The behavioral health sector has long been at the intersection of care and policy. As the demand for mental health services increases, so does the pressure on policymakers and regulators to address the challenges faced by behavioral health providers. However, recent developments show that this sector is facing a significant challenge: the entanglement of politics, regulation, and scrutiny over private equity involvement in health care.
This dynamic, which includes both the public underinvestment in mental health and the increasing regulatory oversight of health care dealmaking, poses potential threats to the continued growth and innovation in behavioral health services. As these issues come to the forefront, experts argue that now more than ever, behavioral health providers must ramp up their advocacy efforts to ensure they remain part of the conversation and help shape the future of their industry.
The Current Regulatory Landscape: A Complex Web of Oversight and Scrutiny
The behavioral health industry is experiencing a moment of intense scrutiny, particularly around the role of private equity in health care transactions. In recent years, private equity firms have increasingly invested in health care, including behavioral health providers. However, this has raised concerns about corporate greed and the impact of such investments on the quality of care and overall accessibility to services.
At the federal level, agencies like the U.S. Department of Justice and the U.S. Department of Health and Human Services (HHS) have begun reviewing health care dealmaking practices with a particular focus on the role of private equity. These agencies are examining whether such investments are driving up costs, reducing competition, and ultimately undermining the quality of care. Additionally, several states have introduced or are considering laws that would require the disclosure and review of health care deals, including private equity-backed acquisitions.
The implications of these regulatory changes for behavioral health providers are significant. On the one hand, greater scrutiny could help ensure that providers are operating ethically and that services are accessible and affordable. On the other hand, it could also lead to additional barriers for providers, especially those looking to expand through mergers and acquisitions (M&A). Lengthened timelines for deal approval and increased compliance costs are just a few of the challenges providers face as they navigate these regulatory shifts.
The scrutiny on private equity has been further heightened by high-profile cases like the implosion of Steward Health Care. The controversy surrounding Steward Health Care has sparked political debates and legal battles over the role of private equity in health care, culminating in the introduction of the “Stop Wall Street Looting Act.” This bill would introduce more stringent regulations on private equity’s involvement in health care, including oversight of property sales and workforce regulations.
The Need for Behavioral Health Advocacy: A Call to Action
Despite the ongoing regulatory pressure, many experts believe that the power to influence the direction of these regulations lies within the behavioral health industry itself. Jenni Lohse, the Chief Legal and Administrative Officer of Aware Recovery Care, highlighted the importance of a unified, rational public advocacy effort in the sector. She emphasized that the industry must actively engage in discussions about the need for flexibility in ownership models and the ability to innovate within the regulatory environment.
“There needs to be a rational public advocacy argument we should all be participating in — whether it’s public, private, or industry — about the need for more flexibility for innovation in this space,” Lohse said during a recent panel discussion at INVEST 2024.
This advocacy must go beyond simply pushing back against regulations that may stifle innovation. It should also focus on advancing the conversation about what flexibility in ownership and operational models can look like in a way that benefits patients, providers, and the broader healthcare system. This will require collaboration across the private sector, non-profits, and public health entities to present a united front on what changes are necessary to improve care while maintaining financial sustainability.
The Impact of Medicaid Rates and Local Advocacy Efforts
One of the most significant areas where advocacy can make a direct impact is Medicaid, the joint federal-state health insurance program for low-income individuals. Medicaid is administered at the state level, which means that state policymakers have significant control over reimbursement rates and other key aspects of the program.
Darren Patz, a partner of government affairs and public policy at DLA Piper LLP, pointed out that the key to success in behavioral health advocacy lies in engaging with state lawmakers. “If you don’t have a seat at the table, you’ll end up on the menu,” he said. Local advocacy efforts have the potential to bring about changes in Medicaid rates, which could have a profound impact on providers’ ability to operate sustainably and expand their services.
Patz also noted that these advocacy efforts can be factored into the dealmaking process. For instance, if a behavioral health provider is looking to acquire a new facility or expand into a new market, positive outcomes from advocacy efforts such as Medicaid rate increases could be leveraged to make the deal more financially viable.
However, even in states where Medicaid reimbursement rates are favorable, other regulatory challenges can arise. For example, local restrictions on staffing ratios or the types of clinicians allowed to provide certain types of care can severely limit the profitability of a deal. Amanda Verrastro, the Chief Compliance Officer of Pyramid Healthcare, explained that these regulatory constraints can turn what might appear to be a lucrative deal into one that offers minimal profit.
This highlights the importance of both local advocacy and careful strategic planning when it comes to navigating Medicaid’s complex regulatory landscape. Providers must be proactive in engaging with lawmakers to ensure that they are advocating for the rates and policies that will allow them to deliver the highest quality care while maintaining financial viability.
The Complexities of Behavioral Health Regulation: Preparing for Future Advocacy
As the behavioral health industry continues to grow and evolve, it is clear that the regulatory environment will continue to be a significant challenge. Providers must be prepared for increased scrutiny of their operations, particularly around private equity investments, dealmaking practices, and Medicaid policies. At the same time, they must advocate for policies that support innovation and allow for greater flexibility in the way they provide care.
Verrastro suggested that one area where advocacy could be particularly effective in the future is in smoothing out the differences in Medicaid processes across states. The behavioral health sector is incredibly fragmented, with each state having its own rules, reimbursement rates, and Medicaid processes. Standardizing these processes could go a long way toward helping providers navigate the complexities of the system and improve care delivery in a more efficient and cost-effective manner.
Patz also called for changes at the federal level, particularly with regard to Medicare. He hopes to see Congress address the budget-neutral mandate of the Medicare Physician Fee Schedule, which requires physicians to take reimbursement cuts every year. If this mandate were removed, it could have a significant positive impact on physicians and providers in the behavioral health sector, making it easier for them to sustain their practices and serve their patients.
The Promise of Telehealth and Teleprescribing
Looking ahead, Lohse highlighted the potential of telehealth and teleprescribing to transform the behavioral health sector. “It works. It has brought access to so many Americans in so many underserved communities and rural communities,” she said. Telehealth has proven to be an invaluable tool, especially for behavioral health, where access to care can often be limited by geographic and financial barriers.
However, Lohse stressed that the sector is still grappling with regulatory uncertainty around telehealth and teleprescribing. “We’re missing a golden opportunity,” she said. Advocates must push for more consistent and supportive policies around these services to ensure that they continue to expand and meet the needs of underserved populations. If behavioral health providers can overcome the regulatory barriers to telehealth, it could become a game-changer for millions of individuals who otherwise would not have access to quality mental health care.
Conclusion: The Need for Action
The behavioral health industry is at a crossroads. With increased scrutiny over private equity involvement, state-level regulatory challenges, and growing demand for mental health services, the sector must take action. Advocacy will be crucial to ensuring that providers can navigate the evolving regulatory environment and continue to innovate in ways that improve access to care. By actively participating in the political discourse, pushing for changes in Medicaid and Medicare, and advocating for telehealth and other innovative care models, the behavioral health industry can ensure that it remains a vital force in the health care landscape. The time to act is now, and the power to shape the future of behavioral health lies in the hands of the providers who are willing to step up and advocate for change.
