Bain Capital has rolled up two payer tech companies to combine software, artificial-intelligence-powered applications and tech-enabled services.
The private equity firm bought software company HealthEdge from Blackstone earlier this year in a deal valued at $2.6 billion, including debt, the Financial Times reported. That deal closed in June.
Bain Capital has now acquired UST HealthProof from UST to merge the two companies. Financial terms of the deal were not disclosed.
The combined company now serves more than 115 health plans representing more than 110 million covered lives and will operate as HealthEdge.
HealthEdge, founded in 2005, provides software solutions across claims processing, care management, payment accuracy, provider network management and member engagement. HealthProof, a nine-year-old company, offers an interoperability platform to modernize health plans' legacy tech systems.
The combination of the two creates a "single, end-to-end platform" with AI capabilities for claims, payments, care and utilization management, payment integrity and member engagement, according to Kevin Adams, the former CEO of UST HealthProof who now serves as HealthEdge's CEO.
"We now have an end-to-end ecosystem that satisfies 95% of the back office needs of a health insurance company," Adams told Fierce Healthcare.
UST HealthProof’s proprietary technology also reduces the risks of migrating to the cloud, giving payers a safer path to digital transformation while supporting better clinical outcomes for both payers and patients, according to executives.
HealthEdge is well positioned to provide health plans with AI-enabled technology and services that lower total costs and improve operational efficiency, executives said.
"This merger brings together best-in-class payer technology with seamless integration capabilities and experienced operational teams. It streamlines the administrative complexity that health plans deal with every day. Our integrated approach gives them a solution that’s easier to implement and more effective in delivering the value they are seeking," Adams said.
Health plans are feeling the pinch from rising administrative costs, more complex regulations and growing member expectations, and legacy systems are not serving plans’ evolving needs.
"When you look at some of the things that are happening, whether that be what's happening in the federal government with the with the 'One Big, Beautiful Bill' and the reduction in potential membership that health plans will have, you look at the extremely high utilization of healthcare uniformly across the United States of all health insurers, and you look at the continued inefficiency of legacy software within many of these health insurance companies, it's basically a perfect storm of need for cost takeout. I'm not talking about cost takeout by doing lots of layoffs. I'm talking about cost takeout in terms of making things much more effective and efficient," Adams said.
Adams co-founded HealthProof in 2016 to offer solutions that help health plans overcome operational challenges, and the company's solutions tackle core administration, risk adjustment and quality programs.
"When we started our business, we felt that we had an approach and an opportunity to dramatically reduce the cost of operations within health insurance companies. We built a combination of a partner ecosystem, our own technology and a very defined service methodology to take out somewhere on the order of 30% of the operational costs of a health insurance company. That can be the difference between staying in business and going out of business," Adams said.
The combination of HealthEdge and HealthProof will offer a "next-generation cloud-based claims system for payers, with the scale, expertise and technology to disrupt the sector," Paul Moskowitz, a partner at Bain Capital, said in a statement.
Modern AI-enabled technology and services can help drive out inefficiencies in the back-office functions of health plans, Adams noted. "When you look at some of the secondary benefits around how we can use that ownership of an end-to-end back office capability, and start looking at how you apply AI natively, not on top of, but natively within the software that we own, I think it can truly transform how we can process claims," he said. "Processing claims is a very difficult, complicated transaction, and if we can apply even modest AI benefits into there, we can rapidly get to touchless transactions within claims and that's a nirvana of health insurance."
With Bain Capital's backing, the new HealthEdge plans to invest in AI and data capabilities.
Claims processing is an area ripe for AI innovation. "It's a very dirty transaction, and dirty meaning the data is very convoluted, and that convolutedness of the data causes fallout in claims processing. What people try to do is put capabilities all around these core technologies in order to try to fix the data, whether to fix the data that's going in, or fix the data that's coming out. Versus now, since we own the entirety of the life cycle of how both members enroll or providers send their bills or payments go back to the providers, we'll be able to put AI directly inside of the core operating systems within health plans, and be able to natively fix the information," Adams said.
He added, "This notion of not needing people to process claims anymore will become definitely a thing that will happen. I'd say over the next two years, I think you're going to see a lot of the benefits of that coming to fruition."
The company also plans to apply AI to risk stratification and revenue integrity as well as core operational efficiency efforts, he noted.
HealthEdge and HealthProof have a long history of working together as partners, with the latter being one of HealthEdge's largest customers prior to the merger, Adams noted.
"We have worked hand-in-glove together to tackle the cost issues within health insurance for the past nine-plus years. What HealthEdge built, we added on to with our own intellectual property and capabilities, partnered with our deep services knowledge. We are health plan operators, and HealthEdge is a health plan software provider. When you put those two things together, you now have an end-to-end capability to completely transform how health insurance is delivered in the United States," he said.
UST HealthProof and HealthEdge had explored a merger in the past, Adams noted. "We could never do what Bain can do in terms of bringing two organizations together," he said. "We just needed somebody with the vision like Bain had in order to put it all together, to truly turn it into a behemoth that hopefully someday can really have a meaningful impact on the citizens of the United States in terms of better health insurance."
Axios reported in April, when Bain Capital's acquisition of HealthEdge was reported, that the PE firm also wanted to acquire HealthProof and merge the two companies.
“HealthEdge and UST HealthProof are two innovative businesses with complementary customer bases, product suites, and go-to-market engines that combined will create the first end-to-end, next-generation claims platform of its kind for payers. And they have a proven track record of partnering with each other for nearly 10 years to create compelling value for health plans,” said Devin O’Reilly, a partner at Bain Capital, in a statement.
Private equity firms are making big investments in technology companies that target the back-office, financial and revenue cycle management functions in healthcare and are making moves to roll up these companies.
In May, New Mountain Capital launched a new company called Smarter Technologies combining three health tech companies backed by the private equity firm—Access Healthcare, Thoughtful.ai and SmarterDx. The combined companies will provide an AI-driven platform that aims to automate hospital and health systems’ administrative workflows and strengthen financial performance, the companies said in a press release.
This marks a shift from previous PE investments.
"One of the reasons why I was always a little concerned about private equity is that if you look at the past, I'll say last seven, eight years in private equity, there's a lot of what I call micro-segmentation of processes. They take an enrollment engine or payment engine, or pieces and parts of the overall health insurance ecosystem, and they buy that one piece of technology and try to drive it really deep into larger plans. I think that has played itself out, and people have come to realize that health plans don't want to buy from 52 people. They want to buy from one," Adams said.
"Now. you're seeing people starting to roll up a lot of smaller things into one big thing that solves a much bigger piece of the pie. I would argue that there isn't anything bigger than us now. We have 95% of what every health insurance company needs in order to run their back office," he added.
There could be opportunities for HealthEdge to do tuck-in acquisitions in the future, Adams noted.
TripleTree acted as financial advisor, Kirkland & Ellis LLP as legal counsel and Ares Management as lead financing partner to Bain Capital. Evercore acted as financial advisor to HealthEdge. Goldman Sachs and JPMorgan acted as financial advisors and Davis Polk & Wardell LLP as legal counsel to UST HealthProof.