PDF Behavioral Health Industry Overview

BEHAVIORAL HEALTH INDUSTRY OVERVIEW

September 2014

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BEHAVIORAL HEALTH MARKET OVERVIEW

The US Mental Health and Substance Abuse Services industry includes over 17,000 facilities with combined annual revenue of approximately $50 billion.

Including ancillary services, broader industry revenues represent over $300 billion combined. Mental health and substance abuse market has grown at a 2.1% CAGR from 2008 to 2014E and is

expected to grow at a 2.8% CAGR from 2014E to 2018P.

Demand for mental health services has reached an all-time high and continues to grow, while the

supply of hospital beds dedicated to mental health patients has steadily declined.

? 13.6% decrease in number of public psychiatric beds from 2000 to 2011

? Supply / demand disconnect has resulted in shorter stays, growth in outpatient / community-based services, and an increased prevalence of mental illness among prison and homeless populations

US mental health industry remains highly fragmented, continues to incorporate ACA changes, and

is expected to remain dynamic.

LARGE AND GROWING INDUSTRY ACCOMPANIED BY...

($ in billions)

...GROWING MENTAL HEALTH BUDGETS TO MEET DEMAND

Increasing or level budgets in 44 states.

2014E ? 2018P

$60 $40

$43.0 10.2

$44.0 10.5

$45.3 11.0

$44.6 10.9

$45.7 10.9

$46.9 11.1

$48.7 11.6

$50.5 12.0

$52.0 12.5

$53.2 12.8

$54.3 13.2

CAGR 3.4%

2.6%

13.3 13.7 14.0 14.4 14.8 15.2 15.8 16.3 16.8 17.2 17.5

$20

19.5 19.8 20.3 19.4 20.0 20.5 21.4 22.2 22.7 23.2 23.6

2.5%

$0 2008 2009 2010 2011 2012 2013 2014E 2015P 2016P 2017P 2018P

Mental Health & Substance Abuse Counseling / Residential Care Mental Health & Substance Abuse Clinics Psychiatric Hospitals

Source: 2012 Behavioral Health, United States Report from SAMHSA. Wall Street research, Treatment Advocacy Center, National Alliance on

Mental Illness, IBIS World Mental Health and Substance Abuse Clinics in the US March 2014, IBIS World Mental Health and Substance Abuse

Centers in the US February 2014, IBIS World Psychiatric Hospitals in the US December 2013, the Pew Center, and Congressional testimony.

1

MENTAL HEALTH AND NEUROLOGICAL DISORDERS CREATE LEADING DISEASE BURDEN ON US ADULTS

Major studies have indicated that Mental / Behavioral disorders have a profound impact on both length and quality of patient life.

LEADING CATEGORIES OF US DALY CONTRIBUTORS

Neuropsychiatric Disorders

Mental and Neurological Behavioral Disorders Disorders

13.6%

5.1% 18.7%

Cardiovascular and Circulatory Diseases

16.8%

Neoplasms

15.1%

Musculoskeletal Disorders

11.8%

Diabetes, Urogenital, Blood, and Endocrine

Diseases

Chronic Respiratory Diseases

8.0% 6.5%

Other Noncommunicable Diseases

5.1%

0%

5%

10%

15%

20%

Percent of Total U.S. DALYs

MENTAL / BEHAVIORAL DALY CONTRIBUTORS

Major Depressive Disorder

3.37%

Drug Use Disorders

2.61%

Anxiety Disorders

2.28%

Alcohol Use Disorders

1.40%

Schizophrenia

1.02%

Bipolar Disorder

0.71%

Dysthymia

Autism and Asperger's Syndrome

Eating Disorders

0.67% 0.46% 0.32%

ADHD and Conduct Disorder 0.25%

Other Mental and Behavioral Disorders

Idiopathic Intellectual Disability

0.12% 0.06%

0% 1% 2% 3% 4% Percent of Total U.S. DALYs

DALY metric provides a holistic

measure of total disease burden

Higher DALY scores may allude to

commercial opportunity based upon:

? Reduction of YLL, which may yield a

corresponding rise in YLD

? Niche opportunities for underserved

chronic conditions

? Extensive co-morbidities may provide

opportunities to create a best-in-class population health treatment platform

Americans with a Serious Mental

Illness (SMI) experience a significantly shorter life-span than the general American population

Disability-Adjusted Life-Year (DALY) is a metric that combines the burden of mortality and morbidity (non-fatal health problems) into a single number. The DALY metric is used to provide a single number to capture all of the health costs caused by a disease (or averted by an

aid program) and is calculated as the sum of Years Life Lost (YLL) due to disease and Years Lived with Disability (YLD).

Source: The World Health Organization (WHO), SAMHSA, 2010. US Burden of Disease Collaborators, JAMA, 2013, and

Congressional Testimony. 2

SUBSTANTIAL UNMET NEED FOR MENTAL HEALTH SERVICES RESULTING FROM GROWING DEMAND AND CONTRACTING SUPPLY

Utilization of prescription therapies has grown to help serve the unmet need for mental health services, while outpatient and inpatient services has remained flat.

INCREASING MENTAL HEALTH SERVICE USE DRIVEN BY...

13.0% 10.5%

13.2% 10.9%

12.8% 10.5%

13.0% 10.7%

12.9% 10.9%

13.3% 11.2%

13.5% 11.4%

13.4% 11.3%

13.8% 11.7%

13.6% 11.5%

14.5% 12.4%

7.4% 7.1% 7.1% 6.8% 6.7% 7.0% 6.8% 6.4% 6.6% 6.7% 6.6%

...PREVALENCE OF ADULT MENTAL ILLNESS AND ACA

18.6%

19.6%

21.2%

15.8%

14.9%

22.0%

Percent with any Mental Illness (AMI) in the Past Year

Percent Using Mental Health Services in the Past Year

0.7% 0.8% 0.9% 1.0% 0.7% 1.0% 0.9% 0.8% 0.8% 0.8% 0.8%

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Any Type of Care

Outpatient

Prescription Medication

Inpatient

REDUCED SUPPLY DESPITE GROWING DEMAND RESULTS IN...

For the Years Ended December 31, 2000 to 2011

84

800

82

780

80

760

78

740

76

(13.6%) 720

74

700

72

70

680

68

660

66

640

64

620

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Beds (k)

Admissions (k)

18 or Older 18 to 25 26 to 49 50 or Older Male

Female

Age Group

Gender

...SUBSTANTIAL UNMET NEED & COMMERCIAL OPPORTUNITY ACROSS THE ADULT POPULATION

41.0%

62.9%

45.9%

Over 1/3 of SMI Patients & Over 1/2 of MMI Patients

DO NOT Receive Treatment

29.0%

Treatment in Diagnosed Population

8.5%

Any Mental Illness (AMI)

Serious Mental Moderate Illness (SMI) Mental Illness

Low (Mild) Mental Illness

No Mental Illness

Source: SAMHSA, Center for Behavioral Health Statistics and Quality. 3

GROWING POPULATION OF INDIVIDUALS ELIGIBLE FOR CARE

Healthcare reform aims to reduce the fiscal and psychological barriers to mental healthcare services.

REASONS FOR NOT RECEIVING MENTAL HEALTH CARE...

Could Not Afford Cost

Could Handle the Problem without Treatment

Did Not Know Where to Go for Services

28.2% 22.8%

45.7%

Did Not Have Time

14.3%

Did Not Feel Need for Treatment

10.2%

Concerned About Confidentiality

Might Cause Neighbors / Community to Have Negative Opinion

Fear of Being Committed / Having to Take Medicine

Did Not Want Others to Find Out

9.6% 9.5% 9.5% 8.2%

Might Have Negative Impact on Job

8.1%

Health Insurance Did Not Cover Enough Treatment

7.9%

Treatment Would Not Help

7.3%

Health Insuance Did Not Cover Any Treatment

0.0%

5.5% 10.0% 20.0% 30.0% 40.0% 50.0%

...ARE DIMINISHING THROUGH RECENT REFORMS

Recent changes from healthcare reform and

reimbursement policies may promote expanded utilization

? ACA seeks to reduce the negative stigma of mental

health and substance use disorder (SUD) treatments and services by:

? Including mental health and SUD benefits as

"Essential Health Benefits"

? Applying federal parity protections to mental health

and SUD benefits

? Providing more Americans with access to quality

healthcare, mental health and SUD services

? Integrated Care models shift focus on inpatient treatment

to a PCP lead team for treatment management

? Integrated care models may provide a path to greater

"at risk" posture for both payors and providers

HHS ESTIMATES 62 MILLION WILL GAIN COVERAGE

(millions)

Federal Parity Protections 30

Individual Markets 7

Small Group Markets 23

ACA Implementation

32

May be mitigated by ACA

Source: SAMHSA, Center for Behavioral Health Statistics and Quality. 4

SUBSTANTIAL UNMET NEED FOR MENTAL HEALTH / SUBSTANCE ABUSE

Substance abuse and mental health co-morbidity is untreated in over 50+% of population.

MAJORITY OF POPULATION REMAINS UNTREATED...

60MM 50MM

SUD, No Mental Illness 12.3MM

SUD

Treatment

SUD + Mental

Only 4%

Treatment

8%

40MM

SUD and Mental Illness 8.4MM

Mental Treatment

Only 34%

No Treatment

54%

30MM

20MM 10MM

Mental Illness, No

SUD 35.3MM

...PRESENTING A CLEAR UNMET PATIENT NEED

Adults diagnosed with both Substance Use Disorder

(SUD) and Any Mental Illness (AMI) remain largely underserved.

? Payment / reimbursement barriers may exist to achieving

appropriate care

- Certain states prohibit same-day billing for certain

combinations of behavioral health services

- While Medicare often covers the services of licensed

mental health practioners, many substance use treatment professionals are not licensed - which creates a funding gap

Only 8% of properly diagnosed patients receiving

treatment, receive appropriate care

PREVALENCE OF SUBSTANCE ABUSE AMONG MENTALLY ILL

39.9% 34.5%

29.4% 22.6%

18.0%

8.6%

MM SUD and Mentally Ill Patients

Source: SAMHSA, Center for Behavioral Health Statistics and Quality.

18 - 25

26 - 49 SMI AMI

50+ 5

EVOLVING MENTAL HEALTH REIMBURSEMENT PARADIGM

Even as Medicare expands, private payors will be increasingly pressured to maintain coverage.

PRE-ACA

Fee-for-service dominates the

entire healthcare industry including mental / behavioral health

State mental institutions have

historically borne a heavy burden for those with a "Serious Mental Illness", however, recent history has seen significant closure of state institutions

Employers could elect to offer

less coverage to employees on mental health than on traditional physical health

CURRENT MENTAL HEALTH FINANCING

Other Private 3%

Out of Pocket

12%

Private Insurance

27%

Private 42%

Other Federal

5% Medicare

8%

Other State and Local

18%

Medicaid 27%

Federal 13%

State 45%

ACA REFORM IMPLEMENTATION

State sponsored institutions

have seen a reduction of funding and facilities

Medicare expansion and

Mental Health Parity laws could expand potential patient population by up to 62 million

ACA parity regulations promote

mental health as part of an "Essential Health Benefits"

Integrated care platforms (i.e.,

Medicare health homes) are piloting bundled payment programs

2009

Source: National Alliance on Mental Illness. State Legislation Report, 2013. 6

POTENTIAL IMPACT OF CONTINUING HEALTHCARE REFORM

Higher levels of integration of medical and physical expected to promote higher quality

outcomes based care.

Current

Goal

Gradual Movement to Integrated Healthcare

Coordinated

Co-Located

Integrated

Clinical Delivery

Level 1: Minimal Coordination

Level 2: Basic Collaboration at a

Distance

Level 3: Basic Collaboration

On-Site

Level 4: Close Collaboration On-Site with Some

System Collaboration

Level 5: Close Collaboration

Approaching an Integrated Practice

Individual screening / assessment

Separate treatment plan Evidence Based Practice

("EBP") unique to each specialty

Individual screening / assessment

Separate treatment plan Separate responsibility for

care / EBP

May agree to specific screening for in-house referrals

Some shared info between service plans

Shared knowledge of EBPs

Agree on specific screening Collaborative treatment

plans for some patients Some EBPs and training

shared, but focused on specific population

Consistent common screenings

Collaborative treatment plans for shared patients

EBPs shared across system with some joint monitoring

Physical / Behavioral health are separate issues

Patient must navigate separate practices

Health needs treated separately; records are shared

Patients may be referred; care access still impaired

Health needs treated separately at same site

Proximity allows referrals to be more successful

Health needs treated separately at same site

Internal patient referrals allow for better follow-up

Health needs treated by team for shared patients

Patient treated by a team, as needed

No coordination or management

Up to providers to integrate

Some practice leadership in info sharing

Some provider buy-in to collaboration

Org leaders supportive, but co-location viewed as `project' or `program'

Provider buy-in to effective referrals

Leadership supports

Leadership supports closer

integration through problem integration, practice areas

solving system barriers

remain fundamentally the

Greater buy-in although not same

consistent

Nearly all providers buy-in

Level 6: Full Collaboration a Transformed / Merged Integrated Practice

Standard population based medical and BH screenings

Single patient treatment plan EBPs are team selected

All health needs treated by a team

Patient experiences a seamless response to all healthcare needs

Leadership supports integration as primary practice model

Integrated care embraced by all providers

Organization Experience

Patient

Practice /

Business Model

Separate funding No sharing of resources Separate billing

Separate funding May share resources for

single projects Separate billing

Separate funding May share facility expenses Separate billing

Separate funding; may share Blended funding; various

grants

forms of expense sharing

May share some OpEx

Combined billing or

Separate billing

otherwise agreed upon

Integrated funding Shared resources Billing maximized for

integrated model

Timely and autonomous decisions on care

Existing model

Maintains current operating structure

Some info sharing helpful to patients & providers

Co-location leaders to more Removal of some system

direct interaction

barriers

Referrals are more successful Patients viewed as shared

responsibility

Services may overlap Some aspects of care may

take a long time to be diagnosed

Info sharing may not be

Proximity may not lead to

broad enough to affect care greater collaboration

Referrals may fail due to

Limited flexibility with no

barriers

change to traditional roles

System issues may limit collaboration

Conflicting agendas may create tension

More responsive patient care All / almost all system barriers Increasing provider flexibility resolved

Patient needs addressed as they occur

Practice changes may create lack of fit for some providers

Time is needed to smooth integration

Sustainability issues may stress the practice

Outcome expectations not clearly established

Weaknesses Strengths

Source: SAMHSA. 7

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