After decades of decline in psychiatric hospital capacity, market-specific opportunities are emerging that are driving a resurgence in facility development. A growing number of inpatient psychiatric hospital companies are moving quickly to meet the nation’s overwhelming demand for inpatient psychiatric care and other high-acuity behavioral health services. Companies like Summit BHC, backed by Patient Square Capital, and PAM Health, owned by Tony Mistiano, are actively expanding the market by building new facilities in regions with demonstrated need.
The renewed interest follows the COVID-19 pandemic, which exposed gaps in the U.S. behavioral health system—particularly for children. Shortages have left many patients boarding in emergency departments for days or weeks, waiting for inpatient psychiatric care. While the pandemic highlighted the crisis, the roots of the problem stretch back decades. In 1955, the U.S. had more than 558,000 state psychiatric beds, most at public facilities. But federal policy changes, advances in antipsychotic medications, and the rise of managed care drastically reduced psychiatric bed capacity. By 2014, the number of state psychiatric beds had dropped to approximately 35,000, with the patient population served by inpatient psychiatric care falling from roughly 370,000 in 1970 to just 40,000.
Despite this long-term decline, macroeconomic trends and local market dynamics are opening opportunities for behavioral health operators. The shortage of supply, combined with a growing demand for services, has created a landscape ripe for expansion. Allan Brown, founding partner of healthcare real estate developer Prevarian Co.s, told Behavioral Health Business that “there’s a fairly profound bed need almost everywhere we’re looking. It’s simply because of a lack of supply over the last several decades. With a lot more investment interest more recently, these markets are emerging.”
Summit BHC’s Localized Strategy: Raleigh Oaks Behavioral Health
Summit BHC has taken a targeted approach, focusing on regions with favorable market dynamics and high unmet demand for inpatient psychiatric care. On August 15, the company opened Raleigh Oaks Behavioral Health, a 116-bed full-service psychiatric hospital in Garner, North Carolina, part of the growing Raleigh-Durham metro area. CEO Brent Turner cited the persistent supply-demand imbalance in behavioral health, particularly in acute psychiatric services, as a key factor in the decision to invest in the community. “Raleigh-Durham is experiencing strong growth, and we believe Raleigh Oaks Behavioral Health will be an essential solution to mental health needs in that community,” Turner said.
Since its founding in 2015, Summit BHC has strategically grown through acquisitions and private equity investment. Starting with just three facilities, Summit secured investment from Flexpoint Ford LLC and later, in 2017, Lee Equity Partners and FFL Partners acquired a controlling interest. That stake was sold to Patient Square Capital for over $1 billion, marking a significant milestone in the company’s expansion. Shortly after, Summit acquired seven psychiatric hospitals across six states from Strategic Behavioral Health, adding locations in Iowa, Tennessee, Texas, New Mexico, North Carolina, and Wisconsin. Today, Summit operates 32 facilities in 19 states, providing inpatient psychiatric care, inpatient addiction treatment, and outpatient services.
PAM Health and Voyages Behavioral Health: Revitalizing Urban Spaces
Meanwhile, PAM Health is taking a similar approach with an emphasis on redeveloping existing structures in underserved areas. Voyages Behavioral Health, launched in 2019 as PAM Health’s behavioral health arm, is building facilities in Dallas, Sugar Land, and Pensacola while redeveloping a shuttered hospital in San Antonio.
In Dallas, Voyages is converting a former medical office building into a five-story, 72-bed multidisciplinary behavioral health hospital. This move addresses the city’s acute shortage of psychiatric beds: only three other hospitals with psych units serve the city’s 1.3 million residents. The closure of facilities like Timberlawn Behavioral Health System (2018) and Garland Behavioral Hospital (2021) exacerbated the gap. By repurposing an existing structure, Voyages can establish a large-capacity hospital in a developed, land-restricted urban area, improving accessibility and providing modern inpatient psychiatric care without the challenges of greenfield construction.
Paige Smith, vice president of growth and development for Voyages, emphasized the importance of revitalizing existing spaces. “To provide something that is a beautiful location, that’s easy just off the highway, that can house a large enough number of patients to have an impact in a city that’s lost beds and is somewhat underserved is kind of exciting,” she said. These projects not only expand capacity but also bring underutilized urban spaces back into productive use, benefiting both communities and the behavioral health landscape.
Structural Challenges in Psychiatric Hospital Development
Despite high demand, psychiatric hospitals face unique challenges tied to healthcare real estate development. Unlike other sectors in behavioral health, psych hospitals are heavily dependent on construction, zoning, and regulatory approvals. Local government agencies and zoning boards often lack familiarity with psychiatric hospital requirements, and outdated ordinances can slow or prevent new construction. Additionally, community opposition sometimes stems from misconceptions about behavioral health. Allan Brown of Prevarian Co.s noted that “they’ve seen ‘One Flew Over the Cuckoo’s Nest’ and imagine that there are people who are going to be escaping and running around. That’s not what these facilities are about. It takes some education.”
Construction and operational costs add another layer of difficulty. The COVID-19 pandemic exacerbated supply chain disruptions, particularly for materials like steel, which delayed project timelines. Labor shortages further increased costs, with subcontractors for roofing, painting, plumbing, and drywalling either unavailable or quoting extremely high prices. These challenges have affected timelines for projects like the Sugar Land facility, delaying its opening from 2021 to fall 2022. Recent months, however, show modest improvements in both materials availability and contractor participation, making it easier to develop new inpatient psychiatric care facilities.
Market Forces and the Path Forward
Even with these obstacles, the sector is experiencing cautious optimism. Companies like Signature Healthcare Services LLC in Corona, California, have opened three hospitals totaling about 350 beds in the past eight months. The organization has faced workforce shortages and rising material costs, yet remains committed to addressing the acute need for inpatient psychiatric care. Eric Kim, senior vice president of strategy, explained that securing improved reimbursement rates from payers has helped offset rising labor costs and supports sustainable expansion.
The outlook for the sector is shaped by multiple forces: an aging infrastructure of existing hospitals, growing community demand, and evolving reimbursement policies. While parity in reimbursement has yet to be fully achieved, the combination of improved rates and visible need gives operators a cautiously positive perspective.
Kim summarized the sector’s approach succinctly: “I do think the outlook for us is good because we are optimistic about conditions continuing to improve both on a pandemic level, reimbursement level and hopefully a labor level. Still, we’re sort of feeling quite cautious about our own growth and outlook.”
Conclusion: A New Era for Psychiatric Hospital Expansion
The United States is entering a new era of psychiatric hospital development, driven by decades-long shortages and renewed investment interest. From Raleigh to Dallas and beyond, companies like Summit BHC and PAM Health are seizing market-specific opportunities, often revitalizing existing properties and strategically targeting areas with unmet demand. While operational challenges, regulatory hurdles, and societal stigmas persist, the combination of market need, improved reimbursement, and investor interest positions inpatient psychiatric hospitals for growth.
For communities long underserved by behavioral health services, these expansions are more than business opportunities—they represent crucial access to inpatient psychiatric care for those in need. As these companies navigate a complex development landscape, they are not just building hospitals; they are reshaping the future of acute psychiatric care in the U.S.
