Change May Finally Get Acquired by UnitedHealth

Senior Equity Analyst

Julie Utterback

Change Healthcare offers variations of over a dozen financial and administrative services to support healthcare payers and providers improve administrative efficiency related to submitting and reimbursing medical and dental claims. The company’s revenue is generated by payers and providers with a split of roughly 40% and 60%, respectively. These processing services are focused on administrative accuracy with relatively low fee rates. As a result, there are no material customer concentration issues and no one customer represents more than 4% of revenue. As these various outsourced services address niche needs, there are no direct comparable peers.

These services generally fit into three segments; Network Solutions, Software Analytics, and Technology-enabled Services. Most of the company’s services were likely born from its Network Solutions segment as it is a medical and dental claim clearing house that services both payers and providers. This highly commoditized service drives scale and reach within healthcare claims processing and enables the company to identify incremental tools and evolving needs across its broad customer base. The company’s clinical and healthcare network manages roughly one third of U.S. healthcare claims from 2,200 government and commercial payers, 900,000 physicians, 118,000 dentists, 33,000 pharmacies, 5,500 hospitals, and 600 laboratories. Having connectivity to all these payers and providers will be critical in creating value with incremental software tools bundled from the other two segments.

There is some crossover of the provider and payer services within the two segments, Software & Analytics and Technology-Enabled Services. The Software & Analytics segment supports plans covering 100 million lives, provides payment accuracy solutions to 19 of the top 20 U.S. payers, 4,600 hospitals, and nine of the top 10 Medicare advantage plans. The Technology-Enabled Services segment is focused on providing outsourced revenue cycle support and covered $34 billion in annual charges and $9.2 billion in annual collections across 207 million annual cases/procedures.

Business Strategy & Outlook

Change Healthcare has wedged a niche position within healthcare and provides administrative efficiency to healthcare payers and providers by leveraging its IT infrastructure and large collection of medical claims data. The company has connectivity to most healthcare payers and has established a collection of IT tools with potential to be moatworthy, especially in context of momentum toward value-based reimbursement and healthcare IT interoperability. Despite the potential, we do not view the company to have enough critical mass to drive economic profits as a stand-alone entity, especially considering its hefty financial obligations.

In fiscal 2020, the company handled 14 billion transactions on over 211 million unique patients, which is equivalent to $0.04 average fee per transaction or 0.02% per gross charge. As with most processors competing on the low end of the spectrum, the company needs to support significant volumes to remain competitive and leverage operating expenses. 

Compared with the larger processing peers, Change Healthcare is significantly smaller, and its network service offerings are somewhat disjointed and likely not as sophisticated, nor do they command premium pricing like Fiserv, a high-end processing firm for banks. The company is likely more comparable with lesser sophisticated (non-healthcare) competitors such as Amdocs that provide more basic administrative functions by leveraging fixed costs. Although these are all processing firms, the technologies and fees are not exactly comparable, as directionally, credit card companies are on the highest end of the processing spectrum that typically yield transaction fee of 2% (on average), significantly higher than the fractional percentage fee charged by Change Healthcare. Similarly, high-end processing firms entrenched in mission-critical customer activities yield retention rates of 99%, directionally higher than Change Healthcare, which does not disclose retention rates. We view the scale of the network connectivity as a cost of entry into the medical claims processing niche, and the development and penetration of incremental mission critical modules will likely prove to be valuable. The Network Solutions segment generated less than 20% of revenue but over one third of adjusted 2020 EBITDA, and the segment reporting may reflect discounts for bundling.

To enhance the value of its service offering, Change Healthcare will likely opportunistically leverage its familiarity with medical claims to develop incremental mission-critical software. The company offers certain automating tasks for payers, such as checking medical claims for completeness before spending time to process and adjudicate. This payer service is likely most comparable to certain administrative services offered by Optum, a segment of UnitedHealth. The current offering likely has a large focus on faxing attachments but will likely trend toward analytics, including minimizing costs in managing certain populations.

On the provider side, the company has developed software to assist healthcare providers optimize claims reimbursement and patient collections. These software and consulting/training services largely focus on improving coding accuracy to minimize reimbursement denials and shorten revenue cycles. With the spinoff, the Change Healthcare management team has started to foster partnerships with electronic medical record platforms to enhance the company’s overall offering. These basic administrative services are likely most comparable to the low end of revenue cycle consulting and software services offered by larger more customer solutions offered by Deloitte, Huron Consulting, RCM, and Navigant. A large portion of provider services are related to collections and are generally more labor-intensive than the other automated administrative services offered, which is reflected in the higher average fee rate.

None

Economic Moat

Change Healthcare Inc

Prometheus Analytics is a provider of a platform for healthcare organizations to optimize their provider networks under value-based care reimbursement models.

Revenue

Cost of revenue

Gross profit

Operating expenses

SG&A

Other

Operating income

EBITDA

Net income

Earnings per share

Total assets

Current assets

Cash & equivalents

Receivables

Inventory

Non-current assets

Net PPE

Intangibles

Total liabilities

Current liabilities

Short term debt

Income tax payable

Non-current liabilities

Long-term debt

Total equity

Stockholders equity

Minority interest

Total liabilities & equity

Total debt

Net debt

Book value per share

Cash from operations

Funds from operations

Change in working capital

Cash from investing

Capital expenditure

Purchase/sale of investments

Purchase/sale of business

Other sources

Cash from financing

Change in stock

Change in debt

Cash dividends paid

Cash from other sources

Net change in cash

Free cash flow

UnitedHealth Group

OLDWICK, N.J.--(BUSINESS WIRE)-- #insurance--AM Best has commented that the Credit Ratings (ratings) of UnitedHealth Group Incorporated (UnitedHealth Group) (Minnetonka, MN) [NYSE:UNH] and its insurance subsidiaries remain unchanged following its completed acquisition of Change Healthcare Inc. (Change Healthcare) (Nashville, TN) [NASDAQ:CHNG], a leading health care technology company. The outlooks of these Credit Ratings (ratings) remain stable. The close of this transaction had been delayed following the a

AM Best Comments on Credit Ratings of UnitedHealth Group Incorporated and Its Subsidiaries Following Completion of Change Healthcare Inc. Acquisition

UnitedHealth Group announced in a statement Monday it has completed its multi billion-dollar merger with health care technology company Change Healthcare.

UnitedHealth completes Change Healthcare merger after court rejected DOJ challenge

Activision Blizzard

Citrix Systems

CYREN

Sunrise New Energy Co. Ltd

Powerbridge Technologies Co Ltd

Qualys

Simulations Plus

SurgePays

Sierra Wireless

The packaged software industry includes companies that offer multiple software programs bundled together to make a complete set.

These Are The 10 Best-Performing Packaged Software Companies In 2022

Change Healthcare (CHNG) was a big mover last session on higher-than-average trading volume. The latest trend in earnings estimate revisions might not help the stock continue moving higher in the near term.

Change Healthcare (CHNG) Soars 6.4%: Is Further Upside Left in the Stock?

A district court judge on Monday denied the Department of Justice's request to stop the planned merger of UnitedHealth Group and Change Healthcare.

Court rejects DOJ's request to halt UnitedHealth's merger with Change Healthcare

NASHVILLE, Tenn.--(BUSINESS WIRE)--Yesterday, the U.S. District Court for the District of Columbia issued an opinion and final appealable order denying the request made by the U.S. Department of Justice and the States of New York and Minnesota for the Court to enjoin UnitedHealth Group Incorporated (NYSE: UNH) (“UnitedHealth Group”) from acquiring Change Healthcare Inc. (Nasdaq: CHNG) (the “Company” or “Change Healthcare”) pursuant to the proposed merger (the “Merger”) between the Company and a

District Court Denies Request to Enjoin Acquisition of Change Healthcare Inc. by UnitedHealth Group Incorporated: Change Healthcare Inc: Announces Special Cash Dividend

One of the few bright spots in the market this year has been Change Healthcare (NASDAQ: CHNG ). On a year-to-date basis, CHNG stock is up approximately 29%.

Why Is Change Healthcare (CHNG) Stock Soaring Today?

Wynn Resorts

Even in challenging times, there's good news for some companies.

How These 2 Nasdaq Stocks Are Bucking Tuesday's Tumble

A judicial green light, of sorts, for a multi-billion dollar merger looks poised to cement healthcare's place in the connected economy — especially when it comes to paying for it all. To that end, the runway has (seemingly) been cleared for UnitedHealth Group's $13 billion bid for Change Healthcare to proceed.

UnitedHealth's $13B Change Acquisition Paves Path to Connected Care

Reports just came out that a federal judge has ruled against the Department of Justice (DOJ) bid stopping UnitedHealth Group (UNH) from taking over Change Healthcare Inc (NASDAQ:CHNG).

Change Healthcare Stock Surges After Judge Overrules Antitrust Challenge

Shares of Change Healthcare Inc. CHNG, +7.05% jumped 7.0% in premarket trading on Tuesday, the day after a federal judge ruled in favor of UnitedHealth Group's UNH, -1.41% acquisition of the company, according to media reports. The Justice Department had tried to block the deal.

Change Healthcare's stock is up after judge rules in favor of UnitedHealth acquisition

Citi downgrades Change Healthcare in wake of the news, saying the trial played out as it expected.

Change Healthcare Stock Surges After UnitedHealth Merger Challenge Blocked

A federal judge has ruled against a Justice Department antitrust challenge to UnitedHealth Group's $13 billion acquisition of Change Healthcare, a health tech firm, The Wall Street Journal reported Monday (Sept. 19).  This sees a rejection of the claims that the deal would unlawfully shut down competition and limit innovation.

UnitedHealth Sees Court Win In Change Healthcare Acquisition Case

WASHINGTON — A federal judge Monday ruled against a Justice Department antitrust challenge to UnitedHealth Group Inc.'s UNH, +0.49%  $13 billion acquisition of health-technology firm Change Healthcare Inc. CHNG, -0.08% ,   rejecting government claims that the deal would unlawfully suppress competition and limit innovation in health-insurance markets.

Judge denies DOJ's request to block UnitedHealth's acquisition of Change Healthcare

A U.S. judge on Monday denied the Justice Department's bid to stop UnitedHealth Group from buying Change Healthcare , a court filing showed, in a blow to the U.S. administration's tougher enforcement of antitrust issues.

Judge denies U.S. bid to stop UnitedHealth plan to buy Change

Change Healthcare (CHNG) continues to benefit from strategic deals. However, intense competition remains a woe.

Here's Why You Should Retain Change Healthcare (CHNG) Stock

Change Healthcare Inc. (NASDAQ:CHNG ) Q1 2023 Earnings Conference Call August 4, 2022 8:00 AM ET Company Participants David Elliott - Vice President, Enterprise Strategy and Investor Relations Neil de Crescenzo - President and Chief Executive Officer Fredrik Eliasson - Executive Vice President and Chief Financial Officer Operator Good morning. Thank you for standing by and welcome to the Change Healthcare's earnings call for the First Quarter of Fiscal Year 2023.

Change Healthcare Inc. (CHNG) CEO Neil de Crescenzo on Q1 2023 Results - Earnings Call Transcript

Change Healthcare's (CHNG) fiscal first-quarter 2023 results benefit from solid performance across Software and Analytics, Network Solutions and Enterprise Imaging segments.

Change Healthcare (CHNG) Q1 Earnings & Revenues Miss Estimates

Change Healthcare (CHNG) delivered earnings and revenue surprises of -2.56% and 0.67%, respectively, for the quarter ended June 2022. Do the numbers hold clues to what lies ahead for the stock?

Change Healthcare (CHNG) Q1 Earnings and Revenues Miss Estimates

NASHVILLE, Tenn.--(BUSINESS WIRE)--Change Healthcare Inc. Reports First Quarter Fiscal 2023 Financial Results

Change Healthcare Inc. Reports First Quarter Fiscal 2023 Financial Results

NASHVILLE, Tenn.--(BUSINESS WIRE)--Change Healthcare Inc. Announces Date for First Quarter Fiscal 2023 Earnings Release and Earnings Call

Change Healthcare Inc. Announces Date for First Quarter Fiscal 2023 Earnings Release and Earnings Call

Change Healthcare (CHNG) reported earnings 30 days ago. What's next for the stock?

Why Is Change Healthcare (CHNG) Up 0.5% Since Last Earnings Report?

Change Healthcare's (CHNG) latest launch is expected to significantly improve patients' healthcare journey and create a more streamlined patient experience.

Change Healthcare (CHNG)-Luma Launch Patient Engagement Suite

NASHVILLE, Tenn.--(BUSINESS WIRE)--Change Healthcare, in Collaboration with Luma Health, Launches Patient Engagement, a Suite of Technology Solutions to Unify the Patient Journey

Change Healthcare, in Collaboration with Luma Health, Launches Patient Engagement, a Suite of Technology Solutions to Unify the Patient Healthcare Journey

Change Healthcare Inc. (NASDAQ:CHNG ) Q4 2022 Earnings Conference Call May 26, 2022 8:00 AM ET Company Participants David Elliott - Vice President, Enterprise Strategy & Investor Relations Neil de Crescenzo - President & Chief Executive Officer Fredrik Eliasson - Executive Vice President & Chief Financial Officer Conference Call Participants Operator Good morning. Thank you for standing by and welcome to the Change Healthcare's Earnings Call for the Fourth Quarter of Fiscal Year 2022.

News for Change Healthcare Inc Stock (CHNG)