In this segment, Alex Clavero and Bernie Grondin, partners in McDermott’s Healthcare Services Private Equity Practice, moderate a discussion on the demand drivers, challenges and investment opportunities in the current landscape of the behavioral health services sector.
Alex Clavero, Partner, McDermott Will & Emery
Bernie Grondin, Partner, McDermott Will & Emery
L.A. Galyon IV, Managing Director and Partner, Brentwood Capital Advisors
David Peterson, Managing Director, NMS Capital
Kiel Rager, Founder and Chief Executive Officer, InBloom Autism Services
Growth of the behavioral health sector is gaining momentum, as providers strive to meet rapidly increasing demand for behavioral health services. Competition for clinical staff has been and remains one of the biggest challenges across the numerous specialties that fall under the “behavioral health” umbrella. Given the shortage of clinicians compared to the demand, providers and payors have started to focus on new models to deliver treatment.
Demand in the autism sector, for example, can be attributed to a higher prevalence of children being diagnosed with autism today than in the past. In the current market, it is estimated that only 30% of demand is being met. The biggest challenge to optimizing outcomes for kiddos (the autism sector’s term for pediatric patients) is the competition for high-quality staff. Payors are starting to focus on new models to deliver care to kiddos, including parent-led programming, a model in which providers are, effectively, training the parent to provide the services, given the lack of clinicians to meet demand.
In the mental and behavioral health sector, there are a number of challenges that arise in the context of the traditional third-party payor model. Chief among these is a general lack of access to the mental health system. With a community-based care model, these challenges could be addressed by providing a more comprehensive approach to treatment and reimbursement.
In the current mental health landscape, the majority of outpatient psychiatrists do not take insurance, which is a product of the reimbursement rates for covered services and the types of services covered.
At current reimbursement rates, there are few psychiatric practices that can make money at the gross-profit level. To the extent insurance plans have in-network providers in a geographic area, the wait to get an appointment with one of those providers is often too long (ranging from months to years), leaving patients with out-of-network care as the only timely alternative. Furthermore, the system in place today is set up to provide acute care to psychiatric patients while they are at a facility, but not after they are released. In most other aspects of medicine, a patient receives acute care during their stay at a hospital and receives stepped-down levels of care after discharge. Psychiatry does not have an equivalent model, with inpatient acute care provided at the facility and stepped-down care delivered once a patient is released, which makes it difficult for such patients to see lasting or meaningful improvements.
To address these challenges, payors must be educated on the need for better reimbursement and more thoughtful approaches to utilization and authorization. As an alternative service model, a community-based care approach takes a longer-term view, helping coordinate between acute-care providers and the therapists, counselors, social workers and other professionals who support patients in their efforts to achieve stability in daily life following acute-care treatment. Thus, there is an opportunity to be an early mover in the less-acute care segment of the industry and—by using a mix of telehealth, mid-level providers, ancillaries and other modalities that will be covered in-network—to create a scalable model.
The increased prevalence of employee assistance programs (EAPs) in recent years has been a contributing factor in the rising demand for mental and behavioral health services, and has also presented a service model that has attracted considerable investment.
On the mental health and addiction-treatment sides of the industry, particularly during the COVID-19 pandemic, there has been an increase in care provided, whether through an increased number of employers offering EAPs and/or similar benefits, more employees utilizing those resources, and the proliferation of mental health clinics and mental health support.
Mental health has become one of the top five reasons for staff resignations in the behavioral therapy space since 2020, which underscores the importance of the new role of EAPs from a provider/operational perspective. Some companies are implementing EAPs that provide unlimited access to telehealth psychology appointments, even if they do not have insurance through the company. Given how much companies are now spending on EAPs to provide mental health and wellness resources outside of traditional health insurance, EAPs present an interesting opportunity in response to both the shortage of behavioral and mental health services covered by insurance, and the general shortage of clinical providers.