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Healthcare Investor Interest Turns to Billings, Payments, and RevenueCycle Management as Technology Innovation Takes Hold This decade will see perhaps the most significant shift in the Revenue Cycle Management (RCM) industry since itsorigin, and investors are intent on catching the upside where technology advancements can produce tremendousrevenue growth opportunities. Traditional RCM is being disrupted as Artificial Intelligence (AI) and digital automation supplement and begin toreplace inefficient human processes. Automation offers a path to the industry’s Holy Grail—higher collections atlower cost—but brings many challenges: steep startup costs, significant adoption hurdles (in an industry not knownfor agility), and real implementation risks. The Cascadia Healthcare team has a core focus on Healthcare Tech, and we’ve kept a close eye on the evolution ofRCM, healthcare billings and payments through our direct work in the space. Since the current wave of industrychange began in 2018, we’ve talked with hundreds of industry participants, from traditional RCM providers pushinginto the digital age to would-be disrupters looking to break into the system from the outside. By virtue of our experiences serving as the sell-side advisor to a number of healthcare payments and RCMcompanies and advising Tegria on the buyside, our team has developed a clear vision on where the market isheading. The industry is changing rapidly, and we’re at the forefront of the activity with this new wave ofconsolidation and rush into “intelligent” AI-driven RCM, billings, and payments. Select Transactions A Closer Look at the RCM, Healthcare Billings & Payments Sector RCM Automation Represents Significant Revenue Upside From its paper-based roots in snail mail and landline phone calls, RCM has evolved through off-shoring,digitization, and a slow convergence with the digital payments industry. In 2021, when U.S. nationalhealth expenditure reached 18.2%1of GDP (more than double the 1980 percentage), RCM generated anestimated $40 billion in revenue.2 For healthcare providers, RCM offers an obvious value proposition. Hospitals typically collect 60% to70% of what they bill; an RCM program typically yields a 2-5% increase in that figure. Managed withefficiency in a system that bills $3.5 trillion3annually, that could mean billions of dollars of additionalrevenue. The Three Stages of RCM Automation •The lowest-hanging fruit of RCM automation is using computers to read, tally andautomate thestandardized billing codesthe healthcare industry relies on to set rates and charges for differentprocedures. While often maddening and confusing for patients deciphering a bill, there is a centralbureaucratic logic to these unique identifiers, set mainly by the federal Centers for Medicare &Medicaid Services (CMS). Moreover, because so many services (and their associated billing codes) arebundled together in specific procedures, automation here can be a real time-saver. Hospitals andhealthcare systems often achieve this sort of automation in-house or by partnering with a specializedcoding business. •Robotic Process Automation (RPA)is the next level of sophistication. Healthcare providers leveragehuman knowledge and collection pattern analysis to create sets of rules for computers to follow inhandling specific billings. Imagine a hospital system mapping a decision tree: If Patient A hasProcedure B and has Insurance Coverage C, then take Action E, but if they have Insurance Coverage D,then take Action F. You can probably visualize the flowchart in your head—now expand it many timesover and multiply it by millions of patients. This kind of repetitive, rule-based decision-making is wherecomputers excel. R1 RCM is a longtime player that shifted in recent years to RPA—and has enjoyedsignificant success at scale. •The next frontier of RCM automation lies withAI, Machine Learning (ML), Optical CharacterRecognition (OCR), and Natural Language Processing (NLP). Theoretically, ML, OCR, and NLP cancombine to extract information from unstructured data settings—think handwritten notes, voicerecords, and the like—and interpret clinical terms, predict billing outcomes, identify potential write-offs, catch human errors (like unbilled procedures), or write an Explanation of Benefits. Companiesthat can successfully deploy this technology into the RCM stack will prevail as the industry continuesto shift toward smarter, more sophisticated automation to extract the greatest efficiency and margins. Two Models Gain Traction We see two approaches to automation that seem to be yielding the most significant results. On one side arehospital systems that have kept RCM in house but have been aggressive about investing in automation andpatient pay capabilities. Ensemble is an automated RCM solutions provider built inside the multi-state BonSecours Mercy Health system before it spun out in 2019 with the sale of a majority stake to private equityinvestor Golden Gate Capital