The intellectual and developmental disability (IDD) field stands out as one of the most complex and fragmented segments in the broader behavioral health industry. Despite the challenges in structure, funding, and operations, IDD providers—both nonprofit and for-profit—are driving an impressive number of mergers, acquisitions, and capital partnerships. As interest in the sector grows, understanding the nuances behind IDD Services Investment Trends becomes essential for investors, operators, and policy-makers alike.
According to Stacy DiStefano, CEO of Consulting for Human Services, “IDD is the most complex from an investor standpoint, but also in many ways from an operator standpoint.” Speaking at the 2023 INVEST conference hosted by Behavioral Health Business, DiStefano emphasized that the IDD sector is the most fragmented of all behavioral health segments. With tens of thousands of organizations nationwide—many of which are not associated with any state or national body—mapping the full landscape of providers is nearly impossible. “You’d have to go county by county, state by state, and look up EIN numbers to just figure out who they are,” she noted.
This fragmentation, however, hasn’t stopped capital from flowing into the space. In fact, IDD Services Investment Trends show a significant uptick in activity as organizations seek scale and sustainability. What used to be an industry dominated by faith-based and nonprofit organizations is now seeing the rise of sophisticated business models supported by private equity and venture partners. As IDD providers push for operational excellence, many are embracing consolidation strategies, mirroring trends seen throughout the healthcare industry.
The Local Nature of IDD Care and Its Impact on Investment
For investors like Matthew Pettit, founding partner of Seven Hills Capital, the hyper-local nature of IDD care requires a boots-on-the-ground approach. “You really have to be willing to roll up your sleeves,” Pettit said. “Whether it’s mitigating the DSP (direct support professional) crisis or navigating local rate pressures, investors need to go a level deeper than they might in other parts of behavioral health.” Seven Hills Capital has backed IDD ventures like VersiCare, formed in 2018 in partnership with ExpertCare’s leadership, underscoring the firm’s long-term commitment to the sector.
Among the firms leading IDD Services Investment Trends are major players like The Vistria Group (supporting Sevita) and Webster Equity Partners (backing Redwood Family Care Network). These partnerships are not just about funding—they bring in expertise, infrastructure, and strategic vision, all critical to navigating the highly regulated and geographically inconsistent IDD landscape.
Regulatory and Reimbursement Roadblocks
One of the key challenges facing IDD providers is reimbursement, which varies dramatically by state. DiStefano refers to many state rates as “abysmal,” noting that even with modest rate increases in some regions, organizations must often operate across multiple states to achieve revenue diversification. Additionally, federal regulations are shifting. Michelle Mainez, COO at Redwood Family Care Network, pointed to the CMS home- and community-based services (HCBS) final rule as a pivotal moment for the field. “Now the standard is inclusive environments—no longer just a philosophy,” she said. “We’re reevaluating residential settings to identify lingering institutional practices.”
These shifting standards highlight why IDD Services Investment Trends can’t be viewed through a traditional lens. Unlike more scalable or centralized healthcare models, IDD services demand customized, person-centered approaches. This includes individualized planning, behavioral and acuity-based roommate matching in residential facilities, and in-depth relationships with state regulatory and case management agencies.
Staffing Shortages: A Barrier to Growth
Another barrier to scaling IDD services is the widespread staffing shortage. Mainez emphasized that staffing is one of the top three challenges in service delivery today. “It’s not just about numbers; it’s about safety and quality of life,” DiStefano added. “In IDD services, if you don’t have staff, someone could die because they rely on your care for basic living.”
Recruitment and retention of direct support professionals remain a mission-critical task for providers. Without sustainable wages and career pathways, the sector struggles to meet even current demand—let alone future growth. This workforce issue directly influences IDD Services Investment Trends, as it impacts operational capacity, cost structures, and ultimately investor confidence.
Waitlists and the Myth of Market Size
One of the biggest misconceptions investors make is overestimating the total addressable market (TAM) in IDD services. Many states have official waitlists for CMS waivers—essential for receiving services—but even in states without waitlists, patients often face “shadow waitlists.” These occur when agencies lack the staff to provide all authorized services. “So while you’re not technically on the waitlist, you’re on a waitlist of another kind,” DiStefano explained.
Understanding these bottlenecks is critical when evaluating IDD Services Investment Trends. The need exists, but access is limited not just by funding, but by workforce, regulation, and care model intricacies. These limitations make the IDD market highly nuanced and resistant to traditional scaling approaches.
The Rise of Nonprofit M&A and Joint Ventures
Even with these challenges, deal flow in the nonprofit space has surged. In March, Merakey and Elwyn announced plans to merge into a $1 billion organization, while I Am Boundless and Koinonia followed suit in September. DiStefano shared that her firm’s M&A pipeline is “full of nonprofit deals to a level I’ve never seen before.” Joint ventures are also gaining traction, with some private equity firms exploring partnerships with large nonprofits to expand their reach and impact.
This evolving dynamic further shapes IDD Services Investment Trends, as the traditional lines between nonprofit and for-profit blur. “There are some ‘not-for-profit for-profits,’” Pettit said. “They are viable competitors with boards willing to pursue major transactions. Their tax status is different, but that’s about all.”
Technology’s Promise—and Limitations
Technology is another area that shows promise for the IDD space, but not without caveats. While DiStefano dismissed remote monitoring and telehealth as “table stakes,” she acknowledged that innovative tech—especially in care coordination, data management, and family engagement—could offer real value.
Still, for many operators, technology takes a backseat to more pressing needs. “My No. 1 mission is recruitment and retention,” Mainez said. “Technology can enhance services, but it won’t solve our wage crisis.” For IDD investors, tech is part of the long game, not the immediate answer.
The Road Ahead
The IDD industry is undergoing profound transformation. From changing CMS standards to rising nonprofit consolidation, IDD Services Investment Trends point toward a sector that is growing in sophistication, complexity, and opportunity. However, entering this space requires more than capital. It demands a deep understanding of regulatory environments, workforce dynamics, person-centered care, and operational resilience.
The best-positioned investors and partners will be those willing to go local, get hands-on, and invest not just in infrastructure, but in people. As the field continues to evolve, those aligned with the mission of inclusive, high-quality care will not only see returns—they’ll help shape the future of IDD services in America.
