The announced $1.18 billion CRC buy went over well with Acadia investors yesterday. The transaction will bring its number of facilities to more than 200.
“Nevertheless, Acadia is big and will be even bigger,” says Dexter W. Braff, MBA, president of the Braff Group.
Ted Jordan, MBA, managing director, Behavioral Health and Social Services for the Braff Group, says investors quickly realized that the deal would be beneficial to Acadia. Its stock was up 14 percent byafternoon, less than 24 hours after the deal was announced. And the CRC buy makes sense because Acadia’s initial focus was in psychiatric facilities, and only later did it make some inroads into the SUD market.
“This instantaneously gives them a national presence in substance abuse,” Braff says. “It’s a great transaction.”
Braff also says high-profile, high-dollar transactions like this, in which premium private equity groups are involved, further prime the pump for more equity to come into the industry. In the past five years, more and more investors have sought to establish a toehold in behavioral healthcare, and the Acadia-CRC deal will only increase the visibility of the space. The more merger and acquisition activity, the better the environment for investing, he says.
But smaller providers don’t need to panic.
“From a competitive standpoint, this takes Acadia, which is an 800-pound gorilla, to a 900-pound gorilla, but in healthcare in general, size does not tend to squeeze out smaller players,” Braff says.
For example, patients access care individually, rather than en masse. Therefore, a small, single-site provider in a local community has as much potential to bring in a new client as a facility that is owned by a significantly larger, national company.
Jordan says services tend to be marketed under their facility names. In other words, a consumer seeking a partial hospitalization program might find Ohio’s Ten Lakes Center, rather than its owner, which is Acadia Health.
“In a national contract market, there would be a very limited number of providers that could meet those coverage needs, other than big national providers like Acadia,” says Braff. “But that is not in place now. There aren’t national contracts.”
Larger organizations often have the advantages of economies of scale. And the Affordable Care Act has certainly increased the demand for all types of health services, calling for increasingly more scale. Industry observers question how far the merger and acquisition activity will go in behavioral health.
“This merger is clear evidence of the trend in healthcare toward large, efficient organizations with resources and reach,” says Kevin Turner, principal, Perkins+Will.
Turner says the real question for the industry is whether these large organizations can have more influence. A stronger voice is needed to draw support for behavioral health in the larger healthcare landscape and the political arena.
“Is Acadia bigger than ‘bigger?’” he asks.
Being big isn’t necessarily a guarantee of success, though. Look back to February 2000 when then-giant Charter Behavioral Health Systems filed for bankruptcy. Charter had previously operated 90 psychiatric hospitals and treatment centers but began crumbling when a real estate investment trust deal saddled it with heafty fees at a time when insurance reimbursement was declining. A Medicaid fraud investigation and allegations of patient abuse didn’t help matters. At the time of its filing, Charter listed $50 million in assets and $100 million in debts.