4 Reasons to Joint Venture Your Behavioral Health Unit

Published by Becker’s Hospital Review

The behavioral health industry is undergoing a wave of consolidation with the emergence of multi-location chains and growth of for-profit operators.

A major reason behind this growth has been regulatory changes including the 2016 revision of the Medicaid Institutions for Mental Diseases (“IMD”) Exclusion, the Mental Health Parity and Addiction Equity Act of 2008, and the Affordable Care Act of 2010. These legislative changes have expanded insurance coverage for mental health services, lifted restrictions on freestanding facilities, expanded the demand for behavioral healthcare in general and increased reimbursement. This along with a limited supply in the number of psychiatric beds nationwide has driven higher levels of private investment in the industry spurring consolidation trends.

Although not as common as outright acquisitions, joint venture transactions between non-profit health systems and for-profit operators have started to become more prevalent. The two largest for-profit behavioral health companies are Universal Health Services, Inc. (“UHS”) and Acadia Healthcare Company, Inc. (“Acadia”). Recent examples of joint venture transactions with these operators include Acadia’s 2016 announcements of separate partnerships with Ochsner Health and Greenville Health System to build inpatient psychiatric hospitals. In addition, UHS announced joint ventures with Lancaster General Health and Providence Health Care to build inpatient psychiatric hospitals.

Steven Filton, Senior VP and CFO of UHS, highlighted the joint venture trend on the latest UHS earnings call1:

“We have talked a great deal of the last few quarters about the fact that we are having much more frequent conversations with acute care hospitals about, in some way, penetrating and sharing in the economics of their behavioral health facilities”

“We probably have about a dozen other conversations that I would describe as likely resulting in some sort of arrangement but still a little too early to discuss them with any level of specificity.”

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