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View Medicaid providers as investment opportunities

August 26, 2015
by Patrick Pilch and Karen Meador
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Private equity investment in behavioral health has historically been limited to practices that cater to self-pay individuals or to the well-insured. Indeed, the term “treatment center,” to some, even conjures up images of spa-like facilities that cater to the rich and relapsing.

But we expect to see new interest growing in investing in practices that serve low-income individuals— and for good reason. The financial opportunities now inherent in providing such care could help spur improved access and outcomes for individuals of all incomes across the country.

Insurance and government payers now cover behavioral healthcare for more people, and more people who need care are seeking it out. As demand goes up, issues of revenue sustainability are slowly being ironed out, and new grant monies are coming available. The fragmented low-income behavioral market is ripe for consolidation as state-designated Medicaid managed care organizations seek to contract with strong providers that can successfully prove positive health outcomes; handle complex billing involving private, federal and state payers; and support care coordination across increasingly-complex healthcare networks.

Sustainable income

Revenue sustainability has long fallen solidly in the “threat” quadrant of low-income behavioral health investment analyses. However, this concern has begun to dissipate with increasing implementation of the 2008 Mental Health Parity and Addictions Equity Act. And with Medicaid waivers, such as New York’s program that encourages the co-location of behavioral health services with primary care, state governments are not just changing payments and reimbursements, but actively promoting or requiring the provision of services.

The efficacy of the parity act has been of some debate, so new investors must proceed with their eyes wide open, understanding that for the time being, the sector will come with inherent and ongoing reimbursement battles. Not every insurance provider is following the rules to the letter, and patients are still being declined coverage for the behavioral healthcare they are now entitled to under law.

Further, when it comes to Medicaid reimbursement, state variation in reimbursement amounts is an important consideration.

Government support of financial, clinical success

Despite some recent fits and starts, regulators are starting to step in to ensure care is provided and providers are paid. In New York, for example, the attorney general has reached five mental health parity settlements with payers since last year. Other states may well follow suit, and quickly, as they shift more Medicaid enrollees to managed care plans.

Shifting toward managed care Medicaid also aims to improve care coordination and reduce costs. Such efforts will encourage the measurement of outcomes, and future reimbursement will depend on producing good outcomes.

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