There is a whole stream of new private equity investments happening in health care— PricewaterhouseCoopers reports $624 billion in private equity invested in health care (see Private Equity: Healthcare’s New Growth Accelerator). Historically, many of the for-profit investments in the field have been in the private pay, non-public side of the field. But now these investments are crossing over into Medicaid and Medicare services—in the sectors affecting consumer with complex needs like behavioral health, autism, and developmental disabilities.
As a result, out-of-industry investment funds are starting to reshape the sustainability and strategy of non-profit organizations in the space. That was the theme of the session, The Capitalization & Integration Of The US Behavioral Health Market, delivered by Matthew M. Dorman, Chief Executive Officer of Credible Behavioral Health Software at the 2019 OPEN MINDS Performance Management Institute.
If you aren’t familiar with the outside investors that are coming in the health and human service space, there are a myriad of examples. Consider the $100 million acquisition of DaVita’s Paladina Health by venture firm New Enterprise Associates (see Venture fund buys DaVita’s primary care business for $100M), and the $350 million investment in primary care provider One Medical by private equity firm The Carlyle Group (see One Medical Raises $350 Million From Carlyle Group). An investment consortium led by private equity firm Summit Partners (see Sound Physicians Sold To An Investment Group Led By Private Equity Firm Summit Partners & Optum) also recently purchased a controlling interest in Sound Inpatient Physicians Holdings, LLC (Sound) from Fresenius Medical Care for $2.15 billion. (For even more, check out Top 5 Healthcare Mergers Of 2018, The Ten Biggest Private Equity Deals In Healthcare In 2018, and 6 Major Hospital Merger Deals Making Headlines In 2018.)
These organizations are changing the sustainability of traditional provider organizations in several ways—with new service offerings, investment capital for technology and marketing, pressure on fees, and the ability to accept value-based reimbursement. Increased competition creates challenges for traditional provider organizations to maintain competitive advantage for their service lines that have a margin.
What are the strategic options for provider organization management teams to consider? Mr. Dorman discussed a few. Simply put, these options fall in two categories—a growth plan or an exit plan.
Growth plan—Provider organizations need to grow to compete with market disruptors and organizations with private equity investments. This plan includes four important steps: metrics to set strategy; strategy to prioritize investment of time and money; executive the strategy; maintain organization strategy, performance, and positioning with metrics. This sounds simple, but it isn’t (see From Metrics To Action-Making Strategy A Reality).
Exit plan—This plan does not mean exit the market. What it means is that a merger or acquisition may be the best plan for your organization to stay in the market, but as part of another organization that can offer the requisite scale. This may come in the form of an acquisition with another local provider organization looking for growth, or in terms of private equity.
So which organizations are “fit” and ready for the challenges of growth? I delved deeply into that question in my recent piece, Is Your Organization Fit For Growth?—the main takeaways were: have clear priorities, pay attention to those priorities, understand customer preference and your competition, and the focus of the management team is on improving those metrics.
The influence of outside capital is likely to continue for a while (see Behavioral Health Continues To Attract Private Equity Investors). For more on some recent activity, check out our coverage:
- TA Associates Announces Investment In Behavioral Health Works
- Civitas Solutions Enters Into Definitive Merger Agreement To Be Acquired By Centerbridge For $17.75 Per Share In Cash
- WellSky Expands Investment In Hospice Technology With Acquisition Of Consolo Services Group
- Lumeon Secures $28 Million In Funding To Accelerate Growth In The U.S. Market
- Chicago-Based Frontenac Agrees To Sell Its Behavioral Health Group To Vistria
- Acadia Closes Deal To Acquire Mission Treatment Centers
- Virginia-Based ncgCARE, Inc. Announces Two Strategic Acquisitions
- Paladina Health Acquires Activate Healthcare, Creating Large Provider Of Value-Based Care
- Pear Therapeutics Raises $64 Million, Launches Prescription App For Opioid Use-Related Addiction Disorder
- Livongo Signs Definitive Agreement To Acquire myStrength To Address Behavioral Health Needs For People With Chronic Conditions
For even more on this important conversation, mark your calendar now for The OPEN MINDS Mergers, Acquisitions, & Affiliations Summit: Best Practices For Non-Profit Health & Human Service Organizations – A Centerstone & OPEN MINDS Collaboration, on August 12, 2019 in Long Beach, California.