Behavioral health giants Odyssey Behavioral Health and Discovery Behavioral Health, both private equity-backed diversified companies, are scaling back their eating disorder treatment locations.
These closures come at a time when other PE-backed behavioral health providers, at least on the surface, appear to be navigating the treacherous waters of the highly-specialized eating disorder treatment space.
The pullback also coincides with a debt crisis afflicting several leveraged businesses.
Inside Odyssey’s closures
On the West Coast, Brentwood, Tennessee-based Odyssey Behavioral Health will close the 28-year-old Shoreline Center for Eating Disorder Treatment at the end of the year. It operates in two locations, in Long Beach and Laguna Hills, California.
For Shoreline, the closure is the result of an “increasingly challenging operating environment for eating disorder services in this particular market,” Justin Adams, Odyssey Behavioral Health chief operating officer, told Behavioral Health Business in an email.
The entity offers 12 treatment beds, making it one of the company’s smallest programs out of its 600-bed, nine-state footprint.
“We continue to invest in growing our network of residential and outpatient services nationwide,” Adams said.
Some Shoreline staff members will be transferred to other Odyssey operations, while all patients will be transferred to other area treatment providers or have completed care by the time it ceases operations.
Odyssey Behavioral Healthcare announced the acquisition of Shoreline Center for Eating Disorder Treatment from its founder and CEO, Rachel Levi, in January 2021.
The company is backed by the Carlyle Group, which recapitalized the business in 2018. It provides eating disorder treatment, mental health services, addiction treatment and dual diagnosis treatment.
A closer look at Discovery’s scale-back
In the South, Irvine, California-based Discovery Behavioral Health has shuttered its outpatient office and residential treatment center in the Atlanta metro.
Officials with the Center For Discovery, Discovery Behavioral Health’s eating disorder treatment brand, informed a large external partner group of the closure in late November, according to correspondence reviewed by BHB. The locations in Atlanta and Dunwoody, Georgia, provided intensive outpatient and partial hospitalization as well as residential treatment services, respectively. The Dunwoody location opened in 2017.
Discovery Behavioral Health did not respond to a request for comment.
“As you know, the last few years have been unprecedented, and we have made the difficult decision to consolidate our footprint,” Candice Franklin, executive director for Atlanta programs, said according to a separate communication. “As a result, we are suspending our operations in our Atlanta and Dunwoody programs in Georgia.
Dr. Craig Brown founded the Center for Discovery as well as Discovery Mood & Anxiety Program, a mental health services organization, in 1997. Brown’s companies became Discovery Behavioral Health after a merger with the luxury addiction treatment center Cliffside Malibu in 2018.
Over the last several years, Discovery Behavioral Health has been highly acquisitive.
In July 2022, Discovery Behavioral Health acquired Anew Era TMS & Psychiatry, a Huntington Beach, California-based outpatient mental health provider that operated 12 locations at the time. It added 10 new treatment centers in seven states and made acquisitions in Houston and Kansas City in 2021.
Earlier in the year, the company added a senior vice president dedicated to its growth strategy.
Discovery Behavioral Health is backed by the private equity firm Webster Equity Partners. The firm also holds investments in BayMark Health Services, InBloom Autism Services and Oceans Healthcare. Webster first invested in Discovery in 2011. Discovery Behavioral Health operates about 165 sites of services that range from outpatient to acute and residential services for addiction, eating disorder and mental health treatment.
The big picture
Eating disorders are increasingly prevalent in the U.S., especially among children. One study finds that pediatric eating disorder hospitalizations increased by 139% from 2002 to 2019.
Another study finds that about 6.4% of Americans will experience an eating disorder, with a greater prevalence among women, and that the one-year prevalence rate for 2019 was 1.66% in the U.S.
Compare that to the 19% of Americans who self-reported needing addiction treatment in 2022.
On top of the challenging environment specific to eating disorders, the broader corporate finance landscape transitioned from one of cheap capital to one where interest rates are at recent historic highs, potentially creating a cash crisis for companies that isn’t limited to health care.
This dynamic is at play in behavioral health.
In October, Amy Christensen, a partner and co-head of healthcare at The Vistria Group, told attendees of BHB’s conference INVEST 2023 that large, acquisitive firms have “gone silent” in 2023 “because they are upside down on the balance sheet.” Christensen and other panelists said the higher-interest-rate environment opens up opportunities for other companies to get into the M&A game.
Still, other eating disorder treatment-focused providers continue to grow.
Veritas Collaborative, Monte Nido & Affiliates, EDCare and SunCloud opened eating disorder treatment locations in the fall. Additionally, a number of digital-first providers have raised substantial investment rounds. For example, virtual eating disorder provider Equip has raised more than $78 million in funding, and digital eating disorder provider Arise has raised $4 million.