As Mental Health Crisis Grows, More Doors Open to Care

In some cases, REITs are turning senior housing, skilled-nursing facilities and other properties into behavioral health clinics.

By Joe Gose

The pandemic and its lockdowns accelerated a mental health crisis in the United States, leaving treatment providers racing to keep up with the growing demand for care.

The need is acute: The National Institute of Mental Health estimated that in 2021, 1 in 5 adults in the United States lived with mental illness.

To meet the demand, health systems, private operators, and state and local governments have been rapidly adding psychiatric hospitals, addiction recovery centers and other behavioral health clinics over the past few years. In some cases, however, the providers face resistance from neighbors despite the widely acknowledged problem.

Overall, the behavioral health market is expected to grow to $105 billion by 2029, up from about $77 billion in 2021, according to Fortune Business Insights, an industry research organization.

In April, President Joe Biden signed a bill that ended the pandemic national emergency, and behavioral health experts expect the number of in-person visits to rise.

“We’re in the midst of a behavioral health awakening,” said John Hennegan, a founding partner of Shore Capital, a private equity firm that invests in small behavioral health companies. “The drop in the stigma associated with behavioral health, combined with the growing awareness of its benefits, has led to an explosion in demand.”

The problem took root in the 1990s when state mental illness institutions closed down with an expectation that patients would receive services in community settings, said Jeffrey Woods, operations group president for Acadia Healthcare, a $6.4 billion provider of behavioral care in 246 facilities in the United States. But funding for mental health care never materialized, he added.

“As a consequence, there was an enormous number of individuals who could not gain access to care, and they began congesting emergency rooms,” said Woods, who has a doctorate in advanced nursing practice and is a board-certified psychiatric nurse. “The need is as intense today as it has ever been.”

Massive need for centers

The increase in development is happening quickly. PMB, a medical building developer in San Diego, accrued $700 million in behavioral health work as it was still formulating its strategy to serve the sector, said Mark Jones, senior vice president of partnerships and strategy for the company. One of its projects is a joint venture with Riverside County, California, to develop a five-building behavioral health village.

“There is a massive need for behavioral health centers because the resources required to care for these folks are putting a tremendous strain on counties, cities and health systems,” Jones said. “They show up in emergency rooms and can be there 8 to 10 hours because there is no place to send them.”

Much of the rejuvenated investment in mental health infrastructure stems from the 2010 Affordable Care Act, which required insurers to pay for the treatment of mental health conditions such as addiction, autism, bipolar disorder, depression and eating disorders in the same way they paid for physical health care. At the same time, the discomfort associated with needing behavioral care subsided, which encouraged more individuals to seek it.

In some cases, real estate investment trusts are turning senior housing, skilled-nursing facilities and other properties into behavioral health clinics. Sabra Health Care REIT, for example, is investing $836 million to convert 18 of its existing and newly acquired properties into centers for addiction treatment and other conditions to improve its revenue stream as it struggles to recover from the pandemic.

Landmark Recovery, an addiction treatment provider based in Franklin, Tennessee, operates 14 locations and plans to open 23 more by the end of 2024, expanding to 16 states from nine. It leases half its space from Sabra and three other real estate investment trusts, said Matthew Boyle, a co-founder and the chief executive of Landmark.

“It’s a very fragmented industry, but we’re looking to grow nationally and to one day provide care across the entire behavioral health ecosystem,” he said.

Sa’Terra Gilbert found safe haven in a Landmark facility. In September 2020, she said, she was buying heroin in Indianapolis when she found herself in the middle of a drive-by shooting. She survived unscathed but understood that, after years of substance abuse that began with alcohol in college and progressed to party drugs and then heroin, it was time to come clean.

“It was a big wake-up call for me,” Gilbert said. “I called my dad and said, ‘I’m addicted to heroin, and I need help.’”

The next day, they searched for addiction treatment centers but ran into closed doors because of the pandemic lockdowns. They eventually found Landmark, and she entered a 40-day program.

“That first week was the toughest; I wanted to leave,” said Gilbert, who now helps past patients as an alumni coordinator with Landmark. “But the staff helped me see what life could be like.”

Versions of Gilbert’s story are playing out with more frequency, underscoring the need for more behavioral health clinics. Acadia, which is also based in Franklin, has opened 16 opioid treatment centers and two acute care hospitals over the past two years, and last month it broke ground for a 100-bed acute care hospital in Mesa, Arizona.

The company has also added 2,600 beds at its existing facilities since 2015 and expects to keep expanding them by some 300 beds annually for the foreseeable future. In addition to its stand-alone operations, Acadia further intends to fuel facility growth through acquisitions and by continuing to increase its partnerships with health care systems. Among other transactions, last year it completed the purchase of CenterPointe Behavioral Health System, the largest dedicated provider of behavioral health care in Missouri. It also broke ground on a 120,000-square-foot behavioral care hospital in a venture with Henry Ford Health in West Bloomfield, Michigan.

“Our pace of expansion is much more accelerated than it was even five years ago because of the tremendous gaps to accessible behavioral care,” Woods said. “The pressure at the front door of behavioral health hospitals — and still emergency rooms — is enormous.”

The United States had roughly 142,400 inpatient psychiatric and residential treatment beds in 2014, down from a peak of nearly 559,000 inpatient psychiatric beds in 1955, according to a study last year by the American Psychiatric Association. By Acadia’s estimate, the country needs at least 75,000 additional beds to meet projected behavioral health needs.

But progress has been slow. Depending on the state and community, it takes an average of 2 1/2 years to open a substance abuse treatment facility, Boyle of Landmark said. That includes months of what are often contentious zoning meetings filled with recalcitrant neighbors and about nine months of construction. Then, buildings ready for occupancy can sit empty for months while an operator waits for its state license.

“Very often, we experience vandalism, natural disasters and other incidents that require us to redo construction before we can actually open,” Boyle said. “It’s a byzantine mess.”

Given the rise of virtual health, there is a question over how much real estate, particularly outpatient clinics, that behavioral health providers will need. In 2022, 38% of respondents surveyed by Stanford Medicine and Rock Health, a digital health care adviser, said they preferred to get mental health care through telemedicine.

But with many pandemic-related restrictions lifted, patients want to return to face-to-face treatment, Woods said. He acknowledged that virtual visits would continue in certain settings, such as initial and follow-up meetings, but added that they could not replace face-to-face, inpatient care needs, which will continue to fuel the behavioral health expansion.

“The patients we’re treating are sicker and sicker,” he said. “As a consequence, acute care hospitals will always be needed for individuals that require an intensive level of care.”

c.2023 The New York Times Company. This article originally appeared in The New York Times.

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