The U.S. healthcare revenue cycle management (RCM) industry continues to experience strong growth despite the challenging economic and market trends unfolding in the U.S. and abroad. This is not only driving interest from strategic and financial buyers, but it is also creating new opportunities for RCM companies to achieve organic growth in new markets and services.
According to the U.S. Center for Medicine and Medicaid Services, spending on healthcare in the U.S. will rise to $3.9 trillion by 2015 from $2.1 trillion in 2011, a roughly 85% increase in four years. And, with the U.S. Supreme Court voting 5-4 that the Obama Care program was constitutional, this plan will move forward and ultimately require a portion of the uninsured U.S. population to either get insurance or pay a penalty for not having insurance. While the upcoming Presidential election will have a significant impact on how much of the Obama Care plan is eventually implemented, regardless of the outcome the healthcare RCM industry will continue to grow and attract buyer interest for the foreseeable future.
Due to its attractive growth trend, the healthcare Revenue Cycle Management (RCM) services industry has been a driver of merger and acquisition (M&A) activity in 2012. There were 13 total transactions in Q2, representing $321 million in deal value. For the first half of 2012 there were 23 transactions that generated more than $450 million in deal value. This level of activity exceeds all of 2011, which produced 10 transactions totaling $159 million in deal value.
We expect this level of M&A activity to continue throughout the rest of 2012, and it may increase due to certain interesting trends that are unfolding in the healthcare RCM industry:
- Healthcare providers are consolidating and/or joining larger networks, resulting in fewer future client prospects – this may lead to a consolidation phase among RCM vendors
- The transition to ICD-10 coding is motivating some RCM vendors to acquire this capability, and others to be acquired so they can leverage the capabilities of a larger, more established company – MTBC has acquired three RCM companies this year due to this trend
- Some RCM vendors have had success cross-selling and up-selling new services to their healthcare provider clients, motivating them to pursue acquisitions of companies that offer new services and clients and enable them to vertically integrate these capabilities into their existing client base
While it is difficult to predict with accuracy what the future will hold in the healthcare RCM industry, I am confident that we will continue to see strong interest from buyers and perhaps an increase in seller opportunities as business owners seek to take advantage of this hot market in time to also benefit from the current low capital gains tax rates.
Read more about RCM industry deals and more, download the Kaulkin Ginsberg Q2 Report here.
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