King v. Burwell Ruling Paves Way for More M&A

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June 29, 2015

Posted on June 25, 2015 by Patrick Pilch and Bill Bithoney
 
The pressure valve has been released. Expect a jump in healthcare mergers and acquisitions now that the Supreme Court has removed the uncertainty around King v. Burwell and affirmed that federal subsidies are available to all Americans regardless of whether their state offers its own healthcare exchange.
 
Many private equity funds and other investors had been hesitant to move forward in the recent period of uncertainty.
 
Based on conversations with these firms and with healthcare investors and hospitals and other care providers, we expect a big jump in deal flow in the third and fourth quarter, independent of a state’s exchange status. Healthcare stocks jumped at the ruling news.
 
Beyond the M&A implications, the ruling removes the distraction of the bottom potentially falling out on the Affordable Care Act. Regardless of one’s opinion on the law, it remains that it’s much easier to move forward on healthcare transformation when the ground isn’t shifting.
 
This paradigm shift to value will require considerable investment to reap the promised savings, and providers need to start looking at nontraditional sources of efficient capital. With King v. Burwell behind us, private capital and public private partnerships will have bigger roles in funding the shift from volume to value.
 
More To Be Done
Regardless of whether they’re in states with exchanges or not, providers need to make value-based care take off. The King v. Burwell decision doesn’t change the runway they’re on, though that runway may be shorter in states without exchanges, and they’ll have a harder time getting lift. Eventually, though, everyone must wind up in the air.
 
What we need to look at now is which states have the biggest headwinds, and find ways to get them aloft. We also believe we’ll see both state and federal Medicaid waivers and innovation grants deployed to realign the delivery models to outcomes-driven reimbursement. “Let’s be clear. We’ve still got work to do to make healthcare in America even better,” President Barack Obama said Thursday, in concluding his statement celebrating the ruling and its implications on the Affordable Care Act. He also affirmed that progress is being made toward improving access to preventive care and reducing the cost of care.
 
Providers are now able to refocus their attention on moving forward, and one key area of focus will be on data integrity. Private insurers, Medicare and Medicaid alike continue to press for risk-based reimbursement rather than fee-based reimbursement. While they must keep moving toward incentivizing a value-based model, there also need to be guardrails to guide data collection and reporting. As reimbursement depends more on data outcomes, those data outcomes will become more and more susceptible to manipulation.
 
Clearly there is tremendous opportunity and work ahead. The ruling today in removing some of the uncertainty has cleared a path for acceleration of deal activity.
 
Patrick Pilch, CPA, MBA, is a Managing Director and National Leader of The BDO Center for Healthcare Excellence& Innovation. He can be reached at ppilch@bdo.com.

Dr. Bill Bithoney is a Managing Director and Chief Physician Executive with The BDO Center for Healthcare Excellence & Innovation. He can be reached at bbithoney@bdo.com

This entry was posted in Medicare/Medicaid, Mergers and tagged acquisitions, exchanges, health insurance, King v. Burwell, M&A, mergers, private equity, SCOTUS.
 

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