By Christopher J. Donovan
Private equity investments have fueled a rapid expansion of autism treatment options, providing critical assistance to families who often struggle to get help for their children.
For these investors, the autism space represents an area where expanding access to services, tailored to a high-demand but undiagnosed population, requires both financial and operational resources. Private equity has the knowledge, the experience and the capital to meet that need.
For children diagnosed with Autism Spectrum Disorder, and for their families, these investments can be life-altering. The expansion of autism treatment options is helping to alleviate a dire nationwide therapist shortage compounded by a fast-growing population of autism diagnoses – to an estimated one in 40 US children in 2019, nearly triple the estimate in 2006.
The supply-demand imbalance, combined with the rapid evolution of reimbursement policy – 44 states now require payers to cover autism therapy services – attracted private equity funds to invest in 26 autism-treatment providers in 2018, double the autism deals tallied by PitchBook in 2017. The first half of 2019 saw another 11 autism investments, including Norwest Venture Partners’ investment in Gateway Learning Group and Golden Gate Capital’s purchase of Invo Holdings.
These investors are throwing their capital behind various forms of autism treatment and services. In 2017, FFL Partners acquired Autism Learning Partners, a provider of Applied Behavioral Analysis, one of the common methods for treating autism. In 2018, Frazier Healthcare Partners purchased Caravel Autism Health, a provider of home-based ABA treatment; Frazier’s capital has fueled steady expansion, including the January announcement that Caravel would open four new autism treatment facilities in the Minneapolis-St. Paul area.
But for the private equity firms, investing is only the first step, and likely the easiest. As they bring new providers to market, private equity firms will have to prove to payers – and families – that their treatment centers can deliver effective service and continually demonstrate their ability to achieve better outcomes at lower prices.
How the Autism Market Will Evolve
Delivering effective service represents a compliance challenge: treatment centers must consistently match the right clinician with the right patients, and then provide appropriate levels of service. Providers that rise to that challenge will gain powerful advantages as the reimbursement model evolves from the hourly rate regime most states use toward an outcome-based model.
The drive to demonstrate superior outcomes at lower cost is complicated by the fact that there is no standard for measuring outcomes or assessing the efficacy of various treatments. The nature of autism simply doesn’t lend itself to easily measurable results. And without a control group – autistic children who do not receive treatment – to measure against, progress toward universal benchmarks could be slow.
Nevertheless, some payers are demanding finite scopes of services, benchmarked against clinically evidenced results, to justify extensive treatment plans that can last years or even a lifetime. The rise of beneficiary class actions in this area proves the need to embrace outcomes targeted results, which has become the mantra of the payer community.
In this context, private equity investors will play an important role in advocating for universal outcome and reimbursement standards that allow providers to invest, expand and grow with a known goal.
In the meantime, those investors will continue to provide the capital required to add services to meet the vast unmet demand. Their efforts will likely focus on services such as clinical diagnosis, where a shortage of qualified clinicians that leaves many families waiting for months before their child can be evaluated.
Finally, in the coming years private equity backers will propel robust deal-making. As autism providers grow and expand, as care becomes more efficient and outcome standards come into focus, many providers will lack the financial and management resources to expand coverage and to invest in the systems and personnel needed to deliver adequate services. Providers who have the resources will seek to expand through acquisition.
Pushing Past Obstacles
Even those providers with the capital to invest are likely to continue to struggle with a crippling labor shortage. It remains difficult to find qualified therapists and technicians, especially in rural and smaller markets. According to some estimates there are about 1 million autistic children in the US but only 10,800 child psychologists, child neurologists and developmental-behavior pediatricians.
Autism-service providers also face considerable legal and regulatory compliance challenges. That’s true in any healthcare setting but treating children with autism raises the stakes considerably. Ensuring full compliance for this vulnerable population – without inflating costs – must in the next few years be a critical focus for providers and their investors.
As they work to create an effective, sustainable model for serving autistic children, private equity-backed treatment providers must now focus on operations and scale.
But that doesn’t mean they’re done investing. Providers have the opportunity to add clinical diagnostic tools and other advanced services that have the potential to transform autism treatment – but to do it, they’ll need more capital.
Private equity investors have the capital. By investing it in autism treatment, they stand to deliver life-changing treatment options for millions of American families.
Christopher J. Donovan is a partner with Foley & Lardner LLP. He is also co-chair of Foley’s Health Care Industry Team, co-chair of the Post-Acute Care & Senior Housing Practice, and a member of the firm’s Private Equity & Venture Capital Practice.