Ripe or rancid? How to tell a good behavioral health acquisition from a rotten one

By Patrick Pilch and Bill Bithoney

This piece is excerpted from Behavioral Health Magazine’s Deal Insider Blog. Read the full article here.

Investors rightly recognize great potential in the behavioral health and substance abuse (SA) treatment market, but sorting out good investments from bad requires more than just a cursory squeeze of the fruit.

The problem is some SA treatment methods are rooted in ideology, not science, even though the evidence base for treatment today is growing. Of 59 alcohol and other SA treatments rated by experts in 2006, 21 were “probably” or “certainly” discredited. Only five were deemed either “not at all” or “unlikely” discredited, according to a Professional Psychology: Research and Practice article.

That’s a big risk for investors because as insurers move to reimburse only for outcomes and for evidence-based treatments, providers offering unproven treatments won’t get paid. Revenue projections that don’t take clinical evidence and due diligence into account may be grossly incorrect. Risk-based payment models already make up 20 percent of Medicare reimbursements, and the Department of Health and Human Services plans to increase that to over 50 percent by 2018. Medicaid and private insurers, too, are moving rapidly to outcome-dependent payments. At some point, we’ll see reimbursement clawbacks at SA providers that haven’t proven their value.

To avoid bad investments – and to identify less-obvious good ones — it is critical that investors perform prospective due diligence on any potential behavioral health acquisition, including culture, operations, future processes and, of course, future reimbursement scenarios.

Without this, investors could find themselves either stuck with a bad apple, or left hungry while others snap up investments ripe for growth.