R1 RCM buys Cerner's revenue cycle outsourcing business for $30M

R1 RCM plans to pay $30 million for health IT giant Cerner's revenue cycle business.

Chicago-based R1, a leading revenue cycle management technology vendor, is acquiring Cerner RevWorks' services business and commercial, nonfederal client relationships. The deal, which was announced Wednesday, does not include RevWorks' federal clients.

R1 said it plans to hire Cerner RevWorks employees once the deal closes in the third quarter of 2020.

Both companies have committed to a seamless integration between the company’s technology-enabled services platform and Cerner’s software, R1 said in a press release.

As part of the transaction, Cerner said it will extend R1’s revenue cycle capabilities and expertise to Cerner clients and new prospects, helping drive sustainable financial improvements for providers while enhancing their patients’ overall experience.

The closing of the acquisition is expected to take place in the third quarter of 2020, subject to customary closing conditions.

According to R1's filing with the U.S. Securities and Exchange Commission (SEC), the deal is valued at $30 million inclusive of working capital, financed with cash on the balance sheet.

The acquisition price will be paid in three installments, according to the SEC filing.

R1's stock rose 12% Wednesday following the news.

RELATED: EHR giant Cerner loses major health system client AdventHealth to Epic

The deal further establishes R1's footprint across the acute and ambulatory markets, the company said in the SEC filing. The RevWorks business brings in approximately $80 million in annual revenue across more than 150 customers.

“We look forward to working collaboratively with Cerner to deliver superior results for healthcare providers and the communities they serve,” said Gary Long, executive vice president and chief commercial officer of R1. “With our interoperable technology and end-to-end platform, we are well-positioned to serve Cerner’s customers, as well as other healthcare organizations across the country.”

“Cerner’s overall goal is to deliver client success and accelerate our ability to deliver scalable innovations,” said Brenna Quinn, senior vice president of revenue cycle management at Cerner, in a statement.

In a statement provided by the company, Cerner executives said the deal with R1 will bring its commercial, nonfederal clients a total solution that pairs "Cerner’s advanced technology with R1’s world-class revenue services, ultimately optimizing financial performance for health systems."

RELATED: Tenet announces plan for tax-free spinoff of revenue cycle business Conifer

"Cerner remains committed to and heavily invested in its revenue cycle solutions to help our clients combine clinical, financial, and operational health information when and where it’s needed," the company said.

Centerview Partners LLC acted as financial adviser, and Kirkland & Ellis LLP acted as legal adviser to R1. Greenhill & Co. acted as an adviser to Cerner.

Earlier this year, R1 acquired SCI Solutions, a provider of SaaS-based scheduling and patient access solutions, for approximately $190 million in cash.

The RCM vendor's revenue grew 16.2% in the first quarter of 2020, up $44.6 million to reach $320.5 million.

However, during its first-quarter earnings call in May, R1 executives said the company is expecting to see revenue decline by $10 million to $20 million in the second quarter, driven by lower patient volumes for its smaller physician customers.

RELATED: Cerner's expanding partnership with Amazon will be key to its 2020 growth strategy

Cerner's revenue cycle business took a hit last year when Adventist Health terminated its revenue cycle outsourcing contract with the company, resulting in a $60 million impairment charge for Cerner in the third quarter of 2019, the company reported during its third-quarter earnings call.

Adventist transitioned all its revenue cycle operations to Huron Consulting Group. At the time, about 1,700 Cerner employees transitioned over to Adventist and Huron.

During the company's fourth-quarter and year-end 2019 earnings call in February, Cerner Chief Financial Officer Marc Naughton hinted at a potential sell-off of the RevWorks business.

"Those areas that we don't think are the growth areas for the company we want to focus on, we're going to consider divesting as one of the options," Naughton said during a Q&A with analysts. "It will be an existing business that we will basically go out to market and look for opportunities to say here is this asset, it's something we're willing to let go and some of these assets have significant value."