Acadia Healthcare has gotten the wind knocked out of it recently. The pure play behavioral health provider unfortunately got hit with a double whammy related to its proposed expansion into the United Kingdom via its Priory Group acquisition. Brexit fears obviously slammed the company due to its new British exposure, but there is more cloudiness on the horizon.
Acadia Healthcare’s expansion by buying the largest local behavioral health provider has the United Kingdom’s Competition and Markets Authority looking deep into potential competitive concerns. With the equity now down more than one quarter from recent highs, is it now time to potentially take a position in the company?
Business Overview
As a provider of mental health and substance abuse facilities, there are some sizeable secular trends benefiting the company. Across the first world, there is a meaningful push towards raising awareness of the effects of non-treated mental illness. As a result, both government and private insurers alike in the United States and the United Kingdom are becoming more in tune with the use of mental health treatment to prevent future disease and eliminate wasteful healthcare spending.
Interestingly, medical studies have shown that patients with untreated mental health issues visit medical doctors twice as often for unnecessary care and consume a similar outsized portion of valid medical care. It is clear that some of these costs could be reduced by treating the root problem that inevitably seem to lead to wasteful medical spending.
With more and more focus on out of control healthcare costs, expect more and more emphasis on mental health as a possible means of wringing out cost savings, especially given the lack of appetite for true medical reform within the system. The company is already starting to benefit from these trends, as revenue per bed is on the rise as well as growing hospitalization times. Despite growth, the company still owns just a small portion of the overall potential market for these services.
Date: August 08, 2016