To get a feel for the changing landscape in the behavioral health market, consider the fact that there have been at least 100 merger and acquisition deals among providers annually for the past three years in a row—a record amount of activity, according to data from the Braff Group. The deals are evidence of an undeniable consolidation trend.
Unfortunately, the trend might leave small, not-for-profit operators wondering how they can possibly compete with the growing field of large providers. After all, larger organizations are more likely to attract new patients, earn better payment rates from insurers and leverage economies of scale. It might seem impossible to survive without such strategic advantages.
“There are so many corporate mergers of for-profit behavioral health organizations happening, and they have developed the services for a continuum of care within their organizations,” says Mary Woods, CEO of WestBridge, which offers dual diagnosis treatment in Florida and New Hampshire. “They might have 500 beds and have different levels of care.”
Woods says when a single, large company owns a variety of programs that combine for a full continuum of care, patients benefit from the continuity of services—a good thing. But many not-for-profits are limited in scope and struggle to achieve such comprehensive service lines. Executives might be tempted to engage in merger talks, but that’s not always a viable option.
“If one could have a confidential conversation with the CEOs, they’d all report that capitalization is a challenge for them to compete in the marketplace today,” says Doug Tieman, president and CEO of Caron Treatment Centers.
Tieman says the $5 million or $10 million organizations might be thinking about merging to gain scale, but the risks are many. He’s seen his share of mergers that have gone wrong for a variety of reasons, including conflicts in missions, board politics and fears about losing an organization’s legacy.
“We don’t know how to collaborate,” he says. “Whether it’s an affiliation or a partnership or a joint venture or a complete acquisition, we don’t know how to go about it very well. There is no playbook, and the smaller organizations have fewer resources to purchase the expertise needed to do that.”
New business model
Emerging clinical needs in the healthcare system at large are pointing to an increase in integrated care, and the business model must reflect that.
“The typical [addiction treatment] patient today might have a relationship with an interventionist, possibly an outpatient provider, someone else for primary care, and someone else for extended care and sober living,” Tieman says. “They end up with six or seven different vendors, and to make that seamless for someone with one payer and with one EHR, that would be a value-add. It’s one thing we’re seeing more of from private equity, where they’re buying the entire continuum.”
However, there is an opportunity for small, not-for-profits to craft an innovative, competitive model, the experts say. If behavioral health organizations could structure affiliation agreements—where each entity remains separate—the combined network of providers could become greater than the sum of its parts. Achieving a full continuum of care would be especially advantageous for the future.
What the experts suggest is not operational mergers but rather creating a family of affiliated organizations that are linked together by some type of partnership to form a full suite of care services. For example, Woods says WestBridge offers mental health and addiction services but does not offer detox. Partnering with one or several detox providers would help WestBridge treat more patients.
The model is premature in behavioral health, she says, so what it might look like or how it would be practically implemented is difficult to define. In fact, she views the lack of experience as the biggest stumbling block to creating affiliations.
“We are used to differentiating ourselves from other organizations because we want our share of the clinical marketplace,” Woods says. “If you affiliate, you have to think about how you fit in instead of how you differentiate yourself.”
In the larger healthcare landscape, hospitals and medical practices have been creating affiliations for years—and not just for referrals. Providers have had to break out of their specialized silos to deliver comprehensive care in order to keep up with managed care and newer quality-based payment models.
Today, the fastest growing partnership model is the accountable care organization (ACO).
While ACOs were mainly designed by the federal government as a payment model to incentivize providers to coordinate care for seniors in Medicare, commercial payers also have their own versions of ACOs. To meet the requirements for enhanced payment, providers had to create affiliations to broaden their clinical competencies. Think of an ACO as a neighborhood of complementary, multidisciplinary providers who can share a pool of bonus cash offered by payers.
At the same time, health systems are increasingly recognizing that mental health and addiction treatment are part of comprehensive care delivery.
“Hospitals are looking not just for someone who can manage substance use disorder services, they want someone that can take care of the entire panacea of behavioral health issues, which the medical/surgical hospitals will readily tell you totally mess up their system,” Tieman says. “They don’t have the expertise for behavioral health comorbid conditions, and it costs the system enormously. Can a local $5 million nonprofit address that? Probably not.”
MultiCare Health System in Washington state this month created an affiliation with the fairly large behavioral health provider Navos after a year of discussion. The two not-for-profits did not merge and no money changed hands. Instead, Navos—which reported $58 million in revenue in 2015—will be integrated with MultiCare later this year after regulatory approvals and will retain its brand in the community.
It's an example of how affiliations can work among not-for-profits.
Plan for the future
Tieman says for smaller organizations, an affiliate group with a broad base of developed clinical expertise would be more likely to fill a role as partners in their larger healthcare markets. In other words, a $5 million organization might not have the right competency itself, but an affiliate group of several $5 million organizations would have much more to offer.
“In behavioral health, there are plenty of business relationships where they do some collective marketing or reciprocal referrals, for example, but the kind of affiliation like hospitals have are focused on getting help with areas of expertise,” he says.
In any case, every affiliation arrangement must be a win-win. Tieman says it’s time for not-for-profits to start sketching out such agreements and testing models to figure out some best practices in affiliation relationships.
“Realize this is a reality and being more broad-based and larger is something that we have to do,” he says. “That’s the advice I keep giving to myself actually.”