Hospital Mergers & Acquisitions: Are ACOs a Cause or an Effect?

Over the last several years, the pace of mergers and acquisitions involving either hospitals purchasing physician practices or hospitals purchasing other hospitals has quickened exponentially. Some factors driving the consolidation in the healthcare industry are increasing overhead costs, decreasing reimbursement rates and hospitals’ reaction to the Patient Protection and Affordable Care Act (PPACA). What PPACA will hold for physicians in the United States is still unclear but the powers to be behind hospital administration have taken note of an interesting type of entity envisioned by PPACA: the Accountable Care Organization or ACO. According to the Center on Medicare and Medicaid Services, an ACO is “an organization of health care providers that agrees to be accountable for the quality, cost, and overall care of Medicare beneficiaries who are enrolled in the traditional fee-for-service program who are assigned to it.” Although CMS’s definition of an ACO references serving Medicare beneficiaries, with the mandate of health coverage to all Americans under PPACA, other payers will be affected by ACOs as well.

The interesting question is as follows: are hospital administrators anticipating the prevalence of ACOs in the future and are therefore becoming acquisitive now to create large ACOs or do hospitals want to grow through acquisitions and see ACO as the best structure to integrate acquired physicians into the larger hospital network. Several arguments can be made to advance either position. First, ACO appears to be the structure of care for the future and PPACA provides incentives for the formation of ACOs. However, until November, the fate of PPACA is not entirely certain and hospital administrators may be risk adverse in investing in potentially changing legislation. Yet the ACO structure by itself is an attractive way to integrate physicians into a hospital network by providing a unified team to handle all medical and operational challenges. The answer to these questions awaits.