Changes in revenue streams cause providers to consider options
With the federal government making big changes to the way healthcare providers are reimbursed for services through programs such as Medicare and Medicaid, many organizations are considering all their strategic options for how to best prepare to take the hit to the bottom line.
Experts cite this fear over reimbursement restructuring as a major factor driving the current M&A frenzy in the healthcare sector, which has reached record volume levels so far in 2012 and shows no sign of slowing down.
“Clearly, one of the things that we are seeing … is the impact of reimbursement and reimbursement pressures, what I call the ‘reimbursement cliff,’” said Les Levinson, a partner at New York City-based law firm Edwards Wildman. “That’s clearly having an impact on M&A activity.”
“It’s causing a lot of people to consider where they think their company is going to be in the next year to 18 months and while they may not have thought about a transaction before, they may be rethinking that position now considering that the value may not hold up as robustly as it would have in prior periods,” added Levinson.
Beth Guest, a partner with Nashville, Tenn.-based law firm Waller Lansden, agrees that the new payment model is affecting M&A levels.
“All the reports are that we are seeing a 10-year high in terms of M&A activity because of healthcare reform and what that means in terms of the shift in reimbursements,” said Guest. “Folks are preparing for a shift from fee-for-service to some sort of bundled payment. There is a lot of pre-ACO activity and some ACOs are being formed. What this means is a lot more joint ventures between physicians and providers and for-profits and not-for-profits.”
Election-year jitters and uncertainty over the fate of the ACA are also influencing the M&A market.
“The political landscape is going to be challenging at least through the elections,” said Levinson, adding that there is currently a “real lack of clarity for political reasons” as campaign rhetoric overshadows genuine discussions about policy.
The trend of doctors leaving private practice in droves in favor of employment with hospitals and health systems is certain to continue throughout 2012 in large part due to this uncertainty around reimbursements, say the experts.
“Physicians are lining back up with hospitals to ride the wave, so to speak, about where the revenue streams are going to be,” said Levinson.
“Physicians acquisitions are at record highs,” confirmed Guest. “Physicians are coming into the fold in employment arrangements. Other new models are (also) emerging for physician practice deals with players that are not hospitals, but privately owned companies.”
“There is pressure and changes are happening,” said Guest. “The market is right for M&A activity. I think it’s going to really be a fun year. It’s going to be historic.”