Private equity’s role in the behavioral health sector has been a topic of increasing interest and concern over recent years. Headlines touting large acquisitions and rapid consolidation might give the impression that private equity dominates this space. However, new research from Oregon Health & Science University (OHSU), the University of Pennsylvania, and Yale University reveals a more complex and measured reality. While private equity behavioral health ownership is growing, its footprint in terms of actual facility ownership remains smaller than many might expect.
Private Equity Behavioral Health Ownership Is Growing but Remains a Minority
According to the study, private equity firms owned 6.2% of mental health facilities nationally (652 out of 10,324) and 7.1% of substance use disorder (SUD) treatment facilities (1,152 out of 16,174). This indicates that although private equity is a rising presence, it still controls less than one in ten facilities in these key behavioral health sectors.
The data analyzed covers a period from January 2021 through July 2023, using federal facility surveys supplemented with proprietary deal information from Pitchbook Inc. and Levin Associates Healthcare M&A. This comprehensive approach offers a clearer picture of the current landscape of private equity behavioral health than prior estimates based solely on deal announcements.
Geographic Differences Highlight Uneven Private Equity Behavioral Health Ownership
The study uncovered considerable variation in private equity behavioral health ownership across states. Some states have significantly higher penetration rates, reflecting local market dynamics, regulatory environments, and investor interest.
For mental health facilities, Colorado topped the list with 26.5% under private equity ownership. Virginia led among addiction treatment centers with 22.1%. Outside these hotspots, most states have single-digit percentages of private equity-owned behavioral health providers.
This heterogeneity is important because it suggests that private equity’s influence is not uniformly distributed, and local factors strongly affect ownership patterns. Policymakers and stakeholders should be aware that the impact of private equity behavioral health ownership will vary depending on where facilities are located.
Private For-Profit Ownership Beyond Private Equity
The research also emphasizes that private equity is just one component of the larger private for-profit behavioral health ownership landscape. In total, private for-profit entities run a far larger share of facilities:
- 42.5% of all SUD treatment facilities
- 19% of mental health facilities
- 23% of facilities offering combined SUD and mental health services
These figures highlight the diversity of ownership models beyond private equity, including physician-owned practices, hospital-affiliated groups, and other corporate entities. Therefore, private equity behavioral health ownership is one piece of a much broader mosaic of private sector involvement.
Private Equity’s Dominant Role in Deal Activity
While private equity behavioral health ownership remains a minority in terms of facilities owned, private equity firms dominate the dealmaking landscape. An analysis by The Braff Group finds that about 60% of all behavioral health deals since 2018 have involved private equity investors.
Private equity’s focus on dealmaking stems from a view that behavioral health is a fragmented and undercapitalized market with large unmet needs. Investors aim to consolidate smaller providers, streamline operations, and scale services to improve access and financial performance.
This strategic approach means that private equity behavioral health ownership will likely expand over time, as firms continue to acquire more providers and integrate them into larger platforms.
The Unique Challenges of Behavioral Health Make Private Equity Investment Attractive
Behavioral health has long faced challenges in the American healthcare system, including low prioritization within hospital systems, reimbursement limitations, and stigma. Many hospitals have reduced or shuttered their behavioral health services due to low profitability and regulatory complexity.
In this environment, private equity behavioral health ownership can bring much-needed capital and management expertise to help sustain and grow services. Private equity investment enables:
- Expansion of treatment capacity to meet rising demand
- Investments in infrastructure and technology
- Consolidation of fragmented providers to improve quality and efficiency
Dr. Jane Zhu, lead author of the study and associate professor of medicine at OHSU, underscores the significance of private equity’s expanding role: “At this point, there is no stone left unturned by private equity investors. Given those high rates of penetration, it points to behavioral health as an area that needs attention from policymakers.”
Important Considerations: Impact on Costs, Quality, and Access
One major limitation of the study is that it does not evaluate how private equity behavioral health ownership affects patient costs, care quality, or access to services. These are key questions in ongoing debates about the role of private equity in healthcare.
Some critics worry that private equity may prioritize profits over patient outcomes, leading to cost increases or diminished care. Supporters argue that private equity can inject capital and innovation to improve access and quality.
Future research will need to carefully assess the real-world impacts of Behavioral Health Ownership by Private Equity Firms to inform policy decisions and industry practices.
Broader Implications for the Behavioral Health Sector
The findings highlight how the behavioral health sector is both changing and remaining stable in different ways. While private equity behavioral health ownership is growing, it is not yet the dominant ownership model nationally. Nonprofit organizations, public providers, and other private for-profit operators continue to make up the majority of behavioral health facilities.
At the same time, the growing involvement of private equity signals ongoing market transformation. As private equity investors continue to consolidate and scale behavioral health providers, we can expect shifts in how services are delivered and financed.
Stakeholders, including policymakers, payers, providers, and patients, should monitor these developments closely to balance the benefits of investment and innovation with the need for quality, affordable care.
Conclusion
Behavioral Health Ownership by Private Firms represents a growing but still modest portion of the U.S. behavioral health facility landscape. It is highly variable across states and is part of a larger private ownership ecosystem that spans many types of providers.
While private equity firms dominate deal activity and hold significant strategic influence, much of the behavioral health sector remains outside their direct control. The evolving role of private equity in behavioral health offers opportunities and challenges as the sector seeks to address rising demand and persistent service gaps.
Understanding the nuances of Behavioral Health Ownership by Private Firms will be crucial for shaping policies that ensure high-quality, accessible behavioral health care for all Americans.
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