The impact of COVID-19 has been unprecedented and staggering, with behavioral health services witnessing a positive demand shock across the U.S. during the pandemic period. Demand for behavioral health services jumped significantly in 2020, with a sharp rise in suicide attempts and drug overdoses. According to a report by McKinsey & Company, the US saw a 50% increase in the prevalence of behavioral health conditions as a result of the COVID-19 pandemic.
In 2020, mental health providers faced decreased revenues and increased costs, all as demand spiked. Clinicians who had in-person daily visits witnessed a devastating income loss owing to the stay-at-home restrictions imposed. However, many mental health providers adopted telehealth and the rate of patient visits increased along with their income.
A recent study from the RAND Corporation found that as many Americans experienced significant psychological distress in the first month of the pandemic as in all of 2019. A September 2020 survey from the National Council for Behavioral Health showed 52% of behavioral health organizations reported seeing an increase in the demand for mental health services. Industry experts believe this trend will continue throughout 2021.
According to the Substance Abuse and Mental Health Services Administration (SAMHSA), one in four Americans has a mental or substance use disorder. The National Alliance on Mental Illness (NAMI) claims that more than 43 million Americans experience mental illness annually. Also, the National Institute of Mental Health states that 1 in 5 US adults are suffering from any type of behavioral type of health issue. Therefore, the growing prevalence of health disorders has led to a surge in facility visits by individuals demanding services and treatment. A JAMA survey found that there has been a 30% rise in ED visits for behavioral disorders services since 2018. Thus, a rise in the disorder prevalence and visits is contributing to the growth of the market.
The U.S. behavioral health market grew an estimated 11.3% in 2020 to $68.79 billion. The market is projected to grow from $77.62 billion in 2021 to USD $99.40 billion in 2028 at a CAGR of 3.6% over the 7-year period. The sudden fall in CAGR is attributable to this market’s demand and growth, returning to pre-pandemic levels once the effects of the pandemic subside.
The behavioral health industry is divided into 5 segments: behavioral & mental health, substance abuse, eating disorders, trauma/PTSD, and others. Out of these, the behavioral & mental health segment held 49.0% in terms of the market share in 2020.
Source: Fortune Business Insights
Growth Drivers & Trends
Mental health services are growing at a remarkable rate, as favorable policies are being implemented on both the federal and state level. Moreover, the accelerated adoption of telehealth-based treatments for the various disorders has also contributed to the market growth. Other disruptive technologies are expected to stimulate demand, such as virtual assistants, VR, AR, digital consumer experience, diagnostic support, digital phenotyping, and neurological interventions.
Insurance and Payors
Based on the payor, the market is segmented into public health insurance and private health insurance/out-of-pocket.
The public health insurance segment dominated the market in terms of share in 2020 and it is expected to retain its position by the end of 2028. The surging demand for physical and mental health services in the country is resulting in the uptake of insurance coverage under Medicare and/or Medicaid. For instance, companies such as Universal Health Service and Acadia Healthcare receive the majority of the revenue from Medicare and Medicaid types of insurance. For example, in 2020 Acadia Healthcare received more than 60% of its revenue from public health insurance. Moreover, a rise in the facility visit for services is leading to the expansion of the private health insurance segment. Therefore, the imposition of favorable reimbursement policies by the insurance companies and the government is anticipated to mark strong growth in the near term.
In 2021, the behavioral health industry will likely see more federal funding and attention, thanks to the negative impact the coronavirus has had on the nation’s mental health. In late December 2020, President Trump signed into law a $2.3 trillion stimulus bill, which included billions in new behavioral health funding.
Experts predict the Biden Administration will usher in positive changes since Joe Biden has long backed initiatives to benefit the mental health industry. As a strong supporter of the Mental Health Parity and Addiction Equity Act, Biden helped ensure that parity was included in the Affordable Care Act (ACA). Plus, he pushed for substance use disorder (SUD) treatment and mental health treatment to be defined as essential benefits under the ACA. Under the Biden administration, parity enforcement will likely improve; attacks on the ACA will likely cease, and funding for behavioral initiatives will likely increase.
But, more federal funding means more scrutiny from regulators. As such, behavioral providers that accept government payments should anticipate more audits in the years ahead.
The US behavioral health market is fragmented with a large number of large and small companies providing substance abuse and mental health disorders treatments/programs. Many of these players are entering into deals and merger agreements to strengthen their positions and improve their platforms.
M&A activity in the behavioral healthcare services industry moderately increased in 2020, with 111 transactions compared to 103 in 2019. Notably, while other industries experienced a steep pandemic-driven drop-off in deal activity during Q2 of 2020, the Behavioral Healthcare Services industry remained relatively stable. Deal activity saw a YOY increase of 32% in Q4 2020 from Q4 2019 and has remained strong into Q1 2021. As such, 2021 is expected to see a swath of deals in the behavioral space. In the several few days of the year, we’ve already seen at least five deal announcements. That includes Centene’s acquisition of Magellan Health, Odyssey Behavioral Healthcare’s purchase of Shoreline Center for Eating Disorder Treatment, and Summit BHC’s acquisition of Seabrook, just to name a few examples.
A total of 29 behavioral health industry acquisitions were announced in the first quarter of 2021. Ten of these transactions were addiction treatment organizations, 9 were autism service organizations, and 10 were mental health organizations. This is a 9.4% decrease from the fourth quarter of 2020. Of the 29 behavioral health industry acquisitions, 76% were private-equity transactions: three were platform transactions and 19 were add-on transactions. A platform transaction is one in which the private equity group makes the initial acquisition to enter an industry with the intent to then roll up, or acquire other smaller companies.
Among all the key players, Universal Health Services (UHS) represents a significant share in the market owing to its national footprint of facilities across states. UHS also considered the preferred location for the treatment of physical health disorders in the U.S. Acadia Healthcare is also recognized as one of the leading providers having 227 facilities, including primary care, emergency departments, and outpatient facilities across 40 states in the U.S. The incorporation of telehealth technology by these companies and their focus on acquisitions and partnerships to provide services to a large number of the population is anticipated to raise the potential of the U.S. market over the next 3 to 5 years.
Other key players in the space include Behavioral Health Group (Dallas, TX), American Additions Centers (Franklin, TN), American Addition Centers (TN), and IBH (Irvine, CA).
Sources: Fortune Business Insights; https://www.fortunebusinessinsights.com/u-s-behavioral-health-market-105298Capstone Headwaters; Behavioral Healthcare Services Industry Update/February 2021Behavioral Health Business; Top Behavioral Health Trends of 2021, Beyond; January 8, 2021; https://bhbusiness.com/2021/01/08/top-behavioral-health-trends-of-2021-beyond/