Hospitals have been on a tear of acquiring physician practices and ambulatory surgery centers over the past several years. Thanks to a recent congressional update in the latest budget agreement, that trend may be coming to an end.
This past November, the Bipartisan Budget Act of 2015 was signed into law. Among its provisions included a section that prevents hospitals from charging Medicare more for services from a newly acquired physician practice or ambulatory surgery center as hospital outpatient department, which may lead to a notable decrease in future hospital acquisitions.
What the Congressional Update Means for Physician Practice Acquisition
Before the update, physician practice acquisition was a lucrative move for hospitals due to an ability to charge Medicare more for what would relatively be the same level of service.
It would begin with a hospital acquiring a practice and turning them into hospital outpatient departments. This move allowed them charge Medicare both a professional fee for an office visit and a facility fee, allowing the hospital to capture extra profit since Medicare would traditionally pay hospitals more for physician visits, procedures, and tests than they would an independent practice.
Eventually, Congress and Medicare decided they should amend this situation. The Congressional update in the budget act prevents hospitals from charging Medicare the additional facility fee on top of what the acquired physician practice was already charging, removing an economic advantage for hospitals. The new payment schedule will begin January 1, 2017. However, all previously acquired practices and ambulatory surgery centers converted to hospital and outpatient departments prior to November 1, 2015 will be grandfathered under the old medicine payment rules.
How the Update Affects Hospitals and Physician Practices
Now that the hospital’s economic edge of acquiring physician practices and ambulatory surgery centers is lessened, there will likely be a notable decrease in acquisition activity in the near future. The situation has changed so dramatically that hospitals that were eyeing up new acquisitions may hold off and wait.
While the most obvious effect of the Congressional update is how it should slow down acquisitions, it may also lead to a couple of new trends for the physician practices as well.
Hospital acquisition was a popular exit strategy for the owners of some physician practices. Once their practice was acquired, they could retire while ensuring that there would be a system in place for the remaining physicians and their patients. However, with the new update, they will likely not have nearly as many suitors for acquisition, which could put a damper on their exit strategy.
Another shift that could start is a surge in hospital-controlled practices that make a move to become independent. In the late ‘90s, there was a consolidation phase where hospitals acquired a lot of practices. Then in the early 2000’s, physicians and hospitals alike decided to unwind the recent transactions with physician groups returning to independently run models. This update could be the beginning of a new cycle of physician independence.
Planning for Change in Business Valuation
Laws can change, so there’s always a chance that a future Congressional update could make the acquisition of practices and ambulatory surgery centers more appealing. For now however, business valuation experts and exit strategy specialists need to be aware of how the current rules may affect the mergers and acquisitions in the medical field.
As for any physicians looking for a new exit strategy, it would be wise to meet with one of Apple Growth’s experts to devise a new plan to help solidify your future. Contact us today to learn more about how the new Congressional update may affect your business.