This is an exclusive BHB+ story.
It may seem counterintuitive that starting out in a tough rate environment could ultimately build a stronger foundation for behavioral health operators. But industry insiders say it weeds out weak links, rewards discipline and builds better operational habits.
For providers who are looking to start from scratch or scale into new territories, the reality of reimbursement rates across the U.S. — commercial, Medicaid and Medicare — is an increasingly tight and challenging landscape. Reimbursement rate challenges are consistently among the top issues cited by behavioral health operators. That reality is likely to persist for the foreseeable future as provisions around Medicaid changes, in particular, from the One Big Beautiful Bill take effect in January 2027.
”Just assume it’s going to be here forever, and we’re never going to be in a scenario where the reimbursement pressure isn’t going to let up,” Shane Fitzgerald, healthcare advisor at AlixPartners, told Behavioral Health Business.
AlixPartners is a consulting firm that works with private equity-backed healthcare clients, including in the behavioral health sector.
Many operators and private equity investors are flocking to states with favorable rate environments. For example, states with higher autism rates and insurance mandates had more private equity involvement, according to a study published in JAMA Pediatrics.
But with tighter margins and mounting pressure, better habits and discipline can be formed early on as an advantage to help propel growth during more favorable times, compared to companies that are built during years with beefier rates.
“The current environment, I think, scares away the pretenders a bit — the people who just think this is going to be an easy way to make a buck,” Rob Larson, managing director, Grant Thornton Stax, told BHB. “And [it] leaves the people who really are motivated and dedicated to, ‘No, I want to make a behavioral health company that’s going to make a real difference.’”
Grant Thornton Stax is a global strategy consulting firm. Larson leads the company’s healthcare consulting practice and specializes in healthcare strategy consulting, PE investing and operations.
The advantages of starting lean
Mike Cairnes, CEO and president of JoyBridge Kids, an interdisciplinary autism care and therapy provider with locations in three states, told BHB that starting out in Tennessee, a state notorious for having lower reimbursement rates, forced the team to build an efficient model that focused on financial sustainability in tandem with clinical quality.
“When you’re in a lower reimbursement environment and you know that your goals are to operate well, have great clinical quality and you’re looking to have financial sustainability, it forces you to be more efficient, and so we were forced to build a much more efficient model,” Cairnes told BHB. “We had no choice but to build something that made sense to achieve all those goals.”
They ultimately built JoyBridge’s operational model from the ground up with three core focuses: operational efficiency, great clinical quality and financial sustainability in the long-term. All of that was underpinned by the foundational reckoning all executives starting out must come to, which is: You can’t do everything at once when you start, no matter what type of rate environment you’re operating in, there will be gaps the company can’t fill until it matures, Cairnes explained.
“You have to build a really efficient model, but at the same time our mindset was we were not going to cut corners,” Cairnes said. “Our number one goal was to make sure that we took good care of our clinicians… and then our mission was the kids, and so we said we’re going to protect those two things no matter what, and then after that we’re going to… make whatever choices that we need to make to be efficient in doing so.”
Once the model Cairnes and his team built became viable, they expanded it and opened other locations throughout Tennessee, Georgia and North Carolina.
Scaling into Georgia and North Carolina, two states with higher rates than Tennessee, allowed JoyBridge to effectively copy and paste the model that had proven itself in a tougher environment and grow with a solid foundation.
“It is much easier to start out really tight and more efficiently, and then build out from there,” Cairnes said. “When you look at the ecosystem of running an ABA [practice], you’ve got to operate really, really well, have great clinical quality and then you have to have financial sustainability. If you can do all three of those things really well, you can make this thing work.”
What’s also essential is to pick some priorities that your model is built around protecting – no matter what – as the business scales, he said.
JoyBridge’s two top priorities were: ensuring clinicians were taken care of and supported and also ensuring the children served were as well. From there, the company mapped its financial priorities to make that a reality.
“Our mindset was we were not going to cut corners, ” Cairnes said. “Then after that, we were going to make whatever choices that we need to make to be efficient in doing so.”
Building durability
Because the existing rate environment is likely to persist for some time, new operators to the behavioral health sector may have their work cut out for them. But if they figure out how to pull the right levers early on, they will be ready to run when rates do improve, Fitzgerald said.
“Focus on profitable growth and minimum performance levels, really across the broader business… understanding your business unit profitability, whether it’s a standalone location, whether you have multiple locations,” Fitzgerald said. “Then take action to effectively manage that cost structure, as well as the top line.”
One “leaky faucet” new providers and operators should be mindful of in these environments, especially early on, is getting a tight handle on revenue cycle management. Even in a tight or constrained rate environment, managing that could allow an organization to reap revenue that might otherwise be lost, Fitzgerald advised.
What’s also imperative is to ask top-level management questions about what markets look like where expansion could occur in the future, how to right-size the practice’s existing footprint and how to make care models work during today’s reimbursement levels.
“If you address those levers, if and when the reimbursement rate ever improves, those businesses are the ones that are going to have the most operating leverage,” Fitzgerald said. “This is because they’ve already tackled everything else that’s really going to allow them to be very lean and perform as efficiently as they can.”
Larson added that operators should also specialize in niche areas of care, protect their referral channels and treat therapists like their primary customer – because without them, practices in behavioral health cannot succeed in any rate environment.
Smaller organizations, especially, should consider going niche and being known for that particular service or need, he said, which will in turn protect referral channels and build trust in that community with patients and other healthcare partners.
“Take care of your referral channel by even just sending out weekly emails saying here’s the patient, this is what’s happening right now,” Larson said. “That’s how you build your brand, because then the person says, ‘Oh, it’s not a black box.’”
At the end of the day though, what’s most important for operators starting in tough rate environments, he said, is picking the right partner to scale the company with. That should be “someone who just really loves making the trains run on time,” Larson said.