Q: Pres. Obama’s healthcare plan has received a great deal of attention since it was announced. How do you think this plan, if implemented, would affect the value of medical facilities?
Jon O’Sullivan: The short answer to this question is we can’t be sure. The overall objective of the Obama plan is to lower healthcare costs and provide expanded healthcare coverage. Theoretically, wide range use of EHRs and disease management programs will significantly reduce utilization of expensive procedures. Exactly how this happens in practice is still very ambiguous and up for debate. So for now, my interpretation of the Obama plan is lower healthcare reimbursement and higher volume. From a valuation perspective, that means that in order to maintain value, facilities will have to increase volume and effectively manage costs in a lower-reimbursement environment. That shouldn’t surprise anyone.
Q: How will a Democrat-controlled Congress affect the value of medical facilities?
JO: A significant area where I believe we could see changes that would affect the value of medical facilities is in limitations in physician ownership or investment in ancillary services, including physician ownership in facilities licensed as hospitals. Now that Democrats control the House and Senate we are more likely to see regulation limiting physician investment in hospitals, which could include a moratorium on new physician-owned hospitals or limited grandfathering for current investments in these facilities. In the short term, there is an opportunity and a rush for providers to establish their hospital joint ventures. Ultimately, if or when these types of regulations are ever passed, there will be a captive market of potential investors for existing physician-owned hospitals, potentially increasing the value of existing facilities.
Q: Do you think Congress is likely to pass legislation that limits the proliferation of medical facilities besides whole hospitals, such as ASCs?
JO: ASCs have a long and proven track record of lowering healthcare costs, improving clinical outcomes and increasing patient satisfaction. So in the near term, we don’t anticipate any legislation significantly impacting physician ownership in ASCs. However, once whole hospital investment is addressed, activist Democrats in Congress will focus attention on other ancillary services including imaging, oncology and other ancillary relationships. This will result in a new round of innovation in physician/hospital relationships in the continuous effort to realign physicians with hospitals.
Jon O’Sullivan (osullivan@vmghealth.com) provides valuation, joint venture development, and transaction advisory services exclusively in the healthcare services market to clients throughout the United States, including for profit and nonprofit hospital systems, national ancillary service businesses and physician organizations. Learn more about VMG Health.
