For-profit psychiatric beds now make up nearly one-third of all freestanding beds. Beds at government hospitals – which once dominated two-thirds of the sector – are continuing to shrink, a new study says.

Three years ago, privately held providers, such as Summit BHC and PAM Health made moves to build new facilities after the pandemic revealed a critical shortage of psychiatric beds, which in many cases resulted in emergency department boarding.

That came at a time when experts were sounding the alarm over an “urgent and worsening shortage of psychiatric beds” across the U.S.

Still, the gap has persisted. Occupancy rates have risen and patient demand for psychiatric care has also gone up. That has led for-profit providers with deep pockets to eye the space as an opportunity for growth, even more so in 2024 as the number of state psychiatric beds dipped to historic lows, compounding the business case for entering the market.

Fewer government beds and more for-profit-run beds doesn’t necessarily solve the ongoing problem, though, the study points out.

“There are ongoing concerns that demand for inpatient beds has outpaced supply,” study authors wrote. “While for-profit entry may alleviate access problems, it may also exacerbate concerns about safety and quality of care.”

Acadia Healthcare (Nasdaq: ACHC) is just one of the major for-profit behavioral health players in the space that has faced issues regarding quality and safety at its facilities. Earlier this year, the company shuttered its Timberline Knolls Residential Treatment Center in Lemont, Illinois, following a lawsuit over sexual assault and rape allegations by staff members. Although Acadia has denied these allegations, the company has set aside a large portion of its capital to address the ongoing legal matters and has continued to close other facilities since.

Little research has been done to examine trends in psychiatric bed supply, making this study unique. Between 2011 and 2023, while demand for psychiatric beds has gone up, the number of them fell from 115,000 to 113,000.

Downsizing was the main reason for the decrease in the number of government-owned beds. From once dominating with a share of 64% of freestanding psychiatric beds, government-owned beds now account for 48% of the market.

The loss gap would have been larger had for-profit entities not stepped up to buy, build and establish new facilities with beds to offset a loss of 7,333 government-owned psychiatric beds during that timeframe. Acquisitions and expansion of existing facilities, as well as construction of new ones, dominated the for-profit strategy leading to the growth of 14,474 beds in this category.

The trend is one that’s likely to continue, particularly among players like Acadia, report authors noted.

“Growth in for-profit chains is ongoing and is not simply an artifact of the Affordable Care Act or federal mental health parity legislation,” they wrote in their conclusion. “The supply of psychiatric beds is increasingly concentrated in large chains that have received media attention related to quality of care.”

While the trend may make a compelling case for specialization and improving the quality of care, the authors caution that due to safety concerns at many of these for-profit chains, there is also a call for enhanced scrutiny on how the growing corporatization of inpatient mental health care affects patient outcomes.