While the broader healthcare sector experienced a notable slowdown in mergers and acquisitions during the first quarter of 2022, behavioral health mergers and acquisitions growth stood out as a significant exception. According to a comprehensive KPMG report, strategic deal volume in behavioral health increased by 17% during this period, making it the only healthcare subsector to record growth amid an overall decline in healthcare M&A activity.
Dr. Ross R. Nelson, National Healthcare Strategy Leader and Principal at KPMG, attributed this growth to a strong industry desire to consolidate fragmented assets within behavioral health. “Whether it’s talk therapy, more intensive behavioral health services, or intellectual and developmental disabilities (IDD) work, there is a clear drive to aggregate and unify these services,” he said. This consolidation reflects a broader recognition that scale and integration are critical to improving patient outcomes, enhancing operational efficiencies, and positioning organizations competitively in a changing healthcare environment.
Industry-Wide Challenges Highlight Behavioral Health M&A Growth
The healthcare industry as a whole faced a challenging environment in Q1 2022. The KPMG report indicates that strategic healthcare deals declined by 13%, private equity (PE) deals fell sharply by 50%, and total healthcare deal volume dropped 34% quarter-over-quarter. Several factors contributed to this downturn, including geopolitical tensions that have unsettled markets globally, persistent supply chain issues affecting healthcare operations and costs, softening company valuations causing a mismatch of buyer and seller expectations, and rising interest rates that have constrained deal financing options for PE firms.
Despite these headwinds, behavioral health mergers and acquisitions growth bucks the overall trend, signaling the subsector’s unique resilience and attractiveness. This growth also signals investor confidence in the future of behavioral health, reflecting its critical role in the overall healthcare ecosystem and the growing demand for mental health and related services.
Telehealth Drives Behavioral Health Mergers And Acquisitions Growth
A major factor underpinning behavioral health mergers and acquisitions growth is the widespread and lasting adoption of telehealth services. Unlike many other specialties that experienced significant disruption during the pandemic, behavioral health providers were able to maintain and even expand patient access through telehealth platforms.
KPMG’s analysis of Medicare Fee-For-Service claims illustrates this shift clearly. In 2019, telehealth accounted for only 1.7% of behavioral health claims, a modest figure compared to 0.2% across all specialties. However, in April 2020, at the height of the COVID-19 pandemic, telehealth visits soared to 59.1% of behavioral health claims, while total telehealth claims across all specialties jumped to 36.8%. Even after the pandemic’s acute phase, telehealth usage in behavioral health remained robust, with 43.4% of claims in March 2021 delivered via telehealth compared to only 10.4% overall.
This rapid adoption of telehealth has expanded access to care for patients in need, especially in underserved and rural areas, and has enabled behavioral health providers to operate more efficiently and flexibly. The sustained use of telehealth continues to support behavioral health mergers and acquisitions growth by enabling scalable care models attractive to investors and acquirers.
Commercial Reimbursement Supports Behavioral Health M&A Growth
In addition to telehealth, evolving reimbursement models have played a critical role in fostering behavioral health mergers and acquisitions growth. Commercial payers have increasingly recognized the importance of behavioral health in managing overall patient health, especially when addressing comorbid physical and mental health conditions.
Dr. Nelson explained, “Payers are willing to pay more if they see value added by providers in managing comorbidities and mental health because mental health plays a large role in overall patient health.” This has led to improved reimbursement rates for behavioral health providers who can demonstrate value-based outcomes, making behavioral health assets more attractive in the M&A market.
Furthermore, many payers are encouraging integrated care models that combine behavioral health and physical health services, which aligns with the broader industry move toward holistic patient management. Behavioral health providers that can participate in these models, often facilitated by scale from consolidation, are well-positioned to capitalize on better reimbursement and growing market demand.
Challenges To Sustaining Behavioral Health Mergers And Acquisitions Growth
Despite its positive trajectory, behavioral health mergers and acquisitions growth is not without challenges. Rising clinical costs have put pressure on providers’ margins, and the ongoing healthcare workforce shortage affects the availability of qualified behavioral health clinicians. Recruiting and retaining skilled professionals remain difficult and expensive, directly impacting providers’ capacity to grow and successfully integrate acquisitions.
Nelson highlighted these concerns, noting that many organizations are “pressure testing their ability to grow and considering how achievable their growth aspirations are based on labor availability and costs.” Smaller providers, in particular, may struggle to compete in a market where scale and operational efficiency are increasingly important.
Additionally, evolving regulatory requirements and payer expectations around quality reporting and outcomes add complexity to managing behavioral health services. These factors require M&A participants to carefully assess operational and compliance capabilities as part of deal planning and execution.
The Future Of Behavioral Health Mergers And Acquisitions Growth
Looking ahead, behavioral health mergers and acquisitions growth is expected to continue as the sector leverages technological innovations, evolving payer relationships, and ongoing consolidation to meet rising demand. Telehealth is likely to remain a core component of care delivery, supported by flexible reimbursement policies.
Investors and providers will need to navigate the economic and workforce challenges while seeking to build scalable, integrated platforms that align with value-based care models. Those organizations that can demonstrate improved outcomes, operational efficiency, and financial sustainability will be the most attractive acquisition targets.
In summary, while healthcare M&A activity slowed overall in Q1 2022, behavioral health mergers and acquisitions growth defied this trend, supported by telehealth adoption, payer incentives, and strategic consolidation efforts. This dynamic subsector is poised to play an increasingly critical role in the future healthcare landscape.
