An impending surprise billing policy may drive hospital consolidation

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Congress has been abuzz with proposals set out to slash surprise billing, and if legislation gets off the ground, providers that treat a higher volume of out-of-network patients will take the biggest hit, according to a Moody's analysis cited in Fierce Healthcare.

While exact details of the forthcoming law are still being ironed out, surprise billing legislation will likely pass in the next 12 months despite hospitals' aggressive lobbying efforts. 

Hospital groups like the American Hospital Association have been putting up a fight against the proposals, as any form of legislation would likely mean skimpier payments for providers. But hospitals' protests are likely to be in vain — support for surprise billing from Democrats and Republicans alike means legislation is likely to pass.

But not all provider organizations will be affected proportionately.

• Large hospitals and health systems should walk away relatively unscathed. Large health systems' sheer size means they're more likely to be in a patient's network, so they shouldn't need to shoulder too many extra costs. That scale should also offer large providers leverage if they need to negotiate new networks or rates with insurers.
• Smaller providers will likely bear the brunt of the legislation. Smaller provider organizations deal with a higher volume of out-of-network patients, and if legislation is passed, they'd be on the hook for a larger amount of hefty bills that were previously passed off to patients.
• Rural providers should be somewhat insulated from the policy's effects, but I (Zoë) don't think they're completely safe. Rural healthcare firms in areas where competitors are few and far between are likely to be in-network for most patients, Fierce Healthcare notes. Still, rural healthcare firms are standing on unsteady ground: Over one-fifth of rural hospitals are at risk of shutting down, and 107 rural hospitals have closed their doors since 2010 in the US. So, even though they might be more likely to be in-network, their unstable financial footing could mean that even a small number of out-of-network patients could do significant damage.

We think surprise billing legislation will trigger accelerated hospital consolidation as smaller providers turn to mergers or seek refuge in larger organizations. The law will likely make it financially infeasible for smaller providers to treat a large volume of out-of-network patients, leading to buyouts from larger firms looking to expand their footprint.

Merger and acquisition (M&A) activity among hospitals sunk to a 10-year low in Q1 2019, totaling just 14, down from 40 year-over-year in 2018, per a Ponder & Co. report. But it's generally trending upward, and I (Zoë) predict that, with surprise billing legislation on the horizon, we'll see this activity tick up to even greater heights over the next five years. 

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