As Behavioral Health Valuations Dip, Acadia Plans Expansion into Under-Bedded Markets

Acadia Healthcare Company Inc. (Nasdaq: ACHC) is eyeing further M&A activity and de novo expansion in 2023. With the former, the behavioral health provider anticipates taking advantage of falling valuations as well.

Generally, the Tennessee-based Acadia is doubling down on its five-pillar growth strategy. In addition to M&A and de novos, the strategy includes facility expansion, JVs and adding more comprehensive treatment centers (CTCs) for addiction treatment.

“We continue to feel very optimistic about the M&A pipeline, which is clearly one of our important growth levers for 2023,” Chris Hunter, CEO of Acadia, said during the company’s Q4 earnings call Tuesday.


Acadia is a behavioral health services company that operates more than 246 behavioral health care facilities with more than 10,800 beds. Its services include inpatient psychiatric hospitals, speciality treatment facilities, residential treatment centers and outpatient clinics.

In particular, the company is targeting underserved markets for expansion, according to Hunter.

“I would say that we have done extensive work in looking at the under-bedded markets and fully targeting the [metropolitan statistical areas] where we believe we have the most upside potential over time,” the CEO explained. “We’re always looking to find ways to optimally deploy capital, whether that is doing more JVs, doing de novos, clearly looking at M&A. And right now, we feel very good about the pipeline that we have on the M&A front, and I also feel that we have some confidence that valuations are slightly softening as we’re [2023 progresses].”


Overall, Acadia reported a total of $675.3 million in revenue in the fourth quarter, a 13.8% increase year over year. For all of last year, Acadia reported $2.61 billion in revenue, a nearly 13% increase over 2021.

The company increased its same-facility revenue by 9.4% year over year, and it increased its revenue per patient day by 5.2%. It also increased its patient days by 4%.

Despite those positive numbers, the company narrowed its revenue expectations for 2023, with a guidance of $2.82 billion to $2.88 billion for the year, near the high end of its former expectations. Part of that clarity is attributed to its strong patient day growth forecast, which the company is projecting to grow by 4% to 6%.

“I would say that the volume is supported by three things. The first is that our strong demand continues,” David Duckworth, CFO of Acadia, said on the call. “The second would be the important capacity additions that we’ve seen, and that we just discussed in the second half of 22. That will continue into early 23. And then the third is just the improved performance that we’re starting to see from optimizing our marketing and admissions processes.”

In total, the company expects to add approximately 300 beds through facility expansions alone in 2023.

“Importantly, many of the bed additions in 2023 will open in the first half of the year and are expected to contribute to an accelerating volume growth outlook for the company,” Hunter said.

On the joint venture front, Acadia has 19 existing partnerships, with nine facilities opened and 10 expected to open over the next several years.

Photo credit: Acadia

Underserved areas

In 2023, Acadia is looking at the opportunity of putting new locations in underserved areas. For example, it opened a 60-bed children’s hospital as part of its Montrose behavioral health operations in Chicago. It will open a 101-bed adult hospital as part of the same system.

“We will continue to pursue additional de novo opportunities in other underserved markets with a goal to develop and open acute and specialty facilities in 2024 and beyond,” Hunter said.

While the workforce continues to be a challenge for Acadia, leadership is projecting that wage inflation may be coming back down this year. Last year, the company saw between 7% to 8% wage inflation.

Duckworth projects that it will remain in that range for the first half of 2023, but it may let up the back half of the year.

“We’re seeing some positive signs and think as we look out at the second half of the year, we would see wage inflation, and our outlook reflects wage inflation dropping back down below the 5% level,” Duckworth said. “We’ll ultimately see if it returns to more of the 3% to 4% that the company saw for a number of years – and the industry saw for a number of years.”

Even with wage normalization, Acadia could face a number of other labor-related headwinds.

“Staffing has been challenging in the U.S. behavioral healthcare market,” a note from investment bank Stephens said. “An ability to recruit clinical staff could create supply pressures that constrain ACHC’s ability to convert demand into volume growth and/or put pressure on Adjusted EBITDA margins.”

Acadia could also be impacted by the end of the public health emergency (PHE) on May 11. Specifically, the PHE gave more individuals access to Medicaid coverage.

When the PHE ends, many could lose coverage.

“Changes in government healthcare programs, and subsequently reimbursement, may adversely affect ACHC’s revenues given that a significant portion of its patient volume is derived from government healthcare programs,” the analyst note continued. “Specifically, ACHC derives ~65% of consolidated revenues from the Medicare and Medicaid programs in the U.S.”

In 2022, Medicaid made up roughly half of Acadia’s revenue, according to the company.

Photo credit: Acadia

Acadia leadership said they knew this was coming for quite a while, so they’ve been working with their patients on helping them to keep or find new coverage.

“We really view mental health coverage as essential, and think that many states and payers would intend to continue to provide coverage,” Duckworth said. “But of course, we want to help all of our Medicaid patients navigate what that means for them, whether it’s an administrative process that they go through, to re-enroll in their Medicaid plans, or find some other products. Our focus has been on educating our patients, our facilities, our operations leaders and communicating what to expect.”

CTC updates

Acadia made progress expanding its CTC arm in Q4, opening three new de novo CTCs in Florida and Delaware. That brought its total to seven new CTCs for all of 2022, exceeding its goal of at least six.

Photo credit: Acadia

Broadly, Acadia’s CTCs provide a range of comprehensive substance use treatment support services that include medical, counseling, vocational, educational and other treatment services for patients.

The company is once again targeting at least six new CTCS this year.

“As the opioid crisis has continued to escalate across the country, we believe Acadia’s CTC facilities play a vital role in the communities they serve with programs that combine behavioral therapy and medication to treat opioid use disorders,” Hunter said.

Duckworth called out Acadia’s CTC arm and its financial performance as a highlight for Q4.

“RTC also performed well – very stable,” the CFO said. “Of course, there are fewer investments going into that service line, but the facilities we have had a very good 2022 and fourth quarter. But acute specialty and CTC really led the charge in terms of revenue growth for the quarter.”

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