Eyeing Big Profits, a Private Equity Firm Bought a Leading Autism Services Provider — Then COVID Hit

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The Center for Autism and Related Disorders (CARD) — one of the nation’s largest autism services providers — on Monday filed for bankruptcy, prompting some experts to speculate the company’s private equity owner couldn’t squeeze out enough profit in a COVID-19 world of lockdowns, labor shortages and other financial pressures.

CARD’s majority owner, private equity firm Blackstone, reached an agreement to sell the company back to its founder, Doreen Granpeesheh, Ph.D., for about $25 million.

Under the terms of the agreement with Granpeesheh’s company, Pantogran, CARD will continue to seek higher and better purchase offers from other buyers over the next two months. The final sale must be approved by the bankruptcy court.

Granpeesheh — a leading autism expert who founded CARD in 1990 and was its CEO until 2019 — retained a 21% minority stake after selling most of the business in 2018 to Blackstone.

At the end of 2021, under Blackstone’s majority ownership, CARD was operating 221 locations in 24 states. But by the end of last year, it had shut down or was in the process of shutting down operations in 10 states. Since January 2022, CARD closed 92 locations.

In the year ending in April, the company’s revenue totaled $160 million, its adjusted loss totaled about $22 million and its net loss totaled $82 million. Over the same period of time, the company’s operating expenses totaled $144 million, including bad debt, Behavioral Health Business reported.

CARD reportedly faced difficulties related to wage pressures and a labor shortage associated with the COVID-19 pandemic, along with challenges paying rent on its facilities, many of which closed in the wake of the pandemic.

Mark Blaxill, CFO of the Holland Center, a privately owned autism treatment center, told The Defender, “The financial world looks at distance, sees unlimited growth, increasing demand.”

But the reality is that autism services are a low-margin service business, he said. Billing rates aren’t substantially higher than costs and there is a lot of administrative work involved in getting payments from Medicaid and insurance providers.

If everything runs smoothly, centers can generate small positive margins, said Blaxill, who also is co-author of “The Age of Autism.” “But things don’t always run smoothly. And during COVID, in particular with shutdowns and quarantines, those were issues.”

CARD offers applied behavioral analysis (ABA) therapy, a type of one-on-one therapy for people with autism that focuses on improving targeted behaviors.

Its bankruptcy and restructuring come as the need for autism services continues to soar. Roughly 1 in 36 children were diagnosed with autism spectrum disorder in 2020, according to the Centers for Disease Control and Prevention — up from 1 in 44 in 2018 and 1 in 150 in 2000.

‘In private equity, all they care about is profit’

CARD’s is the latest in a series of bankruptcy filings and corporate restructurings among private-equity-owned healthcare providers, according to the Wall Street Journal.

Others include Envision Healthcare, a physician-staffing service provider and GenesisCare, a global cancer treatment provider, both backed by global investment firm KKR.

TeamHealth, a Blackstone-owned physician staffing company, also is in talks with lenders regarding $1 billion in debt.

Private equity has been moving to reshape healthcare in the U.S. In 2021 private equity firms invested $206 billion into more than 1,400 healthcare acquisitions, according to industry tracker PitchBook.

Evidence shows private equity ownership leads to higher prices and diminished quality of care, according to a 2022 investigation by Kaiser Health News.

In the autism industry in the past several years, relatively new state laws that mandate insurance coverage for autism treatment have made certain kinds of therapies more accessible, and investors saw it as an opportunity for massive potential profit, Laura K. Olson, Ph.D., a political science professor at Lehigh University told The Defender.

Private equity firms rushed in — there have been more than 200 private equity deals in the autism sector alone since 2012. Asset managers like Blackstone, KKR, TPG, and Cerberus, seeking to capitalize on the potential for revenue, secured a major foothold in the industry, Fortune reported.

That investment has transformed ABA therapy providers “from a collection of small, mom-and-pop clinics to a multibillion-dollar industry in which care is increasingly provided by national chains,” STAT reported.

Blackstone, the world’s largest alternative asset manager, acquired a 70% stake in CARD in 2018 in a deal that valued the company at $600 million.

Forbes reported that Granpeesheh received an estimated $315 million from the deal and reinvested $135 million into CARD, but she left the board in 2022 over disagreements with new leadership.

Behavioral Health Business reported that 2018 was “the high-point of extravagant multiples for autism therapy companies,” meaning that based on projected future profits, companies were valued at several times higher than their earnings, making autism one of “healthcare’s most desirable investment spaces,” it said.

It still retains that status, despite the fact that rising interest rates and labor shortages have lowered profit projections.

Olson, who wrote “Ethically Challenged: Private Equity Storms US Healthcare,” told The Defender that private equity firms follow the same playbook in every industry. They use debt to purchase businesses and grow them quickly by taking on even more debt, which they plan to pay off with future revenue.

Blaxill said during the COVID-19 pandemic those growth plans came to a halt for many autism treatment centers. Closing down for lockdowns and concerns about COVID-19 led to revenue losses and also to labor shortages.

Additionally, he said, there is a lot of demand for the therapists and the Board Certified Behavioral Analysts (BCBA) who provide the services, which drives up wages and costs, but also burnout among providers.

He said many companies found themselves in a situation where the market tightened, and there was a labor shortage, so facilities could work at only a fraction of their capacity.

Olson said that facing existing challenges to providing care combined with the financial motives of private equity firms leads to lower quality therapy in those companies.

She said:

“The thing about private equity as opposed to other kinds of commercial care is that the only goal is profit. It’s not just that they are more ‘profit-oriented.’

“Hospitals, for example, are profit-oriented, but they have other concerns — the reputation of their place, maybe giving back to the community in which they live, there’s other things — but in private equity, all they care about is the profit.”

The result, she said, is that they provide a lower quality of care.

This is the case even in the autism industry, Olson said, where many owners who sold their companies and the therapists and BCBAs that work there were deeply committed to caring for the clients.

Jon Bailey, Ph.D., a professor of psychology at Florida State University, runs the ABA Ethics Hotline where parents, providers, behavior analysts and anyone with an ethics question can seek advice. He told The Defender that as private equity took on a larger role in autism treatment, his website received more ethics inquiries from providers working at ABA companies.

Inquiries included whether it was ethical for supervisors to increase caseloads, or pressure families to increase treatment hours, which would result in higher billing, or cut training time.

Bailey said providers often feel pressured by companies to “manipulate the system so they can make a bigger profit.”

One of the outcomes, he said, is that the therapists and BCBAs leave the companies, or leave the industry altogether, either because they don’t want to violate the code of ethics or because they are unable to handle their caseloads. And that can also lead to treatment centers shutting down.

“And of course, that has devastating effects on children that they’re working with,” he said.

“What I advise both my students and people who write into the hotline, is to look for a company that’s privately owned, that is not connected with a private-equity-backed monolith.”

He said they tend to have higher supervisor and employee retention and offer better care.