Disruption. It’s a force that’s driven M&A activity within the healthcare sector for years. Today, the COVID-19 disruption continues to shape deal flow within the healthcare sector.
Physician practice COVID-19-related M&A activity between small and large healthcare organizations is a recent phenomenon creating an added layer of consolidation, sales and acquisitions in the marketplace. Solo and group practices are struggling to keep their doors open because patients are staying away to limit exposure and larger health systems and private equity firms are gaining interest in strategic acquisitions.
Initial Impact of COVID-19 on Healthcare Industry
The American Hospital Association estimated that hospitals and health systems suffered a loss of over $200 billion during four consecutive months due to declined revenue and increased costs relating to impacts from COVID-19. New York, which was initially hit the hardest in the U.S. by the novel Coronavirus, saw severe declines in physician-patient visits immediately as well as dramatic physician practice revenue loss as a result of the pandemic, according to a survey shared by the Medical Society of the State of New York. As the virus continues to spread, this same dramatic drop in patient volume and practice revenue can be felt across the nation by solo and group private physician practices.
What seems to remain constant is that through the ebb and flow of hot spots and coronavirus cases surging across the country, there is a division in the public’s ability to feel safe and secure during a physician visit. As of late, schedules appear somewhat full the day before appointments, yet the number of patients seen the day of is far less due to cancellations and no shows.
Private Physician Practices Increase Telemedicine Use
While patients are staying away from in-person visits, telehealth physician visits are providing a secondary solution to allow doctors to see their patients. Routine wellness visits and necessary health check appointments are now virtual, and some virtual platforms even allow for integration with existing electronic health record (EHR) systems.
Telehealth visits appear to be a short-term solution for physician practices to try to stay afloat. Yet, solo and group practices are hesitant of long-term adoption as the telemedicine insurance reimbursement plan for the future is unclear, putting physician practices in an even shakier financial condition.
In June, the American College of Physicians sent a letter to major insurance carriers advocating for physician practices. The key areas of requested support focused on requiring telemedicine visits to receive the same rate of reimbursement as in-office patient visits. Additional policy changes centered around other financial hurdles relating to fee-for-service, administrative flexibilities, waived patient cost-sharing responsibilities and direct relief payments. However, even with the increase in telehealth visits, private physician practices will struggle to maintain the financial means to provide necessary care to the patients in a time when it’s needed most.
Contacta member of Withum’s Healthcare Services Team for guidance on how to help your physician practice manage through the COVID-19 business disruption.
Future Physician Practice M&A Activity
Patient and practice volatility is leaving solo and group physician practices vulnerable to an unsustainable business model for the future. A study conducted by the Larry A. Green Center and Primary Care Collaborative shared that nearly 90% of primary care practices who participated in the survey continue to face significant difficulties with COVID-19, among those difficulties includes obtaining necessary means to remain operational.
Vulnerable businesses offering essential services are prime acquisition targets, and within the healthcare industry, it’s no different. Healthcare systems, hospitals and private equity firms are reevaluating their acquisition strategy due to the pandemic. Deals must be more strategic and smarter in an unpredictable market. M&A in the healthcare sector presents the opportunity to bring on additional talent, specialized services and increased patient volume. The perceived value in these deals helps bail out struggling physician practices and offers expanded services to patients. However, rising health care prices are a conditional factor.
Consolidations and sales of physician practices often come with increased health care costs for patients. It’s important to be cognizant of the value of care given in comparison to the fees charged. Gaps in patient care and high prices can be an outcome of an acquisition or consolidation, so recognizing the areas prone to improvement or change in the best interest of the patient while maintaining your bottom line is essential. At its core, the basis behind health care is to provide patients with the level of care and services necessary for their best quality of life. As such, the value of the deal should mirror the level of care the patient receives.
The Future of Physician Practice Sustainability
As organizations continue to manage the on-going effects of the COVID-19 pandemic, healthcare’s model for delivering care is changing rapidly. Unpredictability is shaping a fascinating landscape for the future structure of healthcare organizations.
Contacta member of Withum’s Healthcare Services Team for guidance on how to help your physician practice manage through the COVID-19 business disruption.
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