Maureen Werrbach 00:00:00  Hey there! Welcome back to the Group Practice Exchange podcast. Today’s episode is one that’s incredibly important for anyone running a group practice or considering where the mental health industry is headed. We’re talking about the growing impact of private equity and insurance companies on group practices, and what this means for you as a small business owner. 

This episode is sponsored by Therapy Notes. Therapy Notes is my favorite EHR, and it’s one that I’ve been using in my own group practice since 2014. They’ve got everything you need to be successful in your group practice, and they’re constantly making updates and have live support. If you want two free months of therapy notes, go to Therapynotes.com/r/thegrouppracticeexchange.com. 

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Maureen Werrbach 00:01:11  Green Oak is set apart from the rest by their deep industry knowledge and top notch advisory and CFO services. Plus they offer traditional accounting services like bookkeeping, tax prep, valuations and so much more. Here’s what’s in it for you: peace of mind, financial clarity, and the potential to significantly grow your practice and profits. In fact, Green Oak has the most impact with practices looking for financial guidance when leveling up thanks to their CFO services. And they’re not just about crunching numbers. They also offer a mix of resources like the therapy for Your Money podcast, The Profit First for therapists book, and self-guided courses to keep you informed and empowered and growing your practice. Ready to transform your practices financial health visit greenoakaccounting.com/tgpe to explore all that they have to offer. Green Oak Accounting, your partner in financial prosperity. 

I want to start by looking at the bigger picture. There are four major trends that are shaping mental health right now that I want to talk about. Of course there’s more trends than this, but these are the four that I want to sort of talk a little bit about in today’s episode. The first is post-Covid demand. The need for mental health services has exploded since 2019, with the CDC reporting a 27% increase in utilization. But at the same time, referral rates are slowing down since 2024. This means while demand is high, practices are competing harder for clients, and that comes largely at the expense of just visibility. Because these larger companies have absorbed so many practices, their visibility is much higher and the small brick and mortars just have less visibility, even though there hasn’t been a reduction in utilization. Two is the consolidation surge. Private equity firms and insurers are rapidly buying up mental health practices. In some states, like Texas and Colorado, they control over 25% of the market, and this trend doesn’t look like it’s slowing down.

Maureen Werrbach 00:03:45  We’re expecting more mergers and acquisitions in the next couple of years. There was a little bit of a dip in 2024 because of interest rates, but it’s looking like private equity firms and insurance companies will be back added at a higher sort of pace in 2025. Technology disruptions. So AI is shaking things up. Companies like Cigna are already using AI to manage mental health cases, and we’re even seeing AI driven therapy bots emerging. I know there’s one on Instagram that is using information from very popular therapy Instagram accounts, as well as places like BetterHelp, the recordings from sessions from BetterHelp, and places like that. While this might feel far off, it’s closer than we think and could really impact how clients interact with mental health care. And then lastly, values based care, which I’ve talked a lot about. We’re seeing a shift towards outcome based measurement models, and this means that practices are being judged and paid based on results rather than number of sessions. And while this can improve care, it also puts a lot of pressure on practices to track and prove outcomes.

Maureen Werrbach 00:04:52  And the age old question that we’re seeing around values based care and reimbursement is who is dictating what value means. Each of these trends has ripple effects, especially when we start talking about private equity and insurance companies stepping in. All right. So I want to talk about private equity first. And then we’ll talk about insurance. So talking about private equity, what are they doing in the mental health space and why does it matter to us? So I wanted to share a little bit about how private equity as a whole works. So a private equity firm buys up multiple small practices, merges them into one larger organization, and uses that larger size to drive up the valuation. So as an example, let’s say that they buy ten practices who each have an arbiter of $1 million, right? Each practice is valued at three times a beta in my example, meaning they are worth $3 million. Once merged, they can now value the new entity, which is ten practices. That is $3 million a practice or three times a beta.

Maureen Werrbach 00:05:59  They now can resell that larger practice that merged and practice private equity firm and now sell for eight times a beta. So instead of a 30 million value, they’ve created an $80 million company without actually having to grow the individual practices organically. And the way they can do this is because the larger a business is, the less risky it seems for the next buyer, because it’s quote unquote showing proof that the business is working. So after holding on to this larger organization for a few years, the P firm will then sell at the higher valuation and make a huge profit. But for the practices they’ve acquired, the story isn’t always so rosy. So what does this mean for small practices is that it increases competition, which I don’t like to use the word competition because there’s more than enough need, but it definitely monopolizes on the industry and gives clients less options to choose who they see independent practices and struggling to become visible against these larger, well-funded organizations. And profit driven changes play a key role here. So once a practice is acquired, PE firms often prioritize profits over patient care for the sake of valuations and making stakeholders happy so that when they resell, they can resell at a much higher multiplier.

Maureen Werrbach 00:07:21  And so PE firms will often prioritize profits over care. And this can mean higher workloads or fewer benefits, or a shift in culture that can impact staff retention and satisfaction. One example of this is through a company that was backed by Optum. Once they expanded their network, there was a reported 12% drop in patient satisfaction because of operational changes. And this is not uncommon if you talk to other practices that have been acquired by large PES, you’ll see this as a common denominator. This isn’t to say that all involvement is bad, but it’s a reminder to stay informed and prepared if you’re running your practice and how it’s impacting you now, but also in your future. When it comes to selling. Now I want to switch over to the role of insurance companies for a few minutes. So insurance companies are also making moves in the mental health space, and their strategies are just as impactful. So why we’re seeing insurance companies investing in mental health, not from the insurer side, but from the buying group practices side is one vertical integration, and that’s a concept that essentially is sort of a backdoor way for insurance companies to make more profit because they are legally bound to not profit more than 15 to 20%.

Maureen Werrbach 00:08:37  This is just a federal law for insurance companies that 80% of whatever they make is supposed to go back to the member care, 20%. They’re allowed to profit through the concept of vertical integration. They can own practices as sister companies, and the insurance companies can then essentially control every step of a client’s journey from, like who they go see, write their own practices and their cost containing so they can minimize leakage by steering patients over to their own facilities and controlling expenses. They end up having data access. By owning practices, they gain access to valuable patient data, which can be used to shape their strategies further along in the future. So what does this mean for independent practices like ours? It one means it’ll be a little bit tougher. Insurer owned practices will often get better reimbursement rates because they can pay their own practices that they own higher rates. Now, that doesn’t mean they’re going to pay their clinicians more. That’s where they’re going to make their profits. But it’s going to make it harder for independent providers to compete in that, because it’s likely that they begin to stop accepting other providers into their networks other than their own patient steering.

Maureen Werrbach 00:09:52  Because patient insurance companies can direct patients to their networks, it can leave smaller practices struggling to attract new clients. And then ultimately, what the goal for all insurance companies is values based reimbursement and values based care. Independent practices are going to meet stricter reporting and outcome requirements, which can feel overwhelming, especially if they don’t have the resources that larger organizations have. All of this can create a challenging environment for smaller practices, especially those relying heavily on insurance based revenue. So how can we adapt to this? How can we navigate these challenges? And how do you not only just survive, but actually thrive in this changing landscape? One. Get clear on your niche. The first step is knowing who you serve and doing it exceptionally well, and it’s something you have control over. Specializing in specific client populations or services can make it easier to stand out, even in a crowded market. Two focusing on workplace culture, private equity and insurance owned practices can’t always offer the same level of connection, growth, and flexibility that you can invest in building a workplace culture that prioritizes your team and hire people who value that culture.

Maureen Werrbach 00:11:01  Three diversify your revenue streams if your practice is heavily reliant on insurance, start thinking about ways to diversify. This could mean adding private pay options, offering workshops or intensives, or exploring new service areas like telehealth or coaching, or psych testing, or med management. Diversifying those services for embrace collaboration. So this is not the time for scarcity mindset. Connect with other practice owners, share resources, and even consider partnerships their strength in numbers. And I truly believe that the way that we can kind of move through this and stay independent small practices is by connecting with other group practice and solo practice owners and to support one another. Five prepare for values based care. Start tracking client outcomes now in a way that aligns with your practices values. Even if you’re not in values based care model yet, having the data will position your practice for future success, and it can help you be able to be a part of creating the narrative around what value means, so that insurance companies aren’t the only ones doing it. And then lastly, joining professional coalitions get involved in pushing back against policies that disadvantage small practices or not in the best interest of clients.

Maureen Werrbach 00:12:20  Advocacy is a powerful tool for creating change in the industry, and it’s something that I am actively involved in as well because that’s where we have some amount of control to make change happen. One trend I’ve seen is the rise of practices focusing on whole person care. So offering multiple services under one roof to improve outcomes and boost negotiating powers with insurers. So that’s also something to consider if it aligns with your vision. So that’s it for today’s episode, and I hope it gave you some clarity on what’s happening in the mental health space and how you can position your group practice for long term success. If you want to dive deeper into this topic, join the exchange membership. We’re taking these challenges head on with tools, resources, master classes designed specifically for group practice owners. If you’re not yet a member and you’re missing out on this access, you can head over to members at the Group Practice exchange.com to join. Thanks for hanging out and I’ll see you next week. Thanks for listening. Give us five stars on whatever podcast streaming service you use, and I’ll see you next week.