Psych hospitals are going through a major crisis as a result of the Covid lock-downs. The reality is that the current crisis is not actually the cause of their problems, it’s simply highlighted the flaws in the business models that have been there for quite some time.
Ask the leadership of a psych hospital the following questions, and they'll likely struggle to answer:
- How many qualified calls come into our facility each month?
- Which marketing channels did they come from?
- How much did they cost per channel?
- What’s the payer mix of said calls?
- How many converted into admissions?
- What’s a reasonable cost per call and cost per admission by payer mix?
- What’s our business to consumer outreach strategy?
- What’s the optimal revenue percentage we should be spending on marketing?
- What are the obstacles or sticking points for patients in our intake process?
- What are the obstacles or sticking points related to referrals coming in?
- If we wanted to increase our commercial payer mix, how would we do that?
Profitability Is About a Lot More Than Census
Psych hospital leadership tends to only answer a single question, “Are we currently profitable” or, for a newer facility, “Are we on track to profitability?”
Following from this comes a whole host of problems as the answer is usually, “yes.” Unlike many other areas of healthcare, the primary driver of revenue for psych hospitals is Medicaid or, if they’re set up for the extra risk, Medicare. Any commercial or private pay is simply a bonus, but not actively focused on as part of a revenue strategy.
And this was a great model because it was so easy. Yes, initial capital costs are extremely high and the rapid turnover of patients can be operationally challenging, but finding and billing for patients was a walk in the park. You could open a hundred-bed facility in a metropolitan area and be at 80% capacity in short order.
This was really no different than addiction treatment in the past. Demand was so high, and supply so low, that simply owning a building and staffing it was enough to make money.
But that’s not the case anymore. While addiction treatment saw massive growth in short order due to minimal upfront capital costs and loose regulation, psych hospital market saturation has taken an extra decade due to the higher barriers to entry, but it’s here.
Market Dynamics Have Changed. It's Not So Easy Anymore.
As the psych behavioral space becomes more crowded and competitive, facilities have begun to struggle. Now, instead of just having a couple business development reps pop into the local hospital to do a little donut drop or some grip-and-grin, and fill up 60% of their beds, those referrals are being divided amongst numerous facilities.
Before, where quality of care was not a distinguishing characteristic because the one psych hospital was the only game in town, now nurses, social workers, discharge coordinators, and therapists have options, and, of course, they want to send their patients to the best place, not just any place.
Additionally, as anyone in healthcare knows, Medicaid models are very hard to make any serious revenue on. The margins just aren’t there compared to commercial and private pay markets, which is why volume is so important. Many execs in the space may say, "but we actually get great reimbursement rates from Medicaid on psych behavioral." However, the fact is that very short lengths of stay come with a high price tag in terms of operational costs. Additionally, Medicaid and Medicare patients are simply most expensive to service due to additional complications whether those are medical, psychological, or simply related to the additional toll it takes on staff.
Because it was just so damn easy to fill a psych facility with Medicaid patients, and the reimbursements look great on the surface, almost no one had really bothered to worry about it, leaving the commercial and private pay patients to attend fly away destinations such as McLean, Silver Hill, The Meadows at Wickenburg, or CooperRiis, to name a few.
However, just like with destination rehab models, those high-end facilities are struggling to fill their beds these days as well. Over the past ten years, patients and their families have begun to prefer facilities closer to home, and ones that work with their in-network insurance benefits.
The Four Primary Opportunities for Revenue Most Psych Behavioral Is Missing
So there are three large revenue opportunities here for psych behavioral:
- They can create high-quality, differentiated care, and then make sure to communicate that quality and differentiation to referral partners.
- They can add on a direct-to-consumer (DTC) engagement strategy. As outlined in our article “What Can Psych Behavioral Learn from Big Pharma?”, any healthcare organization that combines a traditional B2B strategy with DTC sees an increase of anywhere from 2-4X in revenue, EVEN AFTER additional marketing spend is accounted for.
- There is an entire local market of commercial and private pay that are looking to stay closer to home, but aren’t even aware that there are local options. Or, they think local options are just for Medicaid, which they don’t want to go to. Just look at the Google reviews for most psych behavioral facilities. Would you pay money to go to a psych hospital with an average of 2-3 stars? As we’ve seen in addiction treatment, the answer is no, and the same holds true for psych behavioral, which is why just revamping outreach efforts to focus on the commercial market is not enough, internal intake processes and the care experience needs to change as well.
- Operational cost reductions through longer lengths of stay, less staff burn-out, and lower staffing needs in general by having a higher commercial pay mix.
The final piece in all of this is a complete lack of synergy or brand across psych behavioral facilities. Acadia and UHS are both the epitome of this dying model for all the reasons outlined above, but also because the huge market force power that comes from a holistic and standardized approach to care and outreach is lacking in the traditional business model.
Have you ever talked to a consumer that knew who Acadia or UHS was? Neither have we. Have you ever even met the CEO of a UHS or Acadia facility that knew anything about other facilities? Almost never.
UHS and Acadia operate the same way that addiction treatment did ten years ago, basically as a large holding company with ownership of disparate facilities across the US. Besides perhaps a little back-end billing or some company-wide trainings, there is no platform here. Each facility does its own marketing, has its own EHR, has its own operations, and has basically no connection to any other facility in the country. That’s not even mentioning that basic internal systems haven’t been updated in a decade or more.
UHS and Acadia simply saw a gap in the marketplace where demand exceeded supply, and they filled it. But now that’s not even close to enough. There is a ton of potential in psych behavioral for increased revenue opportunities per facility and there is still a gap in the marketplace for well-known brands with consistent quality and standards of care to take over both in regional markets or nationally.
CoVid hasn’t broken the revenue model, it’s simply highlighted what has already been broken for quite some time, but no one bothered to do anything about it because there was simply no market pressure to do so. This is why executives at psych behavioral facilities are traditionally so slow to change or adapt, even when revenue benefits are extremely clear. They don't operate with a sense of urgency. The answer was always, “well, we’re profitable, so this isn’t something we need to act on. I think we’ll wait.” That answer is no longer good enough.