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Is Your Behavioral Health Approach Future-Proof? 4 Things to Consider
posted on March 21, 2019

Private equity investment continues to fuel merger and acquisition (“M&A”) activity in behavioral health, with a 10 percent increase in behavioral health transactions from 2017 to 2018, H2C data shows. But while the demand for behavioral health services makes these investments attractive, the difficulties of care delivery often are greater than anticipated.

Behavioral health—comprising both mental health services and substance abuse services—is a market that is poised for growth due to increased awareness of mental health illnesses, growing demand for care (including treatment for opioid use disorder), and greater acceptance of the need for mental health and substance abuse treatment. However, the challenges in providing these services are steep:


  • The behavioral health landscape is very fragmented, with a range of treatment settings, a variety of business models, and numerous small players. Additionally, mental health and substance abuse services are often provided in different settings—and not always by the same provider. Across the country, many behavioral health providers are struggling to strengthen their connections with hospitals, health systems, and physician practices.

  • Behavioral health providers face significant reimbursement challenges. Across payers, reimbursement rates for mental health services are lower than rates for physical health services, a 2019 report found. There are also disparities in coverage for physical health versus mental health conditions, coverage gaps in public and private insurance, and noncompliance with mental health parity laws.

  • The need for increased investment to meet demand for behavioral health services, particularly among not-for-profit behavioral health providers, is stronger than ever, prompting not-for-profit service providers to seek partnerships with for-profit providers or private equity firms.

  • A shortage of skilled behavioral health professionals exists, with a shortage of 250,000 workers projected by 2025.


With interest in behavioral health acquisitions gaining momentum, what does it take for a provider to maintain control of its asset or position itself favorably for partnership? Our experience with clients points to four things to consider.

Consideration No. 1: Could the organization succeed under value-based payment models?


As public and commercial health plans transition to value-based payment models for behavioral health services, behavioral health providers must be prepared to adapt—especially when Medicaid is the single largest payer of mental health services. To succeed under these models, providers must demonstrate that they are adhering to standardized, evidence-based practices of care. They also must be skilled in collecting and analyzing data around patient outcomes and quality of care as well as the patient experience. These processes are still new to behavioral health providers—and some providers have been slow to adapt.

Consideration No. 2: Are labor shortages impacting the organization’s ability to provide care?


With a shortage of mental health professionals across the nation, it’s important to consider the extent to which a lack of trained resources has strained the organization’s ability to meet the needs of its patients—and the action steps needed to address gaps in care. For example, could a partnership with another provider help bring critical resources to the area? Is it time to consider alternative modes of care delivery to meet the needs of specific populations? Several of H2C’s clients are exploring the use of telemedicine to support access to behavioral healthcare services where other methods of care are less effective and efficient. Others are considering digital treatment options to help patients receive the care they need where and when they need it.


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Wayne P. Weitz

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Consideration No. 3: How adept is the organization at managing increased regulatory risk?


There is a maze of state and federal regulations behavioral health services providers must follow to ensure safe care—or risk losing reimbursement. However, these organizations typically struggle to manage their response to increased regulatory risk.

With government scrutiny intensifying, it’s important to consider whether a behavioral health services provider has the resources to keep up with new regulations—and how the organization can shore up efforts to demonstrate compliance. For example, there are regulations that limit the disclosure and use of information suffering from alcohol and drug abuse—and these regulations have created challenges related to information exchange and integration of care. Such regulations must remain top of mind as behavioral health providers participate in value-based payment models, where data is used to assess the quality and cost of care provided and more. 

Consideration No. 4: Do the provider’s patient engagement efforts support high-quality care?


When providers don’t have a strong handle on engagement, quality and outcomes suffer: 13 percent of patients who are admitted to the hospital with mental health reasons are readmitted within 30 days. Such incidences threaten the status of behavioral health services organizations as high-value providers. 

Across the nation, we’re seeing increased efforts to more effectively integrate behavioral health with primary care. Leading providers also are experimenting with digital apps and tools that help patients track and manage their symptoms, monitor their sleep, and connect patients digitally to behavioral health providers when they most need help.


In today's economy, more healthcare organizations are becoming forced to deal with changing financial circumstances. Some organizations are looking to affiliate with or acquire competitors to stay strong; others are in need of restructuring or are potentially facing insolvency. H2C works with organizations facing financial or other liquidity challenges and those looking to strengthen their position by joining forces with others. For more information, contact us.


Hammond Hanlon Camp LLC (“H2C”) is an independent strategic advisory and investment banking firm committed to providing superior advice as a trusted advisor to healthcare organizations and related companies throughout the United States. H2C’s professionals have a long track record of success in healthcare mergers and acquisitions, capital markets, real estate, and restructuring transactions, acting as lead advisors on hundreds of transactions representing billions of dollars in value. Hammond Hanlon Camp LLC offers securities through its wholly-owned subsidiary H2C Securities Inc., member FINRA/SIPC.  For more information, visit


Kelly T. Duong
Hammond Hanlon Camp LLC

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