Centerstone CEO Remains Choosy About Growth — But Consolidation Opportunities Exist

With more than 220 locations and two full-scale addiction recovery centers across five states, Centerstone is the largest community behavioral health provider in the country.

But earning that title was never part of the Nashville-based not-for-profit’s goal. Instead, it came as a means to an end — one that Centerstone CEO David Guth has been working toward since stepping into the position back in 1991. 

“Even as fast as we were growing [organically back then], we couldn’t get sufficient scale fast enough to create the capabilities that we needed,” Guth told Behavioral Health Business.

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As such, Centerstone began exploring — and pursuing — mergers and acquisitions. In addition to organic growth, Centersone’s consolidation conquests have helped it boom, giving the organization the ability to add additional services, help more patients, pursue new opportunities, enter new states and improve its bottom line. 

Beyond Centersone, an M&A play could be a wise move for other behavioral health providers, too — at least John Markley, regional CEO of Centerstone’s Illinois operation, thinks so.

“As tightening occurs with rates, staff and the availability of psychiatric time, it becomes more expensive [for smaller providers to operate],” Markley told BHB. “They’re less and less able to compete, so … consolidation makes sense.”

Markley came to Centerstone in 2014 following its merger with The H Group, of which he was CEO.

Consolidation strategy

For Centersone — and when it comes to consolidation in general — a successful deal is measured by the new value it creates for behavioral health patients.

Back in 1991, Centerstone was a relatively small organization operating in Tennessee only. It yielded $6 million in annual revenues, with 300 employees serving 2,000 individuals per year, according to the company’s website.

Today, the community behavioral health giant brings in $327 million in revenues per year and employs more than 5,000 staff, who serve nearly 180,000 patients annually across Florida, Illinois, Indiana, Kentucky and Tennessee, with each state operation led by its own regional CEO.

In addition to having more than 220 facilities of its own, Centerstone also provides services at more than 1,250 partnership locations across its geographies. Those services are expansive and include various forms of mental health care, addiction treatment and community education.

Beyond that, Centerstone has specialized programing for veterans, a research institute and a policy employee in Washington, D.C., who advocates on behalf of Centerstone and the behavioral health industry at large.

It’s all thanks to efficiencies of scale, which also allow Centerstone to pay clinicians competitive salaries — an especially important factor as widespread workforce shortages continue to plague the industry.

“There are things that we can do and can afford at scale that you just can’t if you’re a small organization,” Guth said.

In the year ahead, the size and shape of Centerstone will continue to evolve, Guth explained, noting that the organization is always eying partnership opportunities to complement its footprint and service offerings.

“We don’t have any master map that sits on the wall that says: ‘These are the only states that we are going to entertain affiliation partnerships,’” he said. “For one thing, that map would keep changing.”

When it comes to service offerings of interest for Centerstone, those are also in flux.

Guth said he’s excited by the prospect of growing the company’s autism and intellectual development disorder (IDD) service lines in 2020, but it’s not a sure thing. Striking a deal generally comes down to finding a strong partner with a proven track record whose offerings complement Centerstone’s mission to deliver care that changes people’s lives, he said.

Meanwhile, Markley put it in terms of math — and not the kind you might think.

“Here’s what my bottom line is: Is this something where the formula will be one plus one equals three?” Markley told BHB. “What I mean by that is, is there something we can do together that neither one of us can do apart?”

Subtraction will also likely factor into the 2020 equation, Guth explained.

“It’s not just about growth,” he said. “In the next year, we’re also going to be making some tough decisions about markets and and programs that we … think in the long term are not sustainable.”

Advice for other agencies

Given Centerstone’s size and stature, it’s not surprising the organization has its pick of M&A targets. In fact, it frequently turns down providers that reach out in hopes of being acquired.

“We’ve got a line outside our door of organizations that want to join Centerstone so that we can save them,” Guth said. “But that’s not ever been our strategy. ”

However, that doesn’t mean mergers and acquisitions are out of the question for small or struggling behavioral health organizations — it just means Centerstone is probably out of the running. But, in many cases, teaming up with other behavioral health providers is the best way for a struggling or stagnant organization to keep its mission alive.

“You can be committed to the destination, or you can be committed to the route,” Guth said. “But you can’t be committed to both. If you’re committed as a destination, then you’ve got to be realistic about what route is going to get you there.”

Markley agreed. He advised executives to keep that in mind when considering M&A opportunities.

“For CEOs, they have to be putting the mission of the agency and what their commitments are to their communities ahead of how it affects them personally,” he said. “It has to be in line and align with their mission, their strategic plan and the sustainability of their services in the future.”

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