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Follow the money in behavioral healthcare

August 30, 2016
by Ed Jones, PhD
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Willie Sutton famously said that he robbed banks because that’s where the money is. Criminal investigators have traditionally followed the money to identify the participants in a crime. Business people follow the money to figure out if there are new sources of revenue to fund their operations.

While these examples are different in terms of ultimate goals, they all support a key insight about people. When alarm bells start ringing about the availability of money, people get highly motivated to follow the money trail and determine how they might benefit.

Alarm bells started ringing within the behavioral healthcare industry several years ago with the passage of two federal laws, parity and the Affordable Care Act (ACA). The bells are now ringing louder than ever since people outside the industry are now paying attention to our long-neglected field. It turns out that while the parity legislation created richer insurance benefits for behavioral health disorders and the ACA brought insurance coverage to roughly 20 million people (at parity levels of coverage), the next infusion of capital has been from private investors who have been carefully following the money in behavioral healthcare.  

New money

When you start following this money trail you quickly learn a few things. Lots of new money is entering the behavioral healthcare system. The industry has a few large companies, but has a plethora of small, isolated companies. Consolidating these isolated companies into larger, better-funded enterprises can improve the bottom line for the new owners. Have these lessons had an impact on savvy business people? I don’t really think I need to answer that question.

Investors are evaluating the behavioral healthcare landscape, which is to say private equity companies and large healthcare companies. While it is important to follow the money, it is also important to follow the need. Are there enough people out there still needing behavioral healthcare services or does the level of unmet need suggest this will be a passing interest for investors?

I will just state here again that the unmet need is staggering. Behavioral health conditions are more prevalent, expensive, disabling, and untreated than any other category of health conditions. Imagine that you have money to invest in healthcare and you just read that sentence. You would surely fact check it, but once you have validated it, you would begin strategizing how to build a large behavioral healthcare company that gets high marks for revenue, profit and quality.

Many people in the behavioral healthcare industry might read “quality” and sneer. Since when do leaders in healthcare, or behavioral healthcare more specifically, really care about quality?

The answer is actually simple. You can afford to be a low quality player when you are a small player in a niche space. When you start to build a larger corporate footprint you cannot build it on poor quality. Investors are deeply concerned about the quality of care within the behavioral healthcare industry. They have no interest in growing a product that is ineffective, dishonest, or fundamentally can’t be scaled.





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