PE-owned behavioral health hospital closes

Johnstown Heights Behavioral Health, a 92-bed behavioral health hospital in Johnston, CO, has announced that it will permanently close and lay off all 158 employees. The hospital had made headlines in 2023 when state regulators found patient safety violations that earned it an “immediate jeopardy” designation.

Johnstown Heights is part of behavioral health hospital chain Summit Behavioral Healthcare, which operates in 38 mental health and addiction treatment facilities in 20 states.

Summit has been owned by various private equity firms for at least a decade. Its current owner, Patient Square Capital, acquired it in 2021. Prior to that, it was owned by FFL Partners and Lee Equity Partners (2017-2021) and Flexpoint Ford (2015-2017).

The hospital’s closure comes just a few months after another set of closures by a private equity-owned behavioral health company: Embark Behavioral Health, owned by Consonance Capital Partners, closed six of its locations in Oregon and California late last year.  Other recent closures and layoffs by private equity-owned behavioral health companies include eating disorder treatment chain Monte Nido & Affiliates’ (Revelstoke Capital Partners) layoffs in early 2024, and Mindpath Health’s (Centerbridge Partners, Leonard Green & Partners) and Delphi Behavioral Health’s (Capital Southwest Corp.) layoffs and facility closures in early 2023.

The Johnstown Heights closure also comes at a time of growing skepticism of private equity ownership of healthcare facilities, including in behavioral health.

In 2020, PESP published a report on private equity’s incursion into the behavioral health industry that discussed how private equity investment carries substantial risk for behavioral health services, including the potential for inadequate staffing or reliance on untrained and unlicensed staff, pressure on physicians to provide unnecessary and costly services, or abuse of federal funding programs at the expense of patient care.

See the report: “Understaffed, Unlicensed, and Untrained: Behavioral Health Under Private Equity” (September 2020)

A July 2024 study published in Health Affairs Scholar found that private equity buyouts of behavioral health providers increased substantially from 2010 to 2021 in both the frequency of acquisitions and the number of facilities they involved, and accounted for around 60% of all behavioral health acquisition activity. Additionally, add-on deals tended to focus on geographic proximity; 25% of acquired facilities were located within 20 miles of one another and 50% occurred within 80 miles.

Another investigation by STAT News found that nearly one-third of U.S. methadone clinics are owned by private equity firms, and the large private equity-owned chains have intensely lobbied to protect their profits and market power and limit access to methadone, opposing reforms supported by lawmakers, public health experts, and doctors to expand access to the important medication.

Such consolidation raises questions for how concentrated market power by private equity-owned providers may impact prices, access, and quality.