Cerner sells troubled revenue cycle management arm for $ 30 million

• Giant EHR Cerner sold its RefWorks Revenue Cycle Management division to RCM Player R1 for $ 30 million.

Under the terms of the agreement, Chicago-based R1 will take over the RefWorks business and business relationships with non-federal customers, while Cerner will expand the EHR’s independent revenue cycle capabilities from R1 to its customers and new prospects. RefWorks employees have the option to keep R1, as announced on Wednesday.

• R1, whose shares rose with the news on Wednesday, will pay Cerner $ 30 million in three installments between the signing of the deal and its second anniversary. 

The billion-dollar CBM industry has few players but is expected to grow as hospitals struggling with sub-optimal collection rates and weaker margins seek to outsource back-end functions. According to a 2020 Black Book report, nearly 90% of hospitals have outsourced or are planning to outsource their billing functions this year.

R1 was largely unaffected by the pandemic, posting revenue growth of over 16% year over year to $ 321 million and profit of $ 18.2 million in the first quarter.

That year, the 17-year-old RCM player launched an inorganic growth campaign to consolidate his position in the unsaturated market with the acquisition of SCI Solutions in April. The acquisition of RefWorks enables R1, which includes key supplier customers such as Ascension and Intermountain, to advance in the acute and outpatient MCR markets.

RefWorks has annual sales of approximately $ 80 million with more than 150 customers and an adjusted EBITDA margin of between 25% and 30%. This is evident from an R1 filing with the SEC.

Cerner, which had sales of $ 5.7 billion last year, announced in its fourth-quarter earnings call in February that it was considering leaving RefWorks. RefWorks lost its biggest customer in October when California-based Adventist Health announced it was canceling a revenue cycle outsourcing contract that charges Cerner a $ 60 million fee and the IT company revenue of $ 60 million in the fourth quarter costs around $ 23 million.

RefWorks has a history of negative reviews. In a June 2019 KLAS survey, over 70% of RefWorks customers said they would never use their RCM services again. This is expensive, inexperienced, and time-consuming. Customers reported slight improvements in their relationship with Cerner in another report from KLAS later this year but said the product had not improved.

RefWorks has also contributed to financial losses for a handful of customers, resulting in litigation and customer losses for Cerner as the company continues to move from its old EHR business to Software as a Service.

In 2017, a New York hospital lost $ 38 million when Cerner’s billing system went down. That same year, a Wisconsin system sued Cerner after losing $ 16 million after implementing its accounting system, claiming it was error-prone and awkward to use.

And in February, Florida’s AdventHealth system announced it was swapping Cerner’s RCM services for a platform from rival Epic as part of a full EHR overhaul.

Cerner’s shares were largely unchanged after the announcement.