The Changing Healthcare Landscape: Medical Practice Acquisitions (Part I)
By: Monica P. Navarro, Esq.
Date: August 5, 2015
There has been a frenzy of M&A activity in the healthcare sector in the last five years, particularly in the physician medical group sector. The frenzy was triggered by the collection of reforms in the Patient Protection and Affordable Care Act (ACA) and the Health Care and Education Reconciliation Act (Reconciliation Act) (collectively, “Health Care Reform”).
Health Care Reform rejected the old fee-for-service reimbursement system that rewarded providers for driving up volume – a culprit of unsustainable growth in healthcare costs - and adopted a system that rewards quality and efficiency in the provision of healthcare. To increase quality and lower costs, Health Care Reform encouraged the healthcare sector to provide integrated, efficient patient care. In turn, this led to M&A activity as providers sought to achieve the requisite integration to remain financially viable in the new landscape. At the center of this M&A activity has been the acquisition of physician medical practices by health systems and giant super-groups (collectively, “health systems”).
Through such acquisitions, health systems penetrated new communities; explored innovative forms of healthcare (such as by creating accountable care organizations and adopting telemedicine); and hedged the losses from increasingly unprofitable services with the expansion into more lucrative ones. Alice Pope, the CFO of Wellmont Health System, made this point well when she reported to Reuters in 2014 that her health system had experienced “a 10% reduction in patient utilization, so the System’s revenue stream was not coming from inpatient utilization, but rather from growth in outpatient and, in particular, growth in outpatient from physician practice acquisitions.” As another example, just earlier this year, MEDNAX, Inc., a giant multi-specialty super-group, acquired Virtual Radiologic Corporation, representing “the buyer’s first acquisition in the radiology and telemedicine area…” according to Lisa E. Phillips, Editor of the Health Care M&A Report, which publishes the data. These types of statements and transactions are now a common trend.
Going forward, the physician medical group acquisition market will remain very strong in 2015. “Based on the number of transactions, this market is up 50% from the first half of 2014,” according to Phillips, who predicts that the market is expected to remain active with consolidation among the medical groups and continued acquisition interest from large hospitals and health systems for the prime medical groups. Investing time and energy into understanding and positioning one’s practice – legal and medical – in the healthcare acquisition space will be worth-while for some time to come.
*Monica P. Navarro specializes in healthcare and business law. She represents a wide array of healthcare entities and professionals. She can be reached at firstname.lastname@example.org
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