Now Trending in Behavioral Health: Integration Strategy, Regulatory Compliance, & Transactions
August 10, 2021
At the American Health Law Association’s 2021 Annual Meeting, held in June, VMG Health Managing Director Clinton Flume, presented trends within the behavioral health industry, along with co-presenter Jenna Gunville of the law firm Polsinelli. The excerpt highlights Mr. Flume’s observations of the continued consolidation within the behavioral health industry.
Can you talk about the fluctuations in market transactions over the last few years?
Behavioral health has been a very active market over the last three to four years. 2018 was the high-water mark, with over 75 transactions. 2019 fell off a bit as owners and operators integrated these transactions within their platforms. Obviously, COVID-19 hit 2020, but the year started off well. As year-end numbers became available at the beginning of 2021, the industry anticipated total transaction numbers to be a bit soft but was pleasantly surprised that the deal count came in roughly the same as 2019. This boded very well for continued transaction acceleration in 2021, which is on pace to surpass 2019.
2014–2020 Total Behavioral Health Acquisitions [1]
What factors are key contributors to the increase in behavioral health transactions?
The Global Behavioral Health Market is expected to garner growth at a compounded annual growth rate of 5.0% from 2020 to 2027 and to reach a value of around $242 billion by 2027[2]. The two main factors that I believe will continue to help spur activity are public perception and acceptance and continued investment by private equity. Perception and acceptance involve the acknowledgement and social understanding that mental health services are just as important as the physical treatments we receive as a collective. High profile government official and celebrities certainly aid in bringing awareness to and lessening the social stigma around mental health struggles.
In addition, I believe that payor parity and investment in platform digital health services are key contributors to the increase in transactions. Payor parity focuses on the historical noncompliance of insurers in reimbursing providers for mental health services and creating equal footing for reimbursement and access to services. Increased legislative scrutiny and enforcement of health plans and reimbursement expansion though the Coronavirus Preparedness and Response Supplemental Appropriations Act are two ways payor parity has recently been addressed.
Can you comment on the sub-industry transactions mix and tell us how this mix may impact future consolidation of behavioral health?
Autism spectrum disorder transactions have exhibited the greatest share of transaction growth since 2018. This is largely driven by acknowledgement of an underserved industry, legislation that includes the Autism CARES Act of 2019, and improvements in reimbursement. Residential treatment centers (both substance abuse and mental health), along with office-based treatment facilities, continue to occupy the bulk of transactions. One area we have been seeing real growth in over the last two years is digital health transactions. These deals include digital technology administration of services such as direct-to-consumer care, revenue cycle performance improvement and automation, and artificial intelligence applications for managing and treating substance abuse and mental health disorders. In June, Rock Health[3] stated that U.S. behavioral health digital startup companies raised $588 million in the first half 0f 2021, which is equal to the annual amount this segment received in funding for any prior year. As we look at 2021 and beyond, we expect that digital health platforms and direct-to-consumer technology will accelerate the growth and acceptance of mental health services.
2020 Percentage of Acquisitions Involving One or Multiple Service Lines [4]
Sources:
[1] The merger and acquisition data contained in various charts and tables in this report has been included only with permission of the publisher of Deal Search Online, HealthCareMandA.com. All rights reserved.
[4] The merger and acquisition data contained in various charts and tables in this report has been included only with permission of the publisher of Deal Search Online, HealthCareMandA.com. All rights reserved.
