The number of joint venture partnerships between hospitals and behavioral health care providers will continue to climb, despite the lumbering process of finalizing such a pairing.

“I do think there’s been some challenges in the last year or two that have maybe slowed deals down a shade,” William Teague, managing director of VMG Health, said at the Behavioral Health Business INVEST conference in October. “But I definitely see this model proliferating and growing.”

Teague has advised numerous health care companies on the JV topic, hammering out several deals in recent years.

Examples of major behavioral health JVs over the past few years include Acadia Healthcare Company’s (Nasdaq: ACHC) partnership with Tufts Medicine and Universal Health Services’ (NYSE: UHS) arrangement with Lehigh Valley Health Network. Indeed, behavioral health JVs have been on a steady rise since 2019. In most of the deals, a large-scale provider like UHS or Acadia swoops in to provide capital and clinicians to an acute care health system that needs a true behavioral health operating expert.

“They’re trying to figure out how to deploy capital,” Shelah Adams, vice president of corporate development at UHS, said at INVEST. “And if it’s between cardiology and behavioral health, they’re going to use that toward cardiology. For behavioral health, they’re looking for a capital partner.”

King of Prussia, Pennsylvania-based Universal Health Services has a network of more than 400 acute care hospitals, behavioral health facilities and ambulatory centers across the U.S., Puerto Rico and the U.K.

Nine years ago, UHS requested Adams take on a new role in the company, which was to form partnerships with hospitals that lacked the resources to help behavioral health patients once they left the emergency room.

“UHS had started to get calls from [acute care] hospitals saying, ‘Hey, you are a domain expert in the [behavioral health] space. Would you consider venturing with us to bring services to this market?’” Adam said.

At first, Adams encountered skepticism about a for-profit provider partnering with a nonprofit hospital.

“There was a lot of questioning our quality, our motives, that kind of thing, because of our tax status,” she said. “But we brought high-quality services to our markets and our nonprofit partners are very proud of the work we do.”

UHS currently has 15 JVs, with 40-50 potential deals in the pipeline, Adams said at INVEST. Another example of one of its JVs: UHS’s partnership with Penn Medicine, a regional hospital with multiple locations in eastern Pennsylvania.

According to Michael Tierney, managing director at Fifth Third Securities, JVs interest many of his clients because nonprofit health systems often do not have behavioral health expertise.

“They don’t have a discharge plan for their patients,” Tierney said at INVEST. “Frankly, for a lot of these nonprofit health systems, it is not a core competency.”

In addition to Acadia and UHS, another organization that has made JVs a calling card is US HealthVest.

Despite the nation’s rising focus on mental health and substance use disorder (SUD) services, behavioral health is still low on the totem pole for many health systems, Teague said. But that’s starting to change as physical health and behavioral health become more integrated, helping more health systems understand the value of a dedicated behavioral health strategy via joint venture.

“They’re getting the upside of the economics, but limiting the downside of loss of control on the clinical side,” Teague continued.

Years in the making

But if JVs are appealing on paper, and even in practice, they can be a slog to put together.

“Compared to your normal M&A transaction, the timeline makes it challenging,” Teague said.

Adams said the shortest JV deal she put together took three years.

Other partnerships took longer to complete. For example, a JV with Trinity Health Michigan will open next year following a three-year process of obtaining the necessary permits, Adams said, noting that JVs are freestanding operations that require new licenses and certificates of need.

Another point of contention is that each JV is structured differently. A common model is that providers have an 80% equity stake, and the hospitals 20%. But stakes vary.

“We really push for 51-49 [shares], because that’s skin in the game,” Adams said. “It really has to be a partnership. It can’t be that UHS is running this hospital and cutting a check.”

Other points of contention include everything from professional services agreements to disputes over branding. Still, Adams, Teague and Tierney agreed that JVs are worth the trouble.

Tierney noted that the partnerships could continue to expand.

“I think a lot of JVs have been focused on the inpatient side,” the investment banker said. “I could see a lot more health systems looking for outpatient solutions as well.”

And Teague predicted that more providers will jump at JVs.

“Currently, the hospitals don’t have a ton of options as there are just two or three companies pursuing this model,” Teague said. “I could see more players pursuing this model on the operating side.”