Dr. Ronit Molko on Investing in the Autism Services Industry

Middle Market Growth – A Qualified Opinion

Dr. Ronit Molko is the founder and CEO of Empowering Synergy, a provider of specialist health care and consulting services for private equity investors and service providers with a focus on the autism, traumatic brain injury, home health and senior health care sectors of behavioral health. A licensed clinical psychologist and board-certified behavior analyst, Molko is the co-founder of Autism Spectrum Therapies, which she led until 2014, and author of the book “Autism Matters: Empowering Investors, Providers and the Autism Community
to Advance Autism Services.” Molko corresponded with MMG about M&A activity in the autism services industry.

“ALTHOUGH RELATIVELY NEW TO AUTISM SERVICES, PRIVATE EQUITY PLAYS AN IMPORTANT ROLE IN THE INDUSTRY.”

Q How much M&A activity is happening in the autism services industry?
A There has been a dramatic increase in M&A activity. Over the past five years, there were over 75 transactions. Last year saw the highest
activity, with 25 deals completed. Now there are over 20 “platform” companies looking to scale services organically, expand into new markets, and acquire smaller competitors. Over 80% of the service provider market remains highly fragmented and it’s still in an early growth phase, supporting the rationale for consolidation. Even more deal flow is expected in 2020.

Q What’s driving M&A and private equity investment in this industry?
A Increasing demand for services is one driver. The incidence of autism has continued to grow—today, 1 in 59 children in the U.S. is diagnosed with autism. The demand for support and services still far outweighs the supply of providers. Additionally, the funding for autism services has expanded considerably. In 2019, Tennessee became the 50th state to require health benefit plans to cover medically necessary treatment for autism. Although relatively new to autism services, private equity plays an important role in the industry. Because the market is relatively unsophisticated from an operational perspective, investors are providing capital needed for growth and expansion of services,
managing risk and compliance, and professionalizing the industry from a business and operational standpoint.

Q What are some of the risks of investing in autism services providers?
A Talent and data present two key risks in this industry. Registered behavior technicians and board-certified behavior analysts are the drivers for growth and service delivery, yet the industry has faced challenges with both groups. There is high turnover among registered behavior technicians, who provide daily intervention in clients’ homes, in a clinic or center, or a hybrid. Annualized attrition rates range from 50% to 125% for the in-home service delivery model. For center-based services, attrition rates can be as low as 10% to 15% and up to 50% to 60% for small providers.

Board-certified behavior analysts make up the supervisor tier, and their credential is a requirement for commercial, federal and state funding sources. The market continues to experience a shortage of these professionals, which impacts a provider’s ability to meet the regulatory requirements of funding sources and the ethical requirements of the credentialing board. With respect to data, the autism market does not have the outcome data that is typically available in other areas of health care—such as group studies to determine the effectiveness of a medical intervention. Instead, the outcomes of autism therapy are determined individually, based on each client’s unique needs and goals. As autism services moves toward a value-based reimbursement model, the lack of widespread outcome data presents challenges in establishing new models of reimbursements and new standards of intervention and outcomes.

Q How can emerging technologies be used to improve autism services?
A Technology has the potential to improve outcomes for service providers, autistic individuals and business owners. Tools embedded with artificial intelligence and machine learning are already changing diagnostics and self-management. Companies have introduced wearable technologies to help adults manage daily activities, such as navigating their environment, coping with anxiety and interacting socially. Meanwhile, several companies are piloting technologies to diagnose autism in one session, a diagnostic process that now can take up to a year. Technology will also transform the service provider market. Existing technological tools for practice management and business optimization are marginally adequate at best. They largely do not support effective daily data dashboards and predictive analytics, and most companies are still managing their businesses with limited real-time operational visibility. Many providers are attempting to develop technologies to manage the nuanced aspects of clinical programming, data collection and reporting, compliance and employee activities,
and operational aspects such as scheduling.

investment

A Social Impact Through Investment in Autism Services  

An imperative for many investors today is to do good as they do well. Socially conscious investment is fueling many sectors of the economy, from alternative energy to continuum of care communities by combining the best of the head and the heart. Savvy investors provide their business acumen and management expertise to help these industries prosper.

Investing in autism services offers a tremendous opportunity to earn a significant return on investment, both financially and socially. There is a global need for autism services that is growing rapidly and has the potential to transform people’s lives. Socially conscious investors will find an industry that is not well-understood or capitalized and is ripe for new, more collaborative business approaches.

I believe that autism services are ripe for behavioral healthcare companies that have a heart for helping and the entrepreneurial spirit that drives business innovation.

The autism services sector needs more of these investors and the clients of these services would benefit from improved business practices in the field. More investment will create more trained professionals and increase the number of service providers. More providers will be able to help more individuals and better prepare more schools to work with children with autism.

 

The Need for Standardized Outcomes
A critical need in autism services is for standardization in measurement across the industry. Currently, data collection and analysis is random and inconsistent, and outcomes are starting to be defined by insurance companies rather than by clinicians. This is a dangerous path that does not bode well for clients of autism services.

If instead, new investors brought additional resources and their sophisticated business minds to the sector, they could professionalize its business practices. Almost certainly this would include development of standardized outcome measurements across the industry. In this way, greater capital investment can change the entire landscape for individuals living with autism and their families.

 

Profit and Care Can Live in Harmony
There are those who believe that the rush for profits is incompatible with compassionate patient care. In practice, there are certainly those organizations that have lost sight of the delicate balance in a greedy headlong rush. But the reverse is a problem too: any company that fails to apply the best business practices will either cease to exist or limp along providing second rate services to their clients.

The free marketplace is an adept Darwinist, dispatching those outfits that fail to keep up with business innovations and punishing those that provide poor customer service.

Enlightened self-interest is another driver of wise investment in autism services. The autism diagnosis has exploded in the last couple of decades – one in 59 children born today is diagnosed along the spectrum – and the cost to society to support an autistic individual across their lifetime is somewhere in the vicinity of $2-3 million. A 2014 study found the total cost of autism in the U.S. alone is roughly a quarter of a trillion dollars. This burden is borne by each of us.

 

As a consultant to private equity firms and companies in the behavioral healthcare marketplace, I am a firm believer in financial and social ROI. Good business can improve the quality of people’s lives and strong results are good for business. It’s why I’ve committed my company, Empowering Synergy to that exact mission.