Tying ROI to operations and compliance in Behavioral Healthcare

Doing business in behavioral healthcare (BHC) is not only challenging, its changing. We collectively face uncertainty in all stakeholder arenas: government, payers, non-profits and private treatment centers. Provider organizations must carefully model a financial strategy that aligns with our shifting landscape. As we explore the connection between operations and your bottom line, I'll reference to how private investors responsible for returns write their playbooks.

Private Equity (PE) is bullish on investing into the space. According to a 2024 JAMA Psychology research study, PE owns almost 25% of the behavioral health market share in some states, such as Colorado, Texas and North Carolina.

Many are concerned about the growing presence of PE in BHC. We recognize these concerns but also see great opportunity in leveraging the expertise of investors and financial professionals who care about solving the problem. It is irresponsible to over-generalize PE, and far too often I hear chatter about how all PE groups are only after a growing margin and big returns. Profits are a PE priority, but these groups can also play a critical role in raising the standard of safety and quality in behavioral health (our company mission) and expanding services in underserved communities.

Well resourced, organized programs operating effectively are often able to deliver higher quality of care than many of the founder owned organizations now struggling to keep their heads above water. Many treatment center founders are passionate about serving the need but often lack financial and business experience, a necessary ingredient for sustainability and growth. In many cases documented operational systems and compliance programs are non-existent. This all too common approach breeds reactivity over proactivity posing more risk and costing more dollars long term.

With payer priorities shifting, workforce issues escalating, and the costs of most products and services increasing, owners and operators must identify innovative ways of running their treatment centers effectively. Adapting to market changes can be quite difficult, especially when a company has been living large on out of network reimbursements and operating on business practices 10-15 years behind the curve. The wonderment around A.I. brings both excitement and uncertainty about what will change, what will work, and what won’t. Inspiring institutional buy-in to adopt new technologies and systems is an uphill battle for most C-suite leaders in our space. It may feel challenging, but we're here to provide insight and resources so you can get ahead in the game.

1. Most treatment centers still use fractured, analogue systems for operations and compliance (spreadsheets, pen & paper, binders). This multi-faceted problem ends up costing money: inflated payrolls, fines, and consulting fees. Some programs get shut down due to lack of leadership oversight or because an individual no longer employed by the organization gate kept the compliance data. One of the PE groups we work with, Eagle Capital Health Ventures, takes a targeted approach to operational efficiency and compliance in a way that tangibly impacts their bottom line. They have access to operational and compliance data in real time, guiding decisions and growth plans. Simply put, Eagle Capital invests in quality, operations and compliance and celebrates the return. PE understands the ROI of automation and perpetual compliance and doesn’t hesitate to invest accordingly. You should too.
2. Staffing issues create a two fold burden: lack of available inventory and increased demand for compensation and benefits. You have a harder time finding workers and they want (and deserve) higher pay. Payroll costs are high. We recommend you implement technology and A.I. solutions to automate workflows, reduce overstaffing, and collect both quantitative and qualitative data so you can improve as an employer and as a business. With this approach you increase margin and de-risk the inevitable future reality: employees move on. When they take their years old operations and compliance tracking spreadsheet with them, things get expensive. With an effective, properly implemented tech stack, you are positioned to widen margins short term and set yourself up for success long term. A service based business trades money for time. If you can reduce time and labor costs and increase quality you are winning. In a recent case study conducted with one of our customers, Valiant Living, our software has reduced their administrative time spend 40-50%. They are winning. Refer to my previous article to learn more about proactive ways of managing your workforce.
3. Tighter margins point to a need for higher volume. Consolidation in other healthcare sectors such as Dialysis and Kidney care point to a similar trend in BHC. PE has the capacity to roll up smaller treatment centers running on tight margins and pool resources to reduce operational costs and increase margins. Founders can celebrate strategic partnership and shift focus away from making payroll and back on quality of care. If you’re struggling to see a path towards sustainability based on reduced margins, now may be a good time to evaluate an acquisition. We help prepare organizations for acquisition and can show you how to make progressive changes that will maximize your exit value.
4. If your vision includes an eventual sale you should be planning years ahead. Our consulting services division conducts due diligence assessments for investors and buyers of treatment centers. With great confidence we can say your valuation will ride on the ability to demonstrate a systematized operation that is dialed in on compliance. You may be excited to show how strong your quality of earnings are, but if you can’t show years worth of compliance data in a well organized fashion you should anticipate a lot more questions or even the cold shoulder. It is never too late to address and update organizational systems. Now is the time to act.

Much of our industry runs on outdated or non-existent systems that end up costing an organization more than it is saving them. Now is the time to reevaluate the way your organization operates so you can embrace the future with clarity and confidence.