[NYAPRS Enews] Report: Private Equity Firms Expected to Hike Investments in MH/SU Recovery Services

Tue Aug 15 08:01:56 EDT 2023

NYAPRS Note: The following piece provides more details as to how private investors are seeking to fund an overall expansion and increase access to behavioral health services funded by commercial insurance companies and the interest that exists in also serving Medicaid and Medicare beneficiaries. While private equity deals in health care services companies have lagged for the past year and a half, activity is expected to pick up again by the end of this year.

One example is New York based firsthand, an organization that has been hiring peer supporters to serve Medicaid members in Tennessee, Florida and Ohio and that has received a $28.1 million investment from Google GV<https://bhbusiness.com/2023/02/06/google-ventures-invests-28m-in-serious-mental-illness-company-firsthand/>.  A NYAPRS conference panel entitled "Peer Service Innovations Across the Nation" will feature the groundbreaking work of Promise Resource Network in Charlotte, NC; People USA in the greater Hudson Valley and firsthand.

Our conference, 'Promoting Rights Across the Nation, Recovery Across the Lifespan,' will be held September 26-28 at the Villa Roma Hotel in Callicoon, NY. See program details here<https://www.nyaprs.org/e-news-bulletins/2023/8/14/nyaprs-releases-2023-annual-conference-program-schedule> and use the following links to Register for the Conference<https://www.eventbrite.com/e/nyaprs-2023-annual-conference-tickets-680447465687?aff=oddtdtcreator> and to Book Hotel<https://reservations.travelclick.com/2864?groupID=3892685> (lodging, food, all programs and access to most hotel activities.

Behavioral Health Firms Persist Despite Low Private Equity Activity In Health Care Services
By Amanda D'Ambrosio  Crain's Health Pulse  August 15, 2023

Despite a record-low quarter for private equity activity in health care services, behavioral health companies have continued to attract investor interest-indicating growth opportunities for companies offering mental health and substance use disorder services as demand continues to outpace supply, a new report shows.

Private equity deals in health care services companies sank in the second quarter of 2023 to the lowest deal count since the same time in 2020, according to PitchBook's health care services report released Monday.

There were 164 private equity deals in the three months that ended in June. In New York, there were just three deals during that period-down from eight deals that occurred during the second quarter last year.

"I was surprised by where deal activity came in last quarter," said Rebecca Springer, lead health care analyst at PitchBook. "It was lower than expected."

Springer said that leverage-using debts to finance new acquisitions-is a key problem for some platforms and is driving the reduction in private equity deals. Consistently high interest rates have also driven the decline in private equity activity, with a 5.5% federal funds rate placing even more strain on companies with existing debts.

But despite the economic challenges that have hampered private equity deals, there has been consistent investor activity in companies that offer treatment for mental health and substance use disorders. Sustained investor interest stems from the fact that there still are not enough providers to meet increasing behavioral health needs across the country-exacerbated by the pandemic and an ongoing opioid epidemic.

"You have a huge underprovision of behavioral health, especially for vulnerable populations," Springer said, noting that the lack of services not only worsens overall health outcomes but also drives up costs of care. The cost of treating a patient with a behavioral health diagnosis is three and a half times more than treating someone without one, according to the report.

Springer said that there is an "enormous opportunity" for private equity investors to fund an overall expansion and increase access to behavioral health services.

There have been a few notable deals in the northeast region. In March, Bio Behavioral Institute, a mental health care clinic that operates in Great Neck, New York and offers psychotherapy and intensive outpatient treatment, received an undisclosed amount of money from investors including Miramar Equity Partners, Aspect Investors, Milk Street Ventures, Glass Lake Capital, and WSC & Company.

Aware Recovery Care, a company that provides in-home addiction treatment to young adults based in Wallingford, Connecticut also raised $30 million in May-bringing the company's total valuation to $270 million, the report noted.

As mental health and substance use treatment companies continue to attract investor interest, Springer said there is also an opportunity for these providers to offer more services to people with Medicaid or Medicare. Currently, many private-equity-backed providers only take commercial insurance, because rates are typically higher.

"Firms have been able to sort of pick and choose the populations they want to serve," Springer said. "And they've chosen, broadly speaking, the highest reimbursement population."

But Springer said there is growing interest among private equity investors to fund providers that have a Medicaid-heavy payer population, noting that firms have begun to realize the business potential of serving this population. "I think we are going to see a lot more of that going forward," she added.

While private equity deals in health care services companies have lagged for the past year and a half, Springer said that she expects activity to pick up again by the end of this year. Although deals have declined, fundraising by health-care-focused private equity firms skyrocketed in 2021 and has remained elevated through this year-an anomaly compared to private equity firms overall.

"These managers have been bringing in a lot of capital," Springer said. "Obviously there's dry powder out there to deploy." -

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