Consolidation by health systems running behavioral health hospitals slowed to a crawl last year, according to MODERN HEALTHCARE's 1999 Multi-unit Providers Survey.
The 54 health systems that operate freestanding psychiatric hospitals say they ran 284 facilities in 1998, only two more than in 1997. The number of psychiatric beds fell 3.2% to 23,119.
By ownership status, the picture looked slightly different, with for-profits paring their rosters and not-for-profits picking up new facilities.
For-profit systems unloaded about 6% of their psychiatric hospitals last year. The 15 for-profit respondents together ran 231 hospitals in 1998, down from 246 the year before.
Roman Catholic health system respondents, by contrast, reported a 171% jump in the number of psychiatric hospitals they operated, to 19 in 1998 from seven in 1997. At least part of that gain can be attributed to gaps in 1997 respondent data, however.
Other gains appeared to be the effect of mergers, including the one that formed Catholic Health East in January. The Radnor, Pa.-based system operated four psychiatric hospitals in 1998.
For-profit systems dominated the survey's psychiatric hospital results, accounting for 28% of reporting systems but running 80% of the hospitals.
Atlanta-based Charter Behavioral Health Systems, which led the psychiatric hospital field by a wide margin, bought and sold several facilities last year before emerging with a total of 92.
Magellan Health Services plans to sell its 50% interest in Charter this year but has not said who the potential buyers are. Magellan had hoped to be bought out by Fort Worth, Texas-based Crescent Operating, which owns the other 50% interest in Charter, but that deal fell through last year.
Universal Health Services, which terminated five of its management contracts for psychiatric hospitals last year, accounted for a third of the overall loss among for-profit hospitals. Universal, based in King of Prussia, Pa., ranked third by the number of hospitals operated.
No. 2-ranked Behavioral Healthcare Corp. also trimmed four hospitals from its roster, selling three and closing one, ending the year with 43 facilities.
Mark Covall, executive director of the National Association of Psychiatric Health Systems, says the consolidation trend may have cooled because investors are wary of recent changes in Medicare reimbursement that have made profitability more uncertain.
Tight financial markets apparently killed at least one major acquisition last year.
That deal would have linked Nashville-based Behavioral Healthcare with PMR, based in San Diego. The transaction couldn't be completed because PMR had difficulty raising the $125 million it needed for the purchase, the companies said at the time.
The specter of stepped-up healthcare investigations also may have turned investors off.
HCFA and HHS' Inspector General's Office last year announced a crackdown on fraud and abuse by partial hospitalization programs. Although most of the attention focused on community-based mental health centers, these intensive programs are also run from hospital-based outpatient clinics.
This year, Covall predicts, "We will see more of a stabilization of the industry and potentially some more consolidation."
That trend may already be on its way. In April, Universal bought three behavioral health hospitals from Irvine, Calif.-based Cooper Cos.
Charter, by contrast, may close or sell some of its facilities. Charter has been steadily losing money and is currently dealing with the public relations headache of a "60 Minutes II" expose earlier this year on the use of restraints on children in its facilities.
In an interesting twist, Covall notes, the behavioral health industry is focusing more on adolescent services. Downey, Calif.-based College Health Enterprises' spinoff of its youth-services division is a case in point, he says.
"The demand for noninstitutional services for at-risk youth was growing much faster than the hospital business," says Elliot Sainer, chief executive officer of Aspen Youth Services, the Cerritos, Calif.-based spinoff. Sainer notes that revenues for the division rose from $6 million in 1994 to $40 million in 1998, when the spinoff was completed. Aspen sees about 1,500 youths each year in a range of nonhospital settings.