Top Behavioral Health Trends for 2024

After a tumultuous 2023, 2024 may be a steadier year for the behavioral health industry.

While behavioral health deals slipped in 2023, Behavioral Health Business expects M&A to pick up this year as interest rates fall and the economy stabilizes. Still, the M&A craze of 2021 is unlikely, and mega deals will be scarce.

This will be a pivotal year for the autism industry, especially, which saw massive amounts of investment in the first few years of the decade but also some major hiccups last year, including one of its largest providers declaring bankruptcy.

But it isn’t just the autism industry that will face significant changes in 2024. The substance use disorder (SUD) treatment industry could also see a transformation this year. In 2023, the Drug Enforcement Administration (DEA) extended COVID-19 era telehealth flexibilities, allowing virtual providers to prescribe controlled substances, including medication-assisted treatment, over telehealth with no in-person visit.

These extensions run out at the end of 2024, meaning the agency will need to finalize how it plans to deal with virtual MAT prescribing in the future.

Autism and SUD changes aren’t the only other major topics Behavioral Health Business expects in the next year. BHB anticipates movement on the future of ghost networks, AI innovation and emergency behavioral health care, too.

Here are some of the biggest trends that BHB sees defining 2024.

M&A volume will rise, with the buyer-seller valuation gap shrinking

Behavioral health was the darling of the health care dealmaking world in 2020 and 2021, with each of those years seeing a record number of deals and skyrocketing interest from private investors. While still strong, behavioral health-related transaction volumes dipped slightly in 2022, then noticeably fell off last year.

The dip in 2023 wasn’t due to a lack of interest in the behavioral health space. Instead, strategic buyers and investors faced mounting challenges in the rising interest rates, inflation and other macroeconomic factors.

“A lot of these strategic buyers borrow a lot of money to buy these companies,” Kevin Taggart, managing partner at M&A advisory firm Mertz Taggart, said at the 2023 BHB INVEST conference. “Their interest payments have gone up quite a bit over the last couple of years. That’s affecting some deal volume, specifically on the substance abuse side.”

In response to that environment, many of the behavioral health industry’s most prolific acquirers have ramped up their de novo strategies. That list includes Franklin, Tennessee-based Summit BHC, for example, which operates roughly three dozen facilities across 19 states, offering substance use disorder treatment and psychiatric services.

“From our standpoint and our private equity sponsors, we’re very focused on the de novo,” Summit BHC CEO Brent Turner explained at INVEST. “There’s only so much capital available, and interest rates are up 600 points. So, it changes the dynamics of the opportunity for acquiring spending money.”

In 2024, BHB forecasts transaction volumes returning to – at the very least – 2022 levels.

In part, the uptick in volume will be propelled by likely interest-rate relief for buyers and investors. At a recent meeting, Federal Reserve leaders intimated that benchmark interest rates could get cut three times in 2024.

What’s more, the private equity groups that pumped millions of dollars into their behavioral health portfolio companies in 2020, 2021 and even 2022 will likely get off the sidelines and jump back into the game. Broadly, PE firms face a “use it or lose it” reality with their fund resources, meaning they’ll need to put their money to work in 2024.

Another factor that could shape behavioral health M&A in 2024 is the inventory of distressed companies coming to market. Several sources told BHB late last year that they expected more of these businesses to pursue firesales in 2024.

Lastly, one of the causes of the 2023 M&A dip was a persistent – and, in some cases, widening – valuation gap between buyers and sellers across all health care segments. Looking at 2024, M&A experts say it’s starting to feel like buyers and sellers are on the same page to a greater degree.

“Buyers and sellers have a vested interest in bridging valuation gaps to make 2024 a year for catching up,” Bain & Company’s private equity leadership team wrote in a 2024 dealmaking outlook report.

But mega deals will be few and far between, thanks to increased scrutiny

The Biden administration comes into 2024 with an election and several unresolved regulatory initiatives that are meant to be seen as holding big business to account. This includes a new approach to regulating mergers and acquisitions.

On Dec. 7, the White House released a slate of initiatives meant to lower the cost of health care by increasing competition. Those initiatives call out private equity consolidation plays and name checks the autism treatment industry. On Dec. 18, the U.S. Justice Department and the Federal Trade Commission (FTC) released new guidelines for reviewing mergers and acquisitions that “reflect modern market realities.”

These days, mega-mergers aren’t as likely to skate through any scrutiny, even if it’s just from the general public.

While not in the behavioral health space, the juiciest health care mega-merger rumor didn’t weather public exposure for long. Within days of news about a potential merger between health insurance and services giants Humana Inc. (NYSE: HUM) and The Cigna Group (NYSE: CI), Cigna backed out and opted to pay shareholders $10 billion for shares.

Added to that is new state-level interest in reviewing deals. Starting in 2024, California will apply a potentially lengthy “notice and review” process specifically for health care deals. In 2023, New York created a law requiring major health care company transactions to be reported to the state at least 30 days before the deal closes.

DEA will make telehealth flexibilities final (or at least compromise)

During the COVID-19 public health emergency, the DEA loosened telehealth regulations, allowing controlled substances to be prescribed virtually. This gave rise to the birth of several new digital health companies focused on prescribing medication-assisted treatment for SUD, as well as other providers focused on conditions like ADHD.

In early 2023, the DEA released a new telehealth proposal that would effectively end the virtual prescribing of controlled substances without an in-person visit. The proposal was met with tens of thousands of public comments. Industry insiders fought back, saying that the virtual-only patients could lose access to their care and could jeopardize the business model for these virtual-first providers.

Following this public backlash, the DEA first postponed the proposed rule’s implementation to November 2023, and then until December 2024.

BHB predicts that the DEA will devise a compromise proposal within the next year before the extension runs out. That could be changing the proposed rule to allow some form of virtual prescribing without an in-person visit within the first 30 days. However, it is unlikely to be as flexible as the COVID-19 public health emergency regulations. In August, the DEA held a listening session on the topic to garner insights from industry insiders. This and the public feedback could help inform the rules going forward.

Alternatively, the DEA could take a different route and release a special registration process, which would allow certain providers to prescribe controlled substances via telehealth without the in-person visit. In August, the DEA said it was open to considering the long-mandated special registration process. Historically, the DEA has ignored congressional mandates to create a special registration process.

But with so much public pressure to offer an alternative to the stricter new rules, the special registration process could be a middle ground.

Government watchdogs crack down on ghost networks

Insurance provider directories are often riddled with inaccuracies that can delay access to care, result in large out-of-pocket fees and cause providers to miss out on potential patients. BHB anticipates that federal agencies will enforce existing regulations and pass legislation to protect patients from these directories, known as ghost networks, in 2024.

These actions will springboard off momentum built in 2023, during which federal groups signaled increasing interest in correcting ghost networks.

In January, a group of senators wrote a letter urging major health insurance companies to fix errors in their provider directories and comply with the Consolidated Appropriations Act of 2021.

The Senate Finance Committee listened to testimony from health care advocates and providers citing the significant problems relating to ghost networks in May.

Ghost network-related issues were brought to the Senate Finance Committee again in October, when Senators Michael Bennet (D-Colo.), Thom Tillis (R-N.C.) and Ron Wyden (D-Ore.) introduced the Requiring Enhanced & Accurate Lists of (REAL) Health Providers Act. The REAL Act would, if passed, require Medicare Advantage (MA) plans to maintain accurate directories and direct the U.S. Centers for Medicare & Medicaid Services (CMS) to publish guidance for payers on how to do so.

“This bipartisan legislation is a big step towards holding insurance companies accountable so their provider directories are accurate, and I’ll be working hard to get it passed,” Wyden said about the REAL Act in a press release.

Payers, providers and patients would benefit from increased provider directory oversight. Payers would save costs if patients less frequently delayed care due to ghost network-related problems. Providers could maximize patient cases and more efficiently refer current patients to other clinicians. Patients could experience quicker pathways to care and lower out-of-pocket costs.

BHB expects federal officials to make major progress in eliminating ghost networks in 2024, including potentially passing the REAL Act.

ABA on the hot seat, with companies looking to pivot

In the last 10 years or so, private equity firms have piled into the applied behavior analysis (ABA) space. It’s the primary therapy for those with autism, the rate of which has skyrocketed over the last several decades.

On top of the exploding demand for services, the lack of business sophistication and high levels of fragmentation in the industry made it a prime candidate for investment. This was especially true considering the then-mostly complete campaign to have every state mandate insurance plans to cover services to treat autism.

But the honeymoon period, if there was one, was short lived. Now, there are several questions about whether and how investment in the autism therapy space that centers on ABA will make for good investment returns.

Investors and autism therapy company executives ran headlong into a series of industry-wide issues that have only gotten worse over time. To name just a few, these include shortages of front-line workers (registered behavior technicians) and highly trained clinicians (board-certified behavior analysts), obstinate payers, inflation, raising interest rates and a small – but very loud – anti-ABA movement.

Stumbles marked 2023 as companies fell under pressure. The Center for Autism and Related Disorders (CARD), the poster child for this trend, sold back to its founder through bankruptcy. Invo Healthcare shed its in-home and center-based businesses.

Some providers have been looking to diversify their services in terms of where care is provided and considering other service lines to buoy their core business.

AI will have behavioral health operators thinking differently

For years, the health care industry has eyed artificial intelligence as a potential game changer in care. But the behavioral health sector is still determining exactly how this new technology will fit into its practices.

BHB predicts that 2024 will be the year when AI becomes a key tool for behavioral health providers. While a handful of chatbots, such as Woebot and Wysa, communicate directly with patients, behavioral health providers will likely find AI most useful in operations.

Triaging and checking in on patients could be key ways providers plan to use the technology. For example, last year, substance use disorder provider Discovery Behavioral Health launched a new AI-driven platform for SUD treatment called Discovery365, to help prevent relapse. After discharge, patients are given open-ended questions that they answer by video. The AI system then analyzes speech patterns, language and movement to detect the potential of a relapse.

AI could also improve patient-provider matching. Several behavioral health organizations, including LifeStance (Nasdaq: LFST) and Talkspace (Nasdaq: TALK), are already using machine learning to help aid their patient-provider matching capabilities. A good match could help patients stay engaged in care and get the right care faster.

Telehealth company Amwell (NYSE: AMWL) recently rolled out an AI system that is able to connect patients with therapists in real-time.

While many of the more tech-forward providers have begun AI adoption, BHB predicts that AI will become universal across the industry to help curb administrative burden, triage patients and better match providers and clients. As for fears of AI replacing the behavioral health clinician, BHB very much doubts that will happen.

Teladoc will spin off BetterHelp

To be clear, BHB doesn’t have specific news about Teladoc Health Inc. (NYSE: TDOC). But we could see a play at Teladoc and BetterHelp that we’ve seen several times in other segments of health care.

Since going public, Teladoc Health has never posted positive net income. Further, it’s only posted positive adjusted earnings in nine of its 40 quarters so far, based on a BHB analysis of data collected by macrotrends.net.

Still, BetterHelp has been a bright spot for the company. It acquired BetterHelp in December 2015 for $5.75 million. It’s since grown swiftly. Today, it stands as its own operating division within Teladoc Health, accounting for 43% of its revenue in the third quarter of 2023. However, it has lower adjusted earnings margins (9.1%) compared to the only other division: Telehealth Integrated Care (12.5%). 

In Teladoc’s quest for profitability and to increase its lowest-ever stock prices, the company might capture a good bit of cash to invest in its higher-margin business by selling BetterHelp.

For example, Brookdale Senior Living (NYSE: BKD) sold its remaining stake in a home health, hospice and therapy joint venture with HCA Healthcare (NYSE: HCA) to HCA. It formed a joint venture with and sold a majority stake in its home health, hospice and outpatient therapy businesses to HCA in February 2021.

Brookdale used to be one of the largest home health care providers in the nation. But it offloaded the home health care elements to help it bolster its senior living community business, which was hit hard by the pandemic.

Another example from the post-acute space is Encompass Health Corporation (NYSE: EHC) and Enhabit Inc. (NYSE: EHAB). In mid-2022, the former spun out its home health care and hospice assets into a separate company to form the latter. Encompass Health has since doubled down on its facility-based business. Now, Enhabit Inc. is looking for an exit from the public markets and other strategic alternatives.

Ozempic will make its mark on the eating disorder market

Eating disorder treatment specialists will have a challenge to grapple with in 2024: the diabetes drug semaglutide, often known by its brand name, Ozempic.

Ozempic has become a sensation in the weight loss world. Diet icon Oprah Winfrey said she used the drug as a weight-maintenance tool, and Weight Watchers launched a prescribing program for the Ozempic class of drugs and advertisements featuring a version of Pilot’s song “Magic” (“Oh-oh-oh Ozempic!”) showed up on Instagram and Facebook.

BHB expects the Ozempic craze to spur a rise in eating disorder patients who have taken or are interested in taking Ozempic for weight loss in 2024.

Eating disorder treatment providers may experience an uptick in the number of patients seeking treatment or higher acuity cases.

Clinicians may increasingly be faced with patients who have taken or are interested in taking Ozempic for weight loss.

Industry insiders told BHB that people looking for a weight loss solution like Ozempic are already at higher risk for developing an eating disorder.

“It’s a really vulnerable population,” Angela Celio Doyle, Equip’s vice president of behavioral health care, told BHB. “The market for it is enormous, and it glorifies what ends up being eating disorder behaviors to lose weight.”

The drugs may re-trigger people who have an existing eating disorder and reach for the prescription injection drug. These patients will continue to experience the pathological effects of their disorder, even if Ozempic helps them reach their desired body type.

Eating disorder providers, like Alsana and Equip, offer care for co-occurring conditions. The possible side effects of Ozempic, including increased risk of pancreatitis, gastroparesis and bowel obstruction, may become an additional challenge for providers to tackle.

Crisis care innovation, creation will spike

Emergency behavioral health visits spiked in the wake of the COVID-19 pandemic, particularly in the pediatric population. But many industry insiders point out that the emergency room is often not the best place for patients with psychiatric needs. A visit to the ER is also expensive for payers and often ends with an inpatient admission.

As a result, we’ll likely see more alternatives to ER care, including behavioral health-specific urgent care centers and the rise of EmPATH units, a type of emergency care for patients with behavioral health issues.

EmPATHs, which stand for emergency psychiatry assessment, treatment and healing, are often located in hospitals and can serve patients with psychiatric needs after they have been medically cleared. They provide a more calming environment and are staffed with nurses and behavioral health-specific clinicians, including social workers and psychiatrists.

There has also been an uptick in urgent care centers, such as Connection Health Solutions, which offers a 23-hour observation unit, crisis stabilization, outpatient mental health service and discharge planning.

Unlike traditional ERs, both models prioritize stabilizing patients and de-escalating to inpatient care unless needed. With more of a focus on giving patients the right care at the right time this could be a golden opportunity for investors and provider organizations.

This article included reporting from Chris Larson, Morgan Gonzales and Robert Holly.