Practice M&A Kicks into High Gear

In the second quarter of 2012 more money was spent on fewer medical practice mergers and acquisitions. Overall the amount of money spent was a significant jump over the same period in 2011, according to numbers by research firm Irving Levin Associations.

While only 21 physician practice mergers and acquisitions were made in the second quarter of 2012, they amounted to a huge pile of money: $4.2 billion. The uptick is a result of the health care reform, especially since it was recently upheld by the Supreme Court in June.

The high number of mergers and acquisitions should continue, reported Amednews.com, because of the penalties hospitals will face for excess readmissions. To prevent too many readmissions, which result in less Medicare reimbursements, hospitals will want to buy practices so they can control referral sources and have a better say in quality of treatment.

According to Amednews.com:

More merger and acquisition activity also is expected from large practices. For instance, the large monetary uptick in 2012 was primarily a result of DaVita, a Denver-based dialysis provider, announcing May 21 that it was spending $3.7 billion to acquire HealthCare Partners, which operates medical groups and physician networks in California, Florida and Nevada. HealthCare Partners is based in Torrance, Calif.

As long as the economy puts stress on the practices and hospitals, the health industry will likely continue moving toward larger entities, Amednews.com reported. The health industry is really feeling the pressure. Moody’s announced at the end of July that in the second quarter of 2012 there were more downgrades of non-profit health care debt than there were upgrades.

"The increased proportion of downgrades were driven by the continued slow economic recovery, increasing pressure on state budgets, and a large and growing federal deficit," Moody's Associate Analyst Carrie Sheffield, author of the report, said in a statement when the report was released. "The deficit problem may lead to reductions in Medicare and Medicaid, which translate into weak volumes and revenue declines for hospitals."