New research reveals how much private equity is in control of the behavioral health sector.
In short, it’s less than dealmaking trends in the last several years may suggest.
“Cumulatively, private equity-owned mental health practices constituted 6.2% of all mental health facilities (652 of 10,324) and 7.1% of all SUD facilities (1,152 of 16,174) nationally, but private equity penetration was heterogeneous across states,” a new study by Oregon Health & Science University (OHSU), the University of Pennsylvania and Yale University finds.
“The new study is a notable development for an area of medicine once thought to have scant profit margins,” a statement from OHSU reads. Researchers also called private equity ownership “a growing trend across medicine.”
That figure ignores other forms of private, for-profit ownership. It also leaves out analysis of the eating disorder treatment, inpatient psychiatric hospitals and autism therapy segments.
The researchers analyzed data from federal facility surveys and translation data from Pitchbook Inc. and Levin Associates Healthcare M&A from Jan. 1, 2021, to July 31, 2023. It found that there is significant variability in ownership among the states.
Private equity ownership was highest for mental health facilities in Colorado at 26.5%. For addiction treatment facilities, Virginia saw the highest rate at 22.1%. However, nearly all states see ownership make up single-digit percentages of overall ownership.
The research belies the extent to which private, for-profit ownership extends in these segments of behavioral health.
Private for-profit entities operate 42.5% of SUD facilities, 19% of mental health facilities and 23% of combo SUD-MH facilities, according to one of the federal databases cited in the study. Also, private equity plays a significant role in dealmaking. About 60% of all deals in behavioral health since 2018 involved private equity, according to an analysis by The Braff Group.
Private equity investors have previously told BHB that they see significant opportunity for returns in increasing the service shortage to better serve an increasingly high demand and in consolidating fragmented, underperforming and underdeveloped organizations and segments.
Behavioral health is frequently not a priority within the American hospital apparatus, leading to access shortages. Many systems are going out of their way to shutter services that are not well-supported by either private or government payers. Private equity investment often provides the needed boost to grow and optimize private behavioral health organizations and increase access to services.
“At this point, there is no stone left unturned by private equity investors,” said lead author Dr. Jane Zhu, associate professor of medicine in the OHSU School of Medicine, said in a news release. “Given those high rates of penetration, it points to behavioral health as an area that needs attention from policymakers.”
The study did not analyze the impact of private equity ownership on costs.
