In an article for Law360, Bass, Berry & Sims attorneys Cindy Reisz and Jamie Steakley outlined the challenges and opportunities related to investing in the highly regulated behavioral health industry, including the prospects and barriers faced by private equity investors as a result of recent legislative activity.

As the authors outline, the following are some of the regulatory opportunities driving potential success in the behavioral health space:

  1. Changes in laws and regulations over the last decade, such as the Mental Health Parity and Addiction Equity Act (MHPAEA), have “created the potential for higher reimbursement rates” for providers of health services, due to the higher number of beneficiaries enrolled in health plans offering benefits for mental health and substance use disorders.
  2. Recent flexibility added to the Medicaid Institution for Mental Disease (IMD) exclusion is another win for investors, as legislative changes offer new avenues for Medicaid beneficiaries to gain access to effective behavioral healthcare.
  3. The Opioid Law contains numerous provisions to help substance use disorder patients by expanding treatment capacity and providing access to more services.

Cindy and Jamie point to the following regulatory barriers to watch when investing in behavioral health:

  1. The disparity currently in place that limits the number of days for patients in inpatient psychiatric hospitals but puts no limitations on those receiving psychiatric treatment in a general acute care hospital.
  2. The shortage of specialty psychiatric professionals providing service, which can be attributed to several factors, including retirement of practitioners, gaps in residency training and low reimbursement rates.
  3. More than half of U.S. states prohibit the establishment and/or acquisition of psychiatric facilities or other treatment centers without a certificate of need from the relevant state health services agency or commission; this creates an added value for behavioral health companies that already operate in the participating states.

While the behavioral healthcare industry is a niche business space with limitations, it has potential for significant future growth, and the market is trending toward increased reimbursement for services rendered to a continuously – and quickly – expanding patient base.

The full article, “The Pros and Cons of Behavioral Health Sector Investing,” was published by Law360 on June 27, 2019, and is available online.