The next in our series of posts sharing key takeaways from panels at the Healthcare & Life Sciences Private Equity and Lending Conference is authored by our colleague Leah Eubanks and Arvind Rao of RSM US.

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Creating Scale in Inpatient Behavioral Health: 5 Key Takeaways

By Leah Eubanks and Arvind Rao

Maintaining consistent quality of services and messaging across different markets is important when creating scale in the behavioral health sector according to experts who spoke on a panel at the Annual Healthcare and Life Sciences Private Equity and Finance Conference in Chicago earlier this year.

Experts included David Fitzgerald, Partner at Petra Capital Partners, Dr. Jillian Lampert, Ph.D., M.P.H, R.D., L.D., F.A.E.D., Chief Strategy Officer at The Emily Program, and Joe Procopio, CEO at Newport Academy. Ryan Engle, a partner at IT Capital Partners, moderated the panel.

Here are five key points from the panel discussion.

1. Understand Local Needs. Expanding into a new market requires behavioral health companies to analyze the local regulatory environment, perform a community needs assessment, understand the payor environment and have a line of sight into the competition to determine the best programs to offer in that market. In addition to the current state, planning for the next 3-5 years is important to determine what the next iteration of the offered programs might be.

2. Consistency. Overall consistency as well as customization for the local market is important when entering a new market. Consistency is important in both the quality of services offered and messaging to both referral sources and payors, but a certain level of tailoring and customization is necessary to meet the needs and comply with the regulatory requirements of the local market. One panelist illustrated this with a comparison to Target: If you walk into Target stores across the country, the bulk of the store and layout is about the same, but what is offered on the end caps looks different depending on the local market. It was also emphasized that there is a need for some local clinicians to be retained from the areas being served, in order to maintain trust within the community.

3. Legislative Advocacy. Legislative advocacy has led to law and policy changes in Washington D.C., which has created a tailwind in behavioral health; unfortunately, that tailwind is not moving as quickly as providers hoped and, and in some cases, has created new challenges. For example, the Mental Health Parity and Addiction Equity Act (MHPAEA) helped people understand that behavioral health is as important and should be treated equally or at least on parity with physical conditions; however, when the MHPAEA was first passed, it contained no penalties related to payors failing to provide services similar to medical care and it also left some confusion as to what should and should not be covered. For example, the MHPAEA was interpreted to exclude eating disorders from coverage, and it took persistent advocacy to get the 21st Century Cures Act to be passed in order to make it clear that eating disorders should not be excluded. Because of such legislation, a shift in policy by some healthcare service businesses has led to an increase in volume coming in through managed Medicaid but at lower than expected payor rates. This type of policy shift created a challenge for facilities to think about how to manage the costs and expenses of a hospital and to operate at a large enough scale to be able to treat patients regardless of their insurance coverage.

4. Market Entry Considerations. There are two main ways to enter a new market—by building from the ground up, or through an acquisition of an existing practice or facility. Each has its pros and cons. Building from the ground up is more cost efficient and allows you to control the quality of the facility and programs; however, organic growth involves a much longer lead time as far as permitting, licensing and construction is concerned, and also a longer lead time to build the trust of the community. On the other hand, acquiring an existing facility that is already operating at scale may come with a large price tag and involve retraining of staff and reconfiguration of programs, but you can hit the ground running with providers that already have the trust of the community.

5. Continuum of Service. It is important not only to the patient, but to the business, to be able to provide a continuum of services that spans the entire recovery process. Remaining connected to patients, whether through social networking or volunteering, helps maintain brand loyalty, which can lead to those patients becoming great brand ambassadors. Payors are also looking for providers that can provide a continuum of services because offering a continuum of services may mean that you treat a certain patient for years and provide holistic care, rather than just over a few weeks for a certain challenge that they are facing.