BHB INVEST: Navigating the Changing Tides of Behavioral Healthcare – Opportunities and Trends to Pursue

This article is sponsored by WellSky. This article is based on a discussion with Carrie O’Connell, VP of Clinical Strategy at WellSky, Bobby Guy, Shareholder at Polsinelli, and Scott Kremeier, Managing Director at Piper Sandler & Co. This discussion took place on October 12, 2023 during the BHB INVEST Conference. The article below has been edited for length and clarity.

Carrie O’Connell: We’re excited to speak with you all today – we’re going to talk about some healthcare things that are a little bit off the beaten path. Before we get started, let’s do some introductions. My name is Carrie O’Connell and I am the vice president of clinical strategy for WellSky, a technology partner providing top of class software to healthcare providers across the care continuum, including the behavioral health space.

Scott Kremier: I’m a managing director at Piper Sandler. I’ve been with Piper for about six months, but I’ve been in banking previously at Houlihan and J&P for about 15 years. I spend all of my time in the behavioral health sector, and Bobby and I have been across or working with each other or across from each other for almost a decade now.


Bobby Guy: I’m at Polsinelli of Nashville and am a healthcare M&A lawyer. I do a lot of work across post-acute and behavioral. To kick off this conversation, I want to pose a question to the group – If you look back at 1967, does anybody know what major healthcare company incorporated in that year?

Kremier: HCA?

Guy: Yes, exactly. HCA incorporated in 1967. 1965 and 1966 were the great society programs, with Medicare and Medicaid. Players at the time said, “Oh, my gosh, there’s a huge amount of income that’s going to come out of the government to pay for services. That money is going to come out, and there’s got to be a place to provide those services.” They went and built all those hospitals to do it– genius play. Personally, I think that behavioral is the new frontier because we have always treated behavioral as outside of the mainstream, but society has come to realize that you cannot be physically healthy if you’re mentally unhealthy, because being mentally unhealthy will lead you to become physically unhealthy, too.


So this is the new frontier; we’re in the biggest healthcare revolution of our lifetimes. I think it’s really exciting to be in this position and to be looking at what’s going to happen.

O’Connell: When I was in nursing school in the behavioral units, if somebody so much as stubbed their toe, we’d send them to the eating disorder unit. Nowadays, we’ve got totally tired clinicians with patients with high acuity levels. I love to talk about the wound care issues, it’s a great example of behavioral healthcare staff getting served patients with complex needs, and the staff doesn’t always have the tools to treat those patients. Behavioral healthcare really became this siloed area. where it’s hard to treat the patients that providers are now seeing. There’s no doubt we all have issues with homelessness in our cities. It’s one of our biggest crises. In the state of California, almost two-thirds of all people that are homeless have a mental health diagnosis. Just like all things in health care, it’s just another problem that we’re going to have to solve as a team. We’re going to need innovation. It’s not going to be easy, but I do think there might be some opportunities as well as some pitfalls, and so, Bobby, I’m going to start with you talking about that a bit.

Guy: I’m always fascinated when we label one issue in our society as something else. We label it the gig worker issue with Uber, but it’s actually all about whether or not Uber drivers get health care benefits. When we talk about homelessness, most of the time, what we’re actually talking about is mental health, and we’ve just labeled it as something else. If you go back several decades, or even just go back 50 years, you’ll see that in the ’70s and ’80s, there were 560,000 or so behavioral beds. Now there are 35,000 behavioral beds in the country, and that’s a lot of the difference of the pharmaceutical revolution that’s come through, but it’s also the deinstitutionalization movement.

We’ve watched this happen, and we as a society are trying to figure out what we do about it. This is one of the reasons that behavioral sits at the front of this healthcare revolution.– and I think it’s such a cutting-edge issue because we’re also watching it on TV.

In California, 60 Minutes did an episode about care court. There’s a massive fight going on in California about whether putting up these care courts that can potentially order people into custody for mental health care, and then can put them into conservatorships, is really good for people experiencing homelessness. This is a massive, massive issue.

Kremier: Yes, I find it interesting, too. If you go back to your point, 50 years ago, there were like half a million institutional beds that were out there, and today that number has shrunk quite drastically. I think the part about it that I find most interesting is thinking about where those folks go when they need medical care. Usually, they’ll end up in an emergency room, and unfortunately, today’s emergency rooms are not very well equipped to actually provide the care that these people need, whether it’s mental health or substance use, and so they end up sitting in there for a while.

I think where we’re seeing the biggest opportunity from a behavioral perspective is in those providers that are able to with work with state and local governments to provide addiction and mental health treatment for people who are experiencing homelessness., and are also working with health systems and other acute psych providers that provide an alternative to the emergency rooms. As I think about it, the challenge there for them is going to continue to be on the funding side. I’m sure you have a view on the funding, Bobby.

State and local communities are really struggling with “How do I fund that? Because if I don’t solve the addiction issue, they will remain homeless. If I don’t solve the mental health issue, they typically will remain homeless.” There’s a lot of opportunity, but there’s still a lot of uncharted territory for programs and providers that are trying to solve that.

Guy: The other piece of that that’s really interesting is why it is that a lot of people show up at emergency rooms looking for care. A really specific law that actually makes that happen. It’s a law called The Emergency Medical Treatment and Labor Act, or EMTALA. It was passed in the ’80s after several people presented at the ER and then died because they didn’t get treatment due to lack of insurance. The unintended consequence of that is everybody without insurance just goes to the emergency room, which ends up being a lot of people experiencing homelessness.

O’Connell: Not to focus on California, but that governor is looking to take some of the funds that go towards funding behavioral and putting it towards fighting the homelessness issue. It begs the question – is that really how you solve the problem? Watching that play out will be very interesting. Related to that – ff you could go back to your facilities and do anything for your providers, make sure that they’re coding those Z codes. As of October 1, the acute care space has taken three homelessness Z codes, their ICD-10 codes, and moved them from non-complication or comorbidity (CC) comorbidities and conditions to make them CCs, which equates to extra dollars.

Now, the informatics nurse in me has to say that even if you don’t have an electronic record, you’re still doing claims, and you can capture those Z codes. Starting to get that data so that funding can go to the right places is super important.

Kremier: Going back to the loss of beds that are out there. What we have seen is a big shift from, to your point, deinstitutionalization. You’ve moved folks from going into the state hospitals to going into home and community-based care facilities. I think the tricky part about that– and I’m all for home and community-based care, but in many cases, people experiencing homelessness don’t have those services available to them now. . There is not some place where providers can go and treat them. They don’t have a home to go to. It does beg the question of ‘should there be some shift back to a little bit more of an institutional setting’?

Guy: The funding has to get solved because you’ve got California and also Colorado dealing with it. Tennessee just had a big meeting about it. It’s been in the national news about what to do about gun safety, and all the gun sales in Tennessee. The answer that the legislature came back with– which wasn’t a very good one considering California and Colorado’s experience dealing with mental illness- was we’ve just got to deal with mental illness better. Don’t worry about the guns.

Nobody has managed to do this. It’s a massive national issue, and their money has to flow here to take care of it.

O’Connell: Every conference I go to, we’re talking about AI and generative AI. As an informatics nurse, I have really strong feelings about it in a really exciting way. I also have a lot of fear, and it’s going to take over. With all of the barriers to behavioral health, I really want to know your thoughts on how it can help with the staffing crisis. Most importantly, always, outcomes should be paramount for that, so maybe you can start us with a bit about that.

Kremier: I think the value add is really on the outcomes and the outcomes tracking. There’s some pretty interesting stuff that is happening out there, whether it’s on substance use or on mental health. I am going to pick substance use as an example. Folks are now able to record a video, and AI will then go through and assess based upon their reactions, their facial features, the tone, the response that you’re given. Providers can go through and assess that someone is at a higher probability of relapse than others. I think that would allow me as an operator to provide the care and direct that care to the individual at the appropriate time, which should improve outcomes.

From a staffing perspective, it ensures that I’m not putting a lot of resources on patients and the population that don’t need that interaction. I think that is huge because that then allows you on the staffing front to address a little bit of the crisis that is out there where you don’t have enough staff. To your point, clinicians are burned out, and so you look at it and go, “Well, where can I play a role?” I think AI is definitely a platform that can assist with that.

At the end of the day, it’s not a solution for everything. I don’t think it’s not going to solve problems for someone going through a detox. It is not going to solve problems for someone of a higher acuity, like someone dealing with schizophrenia. There’s just not really a role for it there yet.

Guy: I host a podcast, and one of my favorite quotes on this last season was somebody saying, “The nurses are not coming back.”

You thought, “Oh my gosh, they really are, right? They’re coming back.” No, they’re not. This is a real opportunity. AI is the real opportunity. It’s not just to replace nurses, but to retain nurses. The technological aspect of being able to do this makes a huge difference because if you give a better quality of life to your staff on this and you’re able to give them a better interaction, they will stay. It’s really, really important.

Kremier: I’m curious about your take, Bobby. If I think about where clinicians burn out, a lot of it is like, “I’m doing the note-taking, I’ve got to put this in. An order for them to get the right CPT codes and funding.” AI should be able to relieve a lot of that burden.

O’Connell: Absolutely.

Kremier: Whether it’s natural language processing or ability to convert the notes and go forth. It allows them to focus on actually delivering the care.

O’Connell: As a clinician, I think of AI as another person on my interdisciplinary team. Everybody’s equally important. I can talk a lot about interoperability, but that idea is that we can start to take all of this data that’s going to be out there, and care quality and TEFCA, and give me a clean summary so that I’m already 10 miles ahead on that first visit.

Kremier: In that same interview Bobby mentioned about the nurses not coming back, one of the fascinating points that the interviewee made was about how clinicians get on the floor, nurses get on the floor, doctors get on the floor, and they spend the first two, three, four hours just collecting information. AI has the potential to do that for them. These systems have the potential to reduce that time down to almost nothing. It’s a significant opportunity.

O’Connell: Clinicians are really like detectives. When the data points are there, they can easily get to that end diagnosis or try something, but right now, they’re still trying to track everything down.

Kremier: One thing, and not necessarily related to AI, but I think a frustration of a lot of the clinicians today, especially a lot of the nursing staff, is trying to provide care when their organization is still on paper, and hasn’t yet adopted an EHR. I think that the staff probably get frustrated and leave and that’s when the nurses don’t come back. It’s like if healthcare hasn’t made that advancement yet, it’s concerning.

O’Connell: Nurses leaving nursing school now were born computer-ready. They don’t know how to write a narrative note. I want to transition a little bit, but staying with the technology, and talking about algorithms and social media. There’s a really fascinating conversation going on about loneliness. We know it’s at epidemic rates. We know that people are spending a lot of time on their phones and social media and really some of the implications and legal issues that are happening right now.

Guy: I’m not sure that we’re not headed towards settlements reminiscent of those we saw with big tobacco on the social media side. There are lawsuits out there right now. I won’t be surprised about the Attorney Generals picking this up pretty quickly as well because the states are having to bear a lot of this cost. There’s a real sense that social media has worked to addict people to create this need. If you remember the tobacco lawsuits, the whole issue with that wasn’t, “Hey, tobacco kills people.” It was that tobacco companies varied their nicotine all the time so they could addict people and make them keep coming back – it’s the same theory. There are lawsuits currently pending, and I think there will be a lot more. I wouldn’t be surprised if some of the funding for all of this for the states ends up coming out of some of the social media companies.

Kremier: Yes, you’re spot on. From my perspective, where we see the biggest impact is on adolescents. If you look at what’s happening out there, there is a lot of, “You’re missing out” “Hey, somebody’s at a party. I’m not there.” You get a lot of ads, especially young women, focused on appearance and so it’s driving eating disorders. There is just a huge impact. I think, Bobby, you’re right. There’s going to be a big push by the government and I think also by commercial payers going, “Hey, something else.”

We’re not going to fund all of this ourselves because the adolescent pandemic out there is, it’s just huge. It’s absolutely crushing the population out there. I think you’re going to see push by payers to now rein that in and start to control it. There are a lot of operators out there that are dealing with adolescent mental health. You’re seeing specialty programming on virtual reality, on gaming.

It’s starting to add up, and I think until we see society start to move away from that a little bit and rein it in, it’s going to continue to be a big role.

O’Connell: For fun, I reached out to my tribe of nurses that span acute care, and I asked, “Are you even asking somebody’s social media?” We ask about, “Do you drink? How much? How many cigarettes?” We do all of that. We even ask about your discharge. “Are you experiencing homelessness?” We do a really good job of that. Every nurse I spoke to said we don’t even think about their time online, or their social media, with those algorithms. For me, it’s, “Okay, new thing to do. We’ve got to start to get that into our assessments.” Not only are we not collecting it, we don’t have the dialogue or the solutions or the way to gently try other tools to help that person. It was a whole new concept. We’ve got some work to do as clinicians to start to incorporate that into our treatment plans.

Guy: In fact, the newer generations, kids who were born after, call it 2002 or 2003- are referred to as a digital native because they have basically come up their entire life on an iPhone, so they’re used to it. They don’t know what it’s like to not have that. If they’ve got to look something up in the phone book, they ask, “What’s that?”

I was telling my kids that cell phones weren’t around before about 1995, and my kids’ response was, “What, you had to go home to make a phone call?”

O’Connell: How do we not talk about anything without money and funding? We touched on it a little bit, but certainly, the field of who’s getting into this space has changed.

Guy: I’ve really been interested in following what I refer to as the war on private equity because the government has said private equity money in health care is an issue and we have to watch out for it. Regardless of how you feel about that, there are only four types of equity in the world. There’s public market equity, like the New York Stock Exchange or the NASDAQ. There’s private money, which is family money or private equity or venture or something like that. There is nonprofit money, which is charitable giving to nonprofits that then go out and provide services. And then there’s government money.

What happened is in 2002, after Enron and WorldCom, Congress passed Sarbanes-Oxley. Sarbanes-Oxley, was intended to protect the public from bad investments. What it did was protect the public from all investments because if you look at the number of companies that have gone public between 1982 and 2002, approximately 7,000 of those companies did IPOs in initial public offerings. From 2002 to now, the number is about 2,000 to 2,300.

The response to the government is, “Hey, you may not like private equity in health care, but you helped create this market. You can’t suddenly go start targeting private equity because then all you’ve got left is nonprofit money and government money and that’s not a good solution for innovation at all.”

My thinking is that we need to be moving toward reopening the public markets or making it easier to take companies public. In fact, if the studies show that returns have been less and that we’ve got an international competitiveness issue because we don’t have as many companies out there, then Congress has to do something about it and deal with it. I think that will also affect health care. It’s also something that private equity would be very happy about because they got to the point after 20 years where they have companies that need the exits.

Kremier: Yes, that’s right. It’s interesting. I am a firm believer that private equity has actually done a great service for the country.There are definitely case studies where you can say, “Hey, they over-leveraged a business.” Fundamentally, I am convinced that they have expanded the access to care. They have brought services to a lot of places that would not have had, specifically within behavioral, autism or addiction treatment. They have brought innovation and I think they have allowed a lot of the entrepreneurs that are out there to sidestep some of the landmines of actually scaling a platform.

I am a huge fan of private equity. I think you were spot on that there are a number of players out there, that there’s only so many KKRs and TPGs and so much capital that you can raise. The public equity markets have to be a viable option for the larger players that are out there in order for them to exit. I think it also provides a nice alternative because not everyone wants to go to private equity. They like the idea of being public and until we are able to eliminate some of the barriers and the red tape that it takes to go public, you’re going to continue to force things to private equity. Just to your point, it makes it a challenge for society and for the government to say, “Well, what’s the alternative?” It’s either government or not-for-profit.

O’Connell: Yes, and it’s really interesting because there’s so much M&A activity. It makes me think, how does that even get past some of the laws of competition? Then there’s really no exit plan when you’re that huge. Just as a consumer myself that concerns me when big companies are gobbling up all parts of health care. I don’t know if you have thoughts about that.

Kremier: Yes, I still think the behavioral market is very fragmented. There are very few players who are dominant in the market. I think where you might be going is really if I look at somebody like UnitedHealthcare, they’re one of the largest outpatient mental health providers, and they have the largest registry of clinicians. Those are the players that you look at and go, “Okay, that could be potentially a threat further down the line. I don’t think we’re there yet.” They haven’t expanded into all areas.

O’Connell: Correct.

Kremier: It’s one that I think creates some opportunity.

Guy: Yes, you’ve got massive consolidation on the payer side. Four major payers nationally and then Medicare. Then, you’ve got massive fragmentation across providers. It creates very much a disparate bargaining position on this. I will tell you that if it hadn’t been for private equity for the past 20 years, we wouldn’t have been able to innovate.

Kremier: No, that’s right.

Guy: We wouldn’t have been able to create more companies.

O’Connell: Correct.

Kremier: That’s right.

Guy: That’s really the deal because it’s been the only equity that’s been available. Otherwise, you’ve got to try to go to the public markets.

This is something that still exists that many of us don’t necessarily remember because it’s more than 20 years ago. What happened was the pendulum swung from being very open on the ability to take companies public to being very closed on being able to take them public. It needs to be somewhere in the middle.

O’Connell: Yes.

Guy: We missed the mark on that. If you didn’t grow up in the ’90s and see a lot of that flourishing with companies going public, it’s really hard to remember that.

Kremier: The one last thing I would say on that, though, is fundamentally, health care is a local business. I don’t know how else to say it. There’s very few segments within health care. Pharma is one. Maybe dialysis is another one, but there are very few segments that I think are where you can have a national provider and be very successful at it. That does give me a little comfort that a large company won’t come along and gobble them.

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