The Affordable Care Act's experiments in Medicare payment reform have their doubters, but investors see opportunity.
Several companies have emerged to capitalize on the ACA's complex new programs designed to change how traditional Medicare spends more than $450 billion a year in payments. Those companies plan to make their money through management fees or by taking a share of bonuses paid out to providers.
Consider two recent deals worth $1.89 billion. Medical-supply company Cardinal Health paid $290 million this month for a majority stake in naviHealth, a consulting and technology company that's one of the largest players in Medicare's test of bundled payments under the federal healthcare law.
In early August, staffing firm TeamHealth said that it would pay $1.6 billion for IPC Healthcare, a hospitalist company that also participates in Medicare's bundled payments test under a contract with naviHealth.
Through the CMS Innovation Center's Bundled Payments for Care Improvement initiative, which started making payments in October 2013 and has expanded each subsequent year, Medicare combines payment for services provided by hospitals, doctors and nursing homes into one lump sum. That bundled amount is less than what Medicare would typically pay for each service separately.
When fee-for-service bills add up to less than the bundled amount for those services, healthcare providers get paid the difference. Providers must accept bundled payments for any eligible patient with a condition covered by a bundle the provider has signed up for to prevent doctors from selecting only the least-expensive patients.