US HealthVest’s De Novo Strategy Reflects Big Psychiatric Hospital Opportunity

Facility investor and owner US HealthVest and provider OSF HealthCare System announced a joint venture (JV) agreement to build the largest inpatient psychiatric hospital in Illinois south of Chicago.

The deal between New York, City-based US HealthVest and Peoria-based OSF HealthCare exemplifies a core part of US HealthVest’s business strategy and the wider trend of health care providers and other businesses partnering to address the declining number of psychiatric beds in the U.S.

The two organizations revealed the JV Thursday, which will result in a 100-bed behavioral health facility built on land owned by OSF HealthCare along Illinois Route 91 in Peoria, Illinois. The facility will be located near other OSF facilities, according to a news release.


The to-be-built facility is estimated to open in either late 2024 or early 2025; the two organizations have begun the regulatory approval process. It will provide 24/7 access to comprehensive behavioral health services, including crisis services. It will also offer free assessments, specialized programming, partial hospitalization programs and intensive outpatient services.

“Being able to bring in a large number of beds to central Illinois keeps people close to home and allows us to provide that continuity of care within the community that people reside and allows for family members to be much more involved in the care of their loved ones which we know is evidence based and compassionate,” Dr. Samuel Sears, director of behavioral health physician services, for OSF HealthCare, said in the release.

The company has already built three facilities near Chicago.


This JV is representative of US Health Vest’s larger strategy. US HealthVest is an investment company that focuses its de novo-heavy strategy on building and owning new psychiatric hospitals. It does so through joint ventures with local med-surg hospital organizations, Dr. Richard Kresch, CEO and President of US HealthVest told BHB.

The local joint venture runs the day-to-day operations largely under the management of the local hospital partner while US HealthVest provides an oversight role focused on psychiatric care.

The company also targets states with certificate of need (CON) laws. These regulations require new entrants to a market or incumbents seeking to make major investments (like building a facility) to disclose and, in some cases, gain approval from state regulators before doing so.

“While the CON process adds to the development time, CONs provide strong competitive advantages including high barriers to entry,” Martina Sze, chief development officer for US HealthVest, said in an email. “The OSF HealthCare JV hospital requires a CON and we have started that process in Illinois where we have a strong track record of gaining approvals.”

US HealthVest hospitals presently encompass about 1,300 beds, Kresch said. The company has built three hospitals in Illinois, two each in Georgia and Washington, and one each in Indiana and Massachusetts.

US HealthVest also has a partnership with the hospital organizations Sturdy Memorial Hospital Inc., South Shore Health System Inc. and Signature Healthcare Corp. to build a psychiatric hospital in Southeastern Massachusetts. This project is just beginning, Kresch said.

In March 2021, US HealthVest and Hendricks Regional Health opened a 70,000-square-foot facility in Plainfield, Indiana — near Indianapolis. That is US HealthVest’s first facility in Indiana.

The big picture with psychiatric hospitals

Psychiatric hospitals stand at a critical juncture of several titanic trends that make them prime spots for dealmaking and partnership.

At the broadest level, the diminishing supply of psychiatric beds on its own drives demand up and up. An increased focus on behavioral health due to the pandemic further accelerates the need on the demand side.

During the pandemic, US HealthVest has seen an uptick in development opportunities, mostly on the joint venture side of the business due COVID-driven increases in demand for services, Sze said.

There are still deeper drivers behind the demand for new psychiatric hospitals, Kresch said.

For years, many medical-surgical hospital operators have been shutting down the psychiatric units to make room for other services, Kresch said, while many new facilities often don’t factor in psych units.

This has happened and is happening during a time when “the universe of people who would consider treatment in an acute psychiatric hospital has increased,” Kresch said.

The Affordable Care Act, passed and implemented during the Obama administration, he said, increased access to private health insurance and increased support for states to expand access to government-backed insurance plans, especially state-level-administered Medicaid. This gave more people more affordable access to health care in the first place.

Further, the stigma around seeking care has abated somewhat in recent years, he added.

“The overall market dynamics are good in terms of the volume of patients exceeding the availability of beds for the most part,” Kresch said. “I think there is a recognition by governments at all levels that there’s a need and that that need needs to be supported with reasonable reimbursement.”

At a historical level, the decrease in psychiatric beds is a distant extension of a decades-long trend in inpatient psychiatric care.

For over 60 years state hospitals, previously well-accessed sources of long-term inpatient psychiatric services, have also been shutting down as part of a movement in health care policy called deinstitutionalization. The U.S. had more than 558,000 state psychiatric beds in 1955. The patient population supported by inpatient services dropped from about 370,000 to 40,000 between 1970 and 2014, according to an American Psychiatric Association report.

“In some ways, it has been helpful to our acute psychiatric hospitals,” Kresch said. “In terms of the business side, volume and so on, it’s probably helpful to the acute sector because we are seeing patients in crisis mode who otherwise have been long-term patients in a state hospital.”

Looking forward, the company’s near-term goal is to find and strike new deals while the long-term strategy will remain what it always has been for US HealthVest, Kresch said.

“It’s more of the same — the development of new hospitals and opportunistic acquisition of operating hospitals if circumstances are correct,” Kresch said.

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