Creating a Healthcare Collections Giant

Healthcare-focused accounts receivable management firm The Outsource Group (TOG) has been rapidly expanding through acquisitions over the past two years as part of its CEO’s strategic vision to become a leader in the field of medical ARM.

“We are trying to build the leading healthcare ARM company in the country,” Michael DiMarco, CEO of The Outsource Group, tells insideARM.com. “There is plenty of opportunity in the market and we will continue to make smart acquisitions.”

St. Louis-based TOG has made five major acquisitions since its March 2006 purchase of Midwest Collection Services, which started the buying frenzy. Although many of the acquired companies had a specialized focus – such as the aptly-named Specialized Receivables, Inc., the largest acquisition so far according to DiMarco – all have primary lines of business that include the management of healthcare receivables. In October, TOG announced the acquisition of insurance collector and Medicaid eligibility specialist Genesis Consultants of New York and in May of last year, they acquired Quantum Credit Services of Texas, a full-service collection agency that focuses on the healthcare segment.

DiMarco estimates TOG has doubled in size at least twice through acquisitions since early 2005. But the company has also seen its organic growth rise 20 percent over the same time period. Right now, TOG counts about 500 employees at two offices in Missouri and at other centers in Texas, Massachusetts, New York and now Louisiana with the recently-announced purchase of PNIH (“The Outsource Group Acquires PNIH to Expand to the Southeast,” Dec. 4).

The key, says DiMarco, is in retaining former owners that have expertise in the businesses they built. This was a lesson DiMarco learned as a division president at Outsourcing Solutions, Inc. (OSI), where the collection giant integrated acquired companies without their former owners in place. “When we started [acquiring businesses], I knew we would need to bring on the owners,” he said. “Their expertise is necessary for a successful integration.”

As many medical business process outsourcing companies seek to diversify their offerings to clients, such as coding or other back-office functions, DiMarco wants to build out their ARM business, specifically collections, and then maybe look to diversify their service offerings.

“We haven’t really gotten into debt purchasing,” said DiMarco. “We collect debt for purchasers, but we don’t currently buy our own.”

DiMarco explained that there is a viable market for healthcare debt purchasing and sales, but it is difficult to effectively price. “It’s very risky debt and it’s very different than other debt types out there,” he said.

The majority of TOG’s revenue, around 90 percent, comes from hospital debt. He said that debt from hospitals is typically more stable, although non-profit hospitals particularly are sensitive to their community image and consumer complaints.

DiMarco declined to share revenue figures for the privately-held TOG, but said he thought the company was the second-largest standalone healthcare collector in the country. In the press release announcing the PNIH deal Tuesday, TOG reported is backed by California-based private equity firm ClearLight Partners, LLC.