Before the COVID-19 pandemic, behavioral health was gaining increased recognition as one of the most important issues in healthcare. As a service area, it was experiencing unprecedented disruption, driven by expanded insurance coverage, increased demand for services, limited provider supply, and a highly fragmented market. Recent studies indicate that the stress and trauma experienced during the pandemic will create a surge in demand that will compound access and provider shortage issues that were present before COVID-19.
This blog post is the first in a series focused on how provider organizations, payers, and private equity investors are preparing to respond to the disruption, overcome the challenges, and lead innovation in the behavioral healthcare space.
Market Disruption
There are several converging market forces driving disruption and innovation in the behavioral health sector. It is important to look at these forces individually to understand their collective impact.
Legislative Change & Medicaid Expansion
Two key pieces of legislation increased coverage for behavioral health services nationwide in recent years:
- The Mental Health Parity and Addiction Equity Act of 2008 equalized coverage for physical and behavioral health services, requiring payers to use equally restrictive requirements when reimbursing for medical and behavioral health claims.
- The Affordable Care Act (ACA) provided expanded coverage for behavioral health services in exchange plans and state Medicaid expansions. Under the ACA, populations that previously did not have coverage, particularly those in Medicaid expansion states, became insured and gained increased access to medications and other types of behavioral health treatments.
Opioid Epidemic, Decreased Stigma, & Increased Demand for Services
Coverage expansion, among other factors, has increased demand for behavioral health services over the past decade. Recent commercial claims data analysis completed prior to COVID-19 indicated a 108% increase in claims related to behavioral health diagnoses and an 86% increase in mental health–specific claims since 2007. Concurrently, the US has experienced an unprecedented opioid epidemic. With exponential increases in opioid usage over the past decade, including a 22-fold increase in opioid-related deaths, demand for treatment facilities and attention to underlying behavioral health conditions has grown. Emergency departments (EDs) experience this rising demand firsthand, where visits for suspected opioid overdoses increased 30% between 2016 and 2017.
COVID-19 is sure to further intensify the need for services. In the United States, 7 in 10 adults are reporting disruption in their lives and more than 4 in 10 adults (45%) feel that coronavirus has had a negative impact on their mental health. Those disproportionately affected are experiencing social isolation, job loss, income insecurity, and poor physical health. Providers should brace for a spike in substance use disorder (SUD), suicide, domestic violence, anxiety, and depression due to sheltering in place and a reduction in social connection during the pandemic.
Provider Shortages
Before COVID-19, the evidence suggested that demand for behavioral health services would continue to outpace supply. The national supply of addiction counselors was projected to increase 6% from 2016 to 2030, while the pre-pandemic demand would increase as much as 21% to 38%. A similar trend was also expected for mental health and school counselors, psychiatrists, and other behavioral health providers, further propagating a nationwide provider deficit.
Healthcare organizations nationwide are experiencing significant patient visit volume reductions as a result of COVID-19. Many of those organizations are having to furlough and lay off their workforce, intensifying the existing provider shortage. The Coronavirus Aid, Relief, and Economic Security (CARES) Act recently allocated $425 million dollars to the Substance Abuse and Mental Health Services Administration for services and programs that address mental health and SUD needs as a result of the pandemic. While the money will directly support the expansion of Certified Community Behavioral Health Clinics, suicide prevention programs, and emergency response programs, it does not entirely solve for the challenges of growing demand and limited provider supply.
Market Fragmentation
The behavioral health market is ripe for consolidation and is attracting significant interest from investors. At present, many behavioral health specialties are highly fragmented across diverse treatment areas, providing investors with an opportunity to execute buy-and-build strategies. Despite the substantial opportunity for consolidation, no national behavioral health entity owns more than 1% of the market, which severely limits the ability to provide services along the full care continuum. In SUD treatment, for example, providers often operate a limited number of residential facilities that lack the scale necessary to create post-discharge care networks to support member recovery, which in turn leads to high readmission rates. If small provider groups and independent practitioners struggle to stay in business after the COVID-19 surge, those vital post-discharge networks will continue to be fragmented and health systems will be challenged to direct patients to behavioral health services.
Market Disrupters
Health Systems Will Bear the Burden
As health systems evaluate their financial positions and attempt to overcome revenue losses from declining patient volumes, they will need to make tough decisions about service line investments. Historically, the behavioral health service line has been a financial loss leader, but with the predicted surge in demand, limited number of post-acute providers, and the fragmented market, health systems should be planning future strategies for managing patients who would otherwise return to EDs for treatment.
Another complicating factor is that COVID-19 has put financial pressure on many state Medicaid plans, and it is possible that states may take action to reduce or limit coverage benefits for some services, including behavioral health. If behavioral health coverage benefits are reduced or eliminated, providers are likely to see a surge in patients seeking behavioral health treatment with no way to pay for services.
With these looming challenges, health systems across the country are beginning to consider the following:
- Implementing new care delivery models that colocate behavioral health providers in the ED, select surgical specialties, and primary care practices as a means to identify and manage patient needs in the outpatient setting
- Capitalizing on COVID-19 technology investments to expand access to behavioral health services delivered via telehealth, which will alleviate pent-up demand coming out of the pandemic and provide an avenue for increasing access to services in the long term
- Exploring nontraditional partnerships with community providers, state-run organizations, payers, competitors, and for-profit entities to meet demand and address gaps in the care continuum
- Evaluating innovative staffing models that incorporate nonphysician providers to relieve operational and financial pressure and navigate patients to the appropriate services
The type of changes and investments referenced above can take time, so many health systems are feeling a sense of urgency to evaluate the financial viability of their behavioral health programs and begin implementing necessary changes to ensure they can meet the needs of their communities.
Payers Refocus on Behavioral Health
In recent years, many insurers carved out behavioral health management to third parties. However, an operating model based on the separation of behavioral health and medical services does not align with the current coordination of physical and mental healthcare.
As a result, payers are bringing behavioral health services back in house and acquiring assets to support behavioral health program development. Anthem has already implemented its integration and behavioral health provider collaboration programs and has doubled down on behavioral health with its acquisition of Beacon Health Options. Other state-specific Blue Cross Blue Shield plans in North Carolina and Tennessee have recently transitioned to an insourced model.
This noticeable shift toward insourcing behavioral health will continue in response to demands for more accountable and coordinated care.As payers assume more risk for the management of behavioral health services, some of the risk will likely shift to providers in the form of value- or risk-based reimbursement models.
Growing Private Equity Interest
Private equity investments in healthcare have steadily increased over the past decade. In North America, 2018 was a record year with 149 deals totaling a disclosed value of $29.6 billion. Most recently, private equity investment dollars have favored the outpatient autism and SUD sectors of behavioral health due to the substantial opportunity for consolidation and valuation multiples at some of the highest levels. In the first quarter of 2020, mental health startups largely focused on digital platforms and programs, raising a record setting $576 million in equity funding, a 60% increase from the previous record. Simultaneously, large for-profit companies, including Acadia Healthcare Company and US HealthVest, are also pursuing investments in hospital psychiatric care, partnering with health systems, and operating stand-alone inpatient facilities. As private equity dollars continue to influence the behavioral health space, it remains to be seen how innovative partnerships between for-profit and not-for-profit entities drive further innovation in behavioral health.
What’s Next?
Converging market forces and the unprecedented COVID-19 pandemic will continue to drive a period of investment, disruption, and innovation in the behavioral health space over the next several years. While it is widely accepted that mental and physical well-being are connected, the evolution of the behavioral healthcare delivery model, along with provider and payer collaboration, will validate whether increasing access to behavioral health and SUD services improves overall health outcomes and reduces total cost of care over time.
The next blog post in this series will provide more insight on how to optimize managed care contracting for behavioral health services, including how to prepare for a transition to a value-based reimbursement environment.
Published June 17, 2020