Physician Hospitals After the PPACA: Life Goes On and New Strategies Emerge

Published by PHA Pulse

The Patient Protection and Affordable Care Act of 2010 (“PPACA”) was signed into law on March 23, 2010. The period since enactment has been a time of soul searching for 285 existing physician owned hospitals (“POHs”). Our work at VMG Health, providing valuation and transaction advisory services to the POH industry, affords us the opportunity to analyze the financial condition and observe the strategic response of a large sample of POHs post PPACA.

Our observations confirm that POH leaders are busy assessing their future, weighing their options, and mulling strategic opportunities with the ultimate goal of preserving and enhancing shareholder value. Although POH management’s skill in navigating these challenges will become clearer in years down the road, evidence displayed thus far has shown that the industry will respond with skill and ingenuity to pursue creative paths to improve financial performance and enhance shareholder return.

Each POH’s exposure to the growth and physician ownership restrictions promulgated by the PPACA is unique. The characteristics of each POH will determine the level of risk exposure to these restrictions and generally dictate the appropriate strategic response. In the post PPACA environment, existing POHs can be considered to fall within three separate and distinct classifications based on their unique attributes. These include those operating in a “Business as Usual” manner, those reaching a “Fork in the Road”, and those that are “In Need of Restructuring”. The attributes of each POH category are summarized in the table below:

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