Waystar, a healthcare software and payments company that filed to go public last October, now appears ready to enter the market. Waystar is a competitor to Change Healthcare and may take advantage of that system’s disastrous cyberattack to time its IPO.

For most of my career, I’ve studiously avoided the payer-provider-patient end of the healthcare market, so I’m a novice.   You experts should feel free to correct me where I err below.

The Healthcare Payments Market

If you have ever visited a doctor in the US, you understand the size and pain points associated with this market. According to the Waystar S-1, healthcare accounts for 18.3% of the US GDP—let that sink in for a second. In 2021, healthcare spending was $4.3 billion.  Of that, $350 billion is spent on administrative matters. This spending is expected to grow 5% annually.

You can imagine what a hospital’s billing department looks like. Hospitals collect consumer payments (co-pays, deductibles) and submit information to insurers to get reimbursed for the care they provide. The contracts are complex, pre-approval processes exist, and reimbursement payments are hard to reconcile. As we all know, it’s a mess.  I think this video from South Park sums it up best:

Waystar offers healthcare providers a platform to improve their reimbursement process and success rate, reduce DSO, and cut down on billing and collections staff.  In healthcare, this is called Revenue Cycle Management.   Outside of healthcare, which, by law, must have unique jargon, this would be called accounts receivable.  Healthcare payments are the largest example of how complex contracts, invoices, and long payment cycles create opportunities.  I’ve written about other examples.

The products in the top orange bar on the chart cover the intake-to-cash application process for patients, providers, and payers.

• Financial clearance automates the authorization process (all that crap you have to do to be sure your insurance will cover you).
• Patient financial care means billing patients and collecting from them.
• Claims and payer management are the parts we, as patients, don’t see, but the providers submit claims to insurance companies and track remittances.
• Denials and prevention recovery are what they sound like, helping providers reduce insurance company denials. (This is like dispute management or deductions management in other industries.)
• Revenue capture is fixing errors and improving reconciliation and cash application.

Waystar’s Operational Metrics

The scale of Waystar’s business is impressive (as is Change Healthcare’s).  Waystar’s platform touches:

• 50% of all patients in the US
• about 20% of all healthcare spend
• 18 of the top 22 healthcare systems,
• and 30,000 providers in total

The company claims an NPS score of 74 and 108.8% net revenue retention for the 12 months ended March 2024.

Financial Metrics

Waystar’s financial results are also impressive:

• $791 million in 2023 revenue, growing 12% over the prior year.  (Revenue growth accelerated to 18% in the quarter ended March 24.)
• Adjusted EBITDA of $334 million or 42.2% in 2023.
• So, a rule of 55+ company.

Waystar’s contracts are typically 2-3 years long, followed by automatic renewals for one-year terms with built-in price escalators.  Contracts usually include both a subscription and a volume-based component, and these two revenue streams are almost equal in comprising nearly $800 million in revenue.

Valuation

I’m sure there are many good comparables to consider when valuing Waystar.  But you will have to rely on more knowledgeable and less lazy bloggers for those.  My simple valuation approach was to find the last 10k for Change Healthcare and its purchase price, which equated to about 13x EBITDA.  I also found this cool article and chart that suggests a possible multiple of about 15x EBITDA.

These multiples would put Waystar’s valuation at $4.5-5.5 billion.  Bloomberg suggests that its owners (EQT, Bain Capital, CCPIB, and Francisco Partners) are looking for up to $6 billion.  Let’s see what happens!

(As a side note, I fed the Waystar S-1 to ChatGPT and asked for a valuation. ChatGPT initially responded that because the S-1 did not include a share price and number of shares issued, it could not help.  (Wow, thanks!).  I then used my burgeoning prompt engineering skills to ask ChatGPT to estimate Waystar’s valuation based on EBITDA multiples for other RCM companies. ChatGPT responded with a range of 6-15x EBITDA and correctly multiplied this times the annualized first quarter EBITDA.)