The entanglement of politics and regulation requires behavioral health providers to bolster advocacy efforts more than ever.

At the state and federal level, the industry faces a potent mix of increased scrutiny on health care dealmaking — especially the involvement of private equity investment — and historic public underinvestment. These forces pose potential threats to the continued growth of the industry. However, experts say that power is in the hands of the behavioral health industry to have a say in the direction that regulations take.

“There needs to be a rational public advocacy argument we should all be participating in — whether it’s public, private or industry — about the need for more flexibility for innovation in this space,” Jenni Lohse, chief legal and administrative officer of Aware Recovery Care, said during a panel discussion at INVEST 2024. “That also requires a discussion about flexibility of ownership.”

The year so far has seen private equity investment in health care scrutinized by state and federal regulators. At the federal level, several of the most powerful agencies, including the U.S. Departments of Justice and Health and Human Services, are reviewing “corporate greed in health care” as part of a wider examination of competition in the economy. Advocates have seen the introduction of laws in several states that would require disclosure and review for health care deals.

Such scrutiny at the beginning of the year was only heightened by the implosion of Steward Health Care and the resultant political battle it inspired. In September, the CEO of the for-profit health system sued lawmakers alleging a violation of constitutional rights after he defied a congressional subpoena. Last month, several U.S. senators and representatives introduced the Stop Wall Street Looting Act, a bill that would reform oversight of private equity investment in health care. It would also introduce regulations for the sale of property and additional workforce regulations. 

Despite the action of regulators so far, not much has changed in terms of earth-shattering changes to regulation. In California, Gov. Gavin Newsom vetoed a bill that would require disclosure and review of private equity-backed health care deals, citing the creation of a new state agency in 2022 that would effectively do what the vetoed bill proposed. In Congress, partisan gridlock, the stall of congressional work during the presidential election and the defeat of Democrats in both houses of Congress and the presidency have obliterated the likelihood of Democratic priorities becoming a reality. 

Further, the proliferation of review and disclosure laws has led to extended timelines for completing deals. While the laws may increase the cost of dealmaking itself, they can be accounted for and managed.

“You just have to have a strategy; you have to plan in advance,” Amanda Verrastro, chief compliance officer of Pyramid Healthcare, said during the panel. “If you’re looking at going into this state in January, then you start that paperwork in July.”

On top of increased time to do deals, Verrastro said that these laws and overall increased scrutiny of behavioral health require providers to be focused on the nitty-gritty details of paperwork and compliance, especially for organizations that grow via M&A. Such a focus on clear paperwork helps to avoid self-incurred problems.

On top of that, behavioral health providers at all levels can’t assume that the increased discourse about the various behavioral health-related crises will be enough to see a favorable regulatory environment.

Behavioral Health Business

“The legislators in X state or Y state are not sitting there thinking about your business unless you’re up there pushing them to think about your business,” Darren Patz, partner of government affairs and public policy for DLA Piper LLP, said during the panel. “If you don’t have a seat at the table, you’ll end up on the menu.”

This is especially true for Medicaid rates, Patz said. The joint state-federal health plan is largely regulated and administered at the state level, making advocacy potentially more effective. Patz added that he and other industry insiders have been successful in pushing for certain rate increases with the elected lawmakers, who ultimately have a say over how Medicaid operates in a given state.

He suggested that it’s even possible to account for positive outcomes from advocacy as part of the dealmaking process.

“There are opportunities where you can evaluate a deal and then, a year later, with your advocacy, get a significant Medicaid increase,” Patz said. “If you don’t ask, you don’t get.”

However, the dispersed local control of the Medicaid program can complicate dealmaking. Even in states with more favorable rates, the inclusion of staffing ratios or limitations on the type of clinicians that can provide a type of care can see a “$500 rate turn into $5 of profit at the end of the day,” Verrastro said.

Behavioral Health Business

Potential future action for behavioral health

Verrastro added that future advocacy could focus on smoothing out interstate differences in Medicaid processes, which could go a long way toward making the behavioral health industry more successful in addressing local needs.

Patz hopes to see changes at the federal level, specifically congressional action to remove the budget neutral mandate of the Medicare Physician Fee Schedule. That mandate often requires that physicians of several types take reimbursement cuts every year for treating American seniors.

Looking forward, Lohse suggested that advocates push the federal government and state governments to stop the “vacillation on telehealth and teleprescribing.”

“It works. It has brought access to so many Americans in so many underserved communities and rural communities,” Lohse said. “If we put all of the energy that we have into ‘Should we do this any longer and what should this look like?’ into ‘What does quality telehealth and quality teleprescribing look like?’ I think we would have such a better product, particularly for behavioral health.

“This is such an ideal modality for behavioral health. It’s such a game changer … I think we’re missing a golden opportunity.”