The new trend in autism care — private equity investment
Autism strikes 1 in every 44 children, according to Centers for Disease Control estimates, including as many as 52,000 kids in North Carolina. There’s no cure for autism, but research shows it can be treated if care is available. It’s a crisis that’s gotten Wall Street’s attention.
You see that at a clinic in Chapel Hill where an effervescent 4-year-old named Samuel is preparing for school. He likes to sing and dance and run around but Samuel — that’s not his real name — isn’t like most kids. He has autism. It’s a neurological disorder which affects his ability to communicate and interact with others. And it meant he couldn’t handle nursery school.
Research shows therapy can help children with autism live better lives.
Samuel’s getting care at a Hopebridge Autism Therapy Center. It’s part of a growing chain of clinics, including two which will open in Charlotte in the next 18 months. Samuel gets therapy 30 hours a week so he can develop the verbal and behavioral skills necessary to return to school.
Other kids here aren’t able to speak at all. Like one 3-year- old girl at the clinic, who’s learning to communicate by punching buttons on a machine.
These kids don’t know it, but they’re part of a shift in health care. Private equity is fueling the growth of mental health treatment.
Private equity companies invest money for wealthy individuals, university endowments and pension funds hoping to make more than they can in the stock market.
In 2015, private investment in behavioral health totaled $120 million. Five years later, that number had grown to $1.2 billion, according to an industry analysis of data from the private equity database, Pitchbook.
Why invest in autism? The demand for services is huge. The number of people diagnosed with autism has more than tripled in the last twenty years, according to CDC estimates.
And after years of lobbying by parents and advocacy organizations, all 50 states now require insurers to pay for autism care. In 2014, the government told state Medicaid programs they have to cover it too.
That combination of demand and guaranteed payment has fueled the interest of private equity companies, said Kevin Taggert, who heads a firm that puts together the deals.
“Insurance companies started paying for the service,” Taggert said, “and then the demand for whatever reason, it seems like more and more kids are getting autism, unfortunately.”
Investor interest became almost “frenzied,” he says. Hopebridge founder Kim Strunk agreed.
“I get emails on a weekly basis, you know people that are interested in sponsoring,” Strunk said. “It’s a little crazy sometimes.”
It’s been a long road for Strunk. An occupational therapist by training, she learned about Applied Behavior Analysis 17 years ago, as she was searching for a way to help her autistic patients. Today, ABA is considered one of several proven autism treatments.
In the early days, Strunk had to grow the business with the support of local backers.
“The very first group of sponsors we had was some local families in Indiana who just saw what we were doing, identified with the mission, and wanted to participate.”
But when private investment company Baird Capital acquired Hopebridge in 2017, it quickly doubled the number of clinics before it sold out 18 months later. The private equity database, Pitchbook, says the deal was worth $255 million.
The buyer, Arsenal Capital Partners, added more than 60 clinics in just two years. And it will open another 40 centers this year, expanding into Alabama, Tennessee, Oklahoma and Arkansas, as well as North Carolina — all states where Medicaid reimbursement for ABA therapists is more than the national average.
“In order to really grow at the rate we’re growing you’ve got to have some capitalization,” Strunk said. ”You just have to be very careful and you have to be very choosy, that their goals are not going to compromise any of the quality of care that you’re providing.”
Hopebridge won’t be the first private equity backed ABA provider in North Carolina — or even the largest. Several have clinics in Charlotte, with names like Alternative Behavior Strategies, Autism Learning Partners and BlueSprig — all backed by private equity companies.
All that investment means care for thousands of kids who would otherwise go without because there’s a nationwide shortage of therapists. In North Carolina, 15,000 people are on a waitlist to get help through a special Medicaid program for the severely disabled, according to the Autism Society of North Carolina. Their average wait for help is 10 to 11 years, the group says.
Private investment has been critical said Lori Unumb. She headed the effort to get insurance companies to pay for ABA at the advocacy group, AutismSpeaks.
“They’ve brought much-needed capital into the field. They brought efficiencies into the field that were sorely needed because historically in the ABA world it was all these clinically-trained do-gooders who didn’t know a thing about running a business. “
But private equity companies typically want a 300% return on their investment when they sell, usually five to eight years later. One way they can do that is by growing the business, says Taggert. And behavioral health is particularly attractive because it doesn’t take a whole lot of money to do that.
“If you’re Tesla, and you want to build a new battery factory, it’s awfully expensive to do that,” Taggert said. "You don’t have the same challenges in any of the behavioral space.”
They also increase revenues by cutting costs. So they combine the billing, legal and human resources departments of a number of practices to cut wasteful overhead. And they invest in software to make sure insurers get billed promptly.
But Unumb, who’s also the mother of an autistic child, worries that the incentive to make money could mean cuts that affect care. And she says she’s seen that — although not in North Carolina. She tells the story of a private banker who warned potential new ABA investors not to cut the number of therapy supervisors too much to save money:
“He said 'I know they’re expensive but for every 40 or 50 additional kids you bring on, you got to have another one' well, I nearly fell out of my chair," Unumb said. "You need a new one for every 10 or so. And so I was just, I was horrified.”
Now Unumb is the CEO of the Council of Autism Service Providers which will launch an accrediting organization to set standards, and help parents ask the right questions — like what staffing ratios they should expect, and how much training therapists should get. Those are questions that parents of newly diagnosed children forget to ask, because they’re usually desperate to find any care at all.
CORRECTION: A previous version of this story incorrectly identified what organization Lorri Unumb is the CEO of. Unumb is the CEO of the Council of Autism Service Providers. The error has been corrected.