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Prepare for 2019: Healthcare Regulatory Changes that impact Private Equity

The current political climate - a divided Congress and an overlay of the 2020 presidential campaign - doesn’t lend itself to enacting sweeping healthcare regulatory changes in 2019. However, assuming that a lack of sweeping changes is

synonymous with a lack of any changes is a mistake. It’s a particularly dangerous mistake for private equity groups operating in the healthcare sphere. Private equity groups must cut through the noise that accompanies presidential election cycles and separate rhetoric from actual change. A top-of-headline talking point on both sides of the aisle - the costs of prescription medications - probably won’t see any real change in 2019. The laws surrounding prescriptions are inflexible, and a divided Congress is unlikely to agree on what changes they should make.

So, if 2019 won’t usher in landscape-altering regulatory changes, what will it bring? 2019 will see the implementation of legislation passed in 2018 and prior. While these changes may not be flashy, they are important. Details matter and private equity groups that downplay the importance of regulatory changes will assume a lot of risk.

What changes should private equity groups prepare for?

1. Post-Acute Care (PAC) Payment Changes

Previously approved Medicare payment and policy changes will impact Skilled Nursing Facilities (SNF) and Home Healthcare in October 2019. Specifically, the Centers for Medicare & Medicaid Services (CMS) will transition to a new case-mix model - the Patient Driven Payment Model. This model focuses on the patient’s condition and resulting care needs, as opposed to the amount of care provided, to determine Medicare payment. This change may have significant impacts on the profitability of PAC providers- and private equity groups should prepare for how their investments will be affected.

2. CMS Innovation Center Developments

The CMS Innovation Center is becoming more aggressive with regards to innovations, including in the Accountable Care Organization (ACO) sphere. New rules would reward providers for embracing innovation and taking risks. CMS proposed paying providers a predetermined fee for procedures or annual fee per beneficiary, leaving it to the provider to take necessary steps to deliver quality care and generate a profit. In theory, this change will encourage providers to pursue innovative approaches to managing risk and quality.

3. Ongoing Medicaid Expansions

Seventeen states continue to debate whether or not to expand Medicaid to take advantage of the opportunities in the ACA. In addition to the regulatory changes that accompany Medicaid expansion, it will also materially impact the revenue to providers serving the Medicaid eligible population. If the experiences of other states hold true, most expansion states will look to Managed Medicaid providers benefiting those players disproportionately.

4. Site-Neutral Payment

2019 will see the realization of site-neutral payment, as a result of changes to the Outpatient Prospective Payment System and the Ambulatory Surgical Center Payment System. Site-neutral payment will dictate that Medicare will reimburse surgical and related services at a uniform rate - regardless of where the services occur. Hospitals will no longer be able to charge more than a clinic for the same procedure. Private equity groups must evaluate how these changes will impact their acquisitions going forward.

If you’re concerned about how 2019 regulatory changes will impact your current, or potential, investments consider getting an industry insider’s perspective. Bancroft Group’s network of healthcare executives can provide the expertise you need to make a well-informed decision. Contact us to learn more about how we can get you the help you need.