The management sage, Peter Drucker, once wrote:
“Trying to predict the future is like trying to drive down a
country road at night with no lights while looking out the
back window.”
Attempting to predict the future of the behavioral health market can echo Drucker’s metaphor. Changes in financing approaches, including behavioral health parity and health care reform, have increased the use of managed care approaches in both the public and private markets. Greatly increased investments in this segment, especially by private equity, have served to shine a light on areas of opportunity.
Sellers and buyers should consider the continuing and rapid evolution in this market heading into 2016:
- Payers, especially MCOs, are increasing their market presence. They continue to favor behavioral healthcare organizations that offer a full continuum of services either alone, or through affiliations they have developed. These payers believe this approach reduces service fragmentation, improves customer service and is cost effective.
- For a variety of reasons, many facility-based approaches, especially in addictions treatment, will inevitably move toward models such as intensive outpatient (IOP) treatment for multiple reasons, including best practices evidence and cost effectiveness. Within this philosophy, medically assisted treatment (MAT) for substance abuse will be considered an integral part of treatment and will be attractive to investors.
- Behavioral health professionals will be required to develop an enhanced understanding of medical issues. For example, there is scientific evidence of a relationship between inflammation and psychiatric symptoms, such as depression. Behavioral healthcare professionals will need to understand that interventions including dietary modification, probiotics and anti-inflammatory agents could be keys to successful outcomes.
- Pay-for-performance and prospective payment concepts will be further permeate the behavioral healthcare arena. While these mechanisms have been well established in the treatment of physical illness, they will become increasingly adopted in the treatment of mental and substance abuse disorders. Expect to also see payers seeking “warranties” from providers of more intensive levels of care.
- Anticipate further integration of behavioral healthcare into physical medicine settings. State Medicaid plans are advancing the “carving in” of behavioral healthcare and MCOs are looking for behavioral healthcare leaders to accelerate this process. Given the abundant evidence that people with mental illness often receive disparate medical care, this will be seen as a critical area for client life quality and treatment outcomes.
- There will be increasing pressure on behavioral healthcare providers to further reduce hospitalizations, re-hospitalizations and out-of-state residential placements, especially for children and adolescents. This will go hand-in-hand with the emphasis on IOP models, as well as intensive community-based housing and residential models of service.
- We will see a “perfect storm” continue to brew – downward pressure on some reimbursements with increasing clinical and regulatory requirements for everyone from paraprofessional staff to executive management. Given the major pay inequities that exist in this marketplace, the potential results of this inevitable breakdown are reasons for concern.
- The increased push to mainstream individuals released from correctional settings will pose a challenge and an opportunity, given the complex treatment needs, the frequent complicating factors of substance abuse and the needs for adequate housing.
- We are beginning to see a higher value placed on the robust development of social support models that include longer-term housing, especially in the continua of substance abuse treatment models. As more evidence is produced to confirm the positive impact on outcomes using these models, this approach will likely receive more financial support coming from diverse sources.
- As is the case of many for-profit providers of behavioral healthcare, we anticipate a growing number of nonprofit organizations will pursue consolidation, including mergers across state boundaries. These actions will not only increase cost effectiveness, but also provide some verticality in service development and access to new markets.
The themes? As in physical medicine, behavioral healthcare organizations are increasingly being required to demonstrate outcomes and must acquire the technology needed to deliver the data. The BDO “Special Report” published in a recent edition of PitchBook talks about the move to outpatient and clinic-based services. We believe it is very likely that reimbursement pressure will continue to drive payers to prefer community settings over inpatient or residential treatment. This shift will open up new entrepreneurial opportunities, most of which are barely on the horizon at this point.
As we noted initially, we too often are caught looking out the back window to get a sense of our industry’s future. But, as Peter Drucker also said:
“The best way to predict the future is to create it.”
Wise words for behavioral healthcare leaders and investors in 2016 and beyond.