Private Equity in Mental Health Care with Dr. Jane Zhu

welcome to Mental Health Evolution, a podcast about what's changing in mental health and why it matters. I'm your host, Rachel Harrison, inviting you into honest conversations with people from all perspectives in the field. Clinicians, tech founders, investors, insurance companies, and all the folks in between. Let's explore what's working, what's not, and what's next.

Hey everyone. Welcome back to the Mental Health Evolution podcast where we are talking about how the landscape is quickly evolving in the mental health industry. Today we are joined by Dr. Jane Zhu, Associate professor of Medicine at Oregon Health and Science University and core faculty in the center for health systems effectiveness. Dr. Zhu's research focuses on healthcare access and quality, particularly for mental health and behavioral health services, as well as provider incentives and organization of care. She has published in top journals, including jama, which is the journal. What does JAMA stand for? Jane, you're.

You're the American Medical Association.

There we go. I knew she'd have it better than I do in New England Journal of Medicine and Health affairs and has contributed to national policy efforts on improving behavioral health access. So as always, I'm going to dive into a couple of articles highlighted in the news so that you have an idea of kind of the background and the step on which we're stepping to have this conversation. So the first one I want to mention is an article called Private Equities Inroads into Mental Health Brain Concern, and this was from Psychiatry Online earlier this year in March, and it discusses the trend of private equity acquisitions in mental health practices. So this article discusses some of the recent data, some of it actually. This article references our podcast guest today and talks about the impact of what happens after private equity firms invest in healthcare. And the pattern is often a focus on increasing costs to consumers and increasing volume. The impact of client care is often of concern as well as staff turnover in mental health specifically. The data shows that anywhere from 6 to 20% of mental health facilities are owned now by by private equity firms. The number varies greatly by state and calls attention to the fact that taking note of this impact on health care is really important. The article states that private equity could be a support to health care, allowing for investment and expansion that could that could provide access to care. The challenge comes when investors need a return on investment of the funds given for expansion and this can put pressure on from the get go and raise prices and increase volume. Secondly, I'd like to talk about another article that talks about the curious case of private equity in healthcare's market failures. And this article examines policy, oversight, and ethical concerns as well. And it talks about, interestingly, kind of the history of policy in this industry. And the Senate Budget committee issued in January 2025 a scathing bipartisan report titled Profits Over Pat that filled with outrages of private equity health care investors. In between, Congress has introduced an assortment of bills, including the Health Over wealth act, which specifically targets private equity investment strategies. Essentially, there are states that have pursued reform, Oregon being one of them, New York, California, and Colorado. But then we have the FTC suit against USAP and Welsh, Carson, Anderson and Stowe, and alleged that the company's serial acquisitions violated antitrust laws. Essentially, they were acquiring so many businesses that they were creating a monopoly is what that means. And the article goes on to say that the consequences for doing this has been muted. So there are a couple of different ideologies here. One says that private equity in healthcare poses such great risks that it needs to be stopped. So that's one side of the argument. On the other side, there's a thought process that healthcare businesses have tried to maximize profits all along, and private equity firms are just being blamed for these things that have always happened. In short, the article talks about, is the problem private equity or is it the broader financialization of healthcare delivery? And so that is something that we can dive into more in our conversation. But a second observation that has a lot of support is that when private equity acquisitions happen, they lead to higher prices for insurers and patients. So ultimately, there are a mix of variables, with some bad actors having a negative impact, but other organizations experience a shift that is not leading to a decline in patient care. So the article ends stating that utmost urgency is to direct attention not just to the market effects of private equity, but also to the organizational strategies that private equity firms employ. A focus on organizational questions could not only inform why certain private equity firms wreak havoc in certain healthcare markets, but also how private investment could be channeled to improve the efficiency and quality of healthcare delivery. So with all of that stated, the question of private equity, I want to talk more to Dr. Zhu, and I am really excited to have you here. I want to highlight that Dr. Zhu has published a research article as well entitled Geographic Penetration of Private Equity Ownership in Outpatient and Residential Behavioral Health. So we will certainly find out more from her about her data and some of the things that she found. So, Dr. Zhu, let's drive right in.

Thanks so much for having me, Rachel.

Yeah, I am beyond excited to get to the research. I told you before we jumped on, I am a research nerd. I love this stuff. It's how I ended up doing what I do in the mental health field and the business that I created. And so I would love to know kind of what motivated you to research private equity ownership and healthcare and mental health specifically, what was that spark for you?

Sure. So one thing you didn't say in the introduction is I'm actually a primary care physician, so I see patients and they have driven a lot of my research questions. And so I'm a health services researcher. I spend most of my time using large administrative data sets to understand questions around access, quality of care, delivery of care. And when I was coming out of training about 12 years ago, this is when we first started learning about private equity owned practices as a sort of career option for people who are going into private practice. And at the time there was very little data out there about this. And so out of personal experience, out of concern that my patients were expressing, I started looking into this issue at the same time really interested in mental health, behavioral health in general as a research topic. Because as a primary care physician, I've increasingly been serving as a de facto mental health provider due to aggregate shortages, maldistribution of providers, not being able to find psychiatrists and specialty providers for my patients.

That makes so much sense. So what about, tell us about your study and what it showed. What is the key pieces from that research paper that we need to hear about?

One thing to note is that data on private equity transactions is very opaque. It doesn't exist other than what private equity firms want to sort of publicly announce. And so that is a huge barrier to research in this area. So what we've done over the past several years and building on this sort of research platform is we hand combined data on transactions and we verify that with press releases, with industry reports, with verification from clinic websites. And what we did was we looked at what private equity transaction look like in behavioral health specifically. And so we found that private Equity owns between 6 to 7% of mental health clinics and substance use treatment facilities in the country. But these penetration rates really vary a ton by states, states, North Carolina, Colorado, Texas. Private equity owns more than 25% of all facilities in those states. And this is pretty consistent with other recent and burgeoning evidence. There was a study that sort of accompanied our study at the time by researchers at Yale and Penn that found that private Equity owns about 14% of all freestanding psychiatric hospitals. And then another descriptive study that was published Year by some colleagues of mine, found that private equity owns on the order of like 29% of all opioid treatment facilities, opioid treatment programs in the country. And those are belong to just 11 parent companies, each owned by just one to two private equity firms. So what we're seeing is that private equity is entering behavioral health pretty rapidly. They're consolidating very quickly. And it's not, you know, a little bit here and there. It's actually, you know, a substance. And then finally, we know that private equity, not just in the areas that we've studied, but they've invested in autism services, where there's a lot of coverage mandates now for applied behavioral analysis. And that's introduced some predictable revenue streams and consolidation opportunities. Private equity is also a dominant player in residential treatment disorder, residential eating disorder, treatment centers. But we don't really have a lot of data on these other sectors of behavioral health. It's just this is. We're still early days, I would say, you know, in the first five, 10 years of investment in these areas.

Interesting.

Yeah.

And so what do you think this means as we're. We're clearly seeing a trend that this is happening more and more? Is there any risk there? What are the worries there? What are concerns? What should policy makers be looking at with this data? What are some of your thoughts on that?

Yeah, I mean, I think first, let me just take a step back and just make a clear distinction. So private equity is simply a form of private capital. They are institutional investors organizations that you might know. Pension funds, sovereign wealth funds, university endowments that invest blind pools of capital into acquisitions. When we talk about private equity sort of colloquially in research, in media, often what we're talking about are leveraged by buyout models, which is a classic model of private equity investment. And a few features I think really stand out here. So one, leverage buyout means that these transactions are primarily funded with debt that's borrowed money from the banks, and that money is loaded onto the acquiring company to pay back. So you can see that that sort of would create some perverse financial incentives. And this is in the range of 70% or so of that transaction is. Is debt financed. The second issue, I think, with leverage buyout models is that they involve majority or controlling stakes in companies. So this is not growth capital where they're giving a little bit of money to help the company expand or use these capital investments for other things. They're taking over potentially significant business decisions. And in healthcare, that matters because it affects how healthcare is delivered. What Services are prioritized, how clinicians are compensated. And then finally, I think the one other key issue that separates leveraged buyout models from other forms of capital investment is the horizon, the investment horizon. So typically we're talking about three to seven years on average. And in fact we have some studies that show that when we looked at private equity acquisitions of physician practices, most of those practices were sold within three years and most often to another private equity firm. So you can imagine that that that cycles through and creates with each resale, creates different incentives, different ownership structures, and the clinicians in those cases have less and less control over those subsequent decisions. So the risks are, I think, quite clear, really introducing the tension between the duty to patients and a fiduciary duty to investors. There may be cost cutting like you talked about, there may be effects on workforce. And what we really care about is access to care, quality of care, prices and affordability of care. And so that is the risk. I will say though that there are potentially benefits, particularly when you're talking about capital investment. So growth capital from private equity firms, maybe you can expand, use that money to expand capacity in under resourced areas, maybe you can invest in infrastructure that really, you really need to keep up in in today's practice environment. So electronic health records, facility upgrades. One of the other benefits of sort of consolidating these fragmented networks of small outpatient providers or SUD programs is you might be able to professionalize things, standardize things, lower input costs, and that could potentially improve efficiencies and administrative burdens for providers. So there are also potential benefits, at least on paper.

And I mean, I think it's an interesting question, right? There's the business component of any healthcare business or practice. There's also the healthcare component, like if that's the primary thing. And so I think there's this interesting dance between the business side and the healthcare side. And something you said kind of sparked that for me when you were talking about, as these private equity firms maybe are owning a controlling stake, the clinicians don't have as much say in the company or potentially how care is, is provided. Is that one of, is that what you mean by that?

100%? I think that's one of the key concerns. And in fact there is tension there also in the evidence. So you had asked earlier, and I hadn't quite gotten to that, but the proponents might say, oh well, we as owners do not affect how clinical decisions are made, but there's lots of indirect ways in which that can happen. So you can decide what Patients you see, or the management structures can decide what patients you see, the payer mix, what you charge for the services, your hours of operation. I mean, all these things, quality metrics that the clinicians are held accountable to, all these things are even the staffing, I would say. And all these things can affect the delivery of care downstream. And so when we talk about where the evidence sits, there's a lot of studies now that actually evaluate private equity's effects on hospitals, on nursing homes, on physician practices. And so those studies actually give us a little bit of light into where private equity could affect behavioral health, even where that data doesn't currently exist. So in practices, in physician practices, we find that after private equity invests or acquires physician practices, ophthalmology, dermatology, gi, there are increases in charges, increases in allowed amounts, increases in volume and new patients. And these findings have been replicated across settings. So that might be an indication of increased throughput. So the clinicians are expected to do more and be more productive. Evidence on quality of care has been a little bit more mixed. But where some studies have shown maybe improvements in process measures, like things that you can check off getting an aspirin after a heart attack, others have really shown very concerning signs in hospitals and nursing homes in particular. So in one study, Medicare beneficiaries that were treated in private equity acquired hospitals experienced a 25% increase in hospital acquired complications. And that was driven by a 27% increase in falls, a 40% increase in central line infections, despite fewer central lines being performed. And that was compared to match control hospitals. And then another study in nursing homes acquired by private equity, they found a 10% increase in mortality compared to controls, and those were driven by reductions in frontline nursing staffing. So cost cutting measures that have real impact on quality of care. But I think that overall, the brunt of the evidence suggests that private equity has potentially heterogeneous effects. Depending on the sector and depending on their playbook in physician practices, the playbook may be less about cost cutting, which can have sort of negative effects on patient care, and more about, about increasing, negotiating negotiated prices, consolidating so that you have more market power. And so in those scenarios, maybe you have less of a incentive to do cost cutting that can result in, you know, poor health outcomes.

Right. And I want to circle back to what you said about private equity and that a lot of that, I think you said 70% is, is really debt investment. Right? It's coming from a debt perspective. And so then there's this payback cycle Right. And, and I always think about the kind of the business mantra of like a return on investment. Right. So anything that someone invests in, eventually they expect a return on investment. And have there been any study or what are you seeing in terms of that cycle? Are there shifts that happen where like the beginning part might be pouring money in, but then there's the demand to pay it back at an, at a certain point?

Well, that demand is there, but from the moment that you sign your contract to sell your practice. And so in the case of leverage buyout models, you as the acquired entity are expected to pay back the terms of that debt that was borrowed. And so that is principally why the private equity leverage buyout structure has such perverse incentives, because the private equity company is not investing much of its own money, typically about 2% of its own money. The rest come from institutional investors, and then the rest comes from money borrowed from the bank. And so even if your company, your practice doesn't do well, private equity, the private equity firm can still walk away with pretty decent profits. So it's a classic case of moral hazard where they're gaining sort of benefits without introducing risk on their own part. So I think that's something that definitely clinicians that are considering private equity acquisition should really focus on understanding what are the terms that they're signing themselves onto, what are the trade offs when the private equity company decides to sell their practice again to another private equity firm or to Optum or some other corporate entity and the clinician does not have that say in how they're going to be practicing and who's managing sort of their, their delivery of care?

Yeah, it's giving up a lot of control potentially. Really?

Yeah. I mean, I think the other thing that a lot of business owners may consider are not necessarily selling their practice wholesale, but partnering with a management services organization that does all the back office billing and administrative tasks, you know, scheduling, things like that. And many of those management services organizations are also increasingly being acquired and owned by private equity firm. So I think clinicians often are putting their heads down and they're really mission oriented to do the work, and they may not be entirely engaging with the larger structural forces that shape how they practice. And so, you know, I often tell younger trainees that are coming into the field now, clinical fields now, you know, you really need to understand how organizations are structured and financed, you know, how clinical priorities are set, who's setting the revenue pressures, who makes the decisions. That's becoming increasingly essential because clinicians are having less and less, say, in some of those larger structural forces. And so PE is one of those structural forces that I think it behooves clinicians to just understand more about that phenomenon and sort of the pressures, the way that those financial pressures are set.

That is awesome. And I think such a challenge, I think so many, at least in mental health, I can say so many clinicians might say, like, numbers aren't my thing, or like, I don't even know how to understand the first thing about that.

Yeah, I mean, I think it's a challenge for a lot of clinicians in mental health, in particular behavioral health, where you have lots of solo and small group practices, they don't even have sort of the administrative support to do billing and answering messages. They're doing it. These clinicians are doing it all on their own. And so in the modern practice environment where you have, you know, electronic health records and care coordination and all these other billing and all these other expectations, it's no wonder that some practitioners decide to sort of leave that all behind. Do either, you know, it's sort of a Hobson's Choice. They either go with a bigger provider where a practice management structure, one of these new platforms where they don't have to deal with any of that at all, or they decide to go into a cash pay market where they don't deal with insurance. They are, you know, their individual provider. They are, you know, they're the king of their own castle. And so I think these dynamics are also what contributes to some of the inequities and the access challenges in the field.

Agreed. Because some of the best providers I know in mental health, and honestly, sometimes it's kind of like a badge of honor to have to not take insurance anymore. Right. And that can be where everybody wants to get to because it's easy to easier, because working with insurance is complicated. And insurance restricts your income potential too. Right. So there's all these reasons to do that, but the access to care, like you're saying, every time we take that, that's great, maybe. And how are we making sure that excellent care is still provided to everyone that needs it?

Right. And I think the decision not to. To accept insurance is a rational one. We're all humans. We are rational. The implication, and we do a lot of research on provider networks and mental health networks in particular, is that even patients that have insurance coverage for mental health services cannot find the appropriate providers to treat them because everybody is either at capacity or not accepting insurance. So sort of, you know, it's a hard situation. And private Equity is essentially, you know, one of the forces in a larger, broad, broader system around sort of financial and profit driven motives in our system. And so I think coming back to this topic around private equity, I think it's important to recognize it's not the only for profit player. There are certainly, as I mentioned before, structural features that make private equity of particular concern, I think to researchers and health economists and policymakers and patients. But there's a lot of other corporate players, health systems, non nonprofit organizations that do a lot of the same things. And so the New York Times had an expose a couple years ago about Acadia Healthcare. I don't know if you saw that at all, but it's a large publicly traded, you know, company and it owns a ton of behavioral health facilities. And they recently agreed to pay $20 million to settle some allegations that they were billing fraudulently, they were billing for medically unnecessary inpatient behavioral health services. So these are sort of financial pressures and bad responses that a lot of different ownership types are sort of, they're not exempt from.

Wow. So we are about out of time. But if there is one thing that you could kind of encourage, maybe someone seeking healthcare, mental health care, also clinicians providing it, maybe even like group practice owners, owners, what would be sort of your one key takeaway that you would want to offer?

I think it's hard to regulate and monitor the effects of ownership without ownership transparency. And so this is bringing back to sort of our, my first point. We even for someone like me who studies this topic, it's so hard to know who owns a healthcare care facility or a clinic. And I think, you know, it's even harder you can imagine for patients to know that. Yeah, clinicians themselves may not know. And so shedding light, you know, the best disinfectant is light. Shedding light on ownership types I think would be the most important thing. And I think the, honestly the, the lowest hanging fruit here. The, the prior administration had increased transparency around nursing home own because of the, you know, the data, the concerning data that was coming out of private equity ownership on nursing homes. But they haven't expanded that to private practices, you know, physician practices, they haven't expanded that to hospitals. There are some efforts to do that. And in behavioral health because it's so fragmented, because there's so many small and solo practices, it's even harder to do that. So I think focusing on then transparency first is, is a key factor here.

I love that. All right, well with that Dr. Zhu, we're going to sign off, but it has been awesome to hear about your research. Thank you for the work that you are doing and for sharing that with us.

Thank you for having me. Rachel, it's been a pleasure.