Behavioral health dealmaking has risen steadily in 2025, falling short of the blockbuster year analysts had predicted.

That tempered growth reflects two primary factors: uncertainty in the Medicaid market, one of the top payers in the behavioral health space, and the continued pressures of high interest rates and wage inflation.

Over the summer, Congress approved the One Big Beautiful Bill Act (OBBBA), which made cuts to Medicaid and changes to the Affordable Care Act (ACA) and health insurance marketplaces.

​“Given the importance of Medicaid …within the behavioral health ecosystem… [OBBBA] creates uncertainty, and that’s what has transpired this year,” Keith Farrow, managing director at Nautic Partners, said at Behavioral Health Business’ INVEST. “Over the past 10 years, you see valuation multiples creep up, and investors have been able to get returns somewhat through valuation multiples creeping up. When that doesn’t happen, you’ve got to drive bottom-line performance. And you look at the past couple of years, you’ve had pretty material wage inflation, you’ve had more competitive entry.”

​Nautic Partners is a private equity firm with multiple behavioral health companies in its portfolio, including behavioral health pharmacy Advantage Healthcare Services and mental health providers Odyssey Behavioral Health, Sagent (formerly Nystrom & Associates) and Pyramid Healthcare.

​Still, there is a significant opportunity to expand in behavioral health — particularly for providers focused on demonstrating quality measures to payer partners.

​Mixed reviews on Medicaid

​Medicaid is one of the most important payers in the behavioral health sector and that’s unlikely to change any time soon. Still, many providers are looking at ways to future-proof their business in the face of potential cuts.

​“Rosecrance is just off the $200 million revenue. Half of that is Medicaid and Medicare,” Dave Gomel, CEO of Rosecrance, said at INVEST. “But we’re fortunate that we have different companies, different states and different funds, so we’re able to kind of pivot when need be. And right now, our growth is in outpatient commercial insurance. … So I think for a smart business model, it’s that diversification of your portfolio.”

​Rosecrance Behavioral Health is a large nonprofit behavioral health provider. It has six business sectors, including residential treatment, therapy, outpatient care, sober living homes, educational programming and a charity arm.

​While headlines have been dominated by federal policy changes, executives note that state-by-state Medicaid regulations often drive or curb potential growth. Farrow noted that the Medicaid environment “matters a lot” when considering expansion — both organic and inorganic.

​Regardless of how Medicaid cuts play out in the future, the payer will always be a critical player in behavioral health. And some investors are continuing to fund this area with an eye on the future.

​“We lean more and more within our behavioral investing into Medicaid, and it partly comes back to the need for the services relative to the number of high-quality providers within that landscape, and even with some impact of OBBBA, that ratio, it’s still a meaningful issue for our country,” Farrow said. “The demand for Medicaid Services, the unmet need is quite high, so by no means are we backing off the thesis that Medicaid in behavior with high quality providers is a good place to be investing, because that long term will play out.”

Investing in quality pays off

​Payer strategy will always be one of the biggest drivers of growth, dealmaking and a company’s overall financial health.

But as payers are seeing more and more spend in the behavioral health sector, there is increased pressure for providers to show outcomes.

“What we’ve seen over the years is increasing behavioral health utilization and spend, and this is indicating a high demand for their services, which is a good thing,” Priya Joshi, vice president of strategy at Thriveworks, said. “People are starting to break barriers, break the stigmas, and start to access behavioral health care. But now, where we saw payers originally screaming access, access, access to [sustaining] network adequacy at first, now they’re starting to see behavioral health catch up to where the physical medicine space was maybe a decade ago, and saying access isn’t cutting it anymore, we need to be able to see that you can demonstrate value by showing improved outcomes and reduced costs.”

​Thriveworks is one of the largest outpatient mental health providers in the country. As of 2024, the provider had 340 facilities in 49 states and Washington, D.C., and employed over 2,200 clinicians.

And while payers are interested in outcomes, some operators note that it’s the provider side that often drives that value-focused conversation.

​“We are often the ones driving the conversation with the payers, and there are very few payers that still come to us and say, ‘Hey, here’s a plan that you can demonstrate that you’re different or you’re better,’” Dr. Chris Ivany, CEO of Family Care Center, said. “There are some payers like that, but more often than not, we’re the ones reaching out and saying, ‘Hey guys, we want to show you that we’re different. We want to show you that we’re better. We want to show you that we hire smarter, that we train internally, that we pay attention to quality, we track outcomes, and all those kinds of things. Let us demonstrate that to you, and we can start to separate [ourselves] in this more crowded outpatient behavioral health market.’”

​Family Care Center offers therapy and counseling, psychiatry and medication management, transcranial magnetic stimulation and intensive outpatient programs across five states.

At the end of the day, payers want to know they are paying for services that will downstream, contain costs and improve outcomes.

​“Part of the reason why we’re bullish on the space is that an unmanaged behavioral health condition is a cost multiplier,” Farrow said. “So you go with that pitch and you have payers that know unchecked behavioral health conditions are cost multipliers. So even though payers don’t like more spend, you have a receptive audience, because you’re solving a problem.”