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.
BY ROBERT HAUPTMAN, DIRECTOR, STOUT RISIUS ROSS
Valuations, Fairness
Opinions Provide
Useful Tools for
Distressed Hospital
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