Not by much – but perhaps in a unique way.
The increased pace of hospital and health system merger activity we’ve seen in the marketplace has had little to do with the Patient Protection and Affordable Care Act (the “ACA”). Rather, broader market conditions, some of which are affected by the ACA, have been driving hospital market consolidation. The financial crisis, which negatively impacted many hospitals’ ability to raise capital or maintain their credit ratings, and the downturn in the broader economy, which resulted in fewer people seeking care, have created the primary incentive for hospital consolidation.
In addition, just as capital has become scarce and business has slowed, infrastructure upgrades are becoming critical. The push for “meaningful use” of information technology and increased emphasis on quality reporting are creating more and more budget demands. Further, staffing shortages and increasing government investigations have created more financial pressure.
To be certain, the ACA has impacted the merger market. The prospect of lower Medicare reimbursement amplified the effects of the downturn in the economy. In addition, the signal from the Federal government of its shift away from fee-for-service, through the Medicare Shared Savings Program, bundled payment projects, the creation of the Center for Medicare & Medicaid Innovation and other provisions, created the imperative to think more long-term. The push to build more collaborative relationships with physicians, and the inherent costs associated with data sharing and analysis, have also taken away from hospital systems’ bottom lines.
But many of these provisions reflect what is already going on in the marketplace. Payers, employer plans, Medicaid experimentation and Medicare demonstration projects have been slowly creating change in the payer-provider dynamic. And these changes – organically occurring and supported by the ACA – have been resulting in more hospital-physician transactions and payer-provider mergers.
In other words, there are multiple factors out there that are convincing health systems that bigger is better. But market trends and the ACA are also ushering in merger and other transactions that go beyond hospital-hospital combinations.
So, will we see a change in hospital merger activity? Perhaps we will see an uptick; but more significantly, the stage continues to be cleared for new and experimental approaches to payment and delivery structures.
It’s like having a front-row seat to the premier of Stravinsky’s Rite of Spring.