Acadia Healthcare (Nasdaq: ACHC), a leading provider in the behavioral health industry, is currently navigating through a challenging period marked by negative press, legal troubles, and lower-than-expected patient volume growth. The company, which operates a vast network of behavioral healthcare facilities, saw its patient volume growth slow dramatically in October, a decline that has impacted its financial outlook for the remainder of 2024. In the midst of these difficulties, Acadia’s leadership, including CFO Heather Dixon and CEO Christopher Hunter, remains optimistic, asserting that these challenges are likely temporary and that the company is taking steps to mitigate their effects.
Impact of Negative Press on Patient Volume Growth
One of the most significant issues impacting Acadia right now is a slower-than-expected growth in patient volume. After reporting a healthy 5% patient volume growth in September, October saw a noticeable drop to around 3%, far below the company’s projected figures. During the company’s third-quarter earnings call, Heather Dixon explained that the decrease in patient volume was largely a result of negative media coverage, which has had a moderating effect on growth. Specifically, the bad press surrounding Acadia’s practices and its ongoing investigation has raised questions among potential patients and partners.
Despite this, Dixon reassured investors that the company believes the impact will be temporary. “We do expect that the recent news coverage and the news of the investigation has had some moderating effect on that growth, but it’s early days,” she said. Dixon emphasized that Acadia is working closely with its partners to address any concerns, and the company remains confident that this dip in volume will not be a long-term issue. However, it’s clear that Acadia Healthcare financial challenges have been significant, as this shift in patient volume is directly tied to external perceptions and scrutiny.
Revised Guidance for Q4
As a result of the slower growth, Acadia revised its 2024 guidance for the fourth quarter, now forecasting a year-over-year same-facility volume growth of 3% to 4%, a significant drop from previous expectations of around 5% to 6%. This reduction in projected growth has led to a $20 million to $30 million downward revision in the company’s revenue guidance for Q4, along with a $10 million to $15 million decrease in EBITDA projections.
This financial hit underscores the impact that external factors, such as public perception and legal challenges, can have on a business. In response, Dixon stated that Acadia would adjust its facility-level costs if the lower volumes persist. This could include scaling back on certain operational expenses to mitigate the financial effects of the slowed growth. These Acadia Healthcare financial challenges highlight how sensitive the company’s financial stability is to its public image and legal hurdles.
Legal and Regulatory Scrutiny
Adding to Acadia’s challenges is the growing legal and regulatory scrutiny the company is facing. In September, the U.S. Department of Justice (DOJ) accused Acadia of falsifying Medicare, Medicaid, and TRICARE claims for inpatient behavioral health services that were allegedly medically unnecessary. This accusation came after a series of legal issues that have included subpoenas and requests for information from multiple federal agencies, including the DOJ and the Securities and Exchange Commission (SEC). While Hunter acknowledged these legal troubles on the earnings call, he emphasized that some of the subpoenas had been withdrawn, and in other cases, the company had been able to voluntarily provide the requested information.
Despite the ongoing investigations, Hunter reassured investors that Acadia’s facilities undergo rigorous oversight and are subject to routine third-party audits. He defended the company’s practices, explaining that Acadia clinicians follow clinically-driven, industry-standard admission and discharge criteria. Hunter expressed frustration with what he described as misconceptions about the psychiatric industry and the portrayal of psychiatric care in the media, which he believes has contributed to the negative press surrounding Acadia. The combination of these issues forms a perfect storm of Acadia Healthcare financial challenges, which the company is working to resolve.
Financial Performance in the Face of Adversity
Despite the challenges presented by the negative press and legal investigations, Acadia Healthcare’s financial performance in Q3 remained relatively strong. The company reported a total revenue of $815.6 million, an 8.7% increase compared to the same period in the previous year. This growth is a testament to Acadia’s scale and continued demand for behavioral health services, even amidst the ongoing scrutiny.
Additionally, Acadia has continued to expand its footprint, adding five opioid treatment program facilities to its portfolio and increasing the number of beds in existing facilities by 15. The company has already invested $59.2 million in acquisitions during the first three quarters of 2024. As of September 30, 2024, Acadia operates 260 behavioral healthcare facilities across 38 states and Puerto Rico, providing approximately 11,300 beds for patients in need of psychiatric care. These acquisitions and expansions are an important part of the company’s strategy to counteract the Acadia Healthcare financial challenges in the short term and focus on long-term growth.
Joint Venture Strategy Remains Strong
In addition to expanding its facilities, Acadia has been actively pursuing joint venture partnerships, which have proven to be a crucial part of its long-term growth strategy. The company currently has 21 joint venture partnerships involving 22 hospitals. Eleven of these hospitals are already operational, while the other 11 are expected to open in the coming years. Despite the recent negative press, Hunter noted that these partnerships have not been significantly impacted, though there have been some questions from joint venture partners. However, Hunter remains confident in the company’s ability to maintain these relationships and continues to see growth opportunities in the joint venture pipeline. The successful execution of these ventures could be key to overcoming some of the Acadia Healthcare financial challenges faced in recent months.
Focus on Long-Term Growth and Talent Retention
Looking beyond the immediate challenges, Acadia is focused on its long-term growth strategy, including its commitment to innovation and talent retention. Hunter highlighted the company’s investments in technology and employee engagement, which have helped the company attract and retain top talent in a competitive healthcare landscape. He expressed optimism about Acadia’s ability to navigate through the current period of scrutiny and continue its expansion efforts.
“We have been very encouraged by our ability to continue to attract and retain talent,” Hunter said, reflecting the company’s efforts to ensure that its workforce remains strong and capable of delivering high-quality care to patients. Despite the challenges, Acadia remains committed to providing effective and clinically-driven care, holding itself to high standards and working to improve public perception of the psychiatric care industry. This approach is central to overcoming the Acadia Healthcare financial challenges and ensuring long-term sustainability.
Conclusion
Acadia Healthcare’s recent struggles with lower patient volume growth, negative press, and legal challenges have undoubtedly impacted its financial outlook for the short term. However, the company’s leadership is confident that these issues are temporary and that the company will rebound. Acadia’s continued focus on long-term growth, strategic acquisitions, and joint ventures, along with its commitment to high standards in psychiatric care, positions the company well for future success. Despite the challenges, Acadia remains a key player in the behavioral health industry and continues to work toward its goal of providing accessible, high-quality care to those in need, overcoming Acadia Healthcare financial challenges as it moves forward.
