Change Healthcare is going public (again).  The IPO provides another opportunity to examine a massive B2B inter-enterprise network, Change Healthcare’s Intelligent Healthcare Network.  I previously wrote about this network when it was called Emdeon (see here).  It’s a story of how a small EDI player became an impressive company through acquisition and organic growth.  Every network entrepreneur should know this great story.

The Scale of Change Healthcare’s Intelligent Healthcare Network

The scale of this network is described in the Change Healthcare S-1.

“In the fiscal year ended March 31, 2018, we facilitated nearly 14 billion healthcare transactions and approximately $1 trillion in adjudicated claims.  (Approximately one-third of all U.S. healthcare expenditures.) We serve the vast majority of U.S. payers and providers. Our customer base includes approximately 2,200 government and commercial payer connections, 900,000 physicians, 118,000 dentists, 33,000 pharmacies, 5,500 hospitals and 600 laboratories. This network transacts clinical records for over 112 million unique patients, more than one-third of the estimated total U.S. population.”

The network grew this large over three decades. Now that the Intelligent Healthcare Solution touches $1 Trillion in claims, you can rest assured Change Healthcare has figured out how to monetize this scale!

Rule of 60:  The Hard Way

Change Healthcare reports financial results in three segments:  software and analytics, technology-enabled services, and network solutions.  Check out the network solutions results for the latest 12 months ending December 2018 (highlighted in yellow below):

The network solutions group achieved 58% adjusted EBITDA margins.  The network solutions group also grew 8% over the prior year–for “Rule of 66” performance.  Based on these numbers, the network solutions group represents 16% of Change Healthcare’s consolidated revenue, but 33% of the company’s adjusted EBITDA.  Also, note that Change Healthcare’s imputed “take rate” for the network is roughly 50 bps. (Over $500 million in revenue on $1 trillion in claims processed.) This take rate, at this scale, is really impressive.  It also demonstrates that this is not your daddy’s EDI network!

A Deeper Dive into the Intelligent Healthcare Network

Change Healthcare’s Intelligent Healthcare Network consists of three sub-segments:

  • Medical, Dental, EHR, Pharmacy, and lab networks.  The networks support transactions ranging from eligibility checking to claims processing and payment reconciliation to pharmacy messaging.  It also supports lab order and results, ePrescribing, and medical record interoperability.  (Deeply vertical stuff.)
  • Electronic Payments among payers, providers, and consumers using a variety of methods (ACH, virtual cards, online, point-of-care, lockbox, and IVR). This is both a B2B and C2B offering.  Also note that even though the Intelligent Healthcare Network supports $1 trillion in claims, it makes payments of only about $150 billion.
  • Data Solutions which use aggregated and de-identified medical records, pharmacy, and lab information to create products and tools for customers. The company notes that “network-generated data is tapped for carefully controlled uses.”

The value propositions involved (see below) are pretty straightforward: fewer point-to-point connections and checks, process automation, less time searching for data, etc.

I’d love to know more about the data solutions. Are they a substantial part of the network solutions revenue?  The only example given is related to clinical trial “pre-screening and activation workflow”.  How this works in a de-identified environment is unclear to me.  I’m interested in these solutions because every network I work with seeks to monetize transactional data.  The problem is most networks only have rights to transactional data on an anonymized and aggregated basis, making monetization much more difficult.


The Intelligent Healthcare Network is a huge inter-enterprise network with phenomenal financials.  It’s also a story of vertical specialization and perseverance over many years.  The examples of Concur, DealerTrack, Medidata and many more teach us that a platform in a big industry which can learn to acquire and dig deeper into the business processes and data of its clients, need not diversify across industries to achieve great results.

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