The consequences of a shift in the Fee-for-Service (FFS) revenue model to outcomes-based compensation is creating a tsunami of change for hospitals. Let’s look at how this shift is affecting the valuation of hospitals in a buy or sell situation.
In an FFS revenue model, valuations were based on how much revenue generated was attributed to volume. That is all changing with the Affordable Care Act (ACA). Today, hospitals face a variety of issues that impact day-to-day operations and the bottom-line:
- Declining inpatient volumes
- Lower reimbursement rates per patient from Medicaid and Medicare with private payors starting to follow the trend
- The advent of high deductible plans in private pay
- Changing diagnosis codes
- Enhanced regulatory vigilance
These factors contribute to a financial model where operating expenses are outpacing revenue.
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