UnitedHealth Group acquires large mental health group in Twin Cities

Minnetonka-based UnitedHealth Group has acquired CARE Counseling, a Plymouth-based outpatient mental health group with some 300 employees across 10 locations.

Financial terms of the deal, which was first reported by Behavioral Health Business, were not disclosed.

CARE Counseling becomes the third mental health practice in Minnesota that's been purchased by UnitedHealth through a subsidiary called Refresh Mental Health, which has more than 300 locations in 37 states.

The acquisition stands as United's largest foray into owning local clinics since the company's push eight years ago into the local urgent care market, including an ambitious expansion plan that's been downsized significantly in recent years.

"Expanding and diversifying our behavioral health care delivery capabilities through this combination will build on a strong foundation of patient-centered, high-quality and affordable care in an environment that supports and enables the talented clinicians delivering these critical services," the company said in a statement to the Star Tribune. "We look forward to working with CARE Counseling to build on their deep roots in the community."

UnitedHealth Group announced last year it's seen a significant increase in patients seeking care for mental health and substance use disorders. The company, which operates the nation's largest health insurer, said it was adding network providers and adjusting benefits within its UnitedHealthcare business because executives believed the trend of higher mental health service use would continue.

Meanwhile, UnitedHealthcare this month became the third health insurer in the past year to reach a settlement with Minnesota regulators over alleged violations of parity laws, which requires insurers provide mental health benefits that are as good as they are for physical health care. United, which was fined $450,000 by the state Commerce Department, neither admitted nor denied the allegations.

Increased demand for parity in coverage is one of several reasons there's been more mergers and acquisition activity over the past few years among mental health providers nationwide, said Dexter Braff, founder of The Braff Group, a Pittsburgh-based M&A advisory firm. Investors also like that patients are becoming more comfortable seeking out mental health treatment, Braff said, while the provider market is highly fragmented, which creates "ample opportunities for consolidation."

"Mental health took off when COVID hit as investors rightly surmised that given the isolation, fear and disruption, the need for mental health services — which was already high — would surge even higher and be sustainable over the long term," Braff said in an email.

Over the past 15 years, UnitedHealth Group has methodically expanded into the market for providing outpatient health care services. This has included not just urgent care facilities, but also surgery centers and large medical groups through a unit called OptumCare. Two years ago, the business included about 53,000 employed or affiliated physicians. The number that has since grown to about 90,000 doctors.

Earlier this month, the clinic business played into questions during a U.S. Senate Finance Committee hearing, where lawmakers challenged UnitedHealth Group CEO Andrew Witty on whether the company has become too big.

"But don't I know that y'all own some incredible percentage of physician practices now?" asked Sen. Bill Cassidy, R-Louisiana.

Witty responded that most of the physicians in the division are not employees, but instead have elected to partner their businesses with Optum through affiliation agreements.

Mental health draws investors

It's not only insurers that have seen growing demand for behavioral care. Private equity firms also have been buying into outpatient mental health in Minnesota.

Over the past decade, investors have built significant ownership in The Emily Program, which provides eating disorders care across six Minnesota locations with more than 400 employees. In 2022, a private-equity backed mental health provider acquired PrairieCare, one of the state's largest sources of mental health care for kids.

Private equity investors also have acquired Nystrom and Associates, with 43 locations in Minnesota, as well as Ellie Mental Health, which employs 350 people in 22 clinics across the state.

"The pandemic certainly highlighted the existing need for mental health care and the growing unmet need, as well as the insufficient supply of providers and programs," Jillian Lampert of The Emily Program said via e-mail. "Programs and program owners could only expand so fast without additional capital. The [private equity] investment in increasing access to behavioral health care has resulted in the availability of more mental health services, virtually and in person."

Amid these acquisitions, small mental health providers have complained about financial challenges, including struggles to get timely payments from health insurers. Large nonprofit health systems, meanwhile, have argued payment rates are too low, particularly from government programs like Medicaid. This was a factor North Memorial Health cited in its decision to close this summer its outpatient mental health services in Robbinsdale.

Health systems often have overhead costs that weigh on the financial performance of outpatient mental health services, said Kevin Taggart, managing partner of Florida-based Mertz Taggart, a firm that consults on mergers and acquisitions in home care, hospice and behavioral health. Small providers, meanwhile, can struggle because they lack economic advantages that come with being bigger, Taggart added, such as negotiating better payment rates from insurers.

"As they get scale and start adding services, they can become very profitable," he said of outpatient mental health groups.

Taggart said private equity groups "generally like fragmented markets where there's not a big player. [Mental health] is still a highly fragmented market."

Mental health advocates, however, are concerned about investor ownership with outpatient mental health because the track record with private equity buyers in other parts of health care, said Dr. Michael Trangle, a psychiatrist and former physician executive with Bloomington-based HealthPartners. Some fear investor-owned mental health clinics will rely on inexperienced clinicians with fewer credentials, Trangle said, while focusing on patients with better-paying insurance coverage.

These concerns, he believes, apply to both private equity ownership and publicly-traded companies like UnitedHealth Group, although private equity owners might demand profits more quickly.

Refresh Mental Health, the UnitedHealth Group company, owns two other Minnesota locations — Northern Psychiatric in Baxter and DBT-PTSD Specialists in Plymouth — with a combined 14 clinicians across the two groups. The website for CARE Counseling, meanwhile, lists about 214 clinicians.