Consolidation in the healthcare finance technology market is ramping up, driven by a need to streamline payment processes, the emergence of a new payer — the consumer — and perhaps, most pressingly, by the financial strain brought on by Covid. Experts agree that this activity will continue and prove to be a net positive for the industry.
Overall, it’s an exciting time in healthcare finance, with a number of large mergers and acquisitions taking place among companies, said Sarah Calkins Holloway, senior partner at McKinsey and leader of its revenue excellence work, in a phone interview. Recent transactions — like Cedar scooping up billing startup OODA Health for $425 million and R1 RCM agreeing to buy VisitPay for $300 million — have a few drivers in common, including a desire to boost the patient financial experience and increase payment collections.
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There are several reasons why patient financial engagement and experience are top-of-mind for health systems. First, the patient experience with billing and payment impacts how patients view their healthcare experience as a whole, putting facilities’ reputations on the line, Holloway said.
Second, the rise of high-deductible health plans has made consumers more invested in what they are being billed for and how, said Kent Ivanoff, co-founder and CEO of VisitPay, in a phone interview.
“In my view, what that has necessitated is for both consumers and providers to manage this new dynamic with the consumer as payer,” he said.
As the newest payers on the block, consumers want more transparency in the payment process as well as seamlessness, much like the experience they are used to in other industries, added Dr. Robert Mittendorff, head of healthcare at technology-focused investment firm B Capital Group, in a phone interview.
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Then there is the provider side. Providers are hurting financially as a result of the Covid-19 pandemic and so collecting payment — efficiently and cost-effectively — is key. They are looking to simplify administrative processes, like revenue cycle management, while they are dealing with pressure on their margins, said Drew Ungerman, senior partner at McKinsey and leader of its North American Healthcare practice, in a phone interview.
All of these factors have created an environment that not only supports but also urges, consolidation.
“The consolidation that is occurring is trying to create more and more of a seamless end-to-end solution for healthcare providers and industry participants with a limited number of platforms that they need in order to conduct their business,” Ivanoff said.
This trend is clear when looking at R1’s acquisition of VisitPay. It is clearly a technology play on R1’s part, as VisitPay bolsters R1’s service offerings with a technology platform that not only automates billing but also processes like patient intake and pre-service estimates, Ivanoff said.
Acquisitions like R1 and VisitPay also shine a light on how quickly players need to move in the healthcare fintech market.
It may be too late for healthcare finance companies to create technology assets from scratch, because to dominate the market, they need those technology assets now, said B Capital’s Mittendorff, who led investment into VisitPay previously as a partner at Norwest Venture Partners. So, it makes sense for companies to merge or acquire the assets they need to provide comprehensive services.
As this M&A activity brings together complementary offerings and technologies, integrated platforms are being assembled, which will improve both patient and provider experience.
“We do think the effects [of the consolidation] are primarily beneficial,” said Mckinsey’s Ungerman. “First and foremost, to patients, who we think will experience a financial journey in healthcare that is simpler, more intuitive, more technology-enabled… And [it is also beneficial] to providers. We do think as these companies improve their technologies, improve their algorithms, providers will see higher collections on the care delivered.”
Yet, these benefits will come from fewer players given that all of the experts agree that this consolidation trend will continue in the near term, with some, like B Capital Group’s Mittendorff saying it will last well into next year.
“What you are seeing is the first wave [of M&A activity] in this area of healthcare fintech,” he said.
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