- EHR giant Cerner has sold its underperforming revenue cycle management arm RevWorks to provider RCM player R1 for $30 million.
- With the deal, Chicago-based R1 is acquiring RevWorks' business and its commercial, non-federal client relationships, while Cerner will extend R1's EHR-agnostic revenue cycle capabilities to its clients and new prospects. RevWorks employees will have the option to stay on with R1, according to Wednesday's announcement.
- R1, which saw its stock jump Wednesday on the news, will shell out $30 million to Cerner in three installments between the close of the deal and its second anniversary. The deal is expected to close in the third quarter this year.
The multi-billion-dollar RCM sector has few players, but is expected to grow as hospitals struggling with suboptimal collections rates and weakening margins look to outsource back-end functions. Nearly 90% of hospitals either have outsourced or plan to outsource their billing functions this year, according to a 2020 Black Book report.
R1 has remained largely unaffected by the pandemic, reporting a revenue spike of more than 16% year over year in the first quarter to $321 million and profit of $18.2 million.
The 17-year-old RCM player has embarked on a campaign of inorganic growth this year to solidify its position in the unsaturated market, snapping up patient engagement player SCI Solutions in April. The acquisition of RevWorks allows R1, which has major provider clients such as Ascension and Intermountain, to expand further into the acute and ambulatory RCM markets.
RevWorks generates about $80 million in annual revenue across more than 150 clients and has an adjusted EBITDA margin between 25% and 30%, according to an R1 filing with the SEC.
Cerner, which brought in $5.7 billion in revenue last year, signaled on its fourth quarter earnings call in February it was considering divesting RevWorks. RevWorks lost its biggest client in October, as California-based Adventist Health announced it was calling off a revenue cycle outsourcing contract, resulting in a $60 million impairment charge for Cerner and costing the IT company some $23 million in revenue in the fourth quarter.
RevWorks has a history of negative reviews. In a June 2019 KLAS survey, more than 70% of RevWorks clients said they wouldn't use its RCM services again, saying it was costly, inexpert and slow-moving. Clients reported slight improvements in their relationships with Cerner in another KLAS report later that year, but said the product had not improved.
RevWorks has also contributed to financial losses for a handful of clients, sparking lawsuits and losing customers for Cerner as it continues to pivot away from its EHR legacy business and toward software as a service.
In 2017, a New York hospital lost $38 million when Cerner's billing system malfunctioned. The same year, a Wisconsin system sued Cerner after losing $16 million after implementing its billing system, alleging it was error-prone and clunky to use.
And, in February, Florida system AdventHealth said it was swapping out Cerner's RCM services with a platform from rival Epic as part of a complete EHR overhaul.
Cerner's stock remained largely stable on the announcement.
Correction: A previous version of the article misstated how much a Wisconsin system said it lost after implementing Cerner's billing platform. The system lost $16 million.