Accretive Health: Revolutionizing the Revenue Cycle

 

Joining the Billion Cap Club

Founded in 2003, Accretive Health, Inc. (NYSE: ACHI) is a revenue cycle management company based in Chicago, Illinois. The brainchild of Mary Tolan, a former Accenture executive, Accretive Health rapidly grew in only four years to reach $250 million in revenue, with year-over-year growth of over 50%.[1] By 2011, the company had gone public and had a market capitalization of $2.6 billion. Accretive achieved this remarkable growth due to the harmony between its business and operating models.

 

Accretive’s Offering

Accretive Health’s business model combined multiple industries: consulting and revenue cycle management (RCM), with IT and medical billing added several years later.[2] Instead of solely advising (consulting) or completely taking over the management the hospital (RCM), Accretive Health partnered with a client over a 5 year time period, permanently assigning consultants to specific clients to work in tandem with existing hospital management and staff. Accretive’s revenue was generated from a base fee plus a percentage of all revenue resulting from operating lift and cost-cutting measures against a first-year baseline.

By ensuring the client relationship was a partnership over the long-term with payment based upon performance, the short- and long-term economic incentives were fully aligned for Accretive Health and its client due to the need to find and implement innovative best practices together. Moreover, the model locked in clients into exclusive multi-year contracts which, given the fixed supply of hospitals, ensured long-term stability for the company.

 

The operating model utilized three key drivers.

Workforce Development and Management

The company put a premium on the type of employee brought in. Recruits were drawn from industry or recent college graduates. Operators were given a significant level of responsibility immediately, coupled with significant mentoring by seasoned management and top executives. This “sink-or-swim” culture fostered an intense entrepreneurial spirit at each level of the organization, which drove substantial innovation at significant speed. Using the Accenture method of “rack-and-stack”, every employee in each tier was compared against one another annually by senior executives. To ensure only the best employees remained, the bottom 10% of each bracket was invited “to their next career chapter that is not us.”[3]

IT Solutions

To aid frontline staff, ensure client stickiness, and to drive results in key areas, Accretive built the first end-to-end hospital revenue cycle management IT system. This IT system drove significant revenue growth by increasing payer yield, patient payment rates, and reducing avoidable costs like unnecessary authorization denials. The platform eventually expanded to include predictive pricing for estimates, automated medical coding, a major analytics platform, and more. The analytics suite, the first of its type in the industry, provided management with their first visibility into a wide variety of hospital operations, immediately resulting in process excellence regimens to improve consistency, quality, and leanness in the organization. Moreover, by linking the analytics systems across multiple client sites, the aggregate data began to be used for predictive processes and big data applications. As more clients were signed, the aggregate data pool became a greater competitive advantage and served as a major deterrent to new companies in the marketplace.

Industry Innovation and Best Practices

Collaboration across client sites was fostered and encouraged. Operators achieved high success by finding, developing, implementing and codifying best practices in working with and managing the client, as well as driving results throughout all parts of the revenue cycle. These codified practices were distributed and made up the “Accretive Playbook”. This playbook was unique because Accretive alone served all portions of the revenue cycle, enabling it to see cause and effect, implications, and causes better than their competitors.

 

Troubled Waters

Accretive Health’s impressive streak ended in 2012 when a series of blunders occurred: an unencrypted company laptop was stolen[4]; subsequent loss of key clients[5]; and an auditor requirement to restate three years of earnings due to revenue recognition changes.[6]

Despite strong operating results, these challenges remained front and center, causing talent flight and client losses to new competitors built on the Accretive model. In August 2015, Accretive Health’s primary client, Ascension Health, initiated a hostile takeover bid which was resolved on December 8, 2015. The amicable ending ensured Accretive’s revenue projections to increase by at least 3x over a 10 year period.[7] This likely ended a tumultuous 3 year period which dampened growth, but will likely result in a new explosive period of growth moving forward.

 

[1] https://www.chicagobooth.edu/entrepreneurship/docs/Crains-TolansWay-Accretive.pdf

[2] http://www.slideshare.net/AccretiveHealth/accretive-health-revenue-cycle-management-medical-billing-services-16179574

[3] https://www.chicagobooth.edu/entrepreneurship/docs/Crains-TolansWay-Accretive.pdf

[4] http://www.lexology.com/library/detail.aspx?g=7084c4d5-a244-4633-9008-7c0e3d840d23

[5] http://www.startribune.com/accretive-banned-from-minnesota-for-at-least-2-years-to-pay-2-5m/164313776/

[6] http://finance.yahoo.com/news/accretive-health-completes-financial-restatement-210000298.html

[7] http://www.chicagotribune.com/business/ct-accretive-ascension-1209-biz-20151208-story.html