The substance use disorder (SUD) industry is due for an update.

And that refresh could take many different forms, industry insiders believe. There is ample opportunity for consolidation, as well as integrating new technologies and treatment modalities. 

Part of this necessary update will be a response to new challenges. Several headwinds are likely to shape the industry over the next few years, including the evolving payment landscape and regulatory changes, which make growth opportunities harder to predict.

Following a slow M&A environment over the past few years, deals in the SUD space have begun to gain momentum. For example, Bradford Health and Crossroads recently completed roll-up acquisitions.  

“There’s a unique opportunity in the next five years for growth through market consolidation in so many different ways,” Steve Priest, CEO of Spero Health, said at the Behavioral Health Business Addiction Treatment Forum. “The reality of it is, is that scale does matter. It matters to operate efficiently. It matters to have conversations with payers and create new payment models that can drive the long-term sustainability of the business model. And so I just am excited about the next five years, because I do believe market consolidation is going to happen, and I think there’s some unique opportunity for everybody in the sector to begin to do that — create some scale and a much more mature industry.” 

Founded in 2018, Spero Health currently has more than 75 locations in Kentucky, Ohio, Tennessee, Indiana, West Virginia and Virginia.

Priest noted that the industry transition from small, mom-and-pop providers to larger, consolidated operators with greater expertise has led to improved patient care and a decline in mortality rates. Scale gives you the ability to invest, he said. 

Investing in technology

Additionally, scale and technology integration go hand in hand, according to Ankit Gupta, CEO of Bicycle Health.

“I think we should all be thinking 10 times more of what technology can do. Not just, ‘I need a better EHR,’ but how can technology truly change clinical care,” Gupta said at the conference. “And again, it’s hard to invest in technology if you have several tiny gross margins.”

Bicycle Health is a Boston-based virtual SUD provider that offers medication management, recovery coaching, drug testing and other services.

SUD providers can integrate technology in several different ways. For starters, many are utilizing AI to enhance operations, efficiency and patient outcomes. It can also facilitate more seamless integration with potential partners, such as hospital emergency departments or prisons. 

“There’s a lot of technology investment to make sure we are exactly where the patient is at when they need us, regardless of what space they’re in,” Gupta said.

Technology and scale can also help integrate physical and behavioral health care.

“We have really strong partnerships with innovation providers through the spectrum of care,” Priest said. “One of the biggest areas we’re looking at [is around] how we can partner and invest in … the service of primary care for our patient population and their families. I think the primary care tie, and the continuum of care between primary care and behavioral health, will be really important in the future. So we’re trying to continue to figure out that model, because it’s different in every community we serve, and how we can best fit the needs of our patients.”

The industry is certainly seeing a move towards integrated care, which could help move the dial on partnerships.

“We’re seeing a little bit more erosion of that artificial separation between substance use disorder and mental health and, quite frankly, health,” Dr. Adam Scioli, chief medical officer of Caron Treatment Centers, said at Addiction Treatment Forum. 

Wernersville, Pennsylvania-based Caron Treatment Centers is a nonprofit provider that serves patients with substance use disorders. It operates in Pennsylvania, Florida, Washington, D.C., Georgia and New York. The company employs roughly 755 people.

Potential headwinds

While several advancements have been made possible by consolidation, reimbursement remains a significant hurdle for behavioral health providers.

“The reality of it is we live in a world in which reimbursement is not going up; if anything, we can maintain a flat reimbursement model, even with what’s happening out of D.C. — and changes are coming. I still believe we sort of reached a plateau,” Priest said. “The people who survive long term will block and tackle, and have a positive margin in that process.”

Still, new reimbursement models, such as value-based care, may provide new opportunities for providers.

Demonstrating quality will take the ingredients of scale and technology. 

“The bottom line is we need to figure out how to deliver a quality product to as many end users as possible with as little friction and as much reimbursement as possible, so we can continue to invest in ourselves with high-quality treatment,” Scioli said. “And that’s not going to happen unless we can find a way to continue to measure outcomes, primarily through research and gathering data. … Then using that to demonstrate that there’s value in what we’re providing.”