Are Increased Mergers Related to ACA?

That is a good question and certainly up for debate. The Washington Post wrote an article titled “Affordable Care Act Driving Health Care Mergers” as of August 26, 2012.  This article cited 2 recent healthcare mergers: Aetna purchasing Coventry Healthcare and Health Care REIT purchased Sunrise Living. The premise of the article indicates that mergers and acquisitions are a mechanism for dealing with smaller profit margins and higher compliance costs that consumers anticipate when the ACA regulations take effect.

According to Mark Stembler, attorney, “I think the Coventry move is directly related to the ACA and general business issues of wanting to get more business and be bigger.” Another link to the ACA is the medical loss ratio which establishes no greater than 20% can be spent on administrative costs. In order to try to comply with this regulation, mergers may help to reduce the regulated overhead percentage for individual companies.

Monica Oss of Open Minds wrote an article with a rebuttal to the Washington Post article titled “Why the Mergers?”  Monica states “These initiatives to bend the cost curve were policy provisions that needed to happen regardless of federal policy to increasing efficiencies in our service delivery. Many of the provisions of PPACA will certainly push consolidation of insurance companies, hospitals, nursing homes, and specialty health care services because the focus of PPACA is to increase medical loss ratios, decrease use of residential-levels of care, and promote delivery of services through primary care.”

According to an article from the HMFA entitled “Current Trends in Hospital Mergers and Acquisitions”, there are 3 areas which will be impacted by healthcare reform:

Decreasing revenues

1. Healthcare reform focuses on preventative care which will likely decrease inpatient revenue.
2. Healthcare reform decreases payment rates which may encourage consolidation.
3. Healthcare reform includes value-based purchasing program which may cause underperforming facilities to be acquired by those meeting the quality standards and therefore receiving greater reimbursement.

Increasing costs

1. Healthcare reform is likely to increase the cost of doing business for providers because compliance costs will likely increase.

Encouraging integration

1. Healthcare reform will likely reward clinical integration through the accountable care organization model as well as the medical home model.

These 3 areas will likely increase the number of mergers and therefore be directly related to PPACA according to the HMFA.

It is a fact that the number of healthcare mergers and acquisitions is increasing each year. In terms of just hospital mergers and acquisitions, there were 51 in 2009, 75 in 2010, and 86 in 2011. Whether the increase is due to the PPACA directly is obviously up for debate. What is your opinion? We would love to hear your comments.

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