Mergers Likely To Continue In Behavioral Care
By Lisa Eckelbecker, Worcester Telegram & Gazette May 19, 2013
WORCESTER - Hospitals have merged to create powerful medical systems in Massachusetts, and doctors are doing the same.
As the nation nears the 2014 implementation of health care reform regulations and Massachusetts tries to slow health spending, small organizations that offer mental health and substance abuse treatment to communities are wondering if mergers are coming to their industry.
"We are seeing some of that in some places," said Linda Rosenberg, president and chief executive of the National Council for Community Behavioral Healthcare, who visited Worcester last week to speak to the Association for Behavioral Health. "I think people are having discussions that never had discussions before."
The bigger-is-better trend has been playing out in Massachusetts medicine for years. UMass Memorial Health Care of Worcester dominates in Central Massachusetts, with a system of five hospitals and about 1,700 staff doctors. Reliant Medical Group of Worcester, a large medical group practice, recently affiliated with an alliance of other physicians' groups under the umbrella of Atrius Health, which can use its size to negotiate more effectively with insurers and vendors.
Behavioral health may be on a similar path. Deals and mergers have whittled away at the membership of the Association for Behavioral Healthcare, a Massachusetts trade group for community mental health and substance abuse treatment centers, according to president and chief executive officer Vicker V. DiGravio III. Over six years, he said, membership in the group has dropped to 80 organizations, from 94.
Behavioral health refers to range of mental health and addiction conditions afflicting children and adults. It's a field in which patients have long battled stigma as well as ailments.
A federal mental health and substance abuse survey in 2010-11 estimated 1 million people in Massachusetts had a mental illness in the previous year. The same survey estimated that 125,000 Massachusetts residents had abused or depended on illegal drugs and 447,000 had abused or depended on alcohol.
Most of the money to treat behavioral ailments comes from federal, state and local governments. Private insurance paid about 26 percent of mental health treatment bills in 2009 and just 16 percent of substance abuse treatment bills, according to a 2011 study in the journal Health Affairs.
As federal health care reform proceeds, financial pressures on behavioral health providers are mounting, according to Charles J. Faris, president and chief executive of Worcester-based Spectrum Health Systems Inc., a provider of substance abuse treatment that employs about 1,050 people in eight states.
Like hospitals, Spectrum must start using electronic medical records, an initial $750,000 expense, Mr. Faris said. Yet while federal legislation made money available to help hospitals, he said, none went to behavioral health centers.
Finding efficiencies is challenging, too, he said.
"Most of our work is done one-on-one by people," Mr. Faris said. "We don't have the benefits of robotics in surgery. Could we do some stuff around telemedicine? Maybe."
In an effort to secure more funding, behavioral health industry representatives have successfully lobbied legislators and other elected officials to raise insurance limits and guarantee coverage equal to medical benefits.
Meanwhile, the field has attracted interest from investors with deep pockets. Miami private equity firm H.I.G. Capital owns a national network of community-based mental health and substance abuse treatment programs. In 2011, global investment firm Advent International bought mental health provider The Advent Group of the United Kingdom for about $1.5 billion.
Consulting firm Bain & Co. Inc. forecast last year that behavioral health would remain a popular target for private equity deals.
"In general, investment themes will revolve around market leaders that show potential cost improvements and have a path to consolidation or additional customer up-sell," Bain said in a report.
Still, growing enough to operate at an efficient scale while maintaining the connections of a small organization will remain a key challenge, according to Ms. Rosenberg, head of the National Council for Community Behavioral Healthcare.
"I think what we're struggling with in many cases is staying attached to our local communities," she said. "I think it's tough, and it's going to get tougher."