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Increase in physician practice mergers and acquisitions expected to continue

More total money has been expended to close fewer deals, according to a new report.

By — Posted Aug. 14, 2012

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The amount of money spent on medical practice mergers and acquisitions jumped significantly in the second quarter of 2012 compared with the same period in 2011, although the aggregate number of actual deals went down. That’s according to data released July 19 by Irving Levin Associates, a research firm based in Norwalk, Conn.

Twenty-one physician practice mergers and acquisitions occurred in the second quarter of 2012, with $4.2 billion changing hands. Twenty-seven deals were noted in the second quarter of 2012, but these had a total value of $416 million. The purchaser or instigator of a merger can be a hospital, physician group or other entity. Researchers expect these trends in this segment of the health care system to continue.

“You’re going to be seeing more hospitals buying physician practices to control referral sources and to have a better and bigger say in quality as they start to get penalized for readmissions,” said Stephen M. Monroe, editor of the company’s Health Care M&A Report. The Affordable Care Act lowers Medicare pay to hospitals with high readmission rates and decreases the amount the program pays to cover unpaid patient debt, in anticipation of tens of millions of people gaining insurance coverage.

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.

DaVita and HealthCare Partners are significant players in the move toward forming accountable care organizations, which are a key part of health system reform. The ACO movement and continued economic stress are considered the main motivations for health entities to become even larger.

For example, a report issued July 23 by Moody’s Investors Service analyzing credit ratings for nonprofit entities found that credit downgrades outpaced upgrades in the second quarter of 2012. Health systems with higher credit ratings, which play a role in the costs of borrowing, were more likely to have been involved in recent mergers.

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