TripleTree - Revenue Cycle

HEALTHCARE REVENUE CYCLE
MANAGEMENT
A TripleTree Industry Analysis
SPOTLIGHT REPORT
WWW.TRIPLE-TREE.COM 7601 FRANCE AVE S, STE 150, MINNEAPOLIS, MN 55435 12526 HIGH BLUFF DR, STE 300, SAN DIEGO, CA 92130 952.253.5300
Q4 2006
TABLE OF CONTENTS
INTRODUCTION 3
MACRO ECONOMIC DRIVERS 4
HEALTHCARE REVENUE CYCLE - SECTOR LANDSCAPE 6
Provider Landscape 7
Payer Landscape 10
NEW INDUSTRY DYNAMICS AFFECTING THE HEALTHCARE REVENUE CYCLE 12
Consumer-Driven Health 12
Government Reform & the Growing Retiree Health Benefit Crisis 17
Regulatory Challenges 19
Offshore Services 21
PUBLIC AND M&A VALUATIONS 22
Public Companies 23
Merger & Acquisition Activity 25
CONCLUSION 27
REVENUE CYCLE MANAGEMENT, PAGE 1
THE TRIPLETREE TEAM 29
MINNEAPOLIS 952.253.5300 WWW.TRIPLE-TREE.COM SAN DIEGO 858.792.3406

Q4 2006
INTRODUCTION
It is well-known that healthcare companies are facing extreme pressures to reduce the cost of healthcare
while also improving the quality of care for patients. These goals are the central focus of a wide array of
technology initiatives throughout the healthcare industry, both in terms of significant advancements in
clinical solutions and continued efforts to streamline administrative costs. This report will focus primari-
ly on the administrative components that encompass the all-inclusive process of creating, submitting, an-
alyzing, and ultimately paying for patient medical bills - a very broad set of administrative services that
are commonly referred to as healthcare revenue cycle management.
A recent study conducted by researchers at Harvard Medical School and Public Citizen estimated that
31% of the $1.3 trillion in U.S. outlays for healthcare in 2003 was devoted to administrative paperwork.
This stunningly high percentage of "friction" and "transaction costs" persists and has given rise to a re-
newed focus on eliminating waste and reducing costs through the application of technology and out-
sourced services. However, like any compelling cause in the healthcare industry, these efforts have fre-
quently been challenged by the fractured and contentious nature of the industry itself, as well as
conflicting visions of new models that might be employed to solve the underlying problem. The result is
a vast and disjointed sub-industry of "revenue cycle" vendors that fall across several dozen distinct busi-
ness niches.
In an effort to understand how various companies are approaching the opportunity, TripleTree has inter-
viewed several dozen private and public companies in the sector to evaluate their strategies and solicit
input with regard to where emerging and established businesses are experiencing the most promising
growth opportunities. What we have discovered is a healthcare revenue cycle industry that contains sev-
eral hundred companies, employing a wide range of business models and product and service offerings.
In the analysis that follows, we will examine the macro-economic drivers that are creating opportunities
for revenue cycle vendors, illustrate the sector competitive landscape within both the provider and payer
sides of the revenue cycle, and also explore several of the common business models that we see taking
hold within various sub-sectors. We will also highlight many of the "big picture" trends that are creating
ripple effects across the entire industry, including:
the impact of Consumer-Driven Health (CDH) and how this new model is redefining
the fundamentals of the industry;
new opportunities created by the government reform of Medicare and Medicaid;
regulatory challenges and added complexities caused by the movement from ICD-9
to ICD-10 coding requirements;
the promise of cost reduction garnered from off-shore services and technology-enabled
process automation and auto-adjudication; and
how data collected in the revenue cycle may be used for other purposes, such as care
management and collaboration among industry stakeholders.

Q4 2006
MACRO ECONOMIC DRIVERS

Before we begin our discussion on the various func- Uninsured Patients: Financial pressures are
tions of the healthcare revenue cycle, it is impor- compounded by the increasing number of unin-
tant to understand the specific challenges facing sured patients seeking treatment. In 2002, 43.6
hospitals and physicians providing care million uninsured Americans received $77 bil-
("providers"), as well as the insurance companies lion in services from emergency departments
and managed care organizations paying for these and clinics, with waived fees accounting for $35
services ("payers"). billion.
It is no secret that healthcare costs have been in- Regulatory Pressures: Government regula-
creasing at an alarming rate over the last number of tions such as Sarbanes Oxley, the Patriot Act,
years. By several measures, healthcare spending is and the Health Insurance Portability and
rising faster today than at any other point in histo- Accountability Act (HIPAA) have far reaching
ry. In the provider market, rising costs and shrink- implications for how healthcare organizations
ing profit margins have created an unsustainable fi- will operate going forward. For example,
nancial position for many healthcare organizations. HIPAA has added a new layer of technology and
It is estimated that approximately one-third of all training costs for companies struggling to
U.S. hospitals are now operating on negative mar- comply with its complex requirements.
gins. 1 A number of factors are contributing to the
financial pressures facing providers in today's envi- Similarly, health insurers and administrators are
ronment: faced with their own set of challenges. Of the 5+
billion health care claims submitted each year in
Inefficient Administrative Processes: Redund- the U.S., more than 25% are still submitted on
ant data collection, manual processes, and paper and processed manually. Labor intensive ac-
repetitive rework of claims submissions all con- tivities associated with claims processing and call
tribute to a diminishing bottom line. It has center operations have resulted in transaction pro-
been estimated that 30% of all physician claims cessing costs as high as $25 per claim. These high
leave the office with errors; 15% somehow get administrative costs can be attributed to a number
lost. These inefficiencies are compounded by of internal and external market pressures:
the complexity of the system. Consider that
many patients, especially seniors on Medicare, Legacy Systems and Business Processes:
have supplementary health coverage with multi- Organizations using outdated processes and
ple carriers. Many hospitals have reported that legacy technologies are struggling with signifi-
as many as 80% of their claims invoke small cant backlogs and an inability to accurately pay
($100-$200) "secondary" claims that frequently claims in a timely fashion. Payers are facing in-
go uncollected or result in delays in reimburse- creasing demand for more flexibility in plan
ment. The sheer volume of these small second- design and higher levels of service while simul-
PAGE 4, REVENUE CYCLE MANAGEMENT
ary claims can create a "death by a thousand taneously lowering costs.

cuts" scenario that can have an enormous
impact on an institution's financial health. Limited Access to Capital: The ever-increas-
These administrative inefficiencies are causing ing volume of claims necessitates increasing
providers to explore new ways to conduct their network capacity to support processing and ad-
operations more effectively to enhance their po- ditional compliance issues. In addition, the
tential for long term financial viability. trend towards more complex and expensive to
administer managed care, as well as high deduct-
1 American Hospital Association, The Fragile State of Hospital Finances, March 2005.

Q4 2006
ible HSA products, is creating considerable

pressure among small and medium-sized health
plans. While larger players in the health plan
industry may have the internal resources to
build and manage systems that keep pace with
these trends, limited access to capital has hin-
dered the ability of smaller organizations to
scale as necessary to ensure efficient operations.
Shifting Market Dynamics: Consumer-Driven

Health (CDH) represents the most dramatic
shift in the healthcare industry since the rise of
managed care. As CDH initiatives gain accept-
ance in the market, payer organizations must al-
locate significant resources to adapt their prod-
uct offerings, internal procedures, and
supporting IT systems to meet this new demand.
The significant operational challenges facing

providers and payers have spawned the growth of
private software and outsourcing companies that
focus on improving the healthcare revenue cycle.
Although numerous vendors have offered financial,
administrative, and claims processing systems and
services for over twenty years, the intense scrutiny
on driving efficiencies and improved accountability
in the billing cycle has created a unique inflection
point for emerging growth companies.

Q4 2006
HEALTHCARE REVENUE CYCLE - SECTOR LANDSCAPE

The revenue cycle has historically consisted of dozens of disjointed processes within the payer and
provider environments. As illustrated in Figure 1, these tasks are performed across a multitude of soft-
ware, systems, and paper-based functions. Significant resources are required to not only integrate these
systems, but also enable interoperability with pharmacy benefit managers (PBMs), third-party administra-
tors (TPAs), and other third party technologies.
Figure 1: The Existing Healthcare Revenue Cycle - A Multitude of Intermediaries, Software, Systems & Paper
Provider Functions / Tasks Payer Functions / Tasks

Provider Functions / Tasks Payer Functions / Tasks
Technology
Technology Technology
Technology
Eligibility &
Authorizations OCR / Docu-
ment Mngt.
ion
Coding Tools &

grat
3r P
Scheduling
Scheduling Decision
Decision
d ar
Services Connectivity
Connectivity Claims Edit
n te
Systems
Systems Support
Support
ty I
Systems
Systems
I
Chargemaster
arty
Coordinaton
n te
Electronic of Benefits
3rdP
Electronic
grat
Claims Edit Medical
Medical
Records Physician
Physician Existing
ion
Records Practice Existing Payer
Payer Business
Business
Denial Mngt. Practice
Management Healthcare
Healthcare Adjudication
Adjudication Intelligence Fraud
Intelligence Detection &
Management Solutions Management
Accounting System Revenue System
Cycle System
Revenue Cycle Solutions
ion
System
OCR / Docu- Accounting
Systems
t
Systems
3r
gra
ment Mngt.
dPar
EOB
nte
Other
ty I
Network Other
ty I
Other Other
Peripheral
Contracting & Peripheral
n te
Peripheral Connectivity
Connectivity
Par Peripheral
Systems Referential
Management Systems
Systems
gra
3rd
Systems Content &
t
Tools
ion
Utilization Financial Transaction

Review Processing System
Medical Bill
Analytics Review
Technology vendors and outsourced service providers are utilitizing a variety of competing busi-
ness models and value propositions to penetrate the payer and provider markets.
Source: TripleTree
While the landscape on both the provider and payer sides of the aisle has historically been highly frag-
mented, we are entering a heightened period of consolidation. We believe this consolidation will be
driven by both the financial markets, premised on continued interest in the private equity and public
markets in outsourcing and transaction processing businesses, as well as a fundamental demand in both
the provider and payer markets for a few leading players to coalesce a comprehensive service or product
offering that addresses the challenges that customers face as they struggle with the complex process of
paying for healthcare.

Q4 2006
PROVIDER LANDSCAPE sourcing and software vendor community where

well over 200 independent companies focus on one
Although the numerous data and workflow ele- or more elements of the provider revenue cycle.
ments that tie into the revenue cycle on the The large number of vendors serving the provider
provider side of the ledger are interrelated, today market is compounded by the complex diversity of
these functional areas are frequently managed in business models that have emerged, even further
isolation. This reality is manifested in the out- fractionalizing the landscape.
Figure 2: Provider Landscape - Business Models and Functional Niches
Representative Pre-Encounter Patient/Doctor Encounter

PreFront -End
-Encounter Patient / DoctorEncounter
Patient/Doctor Encounter Back-Office
Back
Back -End
-Office
Business Models
Practice Management Systems, Denial Management,

Application Charge Master, Contract Management, EDI, Claims
Software/SaaS Access Management, Scheduling, Eligibility Coding, Regulatory Editing, etc.
Management, Benefit Authorization, Medical Compliance, Utilization
Necessity, ADT Systems, etc. Management
Content / Reimbursement Management
Analytics and Claims Analysis
Business Process Outsourced Coding, Medical Record Abstracting,

Eligibility Management, Referral Authorization, Specialized Services ((e.g. Length
- -of-Stay Management, Accounts Receivable Management, Bad Debt
Outsourcing and Benefit Authorization Processing Concurrent Denial Management, Medicare Management, EDI, Clearing- Houses
(BPO) Compliance, etc.)
Blended IT Data Center Management, Application Management, Records & Document Management,
Outsourcing & Transcription & Coding, and Billing/Accounts Receivable Management
BPO
Offshore N/A Transcription, Coding, and Radiology Billing and Accounts Receivable Management
Source: TripleTree
Other factors that contribute heavily to the level of market fragmentation include customer focus (i.e., small
physicians' offices, large physician group practices, hospitals, other ambulatory care centers, etc.) and special-
ization within certain payer environments (i.e., traditional managed care, Medicare, Medicaid).
In our efforts to pull together this report, we have swers lie within the interrelation of the functional
verified that most of the business categories identi- areas themselves, as well as within a more funda-
fied in Figure 2 are filled with anywhere from 10 to mental transition that TripleTree frequently refers
upwards of 30-40 independent companies. More to as the "convergence of technology and services."
importantly, as we enter the fourth quarter of 2006,
we have found that the market has now matured to HORIZONTAL INTEGRATION
the point where within this large universe of com-
petitors there are a few leaders that are building We think the first, and on its surface, the most logical
sufficient scale and reputation to become meaning- force of consolidation will center on the horizontal
ful platforms for consolidation. The interesting integration of functionality across the revenue cycle
questions are as this consolidation picks up speed, workflow. Common sense dictates that an increased
what pattern will it take, and what business model level of integration across these functional areas will
attributes will characterize the leading businesses enhance efficiencies and reduce the number of errors
in this sector 2-3 years from now. We think the an- that plague many provider organizations.

Q4 2006
Figure 3: Horizontal Integration
Pre -Encounter
Pre- Encounter Admin. Patient -Doctor Back -Office
Back-Office
Access
Access Mana
Management
gement Encounter Administration
Concurrent
ConcurrentDenial
Denial
Mgmt.
Mgmt.
/ / Practice Charge Bad Debt
Eligibility
Eligibility Medical
Length Mgmt.
Necessity Length of of Stay
Stay Mgmt.
Mgmt. System
Master Mgmt.
Referral Patient
PatientSelf
Self
- Utilization Coding Denial
Registry A/R Mgmt. EDI Mgmt.
Authorization
Auth. Registry Mgmt.
Patient
Patient
Benefit
Benefit Portals&&
Portals Regulatory Government
Government/Regulatory Contract Billing Claims
Authorization
Auth. Self
Self -Service
-Service Compliance Compliance Mgmt. Editing
Kiosks
Kiosks Compliance
Source: TripleTree
Although the notion of horizontally integrating sourcing companies are continuing to be blurred.
revenue cycle functionality makes sense, the reality In fact, essentially all of the business process out-
is that today only a small handful of companies par- sourcing (BPO) firms focused in the healthcare
ticipate in more than one silo, and to the extent sector are heavily dependent upon either their
they do, the breadth of their offerings is generally own, or third-party, technology and tools as the
limited to the "pre-encounter," "patient en- primary means of driving efficiencies and maintain-
counter," or "back-office/post-encounter" grouping ing margins. Although these "technology enabled
of activities. There is tremendous value, however, BPO" companies dominate most of the sectors out-
in capturing and processing accurate revenue cycle lined in Figures 2 & 3, we think its entirely possi-
data at the instant a potential patient contacts the ble that many stand-alone SaaS companies may ul-
provider and then managing and integrating the timately be consolidated by much larger
billing-related data elements for that patient from outsourcing companies.
the point of scheduling, through the doctor-patient
encounter, and through the billing and remittance Although we have yet to see a large number of BPO
process. While this drives tremendous ROI within companies acquire SaaS vendors, we would note
the revenue cycle itself, properly managing patient that we are experiencing an increased frequency of
insurance information at the very front-end of the inquiries from very large outsourcing firms that
process also serves as a "gate-keeper" for staff and today do not have a significant footprint in the
asset utilization within provider organizations. By healthcare sector. In evaluating opportunities to
managing "revenue cycle" information on an inte- aggressively enter the sector, they believe that
grated basis as each patient moves through the providers are in the early stages of reevaluating the
healthcare delivery process, rather than as a post- way they will manage administrative departments,
encounter administrative function, providers enjoy and that over time many will outsource significant
numerous benefits that extend beyond enhancing work to large BPO companies. This brand of out-
reimbursement rates and impact the efficiency of sourcing will go beyond utilizing a BPO company
the operation more broadly. for an isolated issue, such as processing Medicaid
eligibility, and will be dominated by larger players
THE CONVERGENCE OF SaaS & BUSINESS
who can be more holistic in their approach. In ad-
PROCESS OUTSOURCING
dition, the applications that will be utilized to
In addition to horizontal expansion, we are also in manage the processes will be designed so that there
a period where the lines of demarcation between will be a built-in flexibility to share functionality
software/technology companies and services/out- and "management dashboard and/or reporting

Q4 2006
capabilities with customers at varying levels of depth tion of rules that drive decisions regarding in-patient
and granularity depending upon the attitude of each versus out-patient care regimens. Many of the judg-
respective client. Premised upon this view of the ment calls in these areas can require collaboration
market, large outsourcers looking to enter the fray with hospital staff. Consider, for example, that some
see SaaS companies as strategically interesting both hospitals lose upwards of 5% of revenue due to clini-
for their installed bases as well as instant enablers of cal denials, much of which is driven by poor and un-
shared functionality and web services that will char- timely information sharing with payers.
acterize the new paradigm.
The central point is that as a patient moves through
Another important wrinkle to factor into the evolv- the healthcare delivery process, the revenue cycle el-
ing nature of business models in this sector is the ements of that experience vary widely in complexity
degree of complexity of each transaction relative to at various points in the process and based upon the
normal financial transactions - such as credit card payer relationships implicated. As a result, we firmly
processing. Where most financial transactions are believe that large BPO companies will emerge in this
"discrete" and "instantaneous", healthcare "transac- sector that can manage the entire "transaction," not
tions" can take place over long periods of time and just specialized sub-components of the overall
can involve the application of rules and regulations process. More importantly, we also believe these
of numerous stakeholders. Our point here is easier to BPO companies will utilize SaaS applications that
ascertain if one views a healthcare transaction from can be shared so that customers can customize which
the patient's point of view - which would include components they want to retain control of or manage
everything that happens from scheduling all the way on a shared basis with their BPO business partners.
through the healthcare delivery process - not just the
final adjudication of a claim. The implication of this In our view, the consolidation and evolving business
heightened level of complexity is that although there model dynamics described above are occurring at a
is a continued and steady march towards automation, time when most of the sizable incumbents in HIT are
it is unlikely that technology will ever fully automate largely focused on the burgeoning opportunity to
highly complex healthcare transactions from the assist providers in enhancing their clinical capabili-
point of scheduling all the way through the en- ties and building out regional health information or-
counter, billing and collections process. In fact, even ganizations (RHIOs) - a process frequently referred
the most progressive revenue cycle software compa- to as "clinical transformation." Clinical transforma-
nies that we interviewed for this report were perfect- tion and RHIOs are a hot topic today, and a source of
ly comfortable admitting that they see a growing considerable growth, so it is understandable that the
need and role for outsourcers who can effectively uti- traditional HIT companies are very focused in these
lize technology and specialized applications to deliv- areas. However, their concentration on the clinical
er value to provider customers. information sharing side of the equation has created
running room for emerging firms to build scale and
For example, certain sub-components of a health- pursue acquisitions that extend reach into adjacent
care transaction are likely to be elevated out of the and complementary revenue cycle functions.
core software system for purposes of "exception man- Although the HIT market, especially within the hos-
agement," where skilled human beings need to apply pital sector, has been characterized for quite some
reasoning and judgment to a particular set of facts. time as dominated by a handful of large incumbents,
Examples of this are common in the context of we believe the competitive running room in the rev-
Medicare, where complex rules regarding "medical enue cycle niche will create substantial companies
necessity" require skilled people to participate in that will have real staying power in the sector.
"care management" functions that touch upon key el-
ements in the revenue cycle, including concurrent
denial review, "length of stay" decisions, and applica-

Q4 2006
PAYER LANDSCAPE the pre-and post-adjudication activities that are

the focal points for large numbers of private com-
Similar to the provider market, a number of emerg- panies.
ing growth companies are finding significant
demand for payer-focused revenue cycle solutions. Slow Migration Toward Information
The payer market has historically been dominated Infrastructure & Web Services Enabled
by a limited number of leading technology vendors Data Management
and outsourcing service providers offering claims
processing services to health plans and third party Consistent with the notion of consolidating func-
administrators. For example, technology vendors tionality across the claims processing workflow is a
such as TriZetto and Amisys Synertech have well-es- broader class of opportunity that centers on creat-
tablished enterprise applications that allow payer ing an electronic communications infrastructure
organizations to automate their claims adjudication that will enable the sharing of information across
function. Similarly, large IT outsourcing compa- disparate systems, databases, and stakeholders - in-
nies such as ACS, EDS, Perot Systems, and DST cluding the creation of common informational
have developed strong claims processing capabili- databases such as master patient indexes. Current
ties and long term customer relationships in both examples of companies that are participating in
the commercial and government markets. this evolution include RxHub, Quovadx, and
MEDecision. Although the various approaches
Although the above referenced large vendors and taken by these emerging companies differ signifi-
outsourcing firms dominate the claims processing cantly, there is a common interest in integrating
sector, we believe there are attractive opportunities disparate data (i.e. provider, patient, prescription,
for emerging firms arising from the gradual merging claims, etc.) and through the deployment of cen-
of services and functions across the payer workflow. tralized databases or web services, proliferate this
Specifically, functions such as claims editing, COB, information to participating stakeholders.
fraud detection, and subrogation, which tradition-
ally have been identified as either "pre-adjudica- The outputs of this evolution will create benefits
tion" and "post-adjudication" activities, are becom- on two fronts. First, as the underlying information-
ing embedded into the core processing function so al infrastructure is enhanced by the deployment of
that the lines of demarcation among the various web services and common informational databases,
steps in the workflow are becoming less pro- it will become feasible to exchange increasing vol-
nounced. In addition, the movement towards umes of data in real-time. On its surface this
hosted transaction processing systems is creating sounds obvious, but today the notion of verifying
opportunities as new players in this sector are not provider and payer information, and marrying this
burdened by legacy costs. Figure 4 outlines some of data in real time with medical necessity checks,
Figure 4: Melding of Functions Across Claims Processing Workflow

Provider Back- Post Adjudication

Post --Adjudication
Pre -Adjudication
Pre-Adjudication Claims
ClaimsAdjudication
Adjudication Fulfillment, Post Payment
Office Function Fulfillment, Post Payment Review,
Mail
MailRoom,
Room,
Data
Repricing,
Entry, Claims
ClaimsEdit
Edit Review, COB, Subrogation,
Data Mining & Analytics
Data Mining & Analytics
Historically, the adjucication function

Historically, the adjudication function has been
has been dominated
dominated by long by long
-established
- established
competitors such
Emerginggrowth
Emerging growthcompanies
companiesareare competitors such
as Trizetto as Trizetto,
, Perot, DST, and Perot,
Amisys.DST, Additional high-
Additional high growth
-growth opportunities
opportunities
finding betteropportunities
finding better opportunitiesinin and Amisys. have emergedininpost
have emerged -adjudication
post--adjudication
editing,
editing, repricing
repricing,, and
and other
otherpre
pre-- functions suchasasdata
functions such dataanalytics,
analytics,
adjudication functions.
adjudication functions. clinical spendanalysis,
clinical spend analysis,and andfraud.
fraud.
Source: TripleTree

Q4 2006
coordination of benefits, coding edits, subrogation, hanced data sharing and coordinated care manage-
fraud detection, etc., is an impossible task for most ment among various stakeholders. Although these
organizations. As the market continues to evolve, market forces are sufficient to create large opportu-
we expect a continued emphasis on building out an nities for emerging companies, we already see fur-
efficient and shared informational infrastructure ther propulsion of these initiatives being driven by
will be the hallmark of many of the more interest- the evolution towards consumer-driven health
ing companies that emerge over the next 12-24 plans and the continued increase in the percent of
months. claims that are implicating various government
sponsored programs such as Medicare and Medicaid.
Second, the migration towards web services will
enable numerous activities among industry stake-
holders that have been hamstrung by the inability
to coordinate data across multiple payer and
provider activities. For example, a comprehensive
view of patient data enables a string of integrated
care management activities such as stratification of
clinical and financial risk, disease management, pa-
tient and provider analytics, and informational ex-
changes among patients, providers, PBMs, employ-
ers, government agencies, and commercial payers.
As the market continues to evolve we believe nu-
merous companies will emerge as data aggregators
and integration sources that will push content and
information through to various stakeholder portals
where it can be captured and utilized for disparate
purposes. For example, prescription drug informa-
tion can be aggregated and disseminated to phar-
macies, doctors, disease management services firms,
and other stakeholders, all of whom have a differ-
ent requirement for the information. We believe a
handful of leaders will emerge as information back-
bones that will enable a federated approach to data
sharing in line with numerous fundamental shifts
in the market relating to evolving models for popu-
lation health management.
We believe the payer market will continue to

evolve along two primary paths. Companies cur-
rently focused on the specific "functional" areas

such as subrogation, coordination of benefits, and
editing will continue to be consolidated within the
central transaction processing function as core pro-
cessing engines are modernized and migrate to-
wards hosted and web native technologies. In par-
allel, we will see interesting "data enablement"
companies flourish as their business models mature
in line with an enormous market place need for en-

Q4 2006
NEW INDUSTRY DYNAMICS AFFECTING THE HEALTHCARE REVENUE CYCLE
CONSUMER-DRIVEN HEALTH As the industry looks to improve on the inefficien-

cies of the healthcare revenue cycle, new industry
dynamics are presenting additional challenges to an already complex process. As noted in the previous
section, Consumer-Driven Health ("CDH") has emerged as a new approach to the traditional managed
care system, shifting payment flows and introducing new "non-traditional" parties into the claims pro-
cessing workflow. As market adoption enters the mainstream, CDH stands to alter the healthcare land-
scape more dramatically than anything we have seen since the advent of managed care.
At its core, CDH places more financial responsibility on the consumer to encourage value-driven
healthcare spending decisions. Tax-advantaged spending accounts such as Health Reimbursement
Accounts (HRAs) and Health Savings Accounts (HSAs) are used to place consumers at the center of the
decision-making process. In theory, this approach creates incentives for consumers to seek cost-effective
care and encourages behavior changes that contribute to better outcomes and additional long-term cost
savings. CDH programs have experienced rapid growth over the last few years as employers and con-
sumers continue to recognize the benefits of this new, patient-centric model.
Figure 5: Shifting CDH Market Dynamics from Traditional to Non-Traditional
The healthcare industry is experiencing a shift from the -

...to a consumer-centric model in which individuals have more control
traditional managed care model... and responsibility over their healthcare spending.
Employers
Employers Government
Government
Employers
Employers Insurers
Insurers Government
Government
Insurers
Insurers
Managed Care Financial

Consumers
Consumers Financial
Institutions
Institutions
Hospitals
Hospitals Outpatient
Outpatient Physicians
Physicians
Services
Services
Consumers Hospitals
Hospitals Outpatient
Outpatient Physicians
Physicians
Consumers Services
Services
Source: TripleTree
EVOLVING PAYMENT FLOWS UNDER THE plan (directly or through a clearinghouse)

CDH MODEL for processing. The claim is adjudicated and
re-priced within the carrier's claim system
As CDH programs gain momentum, new payment with payment remitted back to the provider.
mechanisms are shifting the roles and responsibili-
ties of various participants throughout the health- (2) A d j u d i c a t e d C D H P a y m e n t s - Under the
care revenue cycle. Figure 6 illustrates the evolving CDH model, claims are first adjudicated
payment flows associated with this new consumer- against the patient's high-deductible plan.
driven model. For purposes of comparison, we have Once a benefit has been identified, a sec-
identified four distinct payments under both tradi- ondary adjudication occurs against the
tional plans and consumer driven accounts: CDH-specific rules that determine the pa-
tient's liability. This secondary adjudica-
(1) "Traditional" Payments - Under the tradition- tion will identify the appropriate account
al processing function, a claim is submitted for payment and send a payment instruc-
by the provider to the appropriate health tion to either the financial institution (for

Q4 2006
HSA accounts) or the carriers payment As illustrated in Figure 6, these evolving payment
system (for HRA/FSA accounts). flows are introducing new, "non-traditional" com-
petitors to the healthcare value chain. Increasing
demand for CDH products has, for the first time,
(3) C o n s u m e r D e b i t C a r d P a y m e n t s - D e b i t led health plans and financial institutions to be
cards are attracting a great deal of interest in partners or competitors for an array of new business
today's market as a convenient method for opportunities. In addition, PBMs, payment proces-
timely payments. In this transaction, the pa- sors, and others are positioning themselves in vari-
tient presents their card either at the point ous segments of the CDH revenue cycle.
of service or upon receipt of their EOB, and
payment is transferred directly to the The potential impact of this model on the econom-
provider from the consumer's account. ics of healthcare is tremendous. As healthcare pay-
ments are redirected through CDH accounts, bil-
(4) Direct Account Payments - Direct account lions of dollars are at stake across a broader
payments are an alternative to debit cards, competitive landscape. New revenue opportunities
where funds are approved and transferred be- include CDH account management, asset manage-
tween accounts through an online portal. ment, benefit administration services, and pay-
This approach would be analogous to a ment/transaction processing. Industry executives
"Paypal"-type model. are exploring options to capture this new revenue,
solidify customer relationships, and create barriers
to entry in this developing new market.
Figure 6: CDH Payment Workflow
Core Administration
Systems Vendor
Health
Health Plans
Plans
(1) HRIS / Payroll
Claims Enrollment TPA s Software
System System
Healthcare
Healthcare
Providers
Providers (2) Outsourced Administration
Payment System
Employers
Employers
(4) Rx Administration
CDH Administration Outsourced Benefits

Pharmacy Benefit
Platform (4) Mgrs (PBM)
Administration
Re
HSA FSA HRA bat
es
(4) (2) Pharma

Under the new CDH model, payment flows are

(2) redirected to incorporate financial institutions and direct
Transaction Financial consumer payments. Payment flows now include:
Patient
Patient Institutions
Processors
(3) (1) Traditional Payment Flow
HSA Trustees
(2) Adjudicated CDH Claim Payment
(3) Consumer Debit Card Payment
(4) Direct Account Payments
Source: TripleTree

Q4 2006
IMPLICATIONS FOR THE PAYER MARKET Healthcare transactions, on the other hand, in-
volve more complicated payment instructions that
From an insurer's perspective, CDH minimally rep- must be reconciled with the member's plan-de-
resents a challenge to preserve existing member- signed rule sets. Accurate payment processing re-
ship by offering flexible CDH products to meet em- quires the ability to apply eligibility rules to "look
ployer demand. Enabling these products, however, back in time" and determine a member's status at
requires domain expertise, new software technolo- the time of service. Additional rules must be ap-
gies, and significant changes in the business plied to determine the appropriate order of pay-
processes of health plans. For example, legacy ments for members with more than one account.
claims systems often lack the flexibility to address As a result, new market entrants looking to provide
the added complexity of CDH accounts. As a comprehensive CDH administration must extend
result, a number of plans are administering CDH their traditional transaction processing expertise to
programs manually at a significant operational loss incorporate these new functions.
in the marketplace. Rapid industry growth is com-
pounding the problem as insurers scramble to retro- Certain outsourced service providers have already
fit their legacy processing systems. positioned themselves to offer these services to the
payer and employer markets. Earlier this year,
Another challenge for the payer market is the in- TripleTree represented CareGain, Inc. - a leading
creasing competition for claims processing revenue. technology platform for the administration of CDH
As noted above, the CDH model introduces for the programs - in its strategic sale to Fiserv Health.
first time certain "non-traditional" entities into the CareGain had developed a comprehensive solution
healthcare revenue cycle. Financial institutions to "bridge the gap" between health insurance and
and transaction processors are looking at CDH as a financial services by allowing health plans to com-
tremendous opportunity to capture new revenue bine claims and enrollment systems with financial
streams by extending their processing networks account management. In coordination with Fiserv
into the healthcare industry. Health's growing TPA business, the combined
entity is equipped to provide innovative plan de-
We should note, however, that financial transac- signs, integrated decision support tools, and full ad-
tion processing networks are not directly transfer- ministrative capabilities across its customer base.
able to the healthcare industry. Banks and other
transaction processors have not historically had to CDH Changes the Way Payers View
incorporate healthcare concepts such as eligibility Member Acquisition & Member
and benefit rules. Financial transactions generally Retention
involve much simpler debit instructions that main-
tain the balance of an account over time. As healthcare consumerism gains traction, payer
organizations are also faced with a fundamental
Financial Transaction
TransactionProcessing
Processing Healthcare
Healthcare Transaction
TransactionProcessing
Processing
Financial transactions generally involve simple debit Healthcare transactions require the integration of
instructions that apply deductions and maintain balance plan designed benefit rules, eligibility, and order of
through time. payment rules for multiple accounts.
Involve simple rules such as transfers, terminations,
terminations, Failure to incorporate plan based rules results in
etc. inaccurate payments that must be reconciled with
No historical balance processing capabilities; unable to payer repricing.
look to previous eligibility status at earlier date to insure
processing according to rules .

Q4 2006
shift in customer expectations and their ultimate Although Connextions is not a healthcare revenue
value proposition to the market. Historically, cycle company per-se, its reference is appropriate as
health plans have operated under a "transaction- evidence of how CDH is a driving force in chang-
centric" model, driven by individual claims and ing the way revenue cycle data is being used in the
supported by a centralized processing function. market. Specifically, Connextions aggregates
CDH is creating a new "consumer-centric" environ- claims and related predictive risk modeling and
ment, under which payer organizations must reeval- wellness data from payers and analyzes it to enable
uate their approach towards member acquisition various member acquisition, member administra-
and member retention. As consumers become more tive, and clinical care services. The distinguishing
involved in selecting their health insurance and difference emanates from Connextions' ability to
more active in evaluating providers, health plans create a common view of the data across all of
are being forced to rethink their member acquisi- these disparate functions. Equally as important is
tion and retention strategies. the payer's reorientation to the data such that back
end clinical services are envisioned as
Connextions, a $70M healthcare outsourcing com- customer/member retention tools for individual pa-
pany located in Florida, is a unique example of an tients who increasingly will factor their experience
emerging leader in helping payer organizations with these back end services into their future deci-
evolve with the migration to CDH and government sions regarding health coverage. Although well-
sponsored health plans. The company has succeed- ness services and care management will always be
ed in large part due to the sophistication of its focused on utilization and cost reduction, we be-
Integrated Care Coordination System (ICCS), lieve these services will increasingly be tied to
which it uses to aggregate, analyze, and disseminate "member satisfaction" and "member retention" as
member/patient data across the full array of admin- individuals with the power to choose their health
istrative and clinical functions that constitute the insurance become an increasingly important part of
healthcare consumer lifecycle. the equation.
Figure 7: Connextions Integrated Care Coordination System
Member Acquisition Member Services & Analytics Clinical Care
Application Member Predictive Health Care

Processing Orientation Intelligence & Services Modeling Improvement Coordination & Management
d Direct PEvidence--based
PLicensed Agents PWelcome Calls PSatisfaction ?PClaim / Pharma P?Field
FieldCase
Case
es PEligibility ?PPersonalized Disease Managers
Surveys Data Managers
? POutreach / Lifestyle Training Management
/ PeSignature Aggregation
Engagement PProvider P?Psycho
Psycho/ /Social
Social
App.s ? eSignature PDisenrollment ?PAutomated P Personal Care
Selection Support
Support
PeUnderwriting Surveys P
? Health Risk Prevention Alerts Nurses
PAnnouncement
les Reps ? PClaim Status Assessments
Campaign PAnalytics P?Utilization

Utilization
PBrokers / ?PEPSDT Follow-up PIndividualized Management
? Product P Management
Agents App.sUpsell PSystems PBenefit ? Risk Scores Care Plans
all PHEDIS ?PTriage / Demand
Navigation Questions P?Intensive
Intensive
eetings PProduct Upsell Gathering P
? Clinical Profiles Management POutcome Counseling
Counseling
Reporting
- End-to-end Integration of data, content and operational services -

Connextions ICCS technology and data analytical services solve one of the biggest challenges for
healthcare organizations today - the integration of patient/member data and management services
across the entire healthcare consumer life cycle.
Source: Connextions

Q4 2006
IMPLICATIONS OF CDH FOR THE By integrating patient scheduling and revenue

PROVIDER MARKET cycle administrative processes, SCI Solutions en-
As high deductible plans gain acceptance among hances the "front door" experience provided by hos-
healthcare consumers, consumer-driven health is pitals and physician clinics, improving service
forcing hospital executives to view their organiza- levels and customer satisfaction during the pa-
tions as a more traditional retail business. Price, tients' first interactions with the health system. In
quality, and customer service become more impor- addition, the platform's integrated revenue cycle
tant factors for success as consumers take charge of functions drive tremendous ROI by minimizing
their health spending decisions. errors in patient billing and maximizing reimburse-
ments. Similar to our discussion of Connextions
One way providers are preparing for this new reali- above, the movement towards CDH is causing
ty is by improving their front end access manage- providers to take revenue cycle information/func-
ment function. As the first point of contact with tions and integrate them into their customer rela-
potential customers, improved service levels at the tionship management philosophy.
front end will be an important differentiator in the
consumer driven world. Technology vendors are Another significant challenge for providers in the
meeting this demand with patient self-service ap- CDH environment is controlling bad debt. As fi-
plications that allow consumers to schedule ap- nancial responsibility shifts to the consumer under
pointments, complete registration information, and high deductible plans, providers are seeing an in-
pay bills conveniently through the internet. crease in denials as claims below the deductible are
returned as "zero payments." Providers must there-
In addition, providers are recognizing the value of fore redesign their information systems and collec-
collecting and processing revenue cycle data before tion procedures to accommodate these self-pay ac-
services are rendered, preferably at the time of counts.
scheduling. By verifying active insurance coverage,
medical necessity, and authorizations/referrals at Certain payers are trying to alleviate this risk for
the point of scheduling, providers can accelerate providers by offering automatic payment programs
cash flow and significantly enhance the quality of for more efficient collections. UnitedHealth Group,
the experience for a patient who is accessing the for example, introduced a program in which the in-
health system. In the new CDH paradigm, the surer will pay the provider directly for services as
quality of the initial interaction between the pa- soon as a claim is processed. UnitedHealth will
tient/consumer and the provider organization is a then act as a creditor to the member, collecting
component of acquiring and retaining the patient payments (plus interest) through payroll deduc-
as a repeat customer. By streamlining and bundling tions in coordination with the member's employer.
the financial administrative elements of the patient
visit that are frequently a source of delay and frus- Similarly, Empire Blue Cross Blue Shield has part-
tration into the providers customer relationship nered with American Express to offer a healthcare
management strategy, hospitals and clinics create line of credit to Empire members with HSA ac-
an opportunity to reduce administrative costs while counts. When patients swipe their card at the
also enhancing their ongoing revenue opportunities doctor's office, Empire processes the claim and pays
with patients. the insured portion while the remainder is billed to
the patient's credit card. These types of programs
For example, SCI Solutions has developed a leading allow providers to shift collection risks to payers in
access management platform in the provider exchange for discounted services.
market, offering streamlined pre-encounter admin-
istrative functions which fully integrate all of the
required revenue cycle administrative functions.

Q4 2006
GOVERNMENT REFORM & THE GROWING entry for smaller firms looking to compete for these
HEALTH BENEFIT CRISIS accounts.
Like the commercial market, government health-
Medicare Overview
Medicare Overview
care programs such as Medicare and Medicaid have Managedby
Managed byFederally
Federally Managedby
Managed byCommercial
Commercial
been under growing pressure to lower costs and im- SponsoredIntermediaries
Sponsored Intermediaries HealthPlans
Health Plans
prove the efficiency of their operations. Aging Part A: Part C:

Hospital insurance program to pay for Medicare Advantage plans such as HMOs,
baby boomers are expected to place unprecedented inpatient, nursing facility, and hospice care. PPOs, and Private Fee-for-service.
45% of Medicare spending in 2005 15% of spending in 2005
burdens on these programs over the next several
Part B: Part D:
years, with fewer workers per beneficiary to support Supplementary insurance for physician, Prescription drug benefit program
outpatient, and preventative services.
them. The challenge of funding our government 35% of Medicare spending in 2005
Introduced January 2006
healthcare budget has prompted significant legisla-

tive initiatives that are altering the competitive Despite the relatively static nature of this competi-
landscape for technology vendors and outsourcing tive environment, recent legislative initiatives
companies serving these markets. have presented new opportunities in the govern-
ment sector. In particular, the Medicare
Over the last several decades, a number of well-es- Prescription Drug and Modernization Act (MMA)
tablished service providers have built strong busi- of 2003 created a number of new incentives for
nesses by serving the government sector. Large commercial insurance companies to participate in
outsourcing companies such as CSC, ACS, Unisys, privatized Medicare.
and EDS have developed strong track records for
managing the many complex rules and evolving The basic premise of privatized Medicare is to
regulations associated with Medicare and Medicaid leverage the private sector's ability to provide care
programs. These outsourcing arrangements gener- at a lower cost, while also providing beneficiaries a
ally involve long-term contracts between the serv- broader set of services than what is available under
ice provider and intermediary to manage the entire traditional Medicare. These plans were originally
claims processing function - including the support- termed "Medicare + Choice", and renamed
ing IT infrastructure. Due to the complexity of Medicare Advantage by the MMA in 2003. After a
Medicare/Medicaid processing, state and federal period of declining enrollment between 1998 and
programs have been reluctant to disrupt these long- 2003, the MMA created more attractive reimburse-
term relationships. As a result, these providers ments and other incentives to encourage private
have been able to create significant barriers to plan participation in the program.
Figure 8: Shifting Medicare Benefit Payments Resulting from Part D (2004-2010)
Medicare Benefit Payments FY2004 = $295 Billion Medicare Benefit Payments FY 2010 (Projected) = $519 Billion
Home Health, 4%
Health Plans (Part C), Prescription Drugs, Physicians and Other
14% 20% Suppliers, 18%
Physicians and Other
Hospital Outpatient,
Hospice, 2% Suppliers, 26%

5%
Skilled Nursing Home Health, 4% Other Part B
Facilities, 5% Benefits, 4%
Hospital Outpatient, Health Plans (Part C),
5% 14%
Other Part B
Hospital Inpatient, Benefits, 5% Hospice, 2% Hospital Inpatient,
39% 29%
Skilled Nursing
Facilities, 4%
Part A Part B Parts A & B Part D
Part B
Source: Congressional Budget Office, Medicare Fact Sheet, March 2005; The Henry J. Kaiser Family Foundation, Medicare Chartbook, Third Edition, Summer 2005.

Q4 2006
As commercial payers begin to target these new As a result, we have seen a handful of private com-
revenue opportunities, Medicare Advantage is ex- panies emerge to provide the technology and out-
pected to experience significant growth over the sourced administrative support for managed care
next 5-10 years. There are currently more than organizations interested in participating in priva-
five million seniors participating in Medicare tized Medicare and Medicaid. Experienced service
Advantage, representing approximately 12% of providers can apply government expertise and
total Medicare beneficiaries. These figures are ex- economies of scale needed to simplify the many
pected to increase substantially over the next few complexities of these programs in a cost-effective
years, with 2013 projections ranging from 16% to manner.
30% of the total Medicare membership base.
Payers are already preparing for this projected Similar to our observations in the commercial
growth, as demonstrated by the 60%+ growth in market, these firms are employing varied go-to-
total plans offered during 2005. market strategies in serving the government sector.
While some service providers might focus on a par-
In addressing this rapid growth, commercial payers ticular niche, others are taking a more holistic
are faced with additional capital expenditures and BPO approach for all Medicare-specific administra-
other hurdles for effectively operating these gov- tive services. These services include enrollment,
ernment programs. The plans are highly regulated, premium billing, eligibility, call services, and a
making compliance and administration particularly wide range of data interfaces across a customized
complicated. Eligibility, billing, and reporting re- technology platform.
quirements are all significantly more complex than
traditional plans, resulting in higher administrative Figure 10: Medicare Advantage Plans
costs.
400
Figure 9: Share of Medicare Beneficiaries 350
Enrolled in Medicare Advantage Plans
Number of Plans
300
35% 250
.4%
60
200
30% HHS
HHS
150
25%
100
20% 50
CBO
CBO
0
15%
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
10% Source: Kaiser Family Foundation, Medicare Advantage Fact Sheet, September
2005; CMS, Medicare Managed Care Contract (MMCC) Plans Monthly
5% Actual Projected Summary Report.
0%
1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 In addition to the growth in the core Medicare
Advantage PPO sector, we believe that Medicare

Medicare Advantage Fact Sheet, September
Source: Kaiser Family Foundation,
2005; CMS, Presidents FY 2006 Budget; CBO, March 2006. private fee for service (PFFS) will also experience
tremendous growth due to mounting pressure faced
In addition, Part D has introduced an entirely new by many large employers, unions, and state govern-
set of complex rules that must be applied to this ment agencies that have self-insured retiree health
new benefit. Payers have needed to incorporate benefit plans. It is estimated that approximately
these various capabilities quickly to gain early foot- 13-15 million senior citizens receive supplemental
ing in the market. insurance coverage through employer sponsored re-
tiree health plans. It is also widely known that

Q4 2006
these retiree health programs are massively under- Coding plays an integral role in today's healthcare
funded, and that nearly all, if not all, states will be environment, serving as the basis for disease and
unable to pay for the health benefits that have illness classification. Consistent coding practices
been promised to the approximately 5-6 million re- provide reliable data sets that can be used to meas-
tired public employees - with some analysts esti- ure the quality of care, conduct research, and even-
mating that the future benefit outlays exceed cur- tually provide better information to the market-
rent funding by hundreds of billions nationwide. place as we move toward more consumer-driven
healthcare initiatives.
Although the new Medicare Advantage PFFS offer-
ing is not a panacea for this crisis, the program From the standpoint of patient accounting, coding
does present some significant advantages for retiree also allows for a common language between
benefits administrators seeking to reduce future providers and payers during the reimbursement
costs. For starters, the PFFS option allows the re- process. Accurate coding procedures limit the
tiree plan administrator to offer supplemental cov- number of denied claims due to inaccuracies, there-
erage using one uniform plan nationwide, enabling by optimizing cash flow and managing accounts re-
enrollees to access any provider that accepts ceivable.
Medicare. Uniform benefits, enrollment proce-
dures, and member services irrespective of geo- Figure 11: Healthcare Regulatory Environment
graphic location substantially lower costs by elimi-
nating the need to manage different supplemental ICD-9-CM
International
plans within each state or region where enrollees Classification of
Diseases, Ninth
Revision, Clinical
may seek healthcare. As employers and state offi- Modification APC
LMRP
cials look for solutions for their retiree health ben- Local Medical
Ambulatory
Payment
Classification
efits programs, we believe there are tremendous Review Policy
Codes
growth opportunities for healthcare outsourcing

companies that can guide them through this evolu- Regulatory
tion and play a meaningful role in maximizing the Environment NCCI
OCE National Council
benefits of the emerging Medicare Advantage Outpatient Code on
Compensation
Editor
Insurance
models. In addition to playing an integral role in
helping these organizations select the most cost ef-
ficient solution, outsourcers will also bring signifi- HCPCS CPT--4
Healthcare
Common Current
cant economies of scale to the forefront which will Procedure Procedural
Coding System Terminology
allow them to support or fully take over the burden
of operating and administering these new programs.
Source: TripleTree
REGULATORY CHALLENGES
In the United States, the International
Providers are faced with a myriad of regulatory re- Classification of Diseases, Ninth Revision (ICD-9)
quirements, consisting of evolving classification has become the core classification system used by
codes, terminologies, and reimbursement policies. provider organizations to code claims for public
From a revenue cycle perspective, up-to-date regu- and private health insurance reimbursement. This
latory content is paramount to insuring appropriate system is used not only for payment justification,
billing in a clinical context. Unfortunately for but also disease and illness classification, indexing
many provider organizations, upcoming modifica- of patient records, and basic industry research.
tions to the industry's regulatory environment are Over the last several years, however, advances in
expected to further complicate these matters over medicine and the identification of new conditions
the next few years. has extended ICD-9 beyond its intended capacity.

Q4 2006
Due to the limited configuration of ICD-9, the in- Although the timing for the shift from ICD-9 to
dustry has been planning the implementation of ICD-10 is a source of considerable debate,
ICD-10 to provide a more detailed framework for TripleTree sees significant growth opportunities for
coding and classification. The expanded levels of companies focusing on coding within the broader
specificity created in ICD-10 are expected to have context of Coding, Compliance & Reimbursement
a significant impact in terms of more accurate re- Management (CCRM) services. The potential
imbursements and fewer rejected claims. More pre- value of integrated CCRM practices increases ex-
cise documentation will also enhance the reporting ponentially when one considers that this function
of quality improvement metrics to better under- lies at the intersection of three primary sources of
stand outcomes and the effectiveness of certain content (see Figure 13). In addition to the natural
procedures. correlation between regulatory procedures and the
revenue cycle, integrated CCRM solutions are also
Figure 12: ICD-9 / ICD-10 Coding Comparison
uniquely positioned to aggregate valuable clinical
data at the point of care.
Diagnosis Usage Codes
Procedure Usage Codes Figure 13: CCRM Data Environment
200,000
150,000
s
de
Clinical Data
f I ase
co
D
r o re
C
be nc
100,000
m di
nu cte
in xpe
E
50,000 CCRM
Regulatory
Procedures Revenue Cycle /
0 Billing
ICD-9 ICD-10
Source: Licbicki, Martin; Brahmakulam, Irene, The Costs and Benefits
of Moving to the ICD-10 Code Sets. Source: TripleTree
As would be expected, this new system is several From a content perspective, access to both clinical
orders of magnitude more complex than its prede- and administrative data sets can be leveraged in
cessor. Successful transition will require signifi- many different ways. For example, clinical data
cant modifications to existing healthcare IT sys- needs to be interlinked with payment data to facili-
tems, new tools for analytics, and a tremendous tate the medical necessity aspect of reimbursement.
amount of training for these new requirements. Clinical data can also be used to monitor the cor-
relation between patient outcomes and various care
The costs of this transition will be significant. A regimens. Physicians can use this data to improve
recent study for the Blue Cross/Blue Shield quality and insure compliance with the increasing
Association estimates the short-term costs (2-3 number of payer "pay for performance" programs.
years) to be between $5.5 and $13.5 billion. In ad- Patient safety is also improved through better com-
dition, ongoing costs due to loss of productivity are munication, coordination, and consistency across
expected to be between $150 and $380 million an- the provider organization's compliance efforts. In
nually. At a time when providers are already pre- short, the ability to leverage clinical content
occupied with challenges around HIPAA and the within a provider's CCRM practice creates value
adoption of electronic health records, this added across the full range of healthcare stakeholders who
complexity will be very taxing on organization have an interest in lowering the overall cost of
making this transition. care.

Q4 2006
We also see a large opportunity for emerging natu- service providers have also made substantial invest-
ral language processing engines (NLP) to eventual- ments in technology to adhere to the strict privacy
ly replace the scores of coders that are currently regulations associated with HIPAA and other re-
engaged in the process of converting clinical charts quirements.
and dictation notes to code compliant and reim-
bursable events. Although NLP and voice recog- As a result of these improvements, the offshore de-
nition technologies are still somewhat unproven, livery model is gaining acceptance across many as-
over time we believe software will be able to scan pects of the healthcare revenue cycle. Improved
written and orally dictated doctor notes and ab- service levels and the resolution of privacy con-
stract the relevant clinical content into CPT and cerns have allowed service providers to stave off
ICD compliant codes. Although this transition commoditization and expand up the value chain.
will likely take years to complete, eventually we Transactional services now include certified med-
believe software will bear much of this burden and ical coders, medical billing, and blended
significantly reduce costs associated with regulatory voice/transactional services for healthcare claims
compliance. processing. Clinical data management and disease
management analytics have also been pulled into
OFFSHORE SERVICES the fray to survey program effectiveness and assist
with strategy implementation.
The benefits of offshore labor are well-established
in the healthcare industry. Both payers and Despite the many technological advancements
providers have leveraged offshore resources for around speech recognition, EMRs, etc., simple
many years as a means of expanding margins and al- medical transcription still accounts for more than
leviating cost pressures. Historically, these services 95% of all inputted patient information. The in-
have been geared toward commoditized functions trinsic value of the healthcare offshore market re-
at the lower end of the value spectrum. However, mains as valuable as it was a decade ago - offering
we expect the offshore delivery model to take on a well-trained, low-cost labor to facilitate a more ef-
larger role in the healthcare revenue cycle as serv- ficient revenue cycle. There are regulatory issues,
ice providers continue to develop more sophisticat- as a number of states and the federal government
ed offerings. have limited the use of offshore outsourcing for
some government programs. Despite these limita-
In the early 1990s, medical transcription services tions, we would expect the value of this delivery
became a logical entry point for the healthcare off- model to expand further as the industry adapts to
shore outsourcing market. The labor intense new requirements around HIPAA, ICD-10, and
nature of transcription services was a natural fit for other regulatory challenges. IDC supports this
India's low-cost, English-speaking workforce. trend, projecting spending on offshore IT services
India's favorable time zone differential was also an within the healthcare industry to reach $677 mil-
attractive benefit as offshore labor could perform lion by 2009.
overnight transcriptions during physicians' off-
hours in the U.S.
Over the last decade, offshore firms have expanded

into higher-value offerings as service providers
gained the confidence of their western clients.
Significant resources have been invested in train-
ing and accreditation programs, resulting in im-
proved language abilities and greater understanding
of medical processes and terminology. Offshore

Q4 2006
PUBLIC AND M&A VALUATIONS

The U.S. public markets have slowed down in general during 2006 as a result of rising oil costs, continued in-
terest rate hikes, and ongoing uncertainty in the Middle East. While the public healthcare markets were not
impervious to these trends, the revenue cycle management universe is rebounding on the heels of rapidly ex-
panding consumer-driven healthcare and other IT/software initiatives that touch upon many of the industry
initiatives we have discussed in this report.
To illustrate the relative performance of healthcare IT and outsourcing companies we have included Figure 14
which depicts the performance of our healthcare / revenue cycle indices relative to the S&P 500 over the last
24 months. As shown in our index, the Clinical Solutions sector has outperformed all other segments with
200%+ growth since mid-2004. The significance of this trend is tempered, however, by the fact that this seg-
ment consists of only three companies - Allscripts, Quality Systems, Inc., and Cerner. However, the recent track
record of clinical solutions companies is indicative of the broader HIT landscape as the publicly traded adminis-
trative and claims solutions in both our Payer and Provider indices have enjoyed consistent share price appreci-
ation in the 50-75% range over the last two years.
At the other end of the spectrum, our Claims Outsourcing index was the only segment to under-perform the
S&P 500 during the stated period. This statistic is misleading from the standpoint that many of the companies
included in this index (ACS, EDS, Perot, etc.) have diverse lines of business, including very large legacy IT out-
sourcing businesses that have not performed well recently and have depressed the overall valuations of many of
these firms.
Figure 14: Percentage Relative Performance: S&P 500 v. Healthcare Indices
250.0
Claims Outsourcing Provider Clinical Solutions
Provider Administrative Solutions Payer & Claims Solutions
S&P 500 Index
225.0
200.0
175.0
150.0
125.0
100.0
75.0
Aug-04 Oct-04 Dec-04 Feb-05 Apr-05 Jun-05 Aug-05 Oct-05 Dec-05 Feb-06 Apr-06 Jun-06
Source: Capital IQ & TripleTree
Representative Healthcare Public Company Indices
Provider - Clinical: Allscripts Healthcare Solutions Inc., Quality Systems, Inc., Cerner Corp.
Provider - Administrative: Computer Programs & Systems, Inc., Eclipsys Corp., Emdeon Corp., McKesson Corp., Mediware Information
Systems, Inc., MedQuist, Inc., Quadramed Corp., Quovadx, Inc., and Zix Corp., Per-Se, and Omnicell
Payer & Claims Solutions: HMS Holdings Corp., MedAvant, TriZetto Group, Inc.
Payer - Claims Outsourcing: Affiliated Computer Services, Inc., Computer Services, Corp., DST Systems, Inc., Electronic Data Systems, Inc.,
Infocrossing, Inc., Perot Systems Corp., and Unisys Corp.

Q4 2006
PUBLIC COMPANIES
PAYER-FOCUSED SOLUTIONS PROVIDERS In contrast to most of our other healthcare seg-
ments, valuations within the Claims Outsourcing
index have been relatively flat since the beginning of 2004. As noted above, the companies included in
this segment have several diverse lines of business, including significant heritage in the mainframe out-
sourcing segment; as a result, it would be misleading to conclude that healthcare claims outsourcing is an
underperforming sector.
Public Companies: Payer-Focused Solutions Providers (in $ millions except per share data)
Current Cash & LTM LTM LTM Net TEV / TEV / Price /
Company Name Stock Price 52 Wk High 52 Wk Low Market Cap TEV Equiv. Total Debt Revenue EBITDA Income Revenue EBITDA Earnings
Claims Outsourcing
Affiliated Computer Services Inc. $50.82 $63.66 $46.50 6,025.8 7,238.6 174.9 1,387.6 5,187.4 963.9 386.2 1.4x 7.5x 15.6x
Computer Sciences Corp. $52.69 $60.39 $43.49 9,901.5 10,072.9 1,290.7 1,462.1 14,615.6 2,149.3 634.0 0.7x 4.7x 15.6x
DST Systems Inc. $58.33 $63.26 $49.30 4,066.0 5,306.5 99.3 1,409.2 2,462.8 542.3 457.1 2.2x 9.8x 8.9x
Electronic Data Systems Corp. $23.66 $28.09 $19.06 12,266.2 13,066.2 1,718.0 3,217.0 20,098.0 1,826.0 170.0 0.7x 7.2x 72.2x
Infocrossing Inc.1 $11.05 $13.10 $6.35 235.0 362.7 11.7 139.5 227.2 23.2 8.0 1.6x 15.6x NM
Perot Systems Corp. $13.99 $15.90 $12.75 1,672.1 1,510.5 238.1 76.5 2,067.4 224.2 107.6 0.7x 6.7x 15.5x
Unisys Corp. $6.12 $7.20 $4.38 2,099.2 2,246.5 980.2 1,127.5 5,779.9 272.1 (1,714.3) 0.4x 8.3x NA
Average 1.1x 8.5x 25.6x
Median 0.7x 7.5x 15.6x
Payer & Claims Solutions
HMS Holdings Corp. $10.56 $11.58 $6.56 214.9 174.4 3.0 0.0 64.4 11.8 8.9 2.7x 14.8x 24.0x
MedAvant Healthcare Solutions $7.00 $8.36 $3.42 92.4 116.0 1.8 25.4 73.9 3.2 (105.1) 1.6x 36.2x NA
TriZetto Group Inc. $13.90 $19.74 $12.69 596.7 625.9 88.7 117.9 305.7 49.2 24.6 2.0x 12.7x 24.3x
Median 2.0x 14.8x 24.2x
Combined Average 1.4x 12.4x 25.2x

1
Infocrossing's financials adjusted on a run-rate basis to account for acquisition of (i)Structure. Combined Median 1.5x 9.0x 15.6x
Value creation within the Claims Outsourcing group is being addressed in a number of ways. For exam-
ple, EDS is currently repurchasing $1 billion of its shares over 18 months as a signal to the market that it
believes its stock is undervalued. The company also has plans to aggressively expand its offshore presence
in an effort to reduce the cost of services delivery and enhance margins. CSC, on the other hand, has re-
cently restructured its European and U.S. operations by eliminating 4,300 jobs to improve cash flow and
earnings.
Valuations within the Payer & Claims Solutions index faltered slightly in mid-2006, under-performing
the S&P 500 through the second quarter. However, there are several positives to consider as particularly
strong multiples are surfacing in high growth segments such as Medicare Advantage / Part D and con-
sumer-driven health (CDH). To take advantage of this trend, TriZetto Inc., has upgraded its patient deci-
sion support solutions as payers shift toward more consumer-based offerings. MedAvant has also re-brand-
ed itself as more of a full-service business process outsourcing firm as the industry moves away from the
traditional claims clearinghouse model.

Q4 2006
HEALTHCARE PROVIDER SOLUTIONS Market valuations in the Provider Solutions index

slowed a bit in mid-2006, consistent with the
overall market. The long-term outlook for this segment is positive, however, as new regulations continue
to drive the adoption of healthcare software and IT solutions. McKesson Corp. reported a 38% increase
in software growth in 2005 and is poised to take full advantage of the growing clinical and imaging tech-
nologies market. Similarly, Cerner's broad range of Millennium products are expected to maintain their
market leading position as technology becomes an increasingly essential component in integrating clini-
cal and administrative processes.
On the clinical side, Allscripts Healthcare Solution made headlines earlier this year by acquiring A4
Health. The integrated practice management capabilities of A4, in combination with Allscripts' clinical
applications, are expected to significantly improve company's position in the market with an anticipated
40% YOY growth in clinical software.
Public Companies: Healthcare Provider Solutions (in $ millions except per share data)
Current Cash & LTM LTM LTM Net TEV / TEV / Price /
Company Name Stock Price 52 Wk High 52 Wk Low Market Cap TEV Equiv. Total Debt Revenue EBITDA Income Revenue EBITDA Earnings
Provider Clinical Solutions

Allscripts Healthcare Solutions Inc. 1 $17.89 $19.85 $13.00 932.4 969.3 35.2 85.9 240.0 19.6 11.2 4.0x 49.5x 83.2x
Cerner Corp. $36.75 $49.38 $34.34 2,848.6 2,791.2 103.9 220.1 1,219.5 271.8 93.9 2.3x 10.3x 30.3x
Quality Systems Inc. $35.35 $45.97 $24.46 944.2 887.0 57.2 0.0 119.3 39.6 23.3 7.4x 22.4x 40.5x
Median 4.0x 22.4x 40.5x
Provider Administrative Solutions
Computer Programs & Systems Inc. $38.79 $50.93 $30.66 417.1 395.9 10.9 0.0 112.0 26.5 15.4 3.5x 14.9x 27.0x
Eclipsys Corp. $18.46 $26.27 $13.40 963.8 845.6 36.2 0.0 399.6 42.5 (0.4) 2.1x 19.9x NA
Emdeon Corp. 2 $12.20 $12.50 $6.61 3,347.9 3,767.7 137.1 650.0 1,312.1 171.6 79.6 2.9x 22.0x 42.1x
McKesson Corp. $46.94 $54.92 $43.37 14,275.4 13,124.4 2,142.0 991.0 88,050.0 1,365.0 751.0 0.1x 9.6x 19.0x
Mediware Information Systems Inc. $9.85 $13.35 $7.68 79.3 60.8 18.6 0.0 37.7 8.6 2.3 1.6x 7.1x 34.8x
MedQuist Inc. $13.50 $15.45 $10.10 502.4 358.6 143.9 0.1 498.1 88.8 40.3 0.7x 4.0x 12.5x
Omnicell Inc. $13.88 $14.90 $7.89 377.1 343.2 33.9 0.0 126.7 12.6 4.9 2.7x 27.2x 76.3x
Per-Se Technologies Inc. 1 $23.41 $29.48 $17.97 913.4 1,398.2 35.9 520.8 610.8 85.6 31.2 2.3x 16.3x 29.3x
Quadramed Corp. $2.00 $2.54 $1.15 83.1 135.8 36.8 0.0 120.9 8.3 (3.3) 1.1x 16.4x NA
Quovadx Inc. $2.61 $3.64 $2.32 109.5 76.7 15.6 0.0 82.7 7.7 (9.1) 0.9x 10.0x NA
Zix Corp. $0.93 $3.84 $0.84 55.5 48.4 14.2 7.1 14.3 (26.5) (40.9) 3.4x NA NA

Median 2.1x 15.6x 29.3x
1
Allscripts' & Per-Se's financials adjusted on a run-rate basis to account for acquisitions of A4 and NDCHealth, respectively. Combined Average 2.5x 17.7x 39.5x
2
Financial projections to account for Practice Services divesture not yet available. Combined Median 2.3x 16.3x 32.6x

Q4 2006
MERGER & ACQUISITION ACTIVITY

REVENUE CYCLE MANAGEMENT Consolidation within the revenue cycle manage-
ment space has accelerated considerably in the past
18 months. Acquisitions through the second quarter of 2006 are on pace to exceed the total number of
completed transactions in 2005. Large acquirers in this segment are continuing to expand horizontally,
attempting to create a more comprehensive revenue cycle services set to their customer base.
M&A: Revenue Cycle Management (in $ millions excepte multiples)
Date Buyer Seller Seller Description Price Revenue P/R
8/8/06 Sage Software Emdeon Practice Services Practice management and electronic health records 565.0 304.5 1.9x
7/12/06 ACS Primax Recoveries Third party liability recovery, coordination of benefits, and contract re-pricing services 40.0 21.4 1.9x
5/25/06 Ingenix Claredi Corporation EDI transaction testing and certification solutions - - -
5/25/06 McKesson HealthCom Partners Web-enabled patient billing software - - -
5/25/06 Ingenix NWH (ENS) Payer transactions hosting, EDI, preadjudication software, scanning, OCR 53.22 18.9 2.8x
4/25/06 MedAssist Twin Medical Transaction Services Revenue management and patient eligibility to providers - - -
4/11/06 MedAssist Capstone Solutions Provider of healthcare revenue cycle outsourcing solutions - - -
3/7/06 Apollo Advisors Sourcecorp Inc. HC BPO of document and infor. mgt., and knowledge-based processing 469.7 413.6 1.1x
2/1/06 Misys Healthcare Systems Payerpath Provides Internet-based solutions for processing health claims 49.0 - -
1/4/06 Wolters Kluwer ProVation Medical Medical documentation, coding and workflow solutions to hospitals - - -
11/22/05 Metavante Corp AdminiSource Electronic claims, electronic payment, payor solutions - - -
10/20/05 EMC Captiva Software Automated claims processing, editing, coding, EDI 297.5 79.3 3.8x
9/16/05 CareMedic Systems Third Millennium Healthcare Systems Revenue cycle management technology and workflow automation systems - - -
8/26/05 Per-Se Technologies NDCHealth Primarily provides electronic health information processing services 962.6 396.5 2.4x
7/19/05 MedAssets Med-Data Management Consulting and software: denials mgt, coding and billing reviews, revenue cycle projects - - -
6/2/05 Private investor Employers Mutual Third party admin: claims admin, enrollment and eligibility, billing srvs, auto claims adj. 3.5 10.0 0.4x
5/20/05 Ingenix HSS Software products for coding, reimbursement, compliance, and denial measurement - - -
4/28/05 Logicbec Groupe Informatique MDI Technologies Billing and accounts receivable software for long term care facilities, other hc software 24.9 9.6 2.6x
3/17/05 Emergis NDC Healthcorp - Canadian Unit Canadian claims processing business 14.4 10.0 1.4x
12/6/04 CareMedic Systems Omega Systems Medical necessity compliance and revenue cycle management solutions - - -
9/1/04 Infocrossing Verizon (gov't claims processing division) Healthcare claims processing unit 43.5 - -
8/2/04 3M Info-X Medical coding compliance software, hospital billing and compliance software - - -
7/12/04 ACS Heritage Information Systems Clinical management and pharmacy cost containment solutions 23.0 14.0 1.6x
7/12/04 WebMD ViPS* Claims processing systems for commercial and government 168.0 63.4 2.6x
4/6/04 WebMD Dakota Imaging* EDI and Web transaction processing 40.0 17.5 2.3x
3/1/04 SHPS Landacorp Authorization, reimbursement, regulatory, and analytical software 50.5 27.5 1.8x
12/8/03 ProxyMed Plan Vista Medical cost containment and business process outsourcing services 57.6 33.0 1.7x
10/21/03 WebMD MediFAX-EDI Denial management, EDI, clinical, billing management, payment posting solutions 276.1 88.3 3.1x
6/16/03 WebMD Advanced Business Fulfillment* Provider of healthcare paid-claims communication services 110.0 63.0 1.7x
Average 180.5 98.2 2.1x

*Note: Prices for Dakota Imaging and Advanced Business Fulfillment do not include earn-out amounts; ViPS price does not include net assumed liabilities Median 51.9 30.3 1.9x
Emdeon (formerly WebMD) has been particularly active in this area over the last few years. The company
set the bar in 2003-2004 by aggressively pursuing a series of transactions, including Advanced Business
Fulfillment, ViPS, Dakota Imaging, and Medifax-EDI. More recently, Emdeon has narrowed its focus by
selling off its Practice Services division to Sage Software in August of 2006. Strategically, the divestment
allows Emdeon to focus more intently on its existing Business Services division, handling back office
transaction processing services, and creating a more concentrated focus on outsourcing services while
stepping away from its software business which had a significant presence in the small physicians practice
sector.
Other notable transactions include Wolters Kluwer's acquisition of ProVation Medical. Provation's docu-
mentation and coding-compliance solutions are expected to enhance Wolters Kluwer's Clinical Tools unit
by creating a streamlined dictation/transcription and coding process. The Ingenix division of
UnitedHealth Group has also been particularly active over the last year, acquiring ENS (Electronic Network
Systems, Inc.), a provider of clearinghouse and healthcare e-commerce services; Claredi Corp., a provider
of EDI validation, routing and connectivity software; and HSS, a provider of coding and reimbursement
management software (TripleTree represented HSS in its sale to Ingenix).

Q4 2006
HEALTHCARE IT Similar to the revenue cycle management sector,

the number of healthcare software and IT transac-
tions has roughly doubled from calendar year 2005. A few areas that have attracted attention include the
consolidation among electronic medical records (EMRs) and practice management systems (PMS), as evi-
denced by GE's acquisition of IDX and Allscripts' acquisition of A4. Particularly among small and mid-
sized physician groups, customers are demanding more integrated clinical and administrative solutions
from a single vendor. As a result, vendors are looking to acquire or build integrated PMS/EMR capabili-
ties to enhance their value proposition to this end of the market. We expect this consolidation to con-
tinue as vendors look to capture these high growth opportunities.
M&A: Healthcare Clinical & Administration Solutions (in $ millions except multiples)
Date Buyer Seller/Target Seller Description Price Revenue P/R
8/8/06 Sage Software Emdeon Practice Services Practice management and electronic health records 565.0 304.5 1.9x
7/10/06 Emergis Dinmar Consulting Interoperable EMR (Oacis) and IT consultant 35.6 19.0 1.9x
5/25/06 Ingenix NWH (ENS) Payer transactions hosting, EDI, preadjudication software, scanning, OCR 53.2 18.9 2.8x
4/7/06 Healthcare Quality Solutions VantaHealth Technologies Analyzer decision support software to home healthcare market 1.0 1.1 0.9x
2/8/06 Nuance Communications Dictaphone Manufacturer of dictation and communication recording systems for transcription 357.0 272.0 1.3x
1/19/06 Allscripts A4 Healthcare management and electronic records software 272.5 75.0 3.6x
9/28/05 GE Healthcare IDX Systems Provides software, services, and technologies for healthcare organizations 1372.1 591.0 2.3x
8/28/05 Per-Se Technologies NDCHealth Primarily provides electronic health information processing services 976.9 387.6 2.5x
4/28/05 Logicbec Groupe Informatique MDI Technologies Billing and accounts receivable software for long term care facilities 27.0 9.6 2.8x
1/18/05 Merge Technologies Cedara Software Software solutions for healthcare manufacturers and providers 405.0 74.4 5.4x
1/17/05 Elekta AB IMPAC Medical Systems IT systems for radiation and oncology practices 250.7 71.1 3.5x
12/17/04 Siebel Systems eDocs Provides customer self-service and e-billing software solutions 159.2 40.0 4.0x
12/3/04 Selectica I-many Contract management software, products and services 70.0 40.0 1.8x
11/16/04 Cerner VitalWorks Medical Division Practice management, ambulatory EMR, and transaction processing services 100.0 70.0 1.4x
3/4/04 Varian OpTx Software for medical oncology practices and cancer clinics 18.0 9.0 2.0x
3/1/04 SHPS Landacorp Authorization, reimbursement, regulatory, and analytical software 50.5 27.5 1.8x
Average 294.6 125.7 2.5x

Median 129.6 55.0 2.2x
M&A: Other Healthcare Solutions (in $ millions except multiples)

Date Buyer Seller/Target Seller Description Price Revenue P/R
3/8/06 Philips Witt Biomedical Cardiology PACS and cardiology reporting and documenting 165.0 49.0 3.4x
7/6/05 Royal Philips Electronics Stentor Solutions for digital medical images 280.0 50.0 5.6x
6/20/05 McKesson Medcon Cardiac image and information management solutions provider 105.0 17.0 6.2x
5/31/05 Hospira Physiometrix Biometric monitoring software and solutions for use in hospitals 23.9 2.1 11.4x
2/23/05 Stryker eTrauma Web-enabled emergency medical imaging solution to healthcare providers 50.0 18.0 2.8x
11/24/04 Merge Technologies AccuImage Diagnostics Medical data and interactive medical image visualization software 6.0 0.6 10.9x
9/16/04 Cedara Software eMed Technologies PACS and web-based medical imaging radiology solutions provider 48.0 24.0 2.0x
Average 96.8 23.0 6.0x

Median 50.0 18.0 5.6x
*The preceding list includes only those transactions in which price/revenue figures were publicly released.

Q4 2006
CONCLUSION: LOOKING FORWARD TO 2007 - 2008

While much of what is written regarding the healthcare revenue cycle sector is fairly parochial and gener-
ally limited to high level discussions of "outsourced collections" and "receivables management," we hope
we have accomplished our goal of depicting the complexity and variety of business opportunities that sur-
round the sector. To say the least, there is a ton of room for improvement in the basic blocking and tack-
ling associated with processing healthcare claims and we fully expect that dozens of companies will con-
tinue to succeed in line with the magnitude of the opportunity.
Aside from the core business opportunity associated with solving the basic inefficiencies present in the
market today, we would also note our belief that very attractive opportunities in the sector will flow from
improvements in the underlying information infrastructure of the industry. We believe these improve-
ments will further elevate revenue cycle oriented data out of the realm of traditional "patient accounting"
and into a realm where it enables payer and provider response to many of the most important movements
facing the healthcare industry. Unlike basic credit card transactions, healthcare claims transactions carry
with them an enormous amount of embedded regulatory and clinical data that is very valuable for numer-
ous stakeholders - such as PBMs, drug companies, employers, and government - as well as the payer,
provider, and patient that execute the underlying transaction.
Efforts to create an integrated view of this data will drive continued consolidation through mergers and
acquisitions on both the provider and payer sides of the equation for the foreseeable future. In parallel
with this horizontal consolidation of functionality we also believe forward thinking companies will in-
creasingly recognize the relevance of the underlying data to emerging trends that will shape the health-
care industry on a broader scale in the years to come.
Figure 15: Evolving Healthcare Revenue Cycle Landscape
Current Sector Characteristics 2007-2008 Market Shaping Trends Future Market Characteristics
Significant M&A activity leads to New market leaders emerge with comprehensive
Highly fragmented & managed horizontal integration of rev cycle SaaS and outsourcing product and service offerings
through myriad of functionality, blending of BPO and SaaS
intermediaries, software, business models, and consolidation of Comprehensive electronic patient financial
systems, and paper customer bases to create economies of record (EFRs) become a reality
scale
Discrete product & service New business sub-sectors emerge due to gradual
offerings generally narrow in Meaningful advancements in health marriage of customer relationship management
scope information networks and standardized (CRM) and integrated care coordination services
databases
Disjointed communications Numerous overarching trends place employers
infrastructure Service oriented architecture (SOA) and more directly in the healthcare revenue cycle
web services enable cross- stakeholder flight path
Siloed approach to data sharing of data and real
- time o Consumer driven health plans
management transactions o Escalating retiree health benefits crisis
o Medicare & Medicaid reform and

privatization
o Evolving models for population health
management and workforce
productivity
Source: TripleTree
As the trends highlighted in Figure 15 gain momentum, it will become increasingly clear that the data captured
in, and business functions implicated by, the revenue cycle process are inextricably tied to strategies that are
slowly being employed by healthcare companies in response to consumer-driven healthcare, government

Q4 2006
CONCLUSION: LOOKING FORWARD TO 2007 - 2008

reform and population health management. In many
respects what we see is a "perfect storm" in which
overarching macroeconomic and demographic trends
are starting to line up with long overdue advance-
ments in the underlying IT and communications in-
frastructure. We are already seeing ample evidence
that there is a wealth of opportunity for companies
that are able to play a meaningful role in deploying
this infrastructure and then ultimately operationaliz-
ing the data and content that flow through it to sup-
port initiatives aimed at improving quality, enabling
consumer choice, and reducing cost.
As an investment bank with deep experience in healthcare

IT and outsourcing, TripleTree can assist your business to
capitalize on the various strategic implications outlined is
this report. We would also note that there is considerable
overlap between the topics covered in this report and many
of the themes covered in recent white papers we have au-
thored regarding Population Health Management. Many
of the businesses we encounter have a toe-hold in several
distinct but related niches, and so we would encourage you
to contact us if you have an interest in other healthcare re-
lated research or would be interested in speaking with
members of our professional staff that can bring a holistic
view of the various trends that are occurring on a broader
scale. We are at an inflection point in the market where
interest in differentiated healthcare IT and outsourcing
firms is at a peak - both within the strategic buyer universe
as well as within an extremely active private equity
market. If we can help you understand and evaluate how
current market dynamics and industry trends may impact
opportunities for your company, please do not hesitate to
contact us to schedule a time for a briefing.

Q4 2006
THE TRIPLETREE TEAM

TripleTree today has 22 professionals with comple- attention in the healthcare IT and outsourcing sec-
mentary backgrounds as business builders, operators tors as well as the broader managed services and
of public and private firms, lawyers, accountants, BPO sectors. During his tenure with TripleTree,
bankers, Wall Street analysts and investors. Scott also served as Research Chairman for over
Within Healthcare and IT, we have a team with five years where he played an instrumental role in
significant transaction and operating experience establishing the firm's commitment to publishing
exceeding 75 years. Our team has completed 4-5 industry leading white papers each year. Prior
dozens of transactions and we have helped our to joining TripleTree, Scott was a practicing attor-
clients create hundreds of millions of dollars of ney specializing in commercial and contract mat-
value for their owners. Included below are the pri- ters and also served as a equity and convertible
mary professionals within our Healthcare practice: debt analyst for a large hedge fund.
Kevin Green, Managing Partner. As Managing Scott earned both his B.A and J.D. from the
Partner, Kevin advises companies on maximizing University of Illinois and his MBA in Finance and
the value of their firm by leveraging 25 plus years Accounting from the Carlson School of
of operational, M&A, capital raising and board ex- Management at the University of Minnesota.
perience. His broad industry background and rela-
tionships, extensive transactional experience, and Kevin Roche, J.D. Senior Advisor. Kevin
hands-on operating experience bring unique per- Roche is a Senior Advisor to TripleTree.
spectives to each client engagement. Specializing in the Healthcare industry, Mr. Roche
has participated in more than 75 merger, acquisi-
Prior to co-founding TripleTree, Kevin held several tion, divestiture and joint venture transactions. As
senior executive roles at private and public compa- a senior executive for more than 20 years, he has
nies within the healthcare and technology indus- worked with a host of large, small and start-up
tries. He served as CEO of both Summit Medical companies in the areas of strategic planning and
and Integrated Medical Systems (IMS). During his transactions, board representation and corporate
tenure, IMS grew from a start-up company to a governance, legal and government affairs, and com-
high growth business that was sold to Eli Lilly. prehensive healthcare operations and policy. Most
Previously, he served as an executive at Cycare, recently, Mr. Roche was Senior Vice President at
which grew from a private firm to a NYSE company UnitedHealth Group where he evaluated invest-
and was later sold to McKesson. Kevin started his ment opportunities and researched and developed
career at Westinghouse. Kevin is actively involved strategies regarding changes in technology and
in a number of industry associations. He currently medical practices. Previously, he was founder and
serves on the board of the Software and CEO of Ingenix Division, a health information and
Information Industry Association's Software research company, where he grew the company
Division and is a frequent speaker at technology from less than $50 to $400M in four years.
conferences. He holds B.A. and M.B.A. degrees

from the University of San Diego. Prior to his success as a business owner and execu-
tive, Kevin has and continues to act as counsel on
Scott Tudor, Partner. Scott manages many of numerous legal and regulatory matters in the health-
TripleTree's current client engagements and since care arena. Kevin has an MBA from the University
joining TripleTree in 1999 has successfully closed of Minnesota Carlson School of Business; a J.D.
more than 30 transactions with leading companies degree from the University of Minnesota Law
such as Compaq, HP, Cardinal Health, Avanade, School; and a B.S. from Pace University.
and others. Scott currently focuses most of his

Q4 2006
THE TRIPLETREE TEAM

David Brownlie, Senior Associate. Dave assists
in TripleTrees merger and acquisition and private
placement engagements. Dave works across
TripleTrees industry sectors with an emphasis cur-
rently targeted at the firms healthcare practice in
the areas of healthcare technology and outsourcing
services. Dave also contributes to TripleTrees re-
search publications, particularly in the firms indus-
try updates and quarterly valuation reports. Prior
to joining TripleTree, Dave was a practicing attor-
ney focusing on corporate transactions. He also
served as an associate for Mobius Venture Capital,
where he helped support the firms deal team
throughout all stages of the investment process.
Dave began his career as a financial management
consultant with Accenture, where he worked with
several Fortune 500 companies to help improve the
efficiency of their financial operations.
Dave earned his B.S. in Finance from Indiana

University, and both his J.D. and M.B.A. from the
University of Colorado.

ABOUT TRIPLETREE
TripleTree is a leading investment banking firm dedicated to meeting the needs of technology,
healthcare, and business services companies. Specializing in M&A, private placements and fi-
nancial advisory services, the firm represents growth-oriented companies in pursuing strategic
alternatives that drive premium valuations. Unlike most investment banking firms, TripleTree
brings a unique approach to advisory services through the leverage of experienced executives,
strict industry focus, and extensive commitment to research. Such a commitment has allowed us
to build an investment bank focused on identifying and delivering strategic solutions that
enable shareholders and business executives to maximize the value of their firm in a dynamic
and rapidly changing marketplace.
For further information, visit our website at: http://www.triple-tree.com

Copyright (C) 2006 by TripleTree, LLC
MINNEAPOLIS SAN DIEGO
T 952-253-5300 T 858-792-3406
F 952-253-5301 F 858-792-3407
7601 France Avenue South 12526 High Bluff Drive

Suite 150 Suite 300
Minneapolis, Minnesota 55435 San Diego, California 92130

TripleTree - Revenue Cycle

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

TripleTree - Revenue Cycle

Uploaded by

Copyright:

Available Formats

HEALTHCARE REVENUE CYCLE

A TripleTree Industry Analysis

MACRO ECONOMIC DRIVERS 4

HEALTHCARE REVENUE CYCLE - SECTOR LANDSCAPE 6

NEW INDUSTRY DYNAMICS AFFECTING THE HEALTHCARE REVENUE CYCLE 12

Government Reform & the Growing Retiree Health Benefit Crisis 17

PUBLIC AND M&A VALUATIONS 22

Merger & Acquisition Activity 25

THE TRIPLETREE TEAM 29

MINNEAPOLIS 952.253.5300 WWW.TRIPLE-TREE.COM SAN DIEGO 858.792.3406

new opportunities created by the government reform of Medicare and Medicaid;

to ICD-10 coding requirements;

MINNEAPOLIS 952.253.5300 WWW.TRIPLE-TREE.COM SAN DIEGO 858.792.3406

MACRO ECONOMIC DRIVERS

ary claims can create a "death by a thousand taneously lowering costs.

MINNEAPOLIS 952.253.5300 WWW.TRIPLE-TREE.COM SAN DIEGO 858.792.3406

ible HSA products, is creating considerable

Shifting Market Dynamics: Consumer-Driven

The significant operational challenges facing

REVENUE CYCLE MANAGEMENT, PAGE 5

MINNEAPOLIS 952.253.5300 WWW.TRIPLE-TREE.COM SAN DIEGO 858.792.3406

HEALTHCARE REVENUE CYCLE - SECTOR LANDSCAPE

Provider Functions / Tasks Payer Functions / Tasks

Coding Tools &

Utilization Financial Transaction

MINNEAPOLIS 952.253.5300 WWW.TRIPLE-TREE.COM SAN DIEGO 858.792.3406

PROVIDER LANDSCAPE sourcing and software vendor community where

Figure 2: Provider Landscape - Business Models and Functional Niches

Representative Pre-Encounter Patient/Doctor Encounter

Practice Management Systems, Denial Management,

Business Process Outsourced Coding, Medical Record Abstracting,

MINNEAPOLIS 952.253.5300 WWW.TRIPLE-TREE.COM SAN DIEGO 858.792.3406

Figure 3: Horizontal Integration

MINNEAPOLIS 952.253.5300 WWW.TRIPLE-TREE.COM SAN DIEGO 858.792.3406

MINNEAPOLIS 952.253.5300 WWW.TRIPLE-TREE.COM SAN DIEGO 858.792.3406

PAYER LANDSCAPE the pre-and post-adjudication activities that are

Figure 4: Melding of Functions Across Claims Processing Workflow

Provider Back- Post Adjudication

Historically, the adjucication function

MINNEAPOLIS 952.253.5300 WWW.TRIPLE-TREE.COM SAN DIEGO 858.792.3406

We believe the payer market will continue to

rently focused on the specific "functional" areas

MINNEAPOLIS 952.253.5300 WWW.TRIPLE-TREE.COM SAN DIEGO 858.792.3406

NEW INDUSTRY DYNAMICS AFFECTING THE HEALTHCARE REVENUE CYCLE

CONSUMER-DRIVEN HEALTH As the industry looks to improve on the inefficien-

The healthcare industry is experiencing a shift from the -

Managed Care Financial

EVOLVING PAYMENT FLOWS UNDER THE plan (directly or through a clearinghouse)

MINNEAPOLIS 952.253.5300 WWW.TRIPLE-TREE.COM SAN DIEGO 858.792.3406

Figure 6: CDH Payment Workflow

CDH Administration Outsourced Benefits

(4) (2) Pharma

Under the new CDH model, payment flows are

MINNEAPOLIS 952.253.5300 WWW.TRIPLE-TREE.COM SAN DIEGO 858.792.3406

MINNEAPOLIS 952.253.5300 WWW.TRIPLE-TREE.COM SAN DIEGO 858.792.3406

Figure 7: Connextions Integrated Care Coordination System

Member Acquisition Member Services & Analytics Clinical Care

Application Member Predictive Health Care

Campaign PAnalytics P?Utilization

- End-to-end Integration of data, content and operational services -

MINNEAPOLIS 952.253.5300 WWW.TRIPLE-TREE.COM SAN DIEGO 858.792.3406

IMPLICATIONS OF CDH FOR THE By integrating patient scheduling and revenue

MINNEAPOLIS 952.253.5300 WWW.TRIPLE-TREE.COM SAN DIEGO 858.792.3406

prove the efficiency of their operations. Aging Part A: Part C: