Newport Healthcare is crowing over a victory in a 33-month legal battle involving one of its Virginia facilities.

On Tuesday, the national youth-focused behavioral health care provider announced what it framed as a “decisive legal victory” regarding how land-use regulations apply to its home-like treatment centers for individuals with behavioral health conditions.

Public records show that on Dec. 11, the Virginia Court of Appeals declared that a ruling it issued in February 2025 was made without error, and further appeals were denied.  

“By upholding our right of small, licensed group homes to operate in residential areas, the court has ensured that individuals seeking healing can do so in safe, supportive, community-based environments that have proven so successful,” Newport Healthcare CEO Brian Setzer said in a news release.

At the heart of the matter, neighbors to the Newport Healthcare group home property took issue with the arrival of a health care facility that would care for people with severe needs. Some believed it would evolve into an inpatient treatment center and flout local land-use codes. Newport Healthcare, operating as Virginia Health Operations LLC, acquired three abutting properties and considered opening group homes on the properties. Local officials issue one zoning permit for one property that survived a local board of zoning appeals process. The neighbors sued in February 2023. 

The Virginia Court of Appeals ultimately found in February that the circuit court did not err in deciding the case. The neighbors maintained that the group home should be considered a congregate housing facility rather than a residential facility. In Virginia, state law requires local zoning codes to treat licensed residential facilities for mental health treatment with no more than eight residents the same as a residential occupancy. The appeals board, circuit court and appeals court upheld the decision to issue the zoning permit.

The property is in a residential district zoned as “agricultural residential.” Newport Healthcare is headquartered in Nashville, Tennessee.

The appeals court also rejected the allegation by the neighbors that the Newport Healthcare facility would admit patients who are in active addiction. Such protections for group homes in residential areas are not permitted for addiction treatment. 

The decision has the attention and support of national advocates. Mark Covall, interim president and CEO of the National Association for Behavioral Healthcare, spoke in favor of the development.

“NABH applauds our member Newport Healthcare for its exhaustive efforts and the Virginia Court of Appeals decision that together will help improve access to effective treatment and recovery services for all who need them,” Covall said in a statement. “Demand for behavioral health services in America continues to increase, and this legal decision helps provide a solution to this growing problem.”

Newport Healthcare was represented by Relman Colfax PLLC and McGuireWoods LLP.

Opposition to behavioral health facilities in areas commonly thought of as residential is a common story in the industry. With a broader mandate from the federal government and the wider cultural movement in the industry toward deinstitutionalization, several organizations seek to establish treatment centers of various kinds in large homes to deliver care in familiar home-like settings.

Basic playbooks for provider organizations seeking to establish new facilities that require a great deal of relationship building and getting to know a community. Some regulations make certain geographies the bottom of the barrel for expansion.

In some cases, providers take the fight to local entities in court that deny behavioral health facilities, citing potential violations of the Americans with Disabilities Act, among other provisions.

Still, certain regulations that may make establishing new facilities a headache can be a moat for incumbents. Certificate of need programs, for example, are meant to deny additional facilities or services that are deemed unnecessary or not within a prescriptive plan for how much of any given type of service is allowed in a state. The result is the exclusion of potential competitors.

Newport Healthcare’s legal victory arrives near the end of a year with mixed results.

In October, the company disclosed that it had laid off staff and closed several locations as part of a move it said brought its model more in line with payers’ demands for in-network services. It and other organizations have struggled to operate these smaller facilities. Vacancies in group homes and other care settings with so few residents exclude significant percentages of potential revenue, while all fixed costs of maintaining and operating the facility remain.

Discovery Behavioral Health had similar challenges and repositioned its business in 2023.