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Medical Debt Buyer Draws Some Healthy Interest

Key Health Medical Solutions Inc. has quietly become one of the nation’s largest purchasers of personal medical debt over the last 15 years by concentrating on a small slice of the industry: personal injury cases where the liable party has good insurance coverage.

The Westlake Village company works with health care providers to cover a victim’s bills until an insurance settlement is negotiated, a process that can take five years. The margins may be thin, but the company is profitable and its software enables it to underwrite roughly $35 million in medical receivables per year. At any one time the company holds an asset base of around $70 million.

“We’ve gotten very good at knowing how much we can collect and when we can expect to collect it,” said co-founder and Chief Executive Jeff Trigilio.

That profitable track record has attracted attention from investors who see potential for significant growth. Last month, Grand Rapids, Mich., firm Blackford Capital bought out the company’s founders, with the exception of Trigilio, for an undisclosed amount.

“We focus on businesses that have some special differentiator, and look at maybe 2,000 potential deals a year,” said Blackford Managing Director Martin Stein. “This company really stood out for their exceptionally ability to do due diligence and the selection of the cases they take. We determined after our own due diligence that there was nothing like this on the market.”

Assessing risk

Trigilio, who has a background in nuclear medicine and consulting for imaging centers, said Key Health began by working with MRI centers, and eventually expanded to relationships with other medical providers, such as physical therapists and surgeons.

“We were doing operations consulting for MRI and CT scan facilities in an earlier company we had. One client that couldn’t pay their bill to us offered some receivables on personal injury cases in exchange,” he said. “We tried collecting on it and it turned it out pretty well.”

When they decided to concentrate on receivables full time, Trigilio and his partners discovered they’d have to build their own software and accumulate their own data over time because nothing was available on the market. Their KeyMEDS software application provides unique access to actuarial and payment outcomes.

“A lot of people get into a car accident, can’t work and have no way of getting their medical services provided. When you’re desperate, you’re more willing to settle with the insurance company for less than you really deserve. We can give them a fair shake and buy time for the attorney to work out a fair settlement,” Trigilio said.

Key Health pays medical providers upfront, and then holds a lien until getting a cut of the final settlement. To increase its profit, the company negotiates a discounted payment comparable with what the provider might expect from an HMO contract.

Prescription drugs

“They have a medical receivables system and database in place where they can assess and underwrite a claim better than anybody in their segment,” said John Mason, managing partner at Minneapolis-based Convergent Capital, which has financed Key Health’s mezzanine debt for several years and holds what he calls a “significant” equity stake.

Blackford plans to grow Key Health’s asset base from $70 million to more than $500 million over the next five to seven years. One new tool for bringing in more potential cases is a discount prescription drug service, AccidentMeds.com, which Key Health rolled out in February.

The service provides discount drug cards that personal injury attorneys can provide to their clients even before the clients full medical payment case is accepted by Key Health. If the victims don’t pay, the attorneys can exercise liens imposed upfront.

“The medicine side of this business is a potentially huge market for us and there’s no one really approaching it the way we are,” Trigilio said. “It also gives us the opportunity to test out automation for underwriting that has a lot of potential for other types of claims we want to do in the future.”

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