Behavioral Health Joint Ventures Will Continue to Proliferate

Joint ventures and strategic affiliations in the behavioral health sector have begun to proliferate in recent years and will continue to do so in 2022 due to several factors. These include accelerating demand for behavioral health care services, limited bed capacity, and the ability of hospitals, health systems, privately-backed providers, and strategic operators to complement each other in the pursuit of increased access to quality, comprehensive behavioral health care for patients. .

Mutual Benefits of Behavioral Health Joint Ventures

There are different types of joint ventures, but a common joint venture partnership that has emerged in the behavioral health field is between a hospital/health system and a for-profit behavioral health operator.

It is no surprise to those who operate and work in hospitals and health systems (among others) that behavioral health patients often enter through the emergency room. This is not new, but it is one of many circumstances that have been accelerated by the pandemic. It often results in placing behavioral health patients in settings that are not best suited to care for them and causes serious occupancy issues in the emergency room and the hospital it is a part of, which affects other patients. To help address this, the formation of a joint venture can, for example, spur the development of a new off-site facility that is better designed to serve behavioral health patients. At the same time, it can also help relieve pressure from emergency rooms and open up medical and surgical bed capacity for the benefit of other patients as well.¹

Additionally, many nonprofit health systems have aging behavioral health facilities that need to be replaced or upgraded. With many hospital and health system budgets strained by pandemic-related and other demands, a joint venture with a partner that has significant “dry powder” can be helpful in facilitating much-needed facility upgrades. need and other capital investments.

In other cases, a hospital’s behavioral health unit may be poorly managed and/or unprofitable. For-profit operators with substantial experience and knowledge in operating quality, sophisticated behavioral health facilities can apply that experience to help a hospital or health system that currently operates a failing behavioral health department. managed, is not cost-effective, and/or does not consistently provide quality care. The for-profit operator can also shoulder more of the administrative burden of running the department, freeing up capital, time, and other resources to focus on higher quality, higher patient satisfaction, consistency of clinical services, and access to services. .

As outlined in more detail later in this newsletter, severe shortages of behavioral health providers and staff are hampering efforts to improve access to quality care in clinical settings across the board. Large for-profit operators often have substantial resources devoted to provider recruitment and often maintain a large network of behavioral health providers. These factors at a time of scarce resources for behavioral health providers can also serve as significant motivation for hospitals, health systems, and health care providers to align in some way with behavioral health providers. for profit.

For-profit behavioral health operators are often motivated by, among other things, access to new markets in partnership with established providers, such as a local hospital or health system. This gives the for-profit behavioral health operator the opportunity to benefit from the reputation, trade name and brand of the hospital or health system to gain instant credibility in the marketplace and position themselves more quickly, with their business partner. jointly, to care for local patients with behavioral health care needs.^two

Certain Refund Considerations

Increased demand for services, movement by some health plans to better prioritize mental health, advances in technology, and some degree of compliance with mental health parity laws have made behavioral health joint ventures more feasible and helped generate some additional revenue toward the provision of behavioral health care.^.3 However, joint venture partners should remain aware of potential payout impacts. For example, it may not always be possible to maintain similar reimbursement for a given behavioral health service when it is provided in a free-standing facility rather than, for example, a hospital department. The joint venture must take careful stock of how pay rates at a stand-alone facility might compare to what the health system has been able to accomplish in that regard in the past.⁴ On a related note and depending on the type of services to be offered, the type of facility, the number of patient beds, and whether the joint venture will seek Medicaid reimbursement for treatment provided, payment restrictions must be considered by the parties. related to Medicaid. Regarding Institutions for Mental Diseases (“IMDs”)⁵ and develop a plan to address it to the extent such restrictions apply.

Look for more joint ventures focused on behavioral health real estate.

All of the factors noted in this newsletter that are driving demand for behavioral health services and related merger and acquisition activity are also contributing to an increase in joint ventures focused on behavioral health care real estate. These joint ventures and other behavioral health-focused investors are making investments and working with healthcare and behavioral health operators across the country to refocus inpatient and residential care facilities, among other things. Many of these investors and joint venture partners see a great opportunity to expand their current real estate footprint. The non-cyclical and growing nature of this real estate market is also attracting more activity and investment interest.⁶

^FOOTNOTES

1 Patrick Connole (Guest Contributor), Behavioral Health Joint Ventures Sprout as Demand Increases, Behavioral Health Businesses (February 9, 2022) https://bhbusiness.com/2021/10/14/behavioral-health-joint-ventures-sprout-as-demand-rises/

2 Cody Taylor, CVA and William Teague, CFA, Behavioral Health Joint Ventures: Recent Activity and Key Considerations (February 9, 2022) https://vmghealth.com/thought-leadership/blog/behavioral-health-joint-ventures-recent-activity-key-considerations/

3 Infra, n. 1, above.

4 Below, no. 2, top.

5 42 USC § 1905(i).

6 Kyle Coward, As demand for behavioral health care rises, the need for real estate only grows, Behavioral Health Businesses (February 9, 2022) https://bhbusiness.com/2021/11/01/as-behavioral-health-care-demand-increases-the-need-for-real-estate-only-grows/