Journal of Corporate Renewal

April

2016

Healthcare reform has dramatically changed the manner in which ealth systems deliver care to patients and how they are reimbursed for services. As hospital boards review their institutions’ competitive positions in a post-healthcare reform world, particularly those overseeing community hospitals, many decide to explore a sale to a strategic partner.

Deciding to sell a community hospital will be the most scrutinized decision a board makes. Engaging a financial advisor to perform a valuation or fairness opinion is a worthwhile exercise as the board evaluates various alternatives and defends its decision to hospital stakeholders and regulators.

The passage of the Patient Protection and Affordable Care Act (ACA) in March

2010 brought about significant changes
for hospitals. While the ACA provides
patients with greater access to insurance,
which can benefit hospitals through
lower levels of uncompensated care,
it also challenges these institutions
to adapt to new payment models.

Traditionally, hospitals were compensated on a fee-for-service basis, which rewarded the quantity of medical care and tests provided.

The ACA introduced new payment models that focus on quality, such as the Hospital Value-Based Purchasing Program and the Hospital Readmissions Reduction Program. Under these new programs, hospitals are rewarded with increased reimbursement for achieving certain quality metrics, and they are penalized with lower reimbursement for negative outcomes (e.g., high rates of patient readmissions). Funding for value-based purchasing is generated by withholding a percentage of Medicare payments. 1, 2

Alternative payment models, such as Accountable Care Organizations (ACOs) and bundled payment arrangements, are another cornerstone of the new health law. ACOs involve collaboration between hospitals and physicians to improve the quality of care for a population of patients while reducing costs. Participants in these alternative payment models can benefit financially by sharing in resulting savings.

Thriving in an environment of value-based and alternative payment models requires hospitals to make significant investments in data analytics and technology—most prominently costly electronic health record systems. Large health systems have the expertise and capital to make these investments, while community hospitals often lack these resources and thus may struggle to remain competitive.