GO BIG OR GO HOME! The Extinction of Small Providers and Integration of Health Care
Six years ago, 68% of hospitals in NC were affiliated with a health system. Today, 85% of our member hospitals are in a health system.
The managed care organizations (MCOs) are squeezing out small behavioral health care providers, and, legally or not (I say not), contracting with only large comprehensive providers.
Home health providers are acquiring, merging, and/or consolidating with other home health providers to become a bigger fish in order to have more input in legislative issues and rate issues.
Providers of all types are reaching across service industries to form more comprehensive entities whether with intent to place a bid to be an accountable care organization (ACO) or provider led entity (PLE) or to corner the market on certain services.
Whether you like it or not, health care is transforming from small, mom and pop companies to large, comprehensive corporations that will encompass the whole treatment of an individual.
With the implementation of the Affordable Care Act (ACA), came a “never before seen,” tidal wave of regulations applicable to health care. Even health care providers who were prepared and aware of the incoming tsunami of regulatory force did not foresee the sheer magnitude of the new regulations coupled with the intended and unintended consequences of such regulatory horsepower.
Surfing on the top of the tsunami came the RACs, MACs, QICs, PERMs, MFCUs, CERTs. Also caught up in the overwhelming and over-expansive riptide, were more credible allegations of fraud, MCO closed networks, fraud waste and abuse (FWA) investigations, prepayment reviews, post payments reviews.
Small providers have a more difficult time defending themselves against regulatory audits or credible allegations of fraud, have fewer resources to devote to regulatory compliance issues, and have less pull with those in power at associations and in government. This is not to say that I think bigger is better. To the contrary, personally, I would much rather receive health care services from a smaller provider rather than some big conglomerate where I never see the same doctor twice. This is just reality.
In addition to the ACA, our NC General Assembly is pushing for Medicaid reform, which will also be a catalyst to an already busy market of merging, acquiring and/or consolidation.
What should providers do?
I have received more telephone calls in the last year asking about buying, selling and partnering up with health care agencies than 5 years previously, combined. The number of agencies seeking to team up with other agencies is at an all time high.
Reach out to those people with contacts, such as your attorneys, my firm, health care brokers, your associations, and inquire whether they know of any agencies seeking to merge, acquire, or consolidate. Start the conversation. If confidentiality is a concern, then be sure to express that concern from the onset of the conversation.
Tips for Consolidation
- Decide whether you want to be involved in the new entity’s future
- Make contacts
- Target health care providers and types of services
- Choose the right type of transaction
- Do your due diligence
- Use the right people to conduct your due diligence
- Use the right attorney
- Draft a contract that will protect you regardless of your future involvement
- Ensure regulatory compliance
Most importantly, whatever you decide to do, be proactive and be informed!