Pyramid Healthcare will undergo its first CEO change in its 25-year history at the beginning of 2024.
Jonathan Wolf, who founded the company in 1999, will step into a board chair and advisory role. Jason Hendricks, the chief operating officer of Pyramid Healthcare, will succeed him. Sarah Deutchman, the company’s senior vice president of operations, will step into the COO role. Hendricks has been with the company for 20 years and Deutchman for 10.
Pyramid Healthcare has grown from a single location in Central Pennsylvania to employ 3,100 people and operate 29 residential treatment facilities and 46 outpatient locations across eight states. Providence, Rhode Island-based private equity firm Nautic Capital acquired the company in May 2021.
The company continues to see a path for it to grow, Wolf told Behavioral Health Business. By the end of the year, Pyramid Healthcare hopes to have added 400 additional beds to its existing facilities.
“There’s real growth projections in the residential treatment space for us, and there’s a lot more opportunity to do that as well,” Wolf said, adding that it will take an “all-of-the-aboard” approach to its continued growth.
The company’s preference is to focus on de novo growth. While it may take longer, a company is able to choose exactly where it wants to be and approach the market fresh with its own understanding of local dynamics.
Acquisitions “never” present everything a company wants and present serious risks for hangups when it comes to integrating the two companies.
Pyramid Healthcare has completed one acquisition in the last two years and about a dozen in the company’s history. Still, M&A will have a role in the future. The company may complete one deal a year but focus the bulk of its growth on de novo activities.
A de novo-heavy approach increases the company’s ability to meet a community’s needs and demand for care. It has also simply worked out better for the company, Wolf said.
On top of that, there is a serious strategic consideration to avoiding M&A.
“We want to be additive to any market we go into,” Wolf said. “There’s so much demand in our industry that a lot of this M&A pricing has gotten outrageous. We’re just not willing to pay those prices.”
Where Pyramid Healthcare will (and won’t) grow
The company also hopes to add services to its core business. But it’s selective about which service lines to pursue.
Pyramid Healthcare plans to focus its mental health and substance use disorder treatment services by expanding peer support services across the company, Wolf said. Peer support services exist at some of Pyramid’s facilities, supporting about 200 patients.
That number could increase to 3,000 or 4,000. The company’s average daily census is about 1,400, while about 2,000 discharge from its residential treatment facilities.
“A lot of the payers are starting to recognize the efficacy of that level of care — it makes good clinical sense,” Wolf said. “I think a significant portion of those clients could go into peer services. The demand is there, and the service potential is there.
“But it’s up to us to prove the value of it.”
Pyramid Healthcare offers schools for those aged 5 to 21 with autism and severe emotional needs. While it offers applied behavior analysis (ABA) in schools, the company is not interested in pursuing outpatient autism services.
“We’ve looked at some of the outpatient ABA stuff but decided not to go for it,” Wolf said. “We feel like we do these schools really well. And that’s what we’ll stay with.”
A sunny outlook for government payers
Looking ahead, Pyramid Healthcare may see improvements in Medicaid rates. Most of the company’s business is generated by caring for people who receive health coverage from the safety-net health plan.
During 2023, Pyramid Healthcare saw some rates improve. While challenging, Wolf maintains a sunny outlook for working with Medicaid plans. That outlook extends to Medicare, the federal health plan for seniors.
“A lot of the states are starting to realize they have an opioid problem, but they don’t have enough providers to meet the moment,” Wolf said. “They are encouraging development in their states” by lessing certificate of need hurdles, increasing rates and — in the case of North Carolina — expanding the Medicaid population.”
On the Medicare front, the Biden administration and certain factions within Congress have seen Medicare as a place to enact immediately impactful behavioral health reform. The Centers for Medicare & Medicaid Services (CMS) have released several rules related to behavioral health Medicare reimbursement.
“I think there’s an opportunity for the government payer space in 2024,” Wolf said. “There’s growing evidence and encouragement for Medicare to pay for behavioral health services.”
In July, CMS released a proposed rule allowing Medicare to cover intensive outpatient programs (IOPs) for mental health and addiction treatment. Still, many say Medicare’s approach to residential and acute behavioral health treatment as arcane and detrimental to beneficiaries.
Wolf said commercial health plans’ approach to residential treatment is a cause for concern.
“It seems that commercial plans are still reluctant to pay for behavioral health care on equal footing with general medical services,” Wolf said. “Without question, that’s a problem and a challenge.”
Challenging payer rates translate to less competitive wages and self-perpetuating detriment to facilities. As competition for staff has increased, it’s been more difficult to keep facilities staffed and operating at an optimal level, Wolf said, highlighting as a defining challenge of 2023.
His hopes 2024 will see a more earnest effort to implement value-based care models, or in his words, “performance-based contracting.” Pyramid Healthcare has had success with these arrangements in the past, Wolf said.
The company will push to convert more of its arrangements to performance-based contracting.
“We really need the insurance companies to buy into performance-based contracting in a much larger way,” Wolf said. “We just haven’t seen that yet. There’s a lot of lip service for that.”
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