ACA Reshuffles the Deck
The law is prompting some physician groups to consider mergers to become part of larger health care organizations
Strain from the patient increases and reimbursement delays expected from the Affordable Care Act (ACA) are causing some health care providers to turn to M&A. (For more, see the video below with Jeff Swearingen of Edgemont Capital.)
The ACA, which was passed in 2010 and began open enrollment in October, is having significant effects on the health care industry, and many middle-market physician groups are using M&A to cope with the more taxing consequences of the new rules. The increased rate of physician group mergers began before the implementation of the ACA, but experts agree that the new law has amplified the trend.
"Consolidation activity has been accelerating for years now, driven by changes in reimbursement and changes in the rate of the insured," says Joe Russo, director at Siemens Financial Services Inc. "Now, the ACA is a factor influencing behavior by hospitals and physicians."
Under the new rules, companies are joining together to create accountable care organizations, or ACOs. ACOs are networks formed by groups of coordinated health care providers that care for a group of patients, including a minimum number of Medicare patients, that allows them to receive bonuses for keeping costs down. An ACO is accountable to the patients and third-party payers for the quality, appropriateness and efficiency of the care it provides.
"One of the things that you're seeing in the marketplace is the movement towards integrated health delivery systems," says Russo. "A hospital or physician organization may be trying to take care of a patient for the entire lifecycle, and I think that is part of what is driving some of these hospital entities and physician entities together."
Companies are trying to create efficiencies; take costs out of the system and make health care more affordable, according to Anthony Casciano, senior vice president at Siemens.
"We've seen both hospitals and managed care plans make initial forays into acquiring physician groups or physician management groups in an attempt to create, in the case of the hospital, what is called an integrated delivery network, and for managed care trying to create effectively the same type of thing," says Jeff Swearingen, managing director at health care focused investment bank Edgemont Capital Partners LP, headquartered in New York.
"It's not a surprise that physician practices are at the leading edge of this consolidation trend," says Daniel Lepanto, a managing director at health care focused investment bank Leerink Swann & Co. in New York. "They were the early movers in this trend."
Sunrise, Fla.-based Mednax Inc. (NYSE: MD) has been picking up anesthesia and pediatric physician groups for years. In 2013, the company announced more than 10 deals for neonatal and anesthesia-services groups. Those transactions include the health care company's acquisition of Dayton Newborn Care Specialists Inc. in October, Northern Westchester Anesthesia Services PC in September, Sanjay P. Patel MD PA in July, and Anesthesia Group of Onondaga PC in June.
"A lot of what you have seen with the strategic buyers is more of the local dynamic playing out," says Swearingen. Of Mednax's 2013 acquisitions, for example, two were in New York, four were in Texas and two were in Tennessee. The company also made one acquisition in Georgia, adding on to the two Mednax acquisitions in the state in 2012.
In October, Heartland Dental Care LLC expanded by buying My Dentist Holdings LLC. The Oklahoma City-based target has 55 dental affiliates in Oklahoma, Missouri, Texas, Kansas and Arkansas that provide dental services, orthodontics and oral surgery.
Also in October, U.S. HealthWorks acquired the Urgent Medical Care center in Pompano Beach, Fla., which gave the buyer 14 care centers in Florida.
In September, Kindred Healthcare Inc., a Louisville, Ky. -based health care company, sold 16 health care facilities that were outside of its designated 21 integrated-care markets. The locations were picked up by Vibra Healthcare LLC, and they include 14 transitional care hospitals, one inpatient rehabilitation facility and one skilled nursing facility.