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The Deal Climate Changed in 2024, and Buyers Felt It
In January 2024, DOJ, FTC, and HHS jointly launched a public inquiry into private equity and other corporate ownership in healthcare. That was not theater. Within twelve months, we watched diligence timelines on behavioral health platform deals stretch from 60 days to well past 120, and several letters of intent in the $40M to $80M range got repriced or pulled because the buyer’s counsel found billing exposure the seller’s broker never flagged.
The behavioral health sub-sector is squarely in the crosshairs. Substance use disorder treatment, autism services, and adolescent residential have all drawn named investigations. If you are buying or selling in this space, the question is no longer whether regulators will look. It is which ones, and how deep.
Who Is Actually Looking at Your Deal
Five regulators matter on a behavioral health transaction, and they do not coordinate. DOJ Civil Division and the relevant US Attorney’s Office handle False Claims Act exposure tied to billing practices the buyer inherits. HHS-OIG manages exclusion checks and CIA obligations. State Medicaid Fraud Control Units (MFCUs) run their own parallel tracks, and California, New York, and Massachusetts have all expanded transaction notice requirements that can stall a close by 60 to 180 days.
Then there are the licensing agencies. In Florida, DCF and AHCA both have to bless a change of ownership for SUD and mental health licenses, and they do not move on your deal calendar. We have seen Florida CHOW approvals take 90 days when the seller had open complaints, and that delay alone can trigger MAC clauses or financing re-trades. California DHCS is similar. Colorado BHA is newer and less predictable.
The point: a behavioral health M&A timeline is a regulatory timeline, not a banker timeline. Build the deal around that reality or absorb the cost of pretending otherwise.
Where Diligence Actually Breaks Down
The diligence failures we get called in to clean up after close fall into a small number of buckets. Billing for levels of care the facility was not actually delivering at the documented intensity. UR notes that do not support the ASAM Criteria, 4th Edition placement billed. Lab arrangements that look fine on a slide deck and look very different when you pull the requisitions. Marketing relationships that violate the Eliminating Kickbacks in Recovery Act.
A clean QofE does not protect you from any of that. We had a buyer last year whose accounting diligence cleared a Tennessee platform at roughly $12M EBITDA. Our clinical and compliance review found that approximately 18% of Level 2.5 partial hospitalization days, an outpatient level of care, were billed without group attendance documentation that would survive a payer SIU audit. The buyer used the finding to negotiate an indemnity escrow and a working capital adjustment. They still closed. They closed with eyes open.
If your diligence does not include a chart-level review against the ASAM Criteria, 4th Edition and against state-specific documentation rules, you are not doing diligence. You are doing accounting.
Post-Close: The First 180 Days Are the Risk Window
Most enforcement actions tied to acquired behavioral health entities surface 12 to 36 months after close. The conduct that triggers them usually happened in the first 180 days, when the integration team was rebadging staff and the compliance program was, charitably, in transition. License effective dates slip. Credentialing lapses. Someone keeps billing under the seller’s TIN past the effective date because the payer enrollment did not come through. That last one is a False Claims Act problem, not a paperwork problem.
The fix is not complicated, but it requires discipline. Run a mock survey within 60 days of close. Re-paper UM and clinical policies against the ASAM Criteria, 4th Edition. Lock down EMR access on day one for any terminated staff. Confirm payer enrollment effective dates in writing before you bill a single claim under the new TIN. Document everything. If HHS-OIG knocks in 2027, the file you build now is the file that defends you.
What This Means for Sellers, and for Sponsors Holding Assets
If you are a founder considering a sale in 2026, the buyers who can actually close are the ones who have already absorbed the new diligence reality. They will pay fair multiples. They will not pay for problems. Get your charts, your licensing file, and your payer contracts in order 12 months before you go to market, not 60 days before. The delta between a clean process and a messy one in this market is easily 1.5 to 2 turns of EBITDA.
If you are a sponsor holding a platform through a longer hold than you planned, the operational backbone is what protects valuation. Census discipline, payer readiness, accreditation status, and clinical leadership stability are the four levers that survive a soft exit market. We will be at NAATP National in Amelia Island May 4 through 6, sponsoring the Women in Leadership Luncheon. Allison, Benjamin, Leah and I will all be there. If you are working through a transaction, a turnaround, or a hold-period operations question, find us.
References
- DOJ, FTC, and HHS Joint Public Inquiry into Corporate Ownership in Health Care
- HHS-OIG: Compliance Program Guidance
- Florida AHCA: Change of Ownership (CHOW) Requirements
- Florida Department of Children and Families: Substance Abuse and Mental Health Licensing
- ASAM: The ASAM Criteria, 4th Edition
- California DHCS: Substance Use Disorder Services and Licensing
- Behavioral Health Business: M&A and Enforcement Coverage
- SAMHSA: Substance Abuse and Mental Health Services Administration