The behavioral health market has exploded since the COVID-19 pandemic. Investors and provider organizations have paid premiums to grow their behavioral health footprint.
But, industry insiders warn that the outpatient behavioral health industry is a tough business. The success stories in the space will likely be the companies keeping their operations tight and demonstrating improved patient outcomes.
“I think the winner is the one that avoids shiny new toys. … The reality is outpatient mental health is a grinding business,” Brian Wheelan, CEO of Transformations Care Network, said at Behavioral Health Business’ INVEST conference. “The margins aren’t big … The labor pressures and productivity pressures are real; we don’t control pricing, and even in a rising rate environment, you still have to be wildly disciplined. I think the opportunity is about being tight on operations, understanding what it means to be a platform and being attentive to what it means to drive site margins.”
Transformations Care Network is a Massachusetts-based outpatient health provider. It has clinics in Pennsylvania, West Virginia, Maryland, Massachusetts and Washington, D.C. Its team treats patients with several conditions, including anxiety, anorexia nervosa, depression, schizophrenia and ADHD.
Growing in a tight market
This drive for operational efficiency will likely translate into companies’ growth strategies as well. With rising interest rates and a tight labor market, many companies have turned to organic growth strategies.
Specifically, companies that have gone on acquiring sprees in the last few years will now focus on making sure that their consolidated business is well-run and cohesive.
“[Companies] are doing de novos, they are not doing M&A,” John Minahan, CEO of Mindful Health Solutions, said at INVEST. “They’re taking inventory of what they have bought over the last four or five years and then trying to organize it.”
Outpatient behavioral health provider Mindful Health Solutions has roughly two dozen facilities across Texas, California, Georgia and Washington. It treats several behavioral health conditions and offers psychotherapy, medication management, transcranial magnetic stimulations (TMS) and ketamine infusion therapy.
Still, there are several smaller tuck-in deals on the table, especially as providers continue to prioritize density in a state market. In these deals, operators want to integrate these smaller companies into their business model quickly and efficiently.
“We will be way less solicitous around what it means to integrate,” Wheelan said. “We’ve done the work to be on one [electronic health record] EHR and to create one structure for patient acquisition, one [revenue cycle management] RCM system, there’s a long list of things. If you are tucked in, it will be integration on day zero or day 30. And there’s not going to be a lot of conversation around customization or accommodation for their founder-based culture or whatever it is. I think it’d be ruthless. I think from that perspective, if that market materializes, it’ll be tucked in without a lot of compromise.”
While operational efficiency is crucial to integration and driving outcomes, it’s also essential to keep clinicians happy in this tight labor market.
There is a delicate balance between running a tight business model and the commitment to culture and clinical quality, Terry Hyman, managing partner of Northwood Healthcare Partners, said during the panel.
“That teeter-totter between prioritizing financial things, like EBITA and what you paid for the business, and the imperative for operational discipline and consistency has led to greater turnover,” Hyman said. “A lot of the people who are in this industry … tend to be very mission-driven. They care a lot about their patients. If it’s too routine, and it’s ‘welcome to the machine,’ that’ll self-select. Maybe that’s okay. But it’ll have a certain percentage of the people that probably don’t like that flavor and would prefer an alternative.”
Northwood Healthcare Partners is a private equity firm specializing in health care. It has previously invested in SUD provider Summit Behavioral Health.
On the other hand, operational efficiencies could attract more clinicians in the long run and keep patients happier. Minahan noted that only about 20% of a patient’s care pathway is seeing the provider. The other 80% is scheduling, billing and calls. If patients are unhappy with the systems, they may spend a good portion of their visit discussing the issues with providers instead of on clinical care.
“If you’re not disciplined in how you operate, it just doesn’t work,” Minahan said.
Companies featured in this article:
Mindful Health Solutions, Northwood Healthcare Partners, Transformations Care Network
