ClearLight Plans Further Buys in Healthcare Collections

At a time when newcomers to healthcare receivables are retreating from the industry because of a lack of success, ClearLight Partners LLC says it is committed and eager to expand its holdings.

The California-based private equity firm teamed in 2004 with Michael A. DiMarco, formerly of Outsourcing Solutions Inc., to buy healthcare receivables collection agency, The Outsource Group of Columbia, Mo. Since then ClearLight has backed six more acquisitions through TOG to nearly triple its size and expand its healthcare receivables management offerings on a regional and national level.

TOG, now based in St. Louis, plans to add about two acquisitions a year over the next two to four years, said Patrick Haiz, a ClearLight partner. Newport Beach, Calif.-based ClearLight is a private equity firm with $600 million under management from a single long-term investor.

“We think this an attractive industry,” Haiz said, adding that more hospitals are outsourcing their receivables collections because they’ve found that agencies do a better job than their internal offices. “Our growth is reflective of that.”

ClearLight’s goal is to build TOG into a $100 million firm, according to its Web site.

DiMarco, TOG’s chief executive, said the company’s growth has averaged around 20 percent annually, primarily by selling additional services to its existing customers. DiMarco is expecting similar a growth rate this year as hospitals treat more patients that are uninsured or underinsured, and self-pay accounts surge in number.

Outsourcing just makes sense, Haiz said. “Hospitals are under extreme financial pressures and don’t have the internal means to manage these accounts,” he said.

When ClearLight researches an acquisition, it typically seeks an agency with revenues between $5 million and $20 million, and a valuation of five to six times cash flow, Haiz said. Regarding future purchases, “We’d like to stick to that,” he said.

ClearLight and TOG have been expanding coast-to-coast, buying in 2006 Midwest Collection Services and Texas-based Quantum Credit Services. Last year it bought Genesis Consultants in New York and Productivity Network Innovations Healthcare (PNIH) in Louisiana. This month it bought J.J. MacIntyre Co. in California. DeMarco said last December that TOG had about 500 employees.

Although the company has national reach, DiMarco said its competitive strength is at the local and regional level, where the firms it owns are dominant players in the market. “We don’t see ourselves competing with any of the big national firms,” he said.

Both Haiz and DiMarco acknowledge that collecting from cash-strapped debtors will be tougher in a weaker economy. Still, they don’t anticipate that will affect TOG’s growth projections in the short term. TOG may find itself collecting less per debtor, but it expects to collect from more debtors, DiMarco said.

If a weakened economy does have a drag on recovery rates, TOG hopes it can convince hospitals to turn over their receivables earlier in the debt process. “The sooner we can reach debtors, the better our chances are for collecting,” Haiz said.

But the firm also is prepared to make other adjustments, including raising fee rates. DiMarco said TOG has the technology and analytical processes that allow it to examine its inventory to achieve better results. He believes that creditors will be willing to pay more for to get the best returns.