Pediatrix setback puts greater weight on R1 RCM executing, says Morgan Stanley

Morgan Stanley analyst Craig Hettenbach notes that Pediatrix (MD) announced this morning that it’s terminating its contract with R1 RCM (RCM), effective December 15, 2023, and opting to operate a hybrid revenue cycle management function with internal personnel and one or more third-party service providers. Pediatrix represents $2B in net patient revenue, which would equate to about $80M in operating fees for RCM at a 4% take rate, though performance struggles could mean it’s at a lower run rate, says the analyst. This setback “puts even greater weight” on R1 RCM executing on the target $4B in new NPR signings and converting additional pipeline, adds the analyst, who has an Equal Weight rating and $19 price target on R1 shares.