Why is this sector of healthcare appealing to investors?
Knier: Arguably, the biggest factor that makes this sector attractive is an explosion in need for autism services. In just the past few years, there’s been a massive increase in the prevalence of children diagnosed on the autism spectrum. At the same time, families have been advocating strongly for insurance coverage for autism treatment, which historically was paid for out-of-pocket. Because of this combination of growing demand and strong advocacy, commercial health plans, as well as Medicaid, now provide reimbursement for autism services, making them available to more people who need them.
The sector is also attractive because of extensive provider fragmentation. A huge portion of the provider space includes clinicians who’ve launched businesses out of their homes and grown them to the point where they could benefit from a strategic partner and capital to support further expansion. Also, with insurance now covering these services, such businesses have gotten much more complex. It’s a lot harder to deal with reimbursements from insurance companies than just collecting payment directly from the families they serve. There are a lot of these businesses that are well-suited for buying and rolling up into a robust platform, and that’s generating significant excitement and interest among the private equity community.
Scholl: We’re seeing aggregators coming into the market to acquire these small clinician-owned businesses and apply more sophisticated business practices—especially in revenue cycle management, monitoring and driving clinical care and outcomes, and creating strong brands that resonate both locally, with the families seeking the services, as well as with the payor community. In fact, the payor community is likely to be even more important over time. As providers scale and can differentiate themselves in their sophistication and clinical efficacy, I would expect payors to start to narrow their partnerships or networks to some of the larger platforms that can effectively engage with them.
How does the autism sector compare with other behavioral healthcare sectors from an investment perspective?
Scholl: Currently, the autism sector is the second-smallest in the broader behavioral health market; with a $15 billion market size, it’s larger than only the $3 billion eating disorders segment. However, the three sectors autism trails—acute psychiatric care ($23 billion), substance use disorder ($32 billion), and intellectual or developmental disabilities ($65 billion)1—are far more established than the autism sector, which only recently has begun to experience significant growth. With burgeoning demand and the most positive outlook for reimbursement of any of the sectors, the autism services sector has the strongest growth potential and is poised to close the gap with the more mature top three in the coming years.
Knier: Compared with other behavioral health segments, autism tends to attract investors with experience in education or psychology. The care continuum is another difference. Unlike eating disorder or substance abuse patients, who typically receive services for 30 to 120 days, autism patients may be under treatment for years, usually beginning early in life. Services typically focus on early intervention with the patient, as well as on teaching primary caregivers to help their children. Then, as patients age, education becomes a core component of youth and adolescent therapy. The subset of patients who are unable to cope in a mainstream environment may require different services, including housing, as they become adults.
Scholl: More than in any other behavioral health segment, experience in the education sector is a critical attribute for operators, as is the ability to recruit and manage those with experience in Applied Behavioral Analysis (ABA) therapy. Also, like other sectors, differentiating on outcomes will be increasingly important as the segment matures.
What do you see as keys to building a differentiated autism treatment business?
Knier: The leaders in this sector are those that excel in consistently and quickly replicating their market expansion strategy. And that takes investment in infrastructure—the systems, tools, and processes to help support a more scaled business. That includes all the things that bigger healthcare companies have, such as a formal financial system—not just QuickBooks—and electronic medical records capabilities. The strongest platforms in the sector have the infrastructure in place that can enable them to grow to several times their current size, with the right strategic partner and capital behind them.
Scholl: Investing in technology is a particularly important issue because we’re talking about very, very data-rich businesses, especially on the clinical side. When working one-on-one with a patient, technicians typically carry an iPad, or a similar tablet, which they use to continually enter data in real-time throughout the day on the specific therapy provided and how the patient reacts. This is critical to being able to capture and measure clinical outcomes. And, as autism incidence rates rise and more people become eligible for coverage, providers will be subject to more and more scrutiny because, currently, there are no specific outcome standards to measure success. As such, a culture of compliance and strong clinical data-tracking capabilities are big differentiators for platforms over mom-and-pop providers. Those factors are going to be increasingly important as payors focus more attention on outcomes when negotiating reimbursement rates.
Knier: Just as in any successful business, people are key to a differentiated autism treatment business. That starts with a strong management team, which includes top-notch clinical leadership, such as a chief medical officer, who has a background in clinical research and also can manage a disparate workforce of clinical staff; board-certified behavior analysts (BCBAs), who are experts in administering behavior analysis treatments in a healthcare environment and have a master’s degree, or higher; and leaders who have experience in consistently rolling out new office openings over the course of a year, possibly in another multi-site healthcare sector such as physical therapy or dental.
Scholl: The technicians—the people who actually provide one-on-one, frontline therapy—are also vital, because, without them, you can’t treat patients. They have a really difficult job because the patients they’re treating for several hours a day have complex disorders and challenges. Plus, families tend to get incredibly attached to the technician who’s caring for their child. So, it’s really important to have a strong retention program in place to keep technicians, and a formal career path that enables them to advance—even into a BCBA role, if that’s something that interests them.
To learn more about autism services and other behavioral health sub-sectors, see Behavioral Health: From Stigma to Status Quo.
Published March 2020