Regulatory ambiguity and payer pushback have clouded behavioral health dealmaking over the last year, but investors at last week’s INVEST conference in Nashville are finding opportunities in the uncertainty.
At the beginning of 2025, behavioral health investors and providers were optimistic.
Many anticipated that the Trump administration’s regulatory approach would create favorable conditions for dealmaking. But tariffs, Medicaid cuts and high interest rates have led to a somewhat cautious M&A environment.
At the same time, payers have seen behavioral health spending soar, prompting many to reevaluate what they are paying for. This has put pressure on providers to demonstrate outcomes.
While 2025 may not have panned out exactly as optimistic investors had hoped for the behavioral health industry, there is still considerable opportunity, especially in interventional psychiatry, including transcranial magnetic stimulation (TMS).
In this exclusive BHB+ Update, I will explore:
– How Medicaid cuts could impact the behavioral health industry
– Why showing outcomes is necessary for payer partnerships and closing deals
– The opportunity of TMS for the future
Medicaid, ACA uncertainties already impacting the market place
Medicaid and Affordable Care Act (ACA) marketplaces are set to undergo some major changes under the recently passed One Big Beautiful Bill Act (OBBBA). ACA subsidies are set to expire at the end of the year, which could lead to significantly higher premiums.
Premiums for popular types of plans sold on the federal health insurance marketplace will jump on average by 30% in 2026, according to a Washington Post review of final rates approved by the U.S. Centers for Medicare & Medicaid Services (CMS).
Meanwhile, OBBBA has promised to make cuts to the Medicaid program.
There is both certainty and uncertainty regarding what is next for Medicaid.
“On the one hand, the financial impact is certain,” Shannon Attanasio, senior vice president of government relations, advocacy and public policy at Medicaid Health Plans of America, said at INVEST. “Medicaid is a major payer for behavioral health services, and reductions in eligibility and tightening state financing threatened to shrink the pie available for mental health services and substance use disorder (SUD) treatment, which could certainly impact access to care services and treatment.”
The Medicaid Health Plans of America is an industry group that represents the interests of Medicaid managed care.
However, there is still plenty of unknowns for providers regarding some of the details of the changes.
“There’s confusion about who’s eligible for Medicaid now, the timing of provisions, what applies to whom, when, particularly with those work and community engagement requirements,” Attanasio said. “And I would note that OBBBA does provide an exception to community engagement requirements for some enrollees, including those who are medically frail. And within the medically frail are people with chronic substance use disorder.”
The confusion has already begun to impact patient census, an issue that is likely to worsen in the future, according to industry insiders.
It’s not just patients who are struggling to understand how these changes will play out; payers and providers are also trying to piece together what these regulations will mean for the future.
“It creates uncertainty and fear, and then people stay in place,” Jason Hendricks, CEO of Pyramid Healthcare, said at INVEST. “From the payer perspective, … that’s really what we’ve seen as the immediate impact – no rate increases, no new network expansion, no creative plans. And that’s not going to be across the board. There will be some folks that step up and face this problem head-on and try to come up with creative solutions, but the first few months have just been kind of hunkered down and a lot of fear.”
Nautic Partners-backed Pyramind Healthcare is a large provider of substance use disorder services that operates across five states.
The good news for providers is that, while changes to Medicaid and ACA plans could have a significant impact on the behavioral health industry, some investors still view Medicaid as a sound investment for 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,” Keith Farrow, managing director at Nautic Partners, said at INVEST. “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.”
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.
Access is just the start
In 2021, behavioral health providers offering easy access to care garnered strong investor interest and secured favorable payer terms.
In fact, just a year and a half ago, I was at our VALUE event and payers revealed just how big of an issue access was in contracting.
“We’re at the point where we’re paying extra just for access,” Dr. Taft Parsons III, vice president and chief psychiatric officer of CVS Health, said at VALUE 2024. “I don’t think that we’ll ever get to the point where we can say this person isn’t using evidence-based practice. Therefore, we don’t need them in the network. I don’t see that in the near or foreseeable future.”
A great deal has changed in that short amount of time. The pressure is on for providers to demonstrate quality outcomes for both payers and investors.
It’s important to note that payers have continued to face legal battles related to ghost networks. Still, partnerships with member-therapist matching platforms such as Headway, Grow and Alma have helped payers alleviate some network adequacy concerns.
Payers have seen their behavioral health spending increase exponentially over the past few years.
“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 at INVEST. “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.
Investors are also prioritizing clinical quality — and in particular, the ability to scale clinical quality. At INVEST, Jessie Laurash, a principal at Health Enterprise Partners, noted that clinical quality and outcomes can’t be compromised, whether a provider is a large or small organization.
Here’s what Laurash said on stage:
“So the question is, what is the care model – and then the staffing model – to deliver those outcomes? And can they be sustained with additional investment and with scale? Oftentimes, with smaller platforms, they have generated awesome outcomes, but the business model, or the staffing model by which they’ve done so, just wouldn’t work at scale and would take too much capital to kind of get to a financially stable footing. I think to best position themselves for investment, especially initial investment platforms, they should be able to demonstrate to an investor, ‘We have these outcomes. And here’s the model that we used to do it, and this is how the model eventually scales to profitability and is accretive in the long term.’ Should we kind of go into M&A and start to build inorganically.”
Health Enterprise Partners is a private equity firm with several behavioral health companies in its portfolio, including Aware Recovery Care, BrentCare, nocd and Behavioral Centers of America.
Opportunity calls
One of my favorite aspects of INVEST is its future-looking nature. Investment dollars can lead to more innovation and expansion in different areas.
There were a few areas of investment that stood out to me at the event. First, there was a lot of buzz around interventional psychiatry, especially transcranial magnetic stimulation (TMS).
“The market is shifting slightly from what I would generically call interest in talk therapy to interest in talk therapy combined with other interventional, non-talk-therapy-related therapies,” Dexter Braff, president and founder of M&A advisory firm the Braff Group, said. “It doesn’t mean if you don’t do this, you’re not valuable, but if you do do this, you might be more valuable than someone who does not offer these services.”
While TMS is not exactly a newcomer to behavioral health, due to expense, logistics and reimbursement hurdles, only a fraction of providers are able to offer the services.
Still, the providers who have incorporated the treatment into care are seeing positive outcomes.
Take the Family Care Center, a mental health provider with 45 clinics across the midwest; the practice serves as a hub for behavioral health conditions like depression, anxiety and PTSD. The organization’s CEO, Dr. Chris Ivany, said that about 90% of Family Care Center’s TMS patients are people who come from within their own practice who did not improve with medication management and psychotherapy alone.
“So now that TMS becomes one of the things in our arsenal to be able to use, it’s a very important part of treatment strategy,” Ivany said. “It’s also very important in terms of our values for the community, because we do keep folks from getting worse. The outcomes are tremendous with TMS, … and so it’s a huge part of our organization.”
Family Care Center offers therapy and counseling, psychiatry and medication management, transcranial magnetic stimulation and intensive outpatient programs across five states.
While everyone is looking for what’s next in behavioral health, it’s very possible the future is here with TMS, and now it’s a matter of expansion.
Companies featured in this article:
Health Enterprise Partners, Medicaid Health Plans of America, Pyramid Healthcare, The Braff Group, Thriveworks
