Health-care tech buyers plan payments makeovers
This year’s payments industry mergers have exposed numerous corporate, geographic, product and talent gaps, yet perhaps few payment types are more challenging and stuck in the past than health care.
Dealmakers are turning their attention to the paper-based and manual processing that dominates health care transactions with at least two major deals over the past few weeks. JPMorgan agreed to acquire InstaMed for $500 million, while UnitedHealth Group has reportedly agreed to acquire Equian from New Mountain Capital for $3.2 billion.
UnitedHealth Group did not return a request for comment or to confirm the deal, which was reported in financial media. Barron’s, citing unnamed sources, reported UnitedHealth will likely merge Equian into its Optum health services arm, which serves insurers, hospitals and health care providers. UnitedHealth is the parent company of UnitedHealthcare, the U.S.’ largest health insurer.
Equian and InstaMed offer similar services that are in increasing demand in health care. Equian analyzes health care and insurance data to vet payment accuracy, including amount, fairness and correct party—using technology platforms such as AuditPoint and Troveris to ferret out mistakes. InstaMed’s platform is designed to remove paper from the health care payment system.
“Equian’s sweet spot is the integrity of payments, getting to the claim and validating it before it gets to the patient,” said Mike Trilli, a research director at Aite Group. “It’s a strategic investment by UAG to round out its capabilities.”
The health care payment market is huge; JPMorgan estimates it is about $3 trillion per year. Yet in many ways health care transactions remain stuck in the past.
Health care transactions often involve multiple parties — including providers, insurers and consumers — and complex disclosures as invoices and explanation-of-benefits documents pass among parties. That leaves health care out of the payment mainstream.
"Between multiple billing entities within a single health care provider, to insurance payments that are indecipherable to demands for payments form entities that are unrecognizable, the health care payments environment is overly complex and demands an unreasonable amount of expertise from the patient," said Tim Sloane, vice president of payments innovation at Mercator.
Writing for PaymentsSource, Darci Guerrein, vice president of payment operations for GHX, said health care providers still believe manual payment methods are the better way to manage cash flow — but the actual cost of a complete invoice cycle is higher than digital processing, and has more delays.
As a result, GHX estimates more than three quarters of large health care providers still receive more than half of their payments via paper methods, even though it costs about $31 to manually process a health care check.
Seeing this opportunity, technology companies are investing in automation, including via M&A deals, consortia and high-profile hires.
BillingTree earlier this year hired Christine Lee, a digital transactions veteran and president-elect of the Electronic Transactions Association, to be its CEO. At BillingTree, Lee is helping oversee a project that attempts to tie together the different tasks involved in health care in a single automated gateway. BillingTree has combined its own billing technology with iPayX, a digital payment company that supports debit, credit, ACH, e-check, FSA and HSA payments with audit trails, documents and other billing and payment data.
As payment technology progresses quickly, merchant acquirers, issuers and processors have shown a strong desire to spend to add technology and skilled technology teams on the fly.
The FIS/WorldPay, Fiserv/First Data and GlobalPayments/TSYS deals showed a willingness to spend big to enter new markets, combine bank and merchant services technology and build scale to ward off fintech rivals.
Other M&A deals from the past few months, such as Visa's Earthport and Mastercard's Transfast, allow the established card brands to quickly build a foothold to support smaller cross-border e-commerce payments — a favored venue of new fintechs.
And Stripe earlier this year agreed to acquire Touchtech to add technology ahead of PSD2's strong authentication deadline in September, a troubling compliance challenge that many companies will miss. For Stripe, this is also a way to address strong authentication in other markets by adding a team of experts in new ID risk.
“Ultimately these horizontal acquisitions will bleed into health care,” Trilli said, adding there will be more deals in the future that involve health care payment companies.