The article is sponsored by DecisivEdge. In this Voices interview, Behavioral Health Business sits down with DecisivEdge president Sukumar Narayanan to learn the top factors driving growth in behavioral health right now. Narayanan also explains the connection between technology integration and the sector’s M&A opportunities.
Behavioral Health Business: Sukumar, what career experiences do you most draw from in your role today as President of DecisivEdge?
Sukumar Narayanan: My entire career has been in consulting and professional services. Professional services businesses, like ours, have found that the most successful companies are the ones that do three things well. They bring together company-wide experience — which may be in the form of frameworks and methodologies — with individual expertise and the culture of working as a team. They work toward a goal rather than individual accomplishments. Firms that are most successful are able to meld those three effectively, to consistently address challenging issues.
That’s a big reason why they hire us: to address those issues. We’re building a firm with a very collegial collaborative culture, a firm with deep domain expertise in the industry segments that we serve — health care and financial services — combined with the technologies we employ to drive real measurable value for our customers.
What are the top factors driving the growth in the behavioral health space, right now?
Narayanan: There are a few. I believe the first one is that acknowledging mental and behavioral health challenges has become more acceptable in the last decade or so. It may be because prominent people have revealed their secret battles with addictions, eating disorders or a myriad other issues that fall under the behavioral health umbrella. I think that’s a big factor.
The second thing is the availability of easily accessible and targeted treatments. A third is that employers’ attitudes have changed. Employers are shaping policies and acknowledging some of these issues as real, either through their own policies or through the kinds of health care coverages that they’re offering. The issues have always been there, but they’ve been underneath the covers, if you will. I was reading stats the other day that said the number of people with unmet mental health issues has grown from 21 million in 2010 to 31 million in 2022.
Let’s talk about mergers. What is driving merger activity in behavioral health today?
Narayanan: The growth in demand that we just talked about, as well as the low-interest rates that have existed for the last 10-plus years, created an ideal environment for mergers and acquisitions. In order to accelerate growth and grab market share, companies are supplementing organic growth with acquisitions because it allows them to make quantum leaps in scale and capabilities. While the pandemic drove up demand for these services, the supply of trained personnel has become a choke point, making organic growth more challenging.
As a result, M&A has become the default strategy to drive growth. PE firms have jumped into this space because they see a rich environment with growth in demand. It’s a fairly fragmented space, so it’s an ideal opportunity to create roll-ups and, in a fairly short period of time, create larger multi-speciality entities that are nationwide.
Going along with that, when mergers don’t deliver on their promise, what are the top reasons why?
Narayanan: Having played a role in over 10 mergers, I can say that there are several reasons, the primary one being underestimating the cost and complexity of post-merger integration. When you look at post-merger integration, service portfolios and treatment protocols need to be aligned and rationalized. Your referral networks need to be aligned and optimized. Systems from your contact center to the back office all need to be integrated or migrated to a single platform. Facilities and personnel need to be rationalized.
The problem is that all of those things that I just mentioned affect people and their careers, which makes people behave in unexpected ways. When mergers are planned, you’ll assume rational behavior. But when people’s livelihoods are impacted, they don’t necessarily behave rationally. If somebody feels that their department is under threat in a merger, they may hide information or be less cooperative, things of that nature, which then ends up derailing or delaying the process.
I feel that is the single biggest issue that plagues mergers, and more than half the mergers that happen out there — and I’m talking more broadly than just behavioral health mergers — don’t deliver on their promise, whether it’s the synergies that were used to justify the merger or the efficiencies that they were looking to achieve.
What are the best ways that behavioral health providers can address these challenges?
Narayanan: The first thing is to be realistic about the cost and complexity of integration and the timeline to integrate the operations and realize the synergies. Don’t go with the best-case scenario, go with a much more conservative scenario and assume that some things aren’t going to go the way you had anticipated or planned. The chief medical officer you have learns about the merger and decides, “I don’t want to be part of this.” He leaves. Suddenly you have a huge vacuum. Things that you didn’t anticipate, or didn’t plan for, can happen. Be realistic about the cost and complexity and the timeframe.
Second thing, and I’ve encountered this multiple times, there is a tendency especially when a larger entity acquires a smaller entity to take a, “We have acquired you, now fall in line” approach. It’s a very heavy-handed kind of an attitude that ends up creating poor results because in a scenario like that, what happens? The best people leave.
There will be winners and losers from a people perspective in any merger because there are going to be redundancies. That’s how a lot of mergers are justified. Most justification comes not so much from market share gain and revenue increases. More of the justification is based on cost savings and rationalizing of heads and facilities. If you deal with those issues fairly, and if you deal with people with a level of respect, things tend to go better than taking a very heavy-handed approach.
How can technology integration lay the groundwork for streamlining future acquisitions?
Narayanan: I think one of the ways that companies are addressing one aspect of the post-merger integration challenge is to develop a robust and scalable technology infrastructure and combine that with a very clearly articulated transition methodology. This works particularly well when you have a larger platform company. A lot of PE-funded firms adopt this approach of making a series of smaller acquisitions to achieve scale. They need to do this rather quickly. “It doesn’t matter, company ABC, what systems you run. We have a platform that has been optimized and created for this business. Here we have a methodology for taking your information, your data, and your policies and procedures and melding it into ours in a rapid manner.”
That can work extremely well when a larger company is making a series of smaller acquisitions. It is less effective in a merger of equals. When it’s a merger of equals, invariably every aspect of the integration is negotiated. It becomes horse-trading: who’s going to lead what department, what systems you’re going to keep, whether you’re going to keep one company’s systems or the other one’s systems. Everything gets negotiated.
Technology is a key component that needs to be addressed in a merger. You want the customer and partner interactions with the combined entity to be as frictionless and as seamless as possible.
Finish this sentence: “The top strategy that behavioral health providers should employ in 2022 to best prepare for 2023 is…”?
Narayanan: To pursue operational excellence. I believe there are three main drivers that are likely to impact behavioral health businesses in the next 12 to 18 months. One is the potential economic downturn. We may already be in one. The impacts of that. The second is the potential for changes to public policy following the midterm election. Then the third is this continuing issue that all of these companies are dealing with: the shortages of trained personnel, which is driving up wage costs.
All three of those can impact the bottom line. I believe driving operational excellence and optimizing your census and other aspects of your operations are all critical things that people can work on today in order to prepare for what’s coming.
Editor’s note: This interview has been edited for length and clarity.
DecisivEdge helps behavioral health organizations meet their business goals and deliver on their brand promise by leveraging their technology investments to deliver a best-in-class customer experience while improving three areas: value to the client experience at admission, agent experience for retention and portfolio value through optimization. To learn more, visit decisivedge.com.
The Voices Series is a sponsored content program featuring leading executives discussing trends, topics and more shaping their industry in a question-and-answer format. For more information on Voices, please contact [email protected].
