The after-effects of the ACA & Where investors should bet

The Affordable Care Act allowed some entities to flourish while squashing others. So, where does opportunity exist for investors in the current healthcare landscape?

Scott Becker, JD, partner at McGuireWoods; Russ Sullivan, JD, partner at McGuireWoods; Holly Carnell, JD, attorney at McGuireWoods; Tim Fry, JD, attorney at McGuireWoods; and Kerri Eble, JD, attorney at McGuireWoods, spoke on a panel titled, "Winners & Losers Under the ACA: What Industries Have Flourished, Which Have Suffered & Other Observations for Investors" at the 13th Annual Healthcare and Life Sciences Private Equity & Finance Conference, hosted by McGuireWoods and RSM, in Chicago.

Triumphed or trampled?
Mr. Sullivan noted the ACA is likely to survive in some form, even if the Republicans gain control. "[Republicans] want to repeal the mandates, and that would be one of the core changes if they do take charge of the House, Senate and the White House," Mr. Sullivan said.

Mr. Sullivan said the ACA benefited well-resourced hospitals; innovative states; non-insured Americans; exchanges; retirement-type savings accounts and seniors.

Mr. Becker added the losers under the ACA are smaller community hospitals; smaller practices; small healthcare companies; taxpayers; large health systems; American Medical Association and state budgets.

Since the implementation of the ACA, the industry has experienced a disruption caused by the rapidity of hospital and practice mergers. From a private equity perspective, this disruption has resulted in a great amount of opportunity for investment. And although the Republicans will alter the ACA, complete dissolution of the law probably won't occur.

"At the end of the day you end up with 12 million more people insured and a tremendous amount of costs to the system, and it's hard to assess whether the cost benefit of that is the right answer for the country," said Mr. Becker. "Even though Republicans want to unravel it, once something starts to be the law of the land, it becomes very scary to unravel it and change."

Investors should expect consolidation
Hospitals and health systems have experienced both advantages and disadvantages associated with the ACA. Both have seen increased volume from the exchanges and Medicaid expansions.

However, the value-based purchasing and reimbursement reform resulted in more patients seeking outpatient care. This shift limited fee-for-service spending, resulting in decreased revenues for hospitals and health systems.

The payment reform aspect of the ACA involved three areas: testing new delivery models, shifting toward payment based on care and developing resources for system-wide improvement.

Ms. Carnell said consolidation among hospitals and health systems remains a strong trend. Investors should expect heavy activity in for-profit investment and for-profit and non-profit partnerships.

Keep an eye on data analytics
The ACA encouraged spending in healthcare analytics and big data.

"All of these payment models can't be achieved without having really great data to back it up, so the healthcare analytics- and data-based companies have turned into big winners from the ACA," said Ms. Carnell.

The data sharing space fostered increased activity in the last 18 months to 24 months. In terms of investment, population health and personalized medicine present big opportunities, as well.

Urgent care welcomes newcomers
Urgent care claims a big prize under the ACA. High deductible health plans encourage consumers to seek care from retail clinics instead of hospitals.

"We these specialties in urgent care evolving because people are trying to get to the cheapest place as fast as they can," said Mr. Fry. Instead of just 'urgent care,' the space now has 'pediatric urgent care' and 'orthopedic urgent care.'

Although major players have entered the market — like Target, CVS and Walgreens — no player holds 50 percent of the market share yet, so immense opportunity exists for players to start their own platforms and enter the space.

Flipping behavioral health businesses
The ACA didn't benefit the behavioral health sector as expected. In addition the limited amount of behavioral health providers in the nation, most psychiatrists won't take insurance because they receive more without it. So, consumers on the exchange plans won't have much luck receiving coverage for this space.

"And yet, behavioral health is a huge growth area for private equity investment," said Mr. Fry. The behavioral health opportunity doesn't correlate with the ACA, though; practices only have 17 DRGs and aren't burdened by administrative overhead.

Private equity firms have taken an interest in this space, putting money into the business and seeing an instant 20 percent to 30 percent rate of return.

ASCs remaining independent
Many ASCs are seeking partnerships with hospitals and healthcare systems in the current healthcare landscape. However, opportunity still remains for ASCs to maintain independence.

Independent ASCs hold onto autonomy by increasing quality and reducing price with data and analytics backing it up. Successful independent ASCs implement patient marketing efforts and price transparency as well as emphasize physician recruitment.

"It's becoming increasingly difficult for surgery centers to collect out-of-network payments, so we see surgery centers negotiating with bundled payments with payers, and we continue to see a lot of action in this marketplace," said Ms. Eble.

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