SaaS vendors, we would note
that we are experiencing an increased frequency of
inquiries from very large outsourcing firms that
today do not have a significant footprint in the
healthcare sector. In evaluating opportunities to
aggressively enter the sector, they believe that
providers are in the early stages of reevaluating the
way they will manage administrative departments,
and that over time many will outsource significant
work to large BPO companies. This brand of outsourcing will go beyond utilizing a BPO company
for an isolated issue, such as processing Medicaid
eligibility, and will be dominated by larger players
who can be more holistic in their approach. In addition, the applications that will be utilized to
manage the processes will be designed so that there
will be a built-in flexibility to share functionality
and "management dashboard” and/or reporting
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capabilities with customers at varying levels of depth
and granularity depending upon the attitude of each
respective client. Premised upon this view of the
market, large outsourcers looking to enter the fray
see SaaS companies as strategically interesting both
for their installed bases as well as instant enablers of
shared functionality and web services that will characterize the new paradigm.
Another important wrinkle to factor into the evolving nature of business models in this sector is the
degree of complexity of each transaction relative to
normal financial transactions - such as credit card
processing. Where most financial transactions are
"discrete" and "instantaneous", healthcare "transactions" can take place over long periods of time and
can involve the application of rules and regulations
of numerous stakeholders. Our point here is easier to
ascertain if one views a healthcare transaction from
the patient's point of view - which would include
everything that happens from scheduling all the way
through the healthcare delivery process - not just the
final adjudication of a claim. The implication of this
heightened level of complexity is that although there
is a continued and steady march towards automation,
it is unlikely that technology will ever fully automate
highly complex healthcare transactions from the
point of scheduling all the way through the encounter, billing and collections process. In fact, even
the most progressive revenue cycle software companies that we interviewed for this report were perfectly comfortable admitting that they see a growing
need and role for outsourcers who can effectively utilize technology and specialized applications to deliver value to provider customers.
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The central point is that as a patient moves through
the healthcare delivery process, the revenue cycle elements of that experience vary widely in complexity
at various points in the process and based upon the
payer relationships implicated. As a result, we firmly
believe that large BPO companies will emerge in this
sector that can manage the entire "transaction," not
just specialized sub-components of the overall
process. More importantly, we also believe these
BPO companies will utilize SaaS applications that
can be shared so that customers can customize which
components they want to retain control of or manage
on a shared basis with their BPO business partners.
In our view, the consolidation and evolving business
model dynamics described above are occurring at a
time when most of the sizable incumbents in HIT are
largely focused on the burgeoning opportunity to
assist providers in enhancing their clinical capabilities and building out regional health information organizations (RHIOs) - a process frequently referred
to as "clinical transformation." Clinical transformation and RHIOs are a hot topic today, and a source of
considerable growth, so it is understandable that the
traditional HIT companies are very focused in these
areas. However, their concentration on the clinical
information sharing side of the equation has created
running room for emerging firms to build scale and
pursue acquisitions that extend reach into adjacent
and complementary revenue cycle functions.
Although the HIT market, especially within the hospital sector, has been characterized for quite some
time as dominated by a handful of large incumbents,
we believe the competitive running room in the revenue cycle niche will create substantial companies
that will have real staying power in the sector.
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REVENUE CYCLE MANAGEMENT, PAGE 9
For example, certain sub-components of a healthcare transaction are likely to be elevated out of the
core software system for purposes of "exception management," where skilled human beings need to apply
reasoning and judgment to a particular set of facts.
Examples of this are common in the context of
Medicare, where complex rules regarding "medical
necessity" require skilled people to participate in
"care management" functions that touch upon key elements in the revenue cycle, including concurrent
denial review, "length of stay" decisions, and applica-
tion of rules that drive decisions regarding in-patient
versus out-patient care regimens. Many of the judgment calls in these areas can require collaboration
with hospital staff. Consider, for example, that some
hospitals lose upwards of 5% of revenue due to clinical denials, much of which is driven by poor and untimely information sharing with payers.
Q4 2006
PAYER LANDSCAPE
Similar to the provider market, a number of emerging growth companies are finding significant
demand for payer-focused revenue cycle solutions.
The payer market has historically been dominated
by a limited number of leading technology vendors
and outsourcing service providers offering claims
processing services to health plans and third party
administrators. For example, technology vendors
such as TriZetto and Amisys Synertech have well-established enterprise applications that allow payer
organizations to automate their claims adjudication
function. Similarly, large IT outsourcing companies such as ACS, EDS, Perot Systems, and DST
have developed strong claims processing capabilities and long term customer relationships in both
the commercial and government markets.
Although the above referenced large vendors and
outsourcing firms dominate the claims processing
sector, we believe there are attractive opportunities
for emerging firms arising from the gradual merging
of services and functions across the payer workflow.
Specifically, functions such as claims editing, COB,
fraud detection, and subrogation, which traditionally have been identified as either "pre-adjudication" and "post-adjudication" activities, are becoming embedded into the core processing function so
that the lines of demarcation among the various
steps in the workflow are becoming less pronounced.
In addition, the movement towards
hosted transaction processing systems is creating
opportunities as new players in this sector are not
burdened by legacy costs. Figure 4 outlines some of
the pre-and post-adjudication activities that are
the focal points for large numbers of private companies.
Slow Migration Toward Information
Infrastructure & Web Services Enabled
Data Management
Consistent with the notion of consolidating functionality across the claims processing workflow is a
broader class of opportunity that centers on creating an electronic communications infrastructure
that will enable the sharing of information across
disparate systems, databases, and stakeholders - including the creation of common informational
databases such as master patient indexes. Current
examples of companies that are participating in
this evolution include RxHub, Quovadx, and
MEDecision.
Although the various approaches
taken by these emerging companies differ significantly, there is a common interest in integrating
disparate data (i.e. provider, patient, prescription,
claims, etc.) and through the deployment of centralized databases or web services, proliferate this
information to participating stakeholders.
The outputs of this evolution will create benefits
on two fronts. First, as the underlying informational infrastructure is enhanced by the deployment of
web services and common informational databases,
it will become feasible to exchange increasing volumes of data in real-time. On its surface this
sounds obvious, but today the notion of verifying
provider and payer information, and marrying this
data in real time with medical necessity checks,
PAGE 10, REVENUE CYCLE MANAGEMENT
Figure 4: Melding of Functions Across Claims Processing Workflow
Provider BackOffice Function
Pre -Adjudication
Pre-Adjudication
Mail
Mail
Room,
Room,
Data
Repricing,
Entry, Claims
ClaimsEdit
Edit
Post
Adjudication
Post --Adjudication
Fulfillment, Post Payment
Fulfillment, Post Payment Review,
Review, COB, Subrogation,
Data Mining & Analytics
Data Mining & Analytics
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Historically, the adjucication function
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adjudication functions.
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Source: TripleTree
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coordination of benefits, coding edits, subrogation,
fraud detection, etc., is an impossible task for most
organizations. As the market continues to evolve,
we expect a continued emphasis on building out an
efficient and shared informational infrastructure
will be the hallmark of many of the more interesting companies that emerge over the next 12-24
months.
hanced data sharing and coordinated care management among various stakeholders. Although these
market forces are sufficient to create large opportunities for emerging companies, we already see further propulsion of these initiatives being driven by
the evolution towards consumer-driven health
plans and the continued increase in the percent of
claims that are implicating various government
sponsored programs such as Medicare and Medicaid.
Second, the migration towards web services will
enable numerous activities among industry stakeholders that have been hamstrung by the inability
to coordinate data across multiple payer and
provider activities. For example, a comprehensive
view of patient data enables a string of integrated
care management activities such as stratification of
clinical and financial risk, disease management, patient and provider analytics, and informational exchanges among patients, providers, PBMs, employers, government agencies, and commercial payers.
As the market continues to evolve we believe numerous companies will emerge as data aggregators
and integration sources that will push content and
information through to various stakeholder portals
where it can be captured and utilized for disparate
purposes. For example, prescription drug information can be aggregated and disseminated to pharmacies, doctors, disease management services firms,
and other stakeholders, all of whom have a different requirement for the information. We believe a
handful of leaders will emerge as information backbones that will enable a federated approach to data
sharing in line with numerous fundamental shifts
in the market relating to evolving models for population health management.
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REVENUE CYCLE MANAGEMENT, PAGE 11
We believe the payer market will continue to
evolve along two primary paths. Companies currently focused on the specific "functional" areas
such as subrogation, coordination of benefits, and
editing will continue to be consolidated within the
central transaction processing function as core processing engines are modernized and migrate towards hosted and web native technologies. In parallel, we will see interesting "data enablement"
companies flourish as their business models mature
in line with an enormous market place need for enSAN DIEGO 858.792.3406
Q4 2006
NEW INDUSTRY DYNAMICS AFFECTING THE HEALTHCARE REVENUE CYCLE
As the industry looks to improve on the inefficiencies of the healthcare revenue cycle, new industry
dynamics are presenting additional challenges to an already complex process. As noted in the previous
section, Consumer-Driven Health ("CDH") has emerged as a new approach to the traditional managed
care system, shifting payment flows and introducing new "non-traditional" parties into the claims processing workflow. As market adoption enters the mainstream, CDH stands to alter the healthcare landscape more dramatically than anything we have seen since the advent of managed care.
CONSUMER-DRIVEN HEALTH
At its core, CDH places more financial responsibility on the consumer to encourage value-driven
healthcare spending decisions. Tax-advantaged spending accounts such as Health Reimbursement
Accounts (HRAs) and Health Savings Accounts (HSAs) are used to place consumers at the center of the
decision-making process. In theory, this approach creates incentives for consumers to seek cost-effective
care and encourages behavior changes that contribute to better outcomes and additional long-term cost
savings. CDH programs have experienced rapid growth over the last few years as employers and consumers continue to recognize the benefits of this new, patient-centric model.
Figure 5: Shifting CDH Market Dynamics from Traditional to Non-Traditional
The healthcare industry is experiencing a shift from the
traditional managed care model...
Employers
Employers
...to a consumer-centric
model in which individuals have more control
and responsibility over their healthcare spending.
Government
Government
Employers
Employers
Insurers
Insurers
Managed Care
Hospitals
Hospitals
Outpatient
Outpatient
Services
Services
Insurers
Insurers
Consumers
Consumers
Government
Government
Financial
Financial
Institutions
Institutions
Physicians
Physicians
Hospitals
Hospitals
Consumers
Consumers
Outpatient
Outpatient
Services
Services
Physicians
Physicians
Source: TripleTree
PAGE 12, REVENUE CYCLE MANAGEMENT
EVOLVING PAYMENT FLOWS UNDER THE
CDH MODEL
As CDH programs gain momentum, new payment
mechanisms are shifting the roles and responsibilities of various participants throughout the healthcare revenue cycle. Figure 6 illustrates the evolving
payment flows associated with this new consumerdriven model. For purposes of comparison, we have
identified four distinct payments under both traditional plans and consumer driven accounts:
(1) "Traditional" Payments - Under the traditional processing function, a claim is submitted
by the provider to the appropriate health
MINNEAPOLIS 952.253.5300
plan (directly or through a clearinghouse)
for processing. The claim is adjudicated and
re-priced within the carrier's claim system
with payment remitted back to the provider.
(2) A d j u d i c a t e d C D H P a y m e n t s - Under the
CDH model, claims are first adjudicated
against the patient's high-deductible plan.
Once a benefit has been identified, a secondary adjudication occurs against the
CDH-specific rules that determine the patient's liability. This secondary adjudication will identify the appropriate account
for payment and send a payment instruction to either the financial institution (for
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HSA accounts) or the carrier’s payment
system (for HRA/FSA accounts).
As illustrated in Figure 6, these evolving payment
flows are introducing new, "non-traditional" competitors to the healthcare value chain. Increasing
demand for CDH products has, for the first time,
led health plans and financial institutions to be
partners or competitors for an array of new business
opportunities. In addition, PBMs, payment processors, and others are positioning themselves in various segments of the CDH revenue cycle.
(3) C o n s u m e r D e b i t C a r d P a y m e n t s - D e b i t
cards are attracting a great deal of interest in
today's market as a convenient method for
timely payments. In this transaction, the patient presents their card either at the point
of service or upon receipt of their EOB, and
payment is transferred directly to the
provider from the consumer's account.
The potential impact of this model on the economics of healthcare is tremendous. As healthcare payments are redirected through CDH accounts, billions of dollars are at stake across a broader
competitive landscape. New revenue opportunities
include CDH account management, asset management, benefit administration services, and payment/transaction processing. Industry executives
are exploring options to capture this new revenue,
solidify customer relationships, and create barriers
to entry in this developing new market.
(4) Direct Account Payments - Direct account
payments are an alternative to debit cards,
where funds are approved and transferred between accounts through an online portal.
This approach would be analogous to a
"Paypal"-type model.
Figure 6: CDH Payment Workflow
Core Administration
Systems Vendor
Health
Health Plans
Plans
(1)
Healthcare
Healthcare
Providers
Providers
Claims
System
(2)
Enrollment
System
HRIS / Payroll
Software
TPA’ s
Outsourced Administration
Payment System
Employers
Employers
(4)
Rx Administration
CDH Administration
Platform
HSA
(4)
Outsourced Benefits
Administration
Re
bat
es
Pharma
Transaction
Processors
Financial
Institutions
HSA Trustees
Under the new CDH model, payment flows are
redirected to incorporate financial institutions and direct
consumer payments. Payment flows now include:
(1) Traditional Payment Flow
(2) Adjudicated CDH Claim Payment
(3) Consumer Debit Card Payment
(4) Direct Account Payments
Source: TripleTree
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REVENUE CYCLE MANAGEMENT, PAGE 13
(3)
HRA
Pharmacy Benefit
Mgrs (PBM)
(2)
(2)
Patient
Patient
FSA
(4)
Q4 2006
IMPLICATIONS FOR THE PAYER MARKET
From an insurer's perspective, CDH minimally represents a challenge to preserve existing membership by offering flexible CDH products to meet employer demand. Enabling these products, however,
requires domain expertise, new software technologies, and significant changes in the business
processes of health plans. For example, legacy
claims systems often lack the flexibility to address
the added complexity of CDH accounts. As a
result, a number of plans are administering CDH
programs manually at a significant operational loss
in the marketplace. Rapid industry growth is compounding the problem as insurers scramble to retrofit their legacy processing systems.
Another challenge for the payer market is the increasing competition for claims processing revenue.
As noted above, the CDH model introduces for the
first time certain "non-traditional" entities into the
healthcare revenue cycle. Financial institutions
and transaction processors are looking at CDH as a
tremendous opportunity to capture new revenue
streams by extending their processing networks
into the healthcare industry.
PAGE 14, REVENUE CYCLE MANAGEMENT
We should note, however, that financial transaction processing networks are not directly transferable to the healthcare industry. Banks and other
transaction processors have not historically had to
incorporate healthcare concepts such as eligibility
and benefit rules. Financial transactions generally
involve much simpler debit instructions that maintain the balance of an account over time.
Healthcare transactions, on the other hand, involve more complicated payment instructions that
must be reconciled with the member's plan-designed rule sets. Accurate payment processing requires the ability to apply eligibility rules to "look
back in time" and determine a member's status at
the time of service. Additional rules must be applied to determine the appropriate order of payments for members with more than one account.
As a result, new market entrants looking to provide
comprehensive CDH administration must extend
their traditional transaction processing expertise to
incorporate these new functions.
Certain outsourced service providers have already
positioned themselves to offer these services to the
payer and employer markets. Earlier this year,
TripleTree represented CareGain, Inc. - a leading
technology platform for the administration of CDH
programs - in its strategic sale to Fiserv Health.
CareGain had developed a comprehensive solution
to "bridge the gap" between health insurance and
financial services by allowing health plans to combine claims and enrollment systems with financial
account management. In coordination with Fiserv
Health's growing TPA business, the combined
entity is equipped to provide innovative plan designs, integrated decision support tools, and full administrative capabilities across its customer base.
CDH Changes the Way Payers View
Member Acquisition & Member
Retention
As healthcare consumerism gains traction, payer
organizations are also faced with a fundamental
Financial Transaction
TransactionProcessing
Processing
Healthcare
Healthcare Transaction
TransactionProcessing
Processing
• Financial transactions generally involve simple debit
instructions that apply deductions and maintain balance
through time.
• Involve simple rules such as “transfers”, “terminations”,
“terminations”,
etc.
• No historical balance processing capabilities; unable to
look to previous eligibility status at earlier date to insure
processing according to rules .
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• Healthcare transactions require the integration of
plan designed benefit rules, eligibility, and order of
payment rules for multiple accounts.
• Failure to incorporate plan based rules results in
inaccurate payments that must be reconciled with
payer repricing.
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shift in customer expectations and their ultimate
value proposition to the market.
Historically,
health plans have operated under a "transactioncentric" model, driven by individual claims and
supported by a centralized processing function.
CDH is creating a new "consumer-centric" environment, under which payer organizations must reevaluate their approach towards member acquisition
and member retention. As consumers become more
involved in selecting their health insurance and
more active in evaluating providers, health plans
are being forced to rethink their member acquisition and retention strategies.
Connextions, a $70M healthcare outsourcing company located in Florida, is a unique example of an
emerging leader in helping payer organizations
evolve with the migration to CDH and government
sponsored health plans. The company has succeeded in large part due to the sophistication of its
Integrated Care Coordination System (ICCS),
which it uses to aggregate, analyze, and disseminate
member/patient data across the full array of administrative and clinical functions that constitute the
healthcare consumer lifecycle.
Although Connextions is not a healthcare revenue
cycle company per-se, its reference is appropriate as
evidence of how CDH is a driving force in changing the way revenue cycle data is being used in the
market.
Specifically, Connextions aggregates
claims and related predictive risk modeling and
wellness data from payers and analyzes it to enable
various member acquisition, member administrative, and clinical care services. The distinguishing
difference emanates from Connextions' ability to
create a common view of the data across all of
these disparate functions. Equally as important is
the payer's reorientation to the data such that back
end
clinical
services
are
envisioned
as
customer/member retention tools for individual patients who increasingly will factor their experience
with these back end services into their future decisions regarding health coverage. Although wellness services and care management will always be
focused on utilization and cost reduction, we believe these services will increasingly be tied to
"member satisfaction" and "member retention" as
individuals with the power to choose their health
insurance become an increasingly important part of
the equation.
Figure 7: Connextions Integrated Care Coordination System
Member Acquisition
Application
Processing
Orientation
PWelcome Calls
POutreach /
Engagement
PAnnouncement
Campaign
PSystems
Navigation
Member
Intelligence & Services
PSatisfaction
Surveys
PDisenrollment
Surveys
PAnalytics
PHEDIS
Gathering
PEligibility
PProvider
Selection
PClaim Status
PBenefit
Questions
Predictive
Modeling
?PClaim / Pharma
Data
Aggregation
? Health Risk
P
Assessments
? Risk Scores
P
? Clinical Profiles
P
Health
Improvement
Care
Coordination & Management
?PPersonalized
Lifestyle Training
PEvidence--based
Disease
Management
?PAutomated
Prevention Alerts
P Personal Care
Nurses
?PEPSDT Follow-up
PIndividualized
Care Plans
?PTriage / Demand
Management
POutcome
Reporting
FieldCase
Case
P?Field
Managers
Managers
Psycho/ /Social
Social
P?Psycho
Support
Support
Utilization
P?Utilization
Management
Management
Intensive
P?Intensive
Counseling
Counseling
- End-to-end Integration of data, content and operational services Connextions’ ICCS technology and data analytical services solve one of the biggest challenges for
healthcare organizations today - the integration of patient/member data and management services
across the entire healthcare consumer life cycle.
Source: Connextions
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REVENUE CYCLE MANAGEMENT, PAGE 15
d Direct
PLicensed Agents
es
?
PeSignature
/
? eSignature
App.’s
PeUnderwriting
?
les Reps
PBrokers /
? Product
Agents
App.’sUpsell
all
eetings PProduct Upsell
Clinical Care
Member Services & Analytics
Q4 2006
IMPLICATIONS OF CDH FOR THE
PROVIDER MARKET
As high deductible plans gain acceptance among
healthcare consumers, consumer-driven health is
forcing hospital executives to view their organizations as a more traditional retail business. Price,
quality, and customer service become more important factors for success as consumers take charge of
their health spending decisions.
PAGE 16, REVENUE CYCLE MANAGEMENT
One way providers are preparing for this new reality is by improving their front end access management function. As the first point of contact with
potential customers, improved service levels at the
front end will be an important differentiator in the
consumer driven world. Technology vendors are
meeting this demand with patient self-service applications that allow consumers to schedule appointments, complete registration information, and
pay bills conveniently through the internet.
In addition, providers are recognizing the value of
collecting and processing revenue cycle data before
services are rendered, preferably at the time of
scheduling. By verifying active insurance coverage,
medical necessity, and authorizations/referrals at
the point of scheduling, providers can accelerate
cash flow and significantly enhance the quality of
the experience for a patient who is accessing the
health system. In the new CDH paradigm, the
quality of the initial interaction between the patient/consumer and the provider organization is a
component of acquiring and retaining the patient
as a repeat customer. By streamlining and bundling
the financial administrative elements of the patient
visit that are frequently a source of delay and frustration into the provider’s customer relationship
management strategy, hospitals and clinics create
an opportunity to reduce administrative costs while
also enhancing their ongoing revenue opportunities
with patients.
For example, SCI Solutions has developed a leading
access management platform in the provider
market, offering streamlined pre-encounter administrative functions which fully integrate all of the
required revenue cycle administrative functions.
MINNEAPOLIS 952.253.5300
By integrating patient scheduling and revenue
cycle administrative processes, SCI Solutions enhances the "front door" experience provided by hospitals and physician clinics, improving service
levels and customer satisfaction during the patients' first interactions with the health system. In
addition, the platform's integrated revenue cycle
functions drive tremendous ROI by minimizing
errors in patient billing and maximizing reimbursements. Similar to our discussion of Connextions
above, the movement towards CDH is causing
providers to take revenue cycle information/functions and integrate them into their customer relationship management philosophy.
Another significant challenge for providers in the
CDH environment is controlling bad debt. As financial responsibility shifts to the consumer under
high deductible plans, providers are seeing an increase in denials as claims below the deductible are
returned as "zero payments." Providers must therefore redesign their information systems and collection procedures to accommodate these self-pay accounts.
Certain payers are trying to alleviate this risk for
providers by offering automatic payment programs
for more efficient collections. UnitedHealth Group,
for example, introduced a program in which the insurer will pay the provider directly for services as
soon as a claim is processed. UnitedHealth will
then act as a creditor to the member, collecting
payments (plus interest) through payroll deductions in coordination with the member's employer.
Similarly, Empire Blue Cross Blue Shield has partnered with American Express to offer a healthcare
line of credit to Empire members with HSA accounts. When patients swipe their card at the
doctor's office, Empire processes the claim and pays
the insured portion while the remainder is billed to
the patient's credit card. These types of programs
allow providers to shift collection risks to payers in
exchange for discounted services.
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GOVERNMENT REFORM & THE GROWING
HEALTH BENEFIT CRISIS
entry for smaller firms looking to compete for these
accounts.
Like the commercial market, government healthcare programs such as Medicare and Medicaid have
been under growing pressure to lower costs and improve the efficiency of their operations. Aging
baby boomers are expected to place unprecedented
burdens on these programs over the next several
years, with fewer workers per beneficiary to support
them. The challenge of funding our government
healthcare budget has prompted significant legislative initiatives that are altering the competitive
landscape for technology vendors and outsourcing
companies serving these markets.
Medicare Overview
Medicare
Overview
Managedby
Managed
byFederally
Federally
Sponsored
SponsoredIntermediaries
Intermediaries
Managedby
Managed
byCommercial
Commercial
Health
HealthPlans
Plans
Part A:
Part C:
• Hospital insurance program to pay for
inpatient, nursing facility, and hospice care.
• 45% of Medicare spending in 2005
• Medicare Advantage plans such as HMOs,
PPOs, and Private Fee-for-service.
• 15% of spending in 2005
Part B:
Part D:
• Supplementary insurance for physician,
outpatient, and preventative services.
• 35% of Medicare spending in 2005
• Prescription drug benefit program
• Introduced January 2006
Despite the relatively static nature of this competitive environment, recent legislative initiatives
have presented new opportunities in the government sector.
In particular, the Medicare
Prescription Drug and Modernization Act (MMA)
of 2003 created a number of new incentives for
commercial insurance companies to participate in
privatized Medicare.
Over the last several decades, a number of well-established service providers have built strong businesses by serving the government sector. Large
outsourcing companies such as CSC, ACS, Unisys,
and EDS have developed strong track records for
managing the many complex rules and evolving
regulations associated with Medicare and Medicaid
programs. These outsourcing arrangements generally involve long-term contracts between the service provider and intermediary to manage the entire
claims processing function - including the supporting IT infrastructure. Due to the complexity of
Medicare/Medicaid processing, state and federal
programs have been reluctant to disrupt these longterm relationships. As a result, these providers
have been able to create significant barriers to
The basic premise of privatized Medicare is to
leverage the private sector's ability to provide care
at a lower cost, while also providing beneficiaries a
broader set of services than what is available under
traditional Medicare. These plans were originally
termed "Medicare + Choice", and renamed
Medicare Advantage by the MMA in 2003. After a
period of declining enrollment between 1998 and
2003, the MMA created more attractive reimbursements and other incentives to encourage private
plan participation in the program.
Figure 8: Shifting Medicare Benefit Payments Resulting from Part D (2004-2010)
Medicare Benefit Payments FY 2010 (Projected) = $519 Billion
Medicare Benefit Payments FY2004 = $295 Billion
Home Health, 4%
Health Plans (Part C),
14%
Physicians and Other
Suppliers, 18%
Hospital Outpatient,
5%
Home Health, 4%
Skilled Nursing
Facilities, 5%
Hospital Outpatient,
5%
Health Plans (Part C),
14%
Other Part B
Benefits, 5%
Hospital Inpatient,
39%
Other Part B
Benefits, 4%
Hospice, 2%
Skilled Nursing
Facilities, 4%
Part A
Part B
Parts A & B
Hospital Inpatient,
29%
Part D
Part B
Source: Congressional Budget Office, Medicare Fact Sheet, March 2005; The Henry J. Kaiser Family Foundation, Medicare Chartbook, Third Edition, Summer 2005.
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REVENUE CYCLE MANAGEMENT, PAGE 17
Hospice, 2%
Prescription Drugs,
20%
Physicians and Other
Suppliers, 26%
Q4 2006
Figure 9: Share of Medicare Beneficiaries
Enrolled in Medicare Advantage Plans
35%
HHS
HHS
30%
25%
Similar to our observations in the commercial
market, these firms are employing varied go-tomarket strategies in serving the government sector.
While some service providers might focus on a particular niche, others are taking a more holistic
BPO approach for all Medicare-specific administrative services. These services include enrollment,
premium billing, eligibility, call services, and a
wide range of data interfaces across a customized
technology platform.
Figure 10: Medicare Advantage Plans
400
350
300
250
200
150
100
20%
50
CBO
CBO
0
15%
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
10%
PAGE 18, REVENUE CYCLE MANAGEMENT
5%
60
.4%
In addressing this rapid growth, commercial payers
are faced with additional capital expenditures and
other hurdles for effectively operating these government programs. The plans are highly regulated,
making compliance and administration particularly
complicated. Eligibility, billing, and reporting requirements are all significantly more complex than
traditional plans, resulting in higher administrative
costs.
As a result, we have seen a handful of private companies emerge to provide the technology and outsourced administrative support for managed care
organizations interested in participating in privatized Medicare and Medicaid. Experienced service
providers can apply government expertise and
economies of scale needed to simplify the many
complexities of these programs in a cost-effective
manner.
Number of Plans
As commercial payers begin to target these new
revenue opportunities, Medicare Advantage is expected to experience significant growth over the
next 5-10 years. There are currently more than
five million seniors participating in Medicare
Advantage, representing approximately 12% of
total Medicare beneficiaries. These figures are expected to increase substantially over the next few
years, with 2013 projections ranging from 16% to
30% of the total Medicare membership base.
Payers are already preparing for this projected
growth, as demonstrated by the 60%+ growth in
total plans offered during 2005.
Actual
Source: Kaiser Family Foundation, Medicare Advantage Fact Sheet, September
2005; CMS, Medicare Managed Care Contract (MMCC) Plans Monthly
Summary Report.
Projected
0%
1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013
’ Medicare Advantage Fact Sheet, September
Source: Kaiser Family Foundation,
2005; CMS, President’s FY 2006 Budget; CBO, March 2006.
In addition, Part D has introduced an entirely new
set of complex rules that must be applied to this
new benefit. Payers have needed to incorporate
these various capabilities quickly to gain early footing in the market.
MINNEAPOLIS 952.253.5300
In addition to the growth in the core Medicare
Advantage PPO sector, we believe that Medicare
private fee for service (PFFS) will also experience
tremendous growth due to mounting pressure faced
by many large employers, unions, and state government agencies that have self-insured retiree health
benefit plans. It is estimated that approximately
13-15 million senior citizens receive supplemental
insurance coverage through employer sponsored retiree health plans. It is also widely known that
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these retiree health programs are massively underfunded, and that nearly all, if not all, states will be
unable to pay for the health benefits that have
been promised to the approximately 5-6 million retired public employees - with some analysts estimating that the future benefit outlays exceed current funding by hundreds of billions nationwide.
Although the new Medicare Advantage PFFS offering is not a panacea for this crisis, the program
does present some significant advantages for retiree
benefits administrators seeking to reduce future
costs. For starters, the PFFS option allows the retiree plan administrator to offer supplemental coverage using one uniform plan nationwide, enabling
enrollees to access any provider that accepts
Medicare. Uniform benefits, enrollment procedures, and member services irrespective of geographic location substantially lower costs by eliminating the need to manage different supplemental
plans within each state or region where enrollees
may seek healthcare. As employers and state officials look for solutions for their retiree health benefits programs, we believe there are tremendous
growth opportunities for healthcare outsourcing
companies that can guide them through this evolution and play a meaningful role in maximizing the
benefits of the emerging Medicare Advantage
models. In addition to playing an integral role in
helping these organizations select the most cost efficient solution, outsourcers will also bring significant economies of scale to the forefront which will
allow them to support or fully take over the burden
of operating and administering these new programs.
Coding plays an integral role in today's healthcare
environment, serving as the basis for disease and
illness classification. Consistent coding practices
provide reliable data sets that can be used to measure the quality of care, conduct research, and eventually provide better information to the marketplace as we move toward more consumer-driven
healthcare initiatives.
From the standpoint of patient accounting, coding
also allows for a common language between
providers and payers during the reimbursement
process. Accurate coding procedures limit the
number of denied claims due to inaccuracies, thereby optimizing cash flow and managing accounts receivable.
Figure 11: Healthcare Regulatory Environment
ICD-9-CM
International
Classification of
Diseases, Ninth
Revision, Clinical
Modification
APC
LMRP
Ambulatory
Payment
Classification
Codes
Local Medical
Review Policy
Regulatory
Environment
OCE
NCCI
National Council
on
Compensation
Insurance
Outpatient Code
Editor
HCPCS
Healthcare
Common
Procedure
Coding System
CPT--4
Current
Procedural
Terminology
Source: TripleTree
REGULATORY CHALLENGES
MINNEAPOLIS 952.253.5300
In the United States, the International
Classification of Diseases, Ninth Revision (ICD-9)
has become the core classification system used by
provider organizations to code claims for public
and private health insurance reimbursement. This
system is used not only for payment justification,
but also disease and illness classification, indexing
of patient records, and basic industry research.
Over the last several years, however, advances in
medicine and the identification of new conditions
has extended ICD-9 beyond its intended capacity.
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Providers are faced with a myriad of regulatory requirements, consisting of evolving classification
codes, terminologies, and reimbursement policies.
From a revenue cycle perspective, up-to-date regulatory content is paramount to insuring appropriate
billing in a clinical context. Unfortunately for
many provider organizations, upcoming modifications to the industry's regulatory environment are
expected to further complicate these matters over
the next few years.
Q4 2006
Due to the limited configuration of ICD-9, the industry has been planning the implementation of
ICD-10 to provide a more detailed framework for
coding and classification. The expanded levels of
specificity created in ICD-10 are expected to have
a significant impact in terms of more accurate reimbursements and fewer rejected claims. More precise documentation will also enhance the reporting
of quality improvement metrics to better understand outcomes and the effectiveness of certain
procedures.
Figure 12: ICD-9 / ICD-10 Coding Comparison
200,000
Diagnosis Usage Codes
Procedure Usage Codes
Although the timing for the shift from ICD-9 to
ICD-10 is a source of considerable debate,
TripleTree sees significant growth opportunities for
companies focusing on coding within the broader
context of Coding, Compliance & Reimbursement
Management (CCRM) services.
The potential
value of integrated CCRM practices increases exponentially when one considers that this function
lies at the intersection of three primary sources of
content (see Figure 13). In addition to the natural
correlation between regulatory procedures and the
revenue cycle, integrated CCRM solutions are also
uniquely positioned to aggregate valuable clinical
data at the point of care.
Figure 13: CCRM Data Environment
de
s
150,000
50,000
E
in xpe
nu cte
m di
be nc
r o re
f I ase
C
D
co
100,000
Clinical Data
CCRM
Regulatory
Procedures
0
ICD-9
Revenue Cycle /
Billing
ICD-10
Source: Licbicki, Martin; Brahmakulam, Irene, The Costs and Benefits
of Moving to the ICD-10 Code Sets.
PAGE 20, REVENUE CYCLE MANAGEMENT
As would be expected, this new system is several
orders of magnitude more complex than its predecessor. Successful transition will require significant modifications to existing healthcare IT systems, new tools for analytics, and a tremendous
amount of training for these new requirements.
The costs of this transition will be significant. A
recent study for the Blue Cross/Blue Shield
Association estimates the short-term costs (2-3
years) to be between $5.5 and $13.5 billion. In addition, ongoing costs due to loss of productivity are
expected to be between $150 and $380 million annually. At a time when providers are already preoccupied with challenges around HIPAA and the
adoption of electronic health records, this added
complexity will be very taxing on organization
making this transition.
MINNEAPOLIS 952.253.5300
Source: TripleTree
From a content perspective, access to both clinical
and administrative data sets can be leveraged in
many different ways. For example, clinical data
needs to be interlinked with payment data to facilitate the medical necessity aspect of reimbursement.
Clinical data can also be used to monitor the correlation between patient outcomes and various care
regimens. Physicians can use this data to improve
quality and insure compliance with the increasing
number of payer "pay for performance" programs.
Patient safety is also improved through better communication, coordination, and consistency across
the provider organization's compliance efforts. In
short, the ability to leverage clinical content
within a provider's CCRM practice creates value
across the full range of healthcare stakeholders who
have an interest in lowering the overall cost of
care.
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We also see a large opportunity for emerging natural language processing engines (NLP) to eventually replace the scores of coders that are currently
engaged in the process of converting clinical charts
and dictation notes to code compliant and reimbursable events. Although NLP and voice recognition technologies are still somewhat unproven,
over time we believe software will be able to scan
written and orally dictated doctor notes and abstract the relevant clinical content into CPT and
ICD compliant codes. Although this transition
will likely take years to complete, eventually we
believe software will bear much of this burden and
significantly reduce costs associated with regulatory
compliance.
OFFSHORE SERVICES
The benefits of offshore labor are well-established
in the healthcare industry.
Both payers and
providers have leveraged offshore resources for
many years as a means of expanding margins and alleviating cost pressures. Historically, these services
have been geared toward commoditized functions
at the lower end of the value spectrum. However,
we expect the offshore delivery model to take on a
larger role in the healthcare revenue cycle as service providers continue to develop more sophisticated offerings.
As a result of these improvements, the offshore delivery model is gaining acceptance across many aspects of the healthcare revenue cycle. Improved
service levels and the resolution of privacy concerns have allowed service providers to stave off
commoditization and expand up the value chain.
Transactional services now include certified medical coders, medical billing, and blended
voice/transactional services for healthcare claims
processing. Clinical data management and disease
management analytics have also been pulled into
the fray to survey program effectiveness and assist
with strategy implementation.
Despite the many technological advancements
around speech recognition, EMRs, etc., simple
medical transcription still accounts for more than
95% of all inputted patient information. The intrinsic value of the healthcare offshore market remains as valuable as it was a decade ago - offering
well-trained, low-cost labor to facilitate a more efficient revenue cycle. There are regulatory issues,
as a number of states and the federal government
have limited the use of offshore outsourcing for
some government programs. Despite these limitations, we would expect the value of this delivery
model to expand further as the industry adapts to
new requirements around HIPAA, ICD-10, and
other regulatory challenges. IDC supports this
trend, projecting spending on offshore IT services
within the healthcare industry to reach $677 million by 2009.
REVENUE CYCLE MANAGEMENT, PAGE 21
In the early 1990s, medical transcription services
became a logical entry point for the healthcare offshore outsourcing market.
The labor intense
nature of transcription services was a natural fit for
India's low-cost, English-speaking workforce.
India's favorable time zone differential was also an
attractive benefit as offshore labor could perform
overnight transcriptions during physicians' offhours in the U.S.
service providers have also made substantial investments in technology to adhere to the strict privacy
regulations associated with HIPAA and other requirements.
Over the last decade, offshore firms have expanded
into higher-value offerings as service providers
gained the confidence of their western clients.
Significant resources have been invested in training and accreditation programs, resulting in improved language abilities and greater understanding
of medical processes and terminology. Offshore
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PUBLIC AND M&A VALUATIONS
The U.S. public markets have slowed down in general during 2006 as a result of rising oil costs, continued interest rate hikes, and ongoing uncertainty in the Middle East. While the public healthcare markets were not
impervious to these trends, the revenue cycle management universe is rebounding on the heels of rapidly expanding consumer-driven healthcare and other IT/software initiatives that touch upon many of the industry
initiatives we have discussed in this report.
To illustrate the relative performance of healthcare IT and outsourcing companies we have included Figure 14
which depicts the performance of our healthcare / revenue cycle indices relative to the S&P 500 over the last
24 months. As shown in our index, the Clinical Solutions sector has outperformed all other segments with
200%+ growth since mid-2004. The significance of this trend is tempered, however, by the fact that this segment consists of only three companies - Allscripts, Quality Systems, Inc., and Cerner. However, the recent track
record of clinical solutions companies is indicative of the broader HIT landscape as the publicly traded administrative and claims solutions in both our Payer and Provider indices have enjoyed consistent share price appreciation in the 50-75% range over the last two years.
At the other end of the spectrum, our Claims Outsourcing index was the only segment to under-perform the
S&P 500 during the stated period. This statistic is misleading from the standpoint that many of the companies
included in this index (ACS, EDS, Perot, etc.) have diverse lines of business, including very large legacy IT outsourcing businesses that have not performed well recently and have depressed the overall valuations of many of
these firms.
Figure 14: Percentage Relative Performance: S&P 500 v. Healthcare Indices
250.0
Claims Outsourcing
Provider Administrative Solutions
S&P 500 Index
Provider Clinical Solutions
Payer & Claims Solutions
225.0
200.0
175.0
150.0
125.0
100.0
PAGE 22, REVENUE CYCLE MANAGEMENT
75.0
Aug-04
Oct-04
Dec-04
Feb-05
Apr-05
Jun-05
Aug-05
Oct-05
Dec-05
Feb-06
Apr-06
Jun-06
Source: Capital IQ & TripleTree
Representative Healthcare Public Company Indices
Provider - Clinical: Allscripts Healthcare Solutions Inc., Quality Systems, Inc., Cerner Corp.
Provider - Administrative: Computer Programs & Systems, Inc., Eclipsys Corp., Emdeon Corp., McKesson Corp., Mediware Information
Systems, Inc., MedQuist, Inc., Quadramed Corp., Quovadx, Inc., and Zix Corp., Per-Se, and Omnicell
Payer & Claims Solutions: HMS Holdings Corp., MedAvant, TriZetto Group, Inc.
Payer - Claims Outsourcing: Affiliated Computer Services, Inc., Computer Services, Corp., DST Systems, Inc., Electronic Data Systems, Inc.,
Infocrossing, Inc., Perot Systems Corp., and Unisys Corp.
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PUBLIC COMPANIES
In contrast to most of our other healthcare segments, valuations within the Claims Outsourcing
index have been relatively flat since the beginning of 2004. As noted above, the companies included in
this segment have several diverse lines of business, including significant heritage in the mainframe outsourcing segment; as a result, it would be misleading to conclude that healthcare claims outsourcing is an
underperforming sector.
PAYER-FOCUSED SOLUTIONS PROVIDERS
Public Companies: Payer-Focused Solutions Providers (in $ millions except per share data)
Company Name
Current
Stock Price
52 Wk High
52 Wk Low
Market Cap
$50.82
$52.69
$58.33
$23.66
$11.05
$13.99
$6.12
$63.66
$60.39
$63.26
$28.09
$13.10
$15.90
$7.20
$46.50
$43.49
$49.30
$19.06
$6.35
$12.75
$4.38
6,025.8
9,901.5
4,066.0
12,266.2
235.0
1,672.1
2,099.2
TEV
Cash &
Equiv.
Total Debt
LTM
Revenue
LTM
EBITDA
LTM Net
Income
TEV /
Revenue
TEV /
EBITDA
Price /
Earnings
174.9
1,290.7
99.3
1,718.0
11.7
238.1
980.2
1,387.6
1,462.1
1,409.2
3,217.0
139.5
76.5
1,127.5
5,187.4
14,615.6
2,462.8
20,098.0
227.2
2,067.4
5,779.9
963.9
2,149.3
542.3
1,826.0
23.2
224.2
272.1
386.2
634.0
457.1
170.0
8.0
107.6
(1,714.3)
1.4x
0.7x
2.2x
0.7x
1.6x
0.7x
0.4x
7.5x
4.7x
9.8x
7.2x
15.6x
6.7x
8.3x
15.6x
15.6x
8.9x
72.2x
NM
15.5x
NA
Average
Median
1.1x
0.7x
8.5x
7.5x
25.6x
15.6x
8.9
(105.1)
24.6
2.7x
1.6x
2.0x
14.8x
36.2x
12.7x
24.0x
NA
24.3x
Average
Median
2.1x
2.0x
21.3x
14.8x
24.2x
24.2x
1.4x
1.5x
12.4x
9.0x
25.2x
15.6x
Claims Outsourcing
Affiliated Computer Services Inc.
Computer Sciences Corp.
DST Systems Inc.
Electronic Data Systems Corp.
Infocrossing Inc.1
Perot Systems Corp.
Unisys Corp.
7,238.6
10,072.9
5,306.5
13,066.2
362.7
1,510.5
2,246.5
Payer & Claims Solutions
HMS Holdings Corp.
MedAvant Healthcare Solutions
TriZetto Group Inc.
1
$10.56
$7.00
$13.90
$11.58
$8.36
$19.74
$6.56
$3.42
$12.69
214.9
92.4
596.7
174.4
116.0
625.9
3.0
1.8
88.7
0.0
25.4
117.9
64.4
73.9
305.7
11.8
3.2
49.2
Combined Average
Combined Median
Infocrossing's financials adjusted on a run-rate basis to account for acquisition of (i)Structure.
Value creation within the Claims Outsourcing group is being addressed in a number of ways. For example, EDS is currently repurchasing $1 billion of its shares over 18 months as a signal to the market that it
believes its stock is undervalued. The company also has plans to aggressively expand its offshore presence
in an effort to reduce the cost of services delivery and enhance margins. CSC, on the other hand, has recently restructured its European and U.S. operations by eliminating 4,300 jobs to improve cash flow and
earnings.
Valuations within the Payer & Claims Solutions index faltered slightly in mid-2006, under-performing
the S&P 500 through the second quarter. However, there are several positives to consider as particularly
strong multiples are surfacing in high growth segments such as Medicare Advantage / Part D and consumer-driven health (CDH). To take advantage of this trend, TriZetto Inc., has upgraded its patient decision support solutions as payers shift toward more consumer-based offerings. MedAvant has also re-branded itself as more of a full-service business process outsourcing firm as the industry moves away from the
traditional claims clearinghouse model.
REVENUE CYCLE MANAGEMENT, PAGE 23
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Market valuations in the Provider Solutions index
slowed a bit in mid-2006, consistent with the
overall market. The long-term outlook for this segment is positive, however, as new regulations continue
to drive the adoption of healthcare software and IT solutions. McKesson Corp. reported a 38% increase
in software growth in 2005 and is poised to take full advantage of the growing clinical and imaging technologies market. Similarly, Cerner's broad range of Millennium products are expected to maintain their
market leading position as technology becomes an increasingly essential component in integrating clinical and administrative processes.
HEALTHCARE PROVIDER SOLUTIONS
On the clinical side, Allscripts Healthcare Solution made headlines earlier this year by acquiring A4
Health. The integrated practice management capabilities of A4, in combination with Allscripts' clinical
applications, are expected to significantly improve company's position in the market with an anticipated
40% YOY growth in clinical software.
Public Companies: Healthcare Provider Solutions (in $ millions except per share data)
Company Name
Current
Stock Price
52 Wk High
52 Wk Low
Market Cap
$17.89
$36.75
$35.35
$19.85
$49.38
$45.97
$13.00
$34.34
$24.46
932.4
2,848.6
944.2
TEV
Cash &
Equiv.
Total Debt
LTM
Revenue
35.2
103.9
57.2
85.9
220.1
0.0
240.0
1,219.5
119.3
LTM
EBITDA
LTM Net
Income
TEV /
Revenue
TEV /
EBITDA
Price /
Earnings
11.2
93.9
23.3
4.0x
2.3x
7.4x
49.5x
10.3x
22.4x
83.2x
30.3x
40.5x
Average
Median
4.6x
4.0x
27.4x
22.4x
51.4x
40.5x
15.4
(0.4)
79.6
751.0
2.3
40.3
4.9
31.2
(3.3)
(9.1)
(40.9)
3.5x
2.1x
2.9x
0.1x
1.6x
0.7x
2.7x
2.3x
1.1x
0.9x
3.4x
14.9x
19.9x
22.0x
9.6x
7.1x
4.0x
27.2x
16.3x
16.4x
10.0x
NA
27.0x
NA
42.1x
19.0x
34.8x
12.5x
76.3x
29.3x
NA
NA
NA
Average
Median
1.9x
2.1x
14.7x
15.6x
34.4x
29.3x
2.5x
2.3x
17.7x
16.3x
39.5x
32.6x
Provider Clinical Solutions
Allscripts Healthcare Solutions Inc. 1
Cerner Corp.
Quality Systems Inc.
969.3
2,791.2
887.0
19.6
271.8
39.6
Provider Administrative Solutions
Computer Programs & Systems Inc.
Eclipsys Corp.
Emdeon Corp. 2
McKesson Corp.
Mediware Information Systems Inc.
MedQuist Inc.
Omnicell Inc.
Per-Se Technologies Inc. 1
Quadramed Corp.
Quovadx Inc.
Zix Corp.
1
$50.93
$26.27
$12.50
$54.92
$13.35
$15.45
$14.90
$29.48
$2.54
$3.64
$3.84
$30.66
$13.40
$6.61
$43.37
$7.68
$10.10
$7.89
$17.97
$1.15
$2.32
$0.84
417.1
963.8
3,347.9
14,275.4
79.3
502.4
377.1
913.4
83.1
109.5
55.5
395.9
845.6
3,767.7
13,124.4
60.8
358.6
343.2
1,398.2
135.8
76.7
48.4
10.9
36.2
137.1
2,142.0
18.6
143.9
33.9
35.9
36.8
15.6
14.2
Allscripts' & Per-Se's financials adjusted on a run-rate basis to account for acquisitions of A4 and NDCHealth, respectively.
Financial projections to account for Practice Services divesture not yet available.
0.0
0.0
650.0
991.0
0.0
0.1
0.0
520.8
0.0
0.0
7.1
112.0
399.6
1,312.1
88,050.0
37.7
498.1
126.7
610.8
120.9
82.7
14.3
26.5
42.5
171.6
1,365.0
8.6
88.8
12.6
85.6
8.3
7.7
(26.5)
Combined Average
Combined Median
PAGE 24, REVENUE CYCLE MANAGEMENT
2
$38.79
$18.46
$12.20
$46.94
$9.85
$13.50
$13.88
$23.41
$2.00
$2.61
$0.93
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MERGER & ACQUISITION ACTIVITY
Consolidation within the revenue cycle management space has accelerated considerably in the past
18 months. Acquisitions through the second quarter of 2006 are on pace to exceed the total number of
completed transactions in 2005. Large acquirers in this segment are continuing to expand horizontally,
attempting to create a more comprehensive revenue cycle services set to their customer base.
REVENUE CYCLE MANAGEMENT
M&A: Revenue Cycle Management (in $ millions excepte multiples)
Date
8/8/06
7/12/06
5/25/06
5/25/06
5/25/06
4/25/06
4/11/06
3/7/06
2/1/06
1/4/06
11/22/05
10/20/05
9/16/05
8/26/05
7/19/05
6/2/05
5/20/05
4/28/05
3/17/05
12/6/04
9/1/04
8/2/04
7/12/04
7/12/04
4/6/04
3/1/04
12/8/03
10/21/03
6/16/03
Buyer
Seller
Seller Description
Price
Revenue
P/R
Sage Software
ACS
Ingenix
McKesson
Ingenix
MedAssist
MedAssist
Apollo Advisors
Misys Healthcare Systems
Wolters Kluwer
Metavante Corp
EMC
CareMedic Systems
Per-Se Technologies
MedAssets
Private investor
Ingenix
Logicbec Groupe Informatique
Emergis
CareMedic Systems
Infocrossing
3M
ACS
WebMD
WebMD
SHPS
ProxyMed
WebMD
WebMD
Emdeon Practice Services
Primax Recoveries
Claredi Corporation
HealthCom Partners
NWH (ENS)
Twin Medical Transaction Services
Capstone Solutions
Sourcecorp Inc.
Payerpath
ProVation Medical
AdminiSource
Captiva Software
Third Millennium Healthcare Systems
NDCHealth
Med-Data Management
Employers Mutual
HSS
MDI Technologies
NDC Healthcorp - Canadian Unit
Omega Systems
Verizon (gov't claims processing division)
Info-X
Heritage Information Systems
ViPS*
Dakota Imaging*
Landacorp
Plan Vista
MediFAX-EDI
Advanced Business Fulfillment*
Practice management and electronic health records
Third party liability recovery, coordination of benefits, and contract re-pricing services
EDI transaction testing and certification solutions
Web-enabled patient billing software
Payer transactions hosting, EDI, preadjudication software, scanning, OCR
Revenue management and patient eligibility to providers
Provider of healthcare revenue cycle outsourcing solutions
HC BPO of document and infor. mgt., and knowledge-based processing
Provides Internet-based solutions for processing health claims
Medical documentation, coding and workflow solutions to hospitals
Electronic claims, electronic payment, payor solutions
Automated claims processing, editing, coding, EDI
Revenue cycle management technology and workflow automation systems
Primarily provides electronic health information processing services
Consulting and software: denials mgt, coding and billing reviews, revenue cycle projects
Third party admin: claims admin, enrollment and eligibility, billing srvs, auto claims adj.
Software products for coding, reimbursement, compliance, and denial measurement
Billing and accounts receivable software for long term care facilities, other hc software
Canadian claims processing business
Medical necessity compliance and revenue cycle management solutions
Healthcare claims processing unit
Medical coding compliance software, hospital billing and compliance software
Clinical management and pharmacy cost containment solutions
Claims processing systems for commercial and government
EDI and Web transaction processing
Authorization, reimbursement, regulatory, and analytical software
Medical cost containment and business process outsourcing services
Denial management, EDI, clinical, billing management, payment posting solutions
Provider of healthcare paid-claims communication services
565.0
40.0
53.22
469.7
49.0
297.5
962.6
3.5
24.9
14.4
43.5
23.0
168.0
40.0
50.5
57.6
276.1
110.0
304.5
21.4
18.9
413.6
79.3
396.5
10.0
9.6
10.0
14.0
63.4
17.5
27.5
33.0
88.3
63.0
1.9x
1.9x
2.8x
1.1x
3.8x
2.4x
0.4x
2.6x
1.4x
1.6x
2.6x
2.3x
1.8x
1.7x
3.1x
1.7x
180.5
51.9
98.2
30.3
2.1x
1.9x
*Note: Prices for Dakota Imaging and Advanced Business Fulfillment do not include earn-out amounts; ViPS price does not include net assumed liabilities
Average
Median
Emdeon (formerly WebMD) has been particularly active in this area over the last few years. The company
set the bar in 2003-2004 by aggressively pursuing a series of transactions, including Advanced Business
Fulfillment, ViPS, Dakota Imaging, and Medifax-EDI. More recently, Emdeon has narrowed its focus by
selling off its Practice Services division to Sage Software in August of 2006. Strategically, the divestment
allows Emdeon to focus more intently on its existing Business Services division, handling back office
transaction processing services, and creating a more concentrated focus on outsourcing services while
stepping away from its software business which had a significant presence in the small physicians practice
sector.
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REVENUE CYCLE MANAGEMENT, PAGE 25
Other notable transactions include Wolters Kluwer's acquisition of ProVation Medical. Provation's documentation and coding-compliance solutions are expected to enhance Wolters Kluwer's Clinical Tools unit
by creating a streamlined dictation/transcription and coding process.
The Ingenix division of
UnitedHealth Group has also been particularly active over the last year, acquiring ENS (Electronic Network
Systems, Inc.), a provider of clearinghouse and healthcare e-commerce services; Claredi Corp., a provider
of EDI validation, routing and connectivity software; and HSS, a provider of coding and reimbursement
management software (TripleTree represented HSS in its sale to Ingenix).
Q4 2006
Similar to the revenue cycle management sector,
the number of healthcare software and IT transactions has roughly doubled from calendar year 2005. A few areas that have attracted attention include the
consolidation among electronic medical records (EMRs) and practice management systems (PMS), as evidenced by GE's acquisition of IDX and Allscripts' acquisition of A4. Particularly among small and midsized physician groups, customers are demanding more integrated clinical and administrative solutions
from a single vendor. As a result, vendors are looking to acquire or build integrated PMS/EMR capabilities to enhance their value proposition to this end of the market. We expect this consolidation to continue as vendors look to capture these high growth opportunities.
HEALTHCARE IT
M&A: Healthcare Clinical & Administration Solutions (in $ millions except multiples)
Date
8/8/06
7/10/06
5/25/06
4/7/06
2/8/06
1/19/06
9/28/05
8/28/05
4/28/05
1/18/05
1/17/05
12/17/04
12/3/04
11/16/04
3/4/04
3/1/04
Buyer
Seller/Target
Seller Description
Price
Revenue
P/R
Sage Software
Emergis
Ingenix
Healthcare Quality Solutions
Nuance Communications
Allscripts
GE Healthcare
Per-Se Technologies
Logicbec Groupe Informatique
Merge Technologies
Elekta AB
Siebel Systems
Selectica
Cerner
Varian
SHPS
Emdeon Practice Services
Dinmar Consulting
NWH (ENS)
VantaHealth Technologies
Dictaphone
A4
IDX Systems
NDCHealth
MDI Technologies
Cedara Software
IMPAC Medical Systems
eDocs
I-many
VitalWorks Medical Division
OpTx
Landacorp
Practice management and electronic health records
Interoperable EMR (Oacis) and IT consultant
Payer transactions hosting, EDI, preadjudication software, scanning, OCR
Analyzer® decision support software to home healthcare market
Manufacturer of dictation and communication recording systems for transcription
Healthcare management and electronic records software
Provides software, services, and technologies for healthcare organizations
Primarily provides electronic health information processing services
Billing and accounts receivable software for long term care facilities
Software solutions for healthcare manufacturers and providers
IT systems for radiation and oncology practices
Provides customer self-service and e-billing software solutions
Contract management software, products and services
Practice management, ambulatory EMR, and transaction processing services
Software for medical oncology practices and cancer clinics
Authorization, reimbursement, regulatory, and analytical software
565.0
35.6
53.2
1.0
357.0
272.5
1372.1
976.9
27.0
405.0
250.7
159.2
70.0
100.0
18.0
50.5
304.5
19.0
18.9
1.1
272.0
75.0
591.0
387.6
9.6
74.4
71.1
40.0
40.0
70.0
9.0
27.5
1.9x
1.9x
2.8x
0.9x
1.3x
3.6x
2.3x
2.5x
2.8x
5.4x
3.5x
4.0x
1.8x
1.4x
2.0x
1.8x
294.6
129.6
125.7
55.0
2.5x
2.2x
Average
Median
M&A: Other Healthcare Solutions (in $ millions except multiples)
Date
3/8/06
7/6/05
6/20/05
5/31/05
2/23/05
11/24/04
9/16/04
Buyer
Seller/Target
Seller Description
Price
Revenue
P/R
Philips
Royal Philips Electronics
McKesson
Hospira
Stryker
Merge Technologies
Cedara Software
Witt Biomedical
Stentor
Medcon
Physiometrix
eTrauma
AccuImage Diagnostics
eMed Technologies
Cardiology PACS and cardiology reporting and documenting
Solutions for digital medical images
Cardiac image and information management solutions provider
Biometric monitoring software and solutions for use in hospitals
Web-enabled emergency medical imaging solution to healthcare providers
Medical data and interactive medical image visualization software
PACS and web-based medical imaging radiology solutions provider
165.0
280.0
105.0
23.9
50.0
6.0
48.0
49.0
50.0
17.0
2.1
18.0
0.6
24.0
3.4x
5.6x
6.2x
11.4x
2.8x
10.9x
2.0x
96.8
50.0
23.0
18.0
6.0x
5.6x
Average
Median
PAGE 26, REVENUE CYCLE MANAGEMENT
*The preceding list includes only those transactions in which price/revenue figures were publicly released.
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Q4 2006
CONCLUSION: LOOKING FORWARD TO 2007 - 2008
While much of what is written regarding the healthcare revenue cycle sector is fairly parochial and generally limited to high level discussions of "outsourced collections" and "receivables management," we hope
we have accomplished our goal of depicting the complexity and variety of business opportunities that surround the sector. To say the least, there is a ton of room for improvement in the basic blocking and tackling associated with processing healthcare claims and we fully expect that dozens of companies will continue to succeed in line with the magnitude of the opportunity.
Aside from the core business opportunity associated with solving the basic inefficiencies present in the
market today, we would also note our belief that very attractive opportunities in the sector will flow from
improvements in the underlying information infrastructure of the industry. We believe these improvements will further elevate revenue cycle oriented data out of the realm of traditional "patient accounting"
and into a realm where it enables payer and provider response to many of the most important movements
facing the healthcare industry. Unlike basic credit card transactions, healthcare claims transactions carry
with them an enormous amount of embedded regulatory and clinical data that is very valuable for numerous stakeholders - such as PBMs, drug companies, employers, and government - as well as the payer,
provider, and patient that execute the underlying transaction.
Efforts to create an integrated view of this data will drive continued consolidation through mergers and
acquisitions on both the provider and payer sides of the equation for the foreseeable future. In parallel
with this horizontal consolidation of functionality we also believe forward thinking companies will increasingly recognize the relevance of the underlying data to emerging trends that will shape the healthcare industry on a broader scale in the years to come.
Figure 15: Evolving Healthcare Revenue Cycle Landscape
Current Sector Characteristics
•
•
Future Market Characteristics
2007-2008 Market Shaping Trends
Highly fragmented & managed
through myriad of
intermediaries, software,
systems, and paper
Significant M&A activity leads to
horizontal integration of rev cycle
functionality, blending of BPO and SaaS
business models, and consolidation of
customer bases to create economies of
scale
•
Discrete product & service
offerings generally narrow in
scope
•
Meaningful advancements in health
information networks and standardized
databases
•
Disjointed communications
infrastructure
•
•
Siloed approach to data
management
Service oriented architecture (SOA) and
web services enable cross- stakeholder
sharing of data and “real
- time”
transactions
•
New market leaders emerge with comprehensive
SaaS and outsourcing product and service offerings
•
Comprehensive electronic patient financial
record (EFRs) become a reality
•
New business sub-sectors emerge due to gradual
marriage of customer relationship management
(CRM) and integrated care coordination services
•
Numerous overarching trends place employers
more directly in the healthcare revenue cycle
flight path
o
Consumer driven health plans
Escalating retiree health benefits crisis
Medicare & Medicaid reform and
privatization
Evolving models for population health
management and workforce
productivity
Source: TripleTree
As the trends highlighted in Figure 15 gain momentum, it will become increasingly clear that the data captured
in, and business functions implicated by, the revenue cycle process are inextricably tied to strategies that are
slowly being employed by healthcare companies in response to consumer-driven healthcare, government
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REVENUE CYCLE MANAGEMENT, PAGE 27
o
o
o
Q4 2006
CONCLUSION: LOOKING FORWARD TO 2007 - 2008
reform and population health management. In many
respects what we see is a "perfect storm" in which
overarching macroeconomic and demographic trends
are starting to line up with long overdue advancements in the underlying IT and communications infrastructure. We are already seeing ample evidence
that there is a wealth of opportunity for companies
that are able to play a meaningful role in deploying
this infrastructure and then ultimately operationalizing the data and content that flow through it to support initiatives aimed at improving quality, enabling
consumer choice, and reducing cost.
PAGE 28, REVENUE CYCLE MANAGEMENT
As an investment bank with deep experience in healthcare
IT and outsourcing, TripleTree can assist your business to
capitalize on the various strategic implications outlined is
this report. We would also note that there is considerable
overlap between the topics covered in this report and many
of the themes covered in recent white papers we have authored regarding Population Health Management. Many
of the businesses we encounter have a toe-hold in several
distinct but related niches, and so we would encourage you
to contact us if you have an interest in other healthcare related research or would be interested in speaking with
members of our professional staff that can bring a holistic
view of the various trends that are occurring on a broader
scale. We are at an inflection point in the market where
interest in differentiated healthcare IT and outsourcing
firms is at a peak - both within the strategic buyer universe
as well as within an extremely active private equity
market. If we can help you understand and evaluate how
current market dynamics and industry trends may impact
opportunities for your company, please do not hesitate to
contact us to schedule a time for a briefing.
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Q4 2006
THE TRIPLETREE TEAM
TripleTree today has 22 professionals with complementary backgrounds as business builders, operators
of public and private firms, lawyers, accountants,
bankers, Wall Street analysts and investors.
Within Healthcare and IT, we have a team with
significant transaction and operating experience
exceeding 75 years.
Our team has completed
dozens of transactions and we have helped our
clients create hundreds of millions of dollars of
value for their owners. Included below are the primary professionals within our Healthcare practice:
attention in the healthcare IT and outsourcing sectors as well as the broader managed services and
BPO sectors. During his tenure with TripleTree,
Scott also served as Research Chairman for over
five years where he played an instrumental role in
establishing the firm's commitment to publishing
4-5 industry leading white papers each year. Prior
to joining TripleTree, Scott was a practicing attorney specializing in commercial and contract matters and also served as a equity and convertible
debt analyst for a large hedge fund.
Kevin Green, Managing Partner. As Managing
Partner, Kevin advises companies on maximizing
the value of their firm by leveraging 25 plus years
of operational, M&A, capital raising and board experience. His broad industry background and relationships, extensive transactional experience, and
hands-on operating experience bring unique perspectives to each client engagement.
Scott earned both his B.A and J.D. from the
University of Illinois and his MBA in Finance and
Accounting from the Carlson School of
Management at the University of Minnesota.
Scott Tudor, Partner. Scott manages many of
TripleTree's current client engagements and since
joining TripleTree in 1999 has successfully closed
more than 30 transactions with leading companies
such as Compaq, HP, Cardinal Health, Avanade,
and others. Scott currently focuses most of his
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Prior to his success as a business owner and executive, Kevin has and continues to act as counsel on
numerous legal and regulatory matters in the healthcare arena. Kevin has an MBA from the University
of Minnesota Carlson School of Business; a J.D.
degree from the University of Minnesota Law
School; and a B.S. from Pace University.
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REVENUE CYCLE MANAGEMENT, PAGE 29
Prior to co-founding TripleTree, Kevin held several
senior executive roles at private and public companies within the healthcare and technology industries. He served as CEO of both Summit Medical
and Integrated Medical Systems (IMS). During his
tenure, IMS grew from a start-up company to a
high growth business that was sold to Eli Lilly.
Previously, he served as an executive at Cycare,
which grew from a private firm to a NYSE company
and was later sold to McKesson. Kevin started his
career at Westinghouse. Kevin is actively involved
in a number of industry associations. He currently
serves on the board of the Software and
Information Industry Association's Software
Division and is a frequent speaker at technology
conferences. He holds B.A. and M.B.A. degrees
from the University of San Diego.
Kevin Roche, J.D. – Senior Advisor. Kevin
Roche is a Senior Advisor to TripleTree.
Specializing in the Healthcare industry, Mr. Roche
has participated in more than 75 merger, acquisition, divestiture and joint venture transactions. As
a senior executive for more than 20 years, he has
worked with a host of large, small and start-up
companies in the areas of strategic planning and
transactions, board representation and corporate
governance, legal and government affairs, and comprehensive healthcare operations and policy. Most
recently, Mr. Roche was Senior Vice President at
UnitedHealth Group where he evaluated investment opportunities and researched and developed
strategies regarding changes in technology and
medical practices. Previously, he was founder and
CEO of Ingenix Division, a health information and
research company, where he grew the company
from less than $50 to $400M in four years.
Q4 2006
THE TRIPLETREE TEAM
David Brownlie, Senior Associate. Dave assists
in TripleTree’s merger and acquisition and private
placement engagements.
Dave works across
TripleTree’s industry sectors with an emphasis currently targeted at the firm’s healthcare practice in
the areas of healthcare technology and outsourcing
services. Dave also contributes to TripleTree’s research publications, particularly in the firm’s industry updates and quarterly valuation reports. Prior
to joining TripleTree, Dave was a practicing attorney focusing on corporate transactions. He also
served as an associate for Mobius Venture Capital,
where he helped support the firm’s deal team
throughout all stages of the investment process.
Dave began his career as a financial management
consultant with Accenture, where he worked with
several Fortune 500 companies to help improve the
efficiency of their financial operations.
PAGE 30, REVENUE CYCLE MANAGEMENT
Dave earned his B.S. in Finance from Indiana
University, and both his J.D. and M.B.A. from the
University of Colorado.
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ABOUT TRIPLETREE
TripleTree is a leading investment banking firm dedicated to meeting the needs of technology,
healthcare, and business services companies. Specializing in M&A, private placements and financial advisory services, the firm represents growth-oriented companies in pursuing strategic
alternatives that drive premium valuations. Unlike most investment banking firms, TripleTree
brings a unique approach to advisory services through the leverage of experienced executives,
strict industry focus, and extensive commitment to research. Such a commitment has allowed us
to build an investment bank focused on identifying and delivering strategic solutions that
enable shareholders and business executives to maximize the value of their firm in a dynamic
and rapidly changing marketplace.
For further information, visit our website at: http://www.triple-tree.com
Copyright (C) 2006 by TripleTree, LLC
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