Now Trending in Behavioral Health: Integration Strategy, Regulatory Compliance, & Transactions
August 10, 2021
Over the past few years, trends and events have occurred that have led to increased and continuing demand for mental health care services. First, the Affordable Care Act (ACA) expanded coverage and access to mental health care services. Then, more recently, the COVID-19 Public Health Emergency (“PHE”), and corresponding citywide shutdowns, brought about a spike in anxiety and depression with these conditions increasing to four times pre-COVID-19 levels.[2,3] Healthcare workers were among some of the most heavily impacted with one study finding that almost half of healthcare workers reported serious psychiatric symptoms, including suicidal ideation. While demand for mental health services has continued to increase, the number of providers actively practice in the United States is estimated to have the capacity to meet only 28% of all mental healthcare needs.
As the COVID-19 pandemic increased demand for mental health care services, the healthcare industry rapidly expanded its offering of telehealth services. Specifically, telehealth services grew to represent up to 40% of outpatient care at the peak of the COVID-19 pandemic (up from less than 1% of outpatient care in 2019). This increase in service offerings and patient care in the telehealth space was made possible by relaxed regulations related to the provision of telehealth services. In the following sections, we discuss how healthcare organizations can implement or continue to expand telehealth services to meet demand for mental health care services in the communities they serve.
As discussed, the gap between the supply of mental health providers and the demand for mental health services is notably widening. As of June 30, 2022, Health Resources and Services Administration (HRSA) has designated 6,300 mental health provider shortage areas.
These designated shortage areas collectively contain over 152 million Americans, approximately 46% of the total population. As health systems and hospitals attempt to navigate these challenges, telemedicine has emerged as a potential avenue for bridging the gap between the supply and demand for behavioral health services.
The American Telemedicine Association (“ATA”) describes telemedicine as the “natural evolution of healthcare in the digital world.” Precisely, telemedicine promotes and improves the quality, access and affordability of healthcare through the use of rapidly evolving technologies. Specifically, telemedicine refers to the use of medical information exchanged between parties via electronic communications to improve a patient’s clinical health status. Electronic communication including videoconferencing, streaming media, transmission of still images, remote patient monitoring devices and many other telecommunication methods allow(s) physicians to closely monitor and/or provide clinical services that would otherwise be unavailable for the patient. Oftentimes, the electronic information is combined with electronic medical records (“EMR”) to formulate a more accurate consultation or specialist opinion. Telehealth allows practitioners and patients to interact without the requirement to be face-to-face in a hospital or clinic setting.
At the same time, remote, or tele-, work was implemented across many industries to combat the challenges of the COVID-19 PHE shutdowns. As a greater percentage of the workforce had the option to participate in a remote work setting, 9 in 10 remote workers want to maintain remote work to some degree going forward. One of the top reasons employees desire a hybrid or fully remote work arrangement is that it increases personal wellbeing. Given the well-documented physician burnout rates exacerbating provider shortages, it would be prudent for health systems, hospitals, and practitioners to consider using alternative coverage models, including employing the use of telemedicine. By leveraging virtual care offerings, practitioners can experience the same advantages that have led the majority of Americans to respond with resounding positivity to remote work, potentially alleviating some of the stressors that contribute to provider burnout.
Telemedicine offerings can also be used to redistribute the supply of practitioners. The hub and spoke model was one of the first practical telehealth models and is a common way to structure virtual care offerings while leveraging the existing practitioner base and extend care to facilities or communities in need. In this model, the hub facility is typically a larger facility that has the resources to provide specialized care that many smaller and/or rural facilities lack. By scaling the existing resources of the hub, the spoke sites are able to close gaps in care without incurring the costs associated with a full-time provider or locum tenens staffing. Behavioral health providers focused on increased access to care and better quality of care outcomes for their patients will find success in a virtual care-driven future.
Telemedicine is a tool for healthcare entities that, if embraced and properly utilized, can help bridge the behavioral health care gap. To effectively leverage virtual care services, it is important to understand the compliance and regulatory implications of these offerings and to establish equitable compensation models for providers that consider any limitations remote workplaces on of their scope of practice.
As of July 15, 2022, the COVID-19 PHE was extended through October 2022 by the Department of Health and Human Services (HHS) and, along with it, continued flexibility around regulatory compliance regarding telehealth and reporting deadlines. VMG’s Coding, Compliance, and Operational Excellence (CCOE) division has compiled current documentation and coding requirements for telehealth services, which are listed below. This list is not intended to be exhaustive, but rather an overview of important considerations related to a compliant telehealth service line.
In addition, the following guidelines should be considered when submitting claims to Medicare for virtual mental health services:
Additionally, in its CY 2023 Proposed Rule, CMS has proposed to make hospital outpatient behavioral telehealth services reimbursement permanent, which could increase access to behavioral health services in rural and other underserved communities. It is important to note that after the PHE ends, additional behavioral health and telemedicine requirements will need to be met including:
As virtual services become more common through further regulatory shifts, healthcare organizations can expect increased scrutiny towards telehealth services arrangement by governmental enforcement bodies. The Office of Inspector General (OIG) and Department of Health and Human Services (HHS) released a Special Fraud Alert (Alert) on July 20, 2022, related to the inherent fraud and abuse risk associated with physicians or other health care professionals entering into arrangements with telemedicine companies, which specifically addresses fraud schemes related to telehealth, telemedicine, or telemarketing services based on dozens of civil and criminal investigations. The Alert identified seven characteristics that the OIG believes could suggest a given arrangement has potential risk for fraud and abuse. To learn more, reference this article and OIG’s statement.
By using telehealth, behavioral health providers can better fill the gap between growing demand and limited supply, providing quality and efficient services to those in need, particularly to underserved and isolated communities. Compliant telehealth arrangements can promote more efficient financial operations for health systems, provide increased access to care for patients, and improve the well-being of behavioral health providers.
11. https://bhbusiness.com/2022/07/15/cms-proposes-to-make-hospital-outpatient-tele-behavioral-health-services-reimbursement-permanent/?mkt_tok=NjI3LUNQSy0xNjIAAAGFsMvYuo_UB6dQZxBh_IkZF4hvXACFV0GIjZxfM2vrUB 5h-VkrhwcEgWlpyflCT-dNK26J0lXJUVSjQhZQaVKdJQFPw4S7QA5L-e9bxR0
The private equity (PE) space is breaking records as the world continues to emerge from the COVID-19
pandemic. PE fundraising surged almost 20 percent in 2021 as firms looked to jump back in after the
uncertain financial climate created by the pandemic. When looking to deploy this capital, PE firms have
continued to take an interest in the healthcare industry. (1) Recently within this industry, PE firms made
investments in the $4.47 billion medical physics industry that has maintained a 5.9 percent CAGR from
2013 through 2021. There are numerous reasons why PE firms have increasingly targeted the medical
physics industry, such as the current industry composition along with the growth in the need and use of
the specialty. (2) These characteristics set medical physics apart as a particularly interesting area for future
Medical physics is a healthcare specialization focused on the application of physics to the treatment and
diagnosis of disease. Most often, medical physics is seen in the form of nuclear medicine, diagnostic
imaging, and radiation oncology. The medical physics industry is made up of numerous small-scale
providers that operate in localized geographical areas. Only a handful of substantially sized enterprises
operate in the medical physics space, resulting in a highly fragmented industry ripe for acquisitions and
roll-ups into large-scale platforms. The fragmentation of the industry provides ample opportunities for PE
to enter and expand its foothold in the medical physics industry. (3)
In addition to the extreme fragmentation, the demand for medical physics is expected to grow
significantly over the next six years. Experts predict the medical physics market will grow at a healthy 6.2
percent CAGR through 2028, exceeding a $6 billion market valuation. This growth is driven by the
increasing adoption and widening horizons of nuclear medicine across the healthcare landscape. (2)
Additional growth is expected as hospital consolidation continues to increase the use of outsourced
medical services. Even medical tourism is expected to contribute to industry growth as revenue comes in
from those traveling to seek specialized medical care from countries like China, Brazil, or India. (4) This
multisource growth is an appealing attribute for PE capital looking for favorable returns.
Lastly, significant barriers to entry exist for new medical physics operations, including high capital
requirements for expensive machinery, increasing regulation required for the specialty, and most
notably, the shortage of skilled providers in the medical physics space. In 2014 a mandatory residency
was implemented to better prepare new medical physicists for the complex field. While the new program
has produced well-prepared providers, it has also created a bottleneck that has put a strain on the
industry’s ability to create new operations. (5) This shortage places established operators with experience
at a significant advantage, setting them up as a prime target for PE investment.
PE firms can be beneficial collaborators and partners to medical physics practices. As PE interest in the
healthcare industry continues to increase, modern PE firms have gained the expertise to be effective
partners to healthcare practices. One of the most effective ways PE firms can enhance a medical physics
practice is through economies of scale. PE firms allow businesses to take advantage of efficiencies
created through economies of scale. By improving and centralizing back-office business operations and
providing greater access to technology, medical data, reporting and tracking systems, consolidated purchasing power, and marketing, private equity partners can create a more efficient business
structure and free up providers to focus on patient care.
Similarly, continued hospital consolidation may require other providers within their spheres of
influence to meet the greater demands and specialization needed in the industry. Some of
these demands include the growing regulation required of medical physics practices. (6)
Increasing regulatory demands may put monetary and staffing pressure on smaller
operations. The resources offered by PE investment could help alleviate some of these
pressures. (7) Furthermore, these resources could potentially improve the negotiating power
of businesses, resulting in better commercial payor rates and increased earnings.
Finally, PE investors could provide exit opportunities for retirement-age providers. PE
investment offers an exit strategy that enables these providers to monetize the business they
have built while also allowing the business to remain as an employer and provider of needed
care in its respective community. Based on an examination of the industry, as well as
discussions with industry professionals, sellers of a medical physics practice may be able to
expect a middle single-digit multiple on a given transaction. (4) For platform transactions, high
single-digit or low double-digit multiples may be warranted in the market.
As PE groups increase their interest in the medical physics industry, there have already been
several notable deals. Below is a summary of a few recent acquisitions, partnerships, and
Blue Sea Capital, a PE firm based in Florida with over $750 million in assets, partnered with
mid-Atlantic firm Krueger-Gilbert Health Physics, LLC in April 2019 to form the platform
company Apex Physics Partners. Soon after, Apex entered partnerships with Ohio Medical
Physics Consulting, National Physics Consultants, Radiological Physics, and ZapIT! QA to
enter the Ohio, Texas, and New Mexico markets. (8) In 2021 Apex added several new
partnerships including Texas-based D. Harris Consulting, Indiana-based Advance Medical
Physics, Indiana-based INphysics, and Pacific Island-based Gamma Corporation to its
partnerships as the firm continued its expansion into new markets. (10, 11, 12, 13, 14)
L2 Capital, a PE firm based in Pennsylvania with over $100 million under management,
acquired Associates in Medical Physics, LLC and Radiation Management Associates, LLC in
May of 2017. L2 combined the medical physics service companies to create the platform
company Aspekt Solutions in April of 2021. In May of 2021, Aspekt Solutions acquired Nordic
Medical Physics to expand its geographical reach. (15, 16, 17)
LNC Partners, a PE firm with $500 million under management, completed a recapitalization
of West Physics Consulting, LLC in May 2018. West Physics has since acquired Phoenix
Technology Corporation and Radiological Physics Consultants, Inc. to become the largest
diagnostic medical physics practice in the US. (18) West Physics operates in all 50 US states,
its federal territories, the Caribbean, and the Middle East. (19, 20)
Fortive Corporation is a publicly traded, diversified industrial technology conglomerate
company. Landauer provides outsourced medical physics services worldwide. Previously
involved with Gilead Capital and T. Rowe Price Associates, Landauer was acquired by Fortive
Corporation in October 2017. (21)
The medical physics industry is increasingly becoming a hot target of PE investment. Although a
few major players are emerging and consolidation is increasing, there are plenty of
opportunities for PE partnerships to gain size and industry leverage due to the sheer number of
small operators in the medical physics space. The benefits and resources brought by PE firms
may be increasingly enticing to medical physics operators as the healthcare industry evolves. (6)
The spread of usage, science, treatment, and understanding of the industry will continue to
increase the demand for the care that these medical physics specialists provide.
9. “Apex Physics Partners Enters Ohio, Texas and New Mexico Markets through Partnerships with Ohio Medical Physics Consulting, National Physics Consultants, Radiological Physics and ZapIT! QA.” Blue Sea Capital. August 23, 2019.
13. “Indiana’s Leading Therapy Medical Physics Group, INphysics, joins Apex Physician Partners.” Apex Physics. September 15, 2021. Press Release.