Why It’s Time to Stop Being Ashamed of Growing Behavioral Health Companies

There are a few things that get twisted in the behavioral health discourse, especially around growth and investment.

INVEST 2024 is right around the corner. These are the topics that are on my mind. Next week, we will host something equivalent to a huge family reunion, complete with a special venue, food, conversation and people traveling from all over the country for one thing. Unlike a family reunion, everyone will be there with the expressed purpose of talking about one thing: growing behavioral health businesses.

But just like a family reunion, we will all be there to talk and catch up and, at least sometimes, talk about the behavioral health family’s problems.

I want to use this BHB+ Update to set a few things straight ahead of INVEST. Seems fair to me. I mean, I am the one writing these things on top of helping to produce the event and execute it the day of.

The TL;DR is this: Members of the industry frequently automatically associate bad things with investing in or growing behavioral health companies — that it is inherently shameful or incorrect to talk about making behavioral health companies successful.

In short, this is wrong. Why? Again, in short, “no margin, no mission,” as the saying goes. Understanding this concept in action will help us all get started on the right intellectual foot at INVEST.

Here’s what I’m going to breakdown in this BHB+ Update:

— What hypergrowth really indicates

— Why behavioral health is predisposed to growth

— What investors and operators are really growing for

Growing fast can last

The arrival of venture capital and software into behavioral health treatment brought with it the stereotypical mindset of moving fast and breaking things. This, rightly so, didn’t and doesn’t sit well with folks from and of the industry. The devil-may-care, ends-justify-the-means culture of other parts of the business world violates the supreme do-no-harm principle of health care.

However, I believe that a large segment of the behavioral health community has developed a hypersensitivity to anything that even smells like Silicon Valley. This often leads to extreme skepticism about companies that are having financial success. Anyone doing better than the rest of the industry must not be doing things the right way.

This is the intellectual equivalent of a self-induced allergic reaction. The inclusion of a new source of capital is itself not harmful. Unreasonable opposition to its inclusion is a mild irritant at best or potentially fatal at worst for the industry.

The 2024 Inc. 5000 provides some examples.

Addison, Texas-based Behavioral Innovations was founded nearly 24 years ago, in 2000. For context for those who don’t know or don’t remember, you could just walk into an airport and go straight to the gate. You had the arrival of personal digital assistants (PDAs), some of which were just starting to get cellular capabilities. The top song of the year was “Breathe” by Faith Hill. What a time! All of those things are gone. Still, Behavioral Innovations, an autism therapy provider, is one of the fastest-growing companies in the U.S.

In no small part, Behavioral Innovations’ growth is an expression of several trends. The one I’ll highlight here is private equity. It was acquired by Tenex Capital Partners in May. Before that, it was recapitalized by Shore Capital Partners in 2017. It had 13 centers at that time and was sold to Tenex Capital with 80 locations. 

In the three years ending 2023, its revenue more than tripled (a 228% increase) and ranked at No. 2,291 on the list.

The oldest behavioral health company on the list, Compleat KiDZ, also an autism therapy provider, was founded in 1989. It nearly tripled revenue, with 182% revenue growth at No. 2,788.

Enduring businesses like that don’t happen by accident. They’re doing something right. And the result is being among the fastest-growing companies, regardless of industry, in the nation.

The not-great reason why behavioral health is predisposed for growth

It’s messed up that behavioral health companies have some reasonable expectation of growth because the collective American health care system is messed up. But that’s the world we live in. And few, if any, in our industry have the levels of power needed to fix it. This fundamental reality means that companies with the right levels of savvy and the capital can find nearly unmitigated demand for their services.

Exploring this idea led to one of the most striking comments I’ve heard in an interview in a while.

“We believe that the old system of mental health is broken, and if we’re right, then we actually have an unlimited opportunity to grow,” Sentari Minor, chief of staff and head of investor relations for Scottsdale, Arizona-based evolvedMD, previously told BHB. “Traditional behavior health will diminish because it has to: It’s not working.”

evolvedMD partners with physical health care organizations to implement the Collaborative Care Model. These partnerships include establishing a system by which patients are shared by psychiatric providers, primary care providers and case managers through a common registry.

This puts evolvedMD in the position to work with the vastly larger physical health care system, provide behavioral health that is supported by primary care providers and do so without the burden of going it alone with patient acquisition. By doing this, evolvedMD’s work is to bridge a gaping chasm in the health care system.

Another company running with the collaborative care model, Concert Health, has been able to use it to win over two key partners in its quest to help fix this problem. First, it’s been able to woo investors: It raised $42 million in April 2022. Second, it established a partnership with the AIMS Center at the University of Washington, the originators of the Collaborative Care Model as we know it today, to adopt the model for those with complex psychiatric conditions.

evolvedMD, Concert Health and other companies that seek to attack the fundamental challenges of the health care industry are likely to see sustained growth because their offerings are fundamentally needed.

What investors are really looking for

The companies I’ve mentioned so far have seen growth that has been driven by incredibly powerful and desperate forces. While they are finding success in terms of growing their operation, they are not yet at the level of maturity that leads to the oft-feared behavior of dodgy investors.

The nightmare scenario for so many in the industry is that investors will buy up companies and squeeze them for profits. That’s not the play that does well in behavioral health. Yes, investors often acquire companies and push them toward greater efficiency, often uncomfortably so. But that’s not the end game. The end game is to spend money on the right things and make the right strategic changes to make a provable case that they ought to get more money than they spent when they go to sell.

So often, conversations about demand for services or market opportunities are construed straight to profitability. Oh, if it were only so simple! The reality is that individuals are loathed to pay for health care out of pocket to the point that they will delay and forego care until they desperately need it. And payers aren’t exactly eager to dump buckets of cash into any health care providers’ bank accounts.

By betting on behavioral health companies, investors are doing so despite profitability. They are seeing a vision for what could be. And that future-looking vision requires putting money behind expanded and improved clinical efforts. The rapid expansion of things like demand, utilization or other market trends are just indications that it’s reasonable to expect things to get better over time.

Behavioral health is a far cry from bigger, more mature and more financially impressive industries such as telecoms, banking, energy production, utilities and food production. Investments in these spaces are often math equations focused on when the cost of the investment will be covered by dividends, long-term growth projections and, in unusual cases, corporate raiding practices. I’m not going to pretend like it doesn’t happen.

I’m also not going to pretend that private investment in the behavioral health space has not expanded the industry in a massive way. We would not have access today without private investors betting on behavioral health. Private philanthropy won’t and likely can’t cut it. And there is simply not anywhere close to the level of political will to have the government be a serious payer and provider of behavioral health services.

Plus, none of us should be under the delusion that there was some kind of invasion of private investment in behavioral health. The companies we see today that are private equity-backed were often founded by a handful of entrepreneurs who wanted to do well by doing right. Then they sold out. They got paid for the equity they always sought to build and went on to other ventures — hopefully to create another behavioral health company.

If there are serious problems at the intersection of investment and behavioral health, it’s not likely that the sole cause is the type of investor involved. More likely than not, it’s part of the environment that behavioral health itself helped to or failed to create.

To sum it up, private investors knocked on the door of the behavioral health home and were let in. They are proverbially wedded to a lot of companies in the space. Whether you like it or not, they are a part of the behavioral health family — and a vitally necessary one at that. So it’s time to at least stop being ashamed of their presence and figure out how to help the family thrive.