Discovery Behavioral Health CEO: Most Payers Not Ready for Value-Based Relationships

The behavioral health industry is going through a period of transformation. The demand for services is higher than ever, and payers and providers are looking to incorporate value-based care into their model.

As one of the country’s largest mental health and SUD operators, Discovery Behavioral Health will help set the stage for the industry’s future.

The Irvine, California-based behavioral health operator has been in business since 1985 and now has more than 150 facilities across 16 states. Backed by private equity firm Webster Equity Partners, it will likely continue to expand, but in a targeted way, as new markets ripen.


Behavioral Health Business sat down with Discovery Behavioral Health’s CEO John Peloquin to discuss growth, value-based care, and the industry’s most pressing challenges.

BHB: I know over the last few years, you’ve been growing your state footprint. How do you think about growth? Are you prioritizing any specific strategy de novo, M&A, JV etc…?

Peloquin: We are a De Novo-first organization. I may purchase companies, but my focus is building programs. I do that systematically so that I grow my business in a very targeted way.

I have four service lines: eating disorder, substance use, mental health and psychiatric services. And when I go into a market, I try to bring all service offerings and levels of care. Most times I go into a market organically, but I at times might buy something to complement what we’re doing.


Discovery offers a wide range of services from mental health to SUD and eating disorder care. Are you looking to become a one-stop-shop for behavioral health needs?

Yes and no. You do see some organizations pivoting into mental health services, whether it’s an addiction center, going into mental health or vice versa. It’s very natural to see that because of the comorbidity of the patient population.

For me, I want to be part of the fabric of the community and to be able to meet the needs of that community in a different way. Sometimes, that’s done in a single facility. Sometimes, it’s done in multiple facilities.

But all the while, we want to make sure that we have a good knowledge base of what the market needs are and how we can wrap our services to meet the market need.

You offer a large spectrum of acuity levels too. How has this evolved in the last few years?

The way I approach acuity is through offering multiple levels of care. For example, we can provide inpatient detox to outpatient services, or with eating disorders, we can provide tube feeding at an inpatient level to outpatient.

We have a complete level of care system. When patients enter treatment, they undergo a clinical evaluation and get placed wherever is clinically appropriate. This allows a patient to be treated at the appropriate level of care.

Having this system of care allows us to clinically place the patient properly so they can be successful with treatment.

This is an exciting time for the industry. Addiction was a once-ignored segment at the back end of the building. Unfortunately, the opioid epidemic and then the pandemic has increased demand for our services.

Our main goal has long been trying to fuse physical and mental health. For Discovery Behavioral Health, our goal is to align behavioral health with physical health. It’s an aspirational goal to treat a patient within the health care landscape. I call that getting to “One Healthcare Lane.”

Today more than ever requires clinical outcomes. We have built a measurement-based clinical care system that validates our clinical efficacy and allows us to engage the payers meaningfully.

We have a relationship with Harvard University that both validates our clinical outcomes while also looking into predictive elements of treatment so we can refine and improve our treatment model, allowing a patient a greater opportunity for success.

Clinical outcomes have a substantial role with payers. Payers want to pay for the lowest cost and the highest output, so they are going to be very careful with whom they are aligned.

Combining clinical outcomes, payer trends, and an increase in market demand that continues to reduce the behavioral health stigma, it is a very exciting time for Discovery Behavioral Health and the industry.

Payers are seeking to move away from fee-for-service models and invest in companies that have clinically proven outcomes.

Where are you at with VBC journey?

Most payers are not ready for value-based relationships. Quite frankly, their readiness is based upon their lack of knowledge of behavioral health. There are a few payers that are leading the curve doing some exciting reimbursement methods that align clinical performance goals while most are not ready.

What are some of the biggest challenges the behavioral health industry will face this year?

The biggest headwind when you look at behavioral health is labor shortages due to burn out and many professionals approaching retirement age. As they retire, there is a shortage of qualified individuals to replace them. This is particularly concerning in rural areas where the shortage of mental health professionals is even more pronounced.

Telehealth helps improve access but does not expand the labor pool.

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