Firstsource, MedAssist Latest Deal in Giant Healthcare Sector

The announcement yesterday that global BPO giant Firstsource Solutions would pay $330 million in cash for U.S. healthcare revenue cycle management and ARM provider MedAssist Holding, Inc. demonstrates the expanding activity in the massive healthcare service industry.

Mumbai, India-based Firstsource, which already provides BPO services in the healthcare sector to insurance companies, said it was buying MedAssist to enter the provider segment of the U.S. healthcare market. MedAssist offers providers eligibility services, accounts receivable management, and bad debt collection. The Louisville, Ky.-based company claims more than 1,000 clients including hospitals, large physician groups, and alternate site providers.

Total healthcare spending in the U.S. amounted to $1.9 trillion in 2004, according to Kaulkin Ginsberg’s Healthcare ARM Report, 2006. Firstsource estimates that hospital care alone accounts for $700 billion in annual spending, with $100 billion of that being administrative costs.

The revenue cycle and accounts receivable management market for healthcare is highly competitive, with major collection agencies, such as GC Services, I.C. System, NCO Group, and OSI, garnering a significant presence in the segment, according to the Healthcare ARM Report. Additionally, specialty firms like HBCS, MedAssist, Medical Data Systems, and The Outsource Group have large shares of the market.

The size and expected growth of the sector has prompted a large amount of activity among healthcare collectors. MedAssist itself has acquired three healthcare revenue cycle management/ARM firms in recent years: Argent Healthcare Financial Services, Capstone Solutions, and Twin Medical Transaction Services.

"The Firstsource-MedAssist transaction demonstrates that the M&A market for healthcare receivables management companies is very active. Owners of large and small healthcare agencies are cashing out, while strategic and financial buyers continue to put money to work," said Paul Legrady, a director at Kaulkin Ginsberg Company.

MedAssist, majority-owned by private equity firm RoundTable Healthcare Partners, has more than 1,400 employees and had revenues of $99 million in 2006. Firstsource has 14,000 employees in 24 offices in India, the U.S., the United Kingdom, Argentina, and the Philippines.

Firstsource said in a release it would retain current MedAssist management and that all employees would continue in their current jobs.