Aurora, Newtown, Isla Vista. These tragedies have thrust mental health into the national spotlight. According to the Kim Foundation, 26.2% of Americans age 18 and older, an estimated 57.7 million people, suffer from a diagnosable mental disorder. A CASAColumbia (National Center on Addiction and Substance Abuse at Columbia University) report estimates another 40 million Americans age 12 and older, or roughly one in seven people, have an addiction disorder.
Yet, about 60% of those with mental illness received no treatment in the previous year and only 4.1 million of addicts receive treatment every year. Besides the stigma associated with mental illness and substance abuse, other challenges remain. These include dwindling numbers of psychiatrists, access to treatment, lack of health insurance, regulatory and technology hurdles, and cuts in federal funding.
Yet, it seems investors see a different picture – a fragmented industry with small regional operators – with huge potential. There’s been a lot of investment activity over the past few years in behavioral health. Trinity Hunt Partners, a Tennessee-based investment company, has acquired three behavioral health companies since 2008. Hunter Peterson, a partner in the company, told Modern Healthcare it’s a “massive market worth tens of billions.” Mr. Peterson credits high margins and quick growth that make behavioral health more appealing to private equity firms than strategic buyers, such as other health systems.
American Addiction Centers (AAC Holdings) made news last year as the first publicly traded company focused on addiction treatment. It raised $75 million via an IPO last October and is currently valued at $588 million. Its stock has almost doubled since the IPO, from $15 to $28. The company plans to expand to 12 facilities with 1,166 beds by 2016. Michael Cartwright, CEO and chairman, said in the company’s 2014 annual report, he wants to create a standard of care. “There are some well-known facilities across the country, but we believe nothing that one would call a national brand."
Treatment centers have to expand their services in order to qualify for insurance coverage, and this, say experts, is driving consolidation. The merger between the Betty Ford Center and the Hazelden Foundation made headlines last year, as it created the nation’s largest nonprofit addiction treatment provider – The Hazelden Betty Ford Foundation. In a joint statement, the two organizations said the merger, “will help us achieve scale so we’re able to invest in state-of-the-art facilities and research and development.” Last March, the Foundation said it planned to establish a new EHR system via collaboration with Cerner. A recovery management program, called My Ongoing Recovery Experience (MORE), will be delivered via a patient portal, coupled with recovery coach engagement to encourage participants to continue engaging in their recovery as they re-enter the community, according to a company press release. With 16 treatment locations, an education division, research studies, a publishing division and an online bookstore with 14 mobile apps to support recovery in additiom to a new “Institute for Recovery Advocacy” to shape public policy and eliminate the stigma of addiction, the Foundation remains a major player in the industry.
Other big players in the field include Acadia Healthcare, which acquired CRC Health Group, with 145 behavioral health facilities, last year for $1.18 billion. This was Acadia’s fifth acquisition in 2014, adding 1,500 beds to its system. Acadia operates 76 facilities with 5,800 licensed beds in 24 states, Puerto Rico and the U.K.
A new player, Lyra Health, co-founded by former Facebook CFO David Ebersman recently raised $35 million to fund its screening tools that identify employees with mental health and substance abuse issues, as recently reported in Healthcare Dive. Dr. Dena Bravata, co-founder and CMO at Lyra, told Healthcare Dive via email the company “recognized that the mental healthdcare system can be overwhelming, confusing and convoluted, so we sought to create a streamlined, simplified way to connect people to the right care at the right time.” Its system will initially be offered to a select group of employers, health plans and health systems early next year. Dr. Bravata added what makes her company’s technology unique is that it “combines the power of a human touch with the accessibility and widespread availability of a technological platform. This is a new, unique model and we believe it can drive significant improvement in patient outcomes.”
ReportLinker, a market research company, estimates the behavioral health software market will reach $1,494.1 million by 2019 from $752.6 million in 2014.
Some recent federal and state laws have opened the door to substance abuse treatment options. The Mental Health Parity and Addiction Equity Act, passed in 2008, requires group health plans and health insurance insurers to pay for mental health and substance abuse treatments. Also, the ACA increased the age children can stay on their parents’ insurance to 25 years, a big boon to the substance-abuse industry as 2.2 million adolescents (12 to 17 years) were illicit drug users in 2013 and close to 80% of college students have abused alcohol, with 110,000 arrested every year for an alcohol-related violation, according to the Addiction Center.
Although these laws are contributing to growth of the behavioral health industry, many argue funding for those with serious mental illness is way behind. In fact, Rep. Tim Murphy (R-Penn.) recently wrote the “Helping Families in Mental Health Crisis Act” to address the shortage of psychiatric hospital beds, to help patients get early treatment, and empower them and their caregivers under HIPAA privacy laws. In a Wall Street Journal Op-Ed (Oct. 8), Rep. Murphy wrote inpatient psychiatric beds have dwindled from 558,000 in 1955 to less than 45,000 today. And a Medicaid reimbursement rule (“institutions for mental diseases exclusion”) prohibits federal matching payments for inpatient care at psychiatric hospitals with more than 16 beds. His bill will establish a clinical standard for those with serious mental health issues and eliminate the 16-bed cap and make adjustments to HIPAA to allow physicians to share medical diagnoses, prescriptions and time and place of appointments with caregivers.
Not enough psychiatrists
Not only is there a shortage of inpatient beds, but a shortage of psychiatrists. A 2013 report by the National Association of State Mental Health Program Directors (NASMHPD) estimated 6.8 million uninsured individuals with mental health issues would gain coverage after federal and state health insurance exchanges implement Medicaid expansion. Dr. Robert W. Glover, NASMHPD executive director said the Medicaid expansion “will be a major opportunity to restore monies that have been cut to state public behavioral healthcare systems over the past 10 years. Between 2009 and 2012, state mental health agencies have incurred $5 billion in funding cuts to vital programs serving the needs of people with serious mental illness.” But, Dr. Jeffrey Lieberman, president of the American Psychiatry Association, told the Wall Street Journal, the newly insured will “overwhelm if not inundate” the field.
A recent article in Forbes said the demand for psychiatrists is at an “all-time high” with a federal report, by Merritt Hawkins, a leading physician search firm designating 4,000 counties nationwide as mental health shortage areas (less than one psychiatrist for 30,000 people). Travis Singleton, senior vice president of Merritt Hawkins said in a press release, “Psychiatrists are aging out of practice at a time when demand for their services is spiking. Finding a psychiatrist willing to practice in an inpatient setting is like looking for a needle in a haystack.”
Shortage leading to more use of telehealth
However, this shortage has prompted greater insurance coverage of telehealth services, according to an article in Forbes. Several insurance companies, including Aetna, Anthem, Cigna and UnitedHealthGroup, are increasing access to providers like MDLive and Teladoc that provide remote access to psychiatrists and behavioral health professionals. Teladoc reported its revenue jumped 78% to $18.3 million in a three-month period ending June 30, and executives cited mental health as a key growth area.
Several states have implemented telepsychiatry programs, but South Carolina pioneered its use via a pilot study in 2009. It has shown promising results: 21,900 consultations for patients admitted to EDs have resulted in shorter stays, saving $1,400 per episode, as reported in U.S. News & World Report. It’s rapidly being adopted across the country, with more than 1 million consultations expected to occur this year, Geoffrey Boyce, executive director of InSight Telepsychiatry, told the publication. The company website says Medicare will reimburse for its services when a community is considered “rural.” Reimbursement guidelines for private payers and Medicaid are available at the Robert J. Waters Center for Telehealth and e-Health Law.
No one will dispute that healthcare is undergoing a huge transformation. “Mental health is emerging as one of the most important areas for improvement in the healthcare system, so unsurprisingly, it is attracting more than one group of people with similar goals,” stated Dr. Brevata. It remains to be seen which companies will be the most successful.