Defining 'Attractive Markets' in the Intellectual and Developmental Disabilities Industry

Volume 12, Issue 9, May 6, 2025

By: Dave Turgeon, CM&AA

An Invitation To Join a Dialogue

I would like to invite interested parties to begin a dialogue on the topic of what defines "attractive markets" for providers in the intellectual and developmental disabilities (IDD) industry. To begin with, let's define a "market" as a state and a line of service. For example, operating group homes in Ohio would constitute a "market."

My intention in doing so is to share some thoughts about this important subject in order to elicit feedback from others. I am not interested in trying to tell you what are "good" or "bad" markets for investment. As I'll get to below, a good or bad market may and often will differ by provider. My interest here is to suggest a collaboration with others to capture everyone's best thoughts on the topic. I hope we can share insights and metrics that might help our community better understand the dynamics in place all over our country. I would very much like to see broad participation by interested parties. If this topic resonates with you, I have included my email at the end of the piece and would welcome your thoughts. If there is enough interest and engagement, I may create a LinkedIn group or similar resource to continue the conversation.

To get this conversation started, I am using this column to touch on a wide range of IDD industry topics, from some basics around defining terms and key metrics to discussion about more complex topics like marketing intelligence and dealmaking.

A Starting Point

I've created a table (Table A) with some key metrics on the IDD industry. To begin with, the total annual dollar spent in the IDD industry is approximately $80 billion. I've listed a breakdown by state in the table. The University of Kansas publishes a report every two years which includes this very helpful information. I've used their information for many years and included some data points here.

Should the total dollars spent per state be considered a good indicator of an attractive market? Perhaps a better question is: when does total annual dollar spend become a useful metric? Is the dollar amount spent per person a better metric? If someone is seeking to consolidate a market, might they consider the overall size, number of competitors, and leverage available through combinations as important factors?

I know that there are a number of buyers in the IDD industry that view markets with a small dollar amount of spend as a disqualifier for any transaction. This does not mean that there aren't wonderful companies and acquisition targets for the right buyer. There have been numerous cases in the field of healthcare mergers and acquisitions (M&A) where a company does the hard work of consolidating a small market, creating a dominant market position, and selling it to a large provider.

Administrative Cost Per State

There is a data point that I've always been curious about, and that's the administrative cost per state. How much of the total spend goes to providers for the care of those with disabilities? How much of the total spend goes to administrative costs? By that, I mean how much is allocated to state employees, county employees, third parties, and others? I would be interested in knowing if anyone has that data or how we might obtain it.

Marketplace Plans

One thing for certain in the IDD business is that you need a very clear plan for success for each market in which you operate. You must understand what you're good at and where that can be put to best use. We've seen far too many instances where companies invest heavily in states and markets without a critical understanding of their own abilities and the risks in that market.

Not all markets are created equally. Not all companies are created equally. Just because one company is succeeding in a market doesn't guarantee the same outcome for others. Putting the right resources in place in the correct markets is very profitable. Getting it wrong is costly, and getting out of those market positions can be difficult.

There's a concept that I first saw in the book "Good to Great" by Jim Collins. He introduced a model called the "Hedgehog Concept." Jim's experience led him to believe that to be successful, you needed to find something you're deeply passionate about, something you can do better than anyone else, and something that fits your economic engine.

Since it's impossible to be great at everything, find a service where you're passionate and where you can be great. The right economic engine means that you'll be rewarded for the work you do on behalf of your clients.

Cost of Living Differs by State

Table A includes a list of the dollars spent by state. While that might be a helpful starting point, it's likely an incomplete analysis. There are wide discrepancies in the cost of living from one state to another. The U.S. Department of Commerce has a Bureau of Economic Analysis that publishes a cost-of-living index by state. I've included this for 2023 in our table. I've normalized the spending by state by the cost-of-living index to get a better measure of the support level in each state. Finally, I've ranked the spending by individual IDD client for the 51 markets (50 states and the District of Columbia). Experience shows reimbursement rates are measured more accurately when applying a cost-of-living index. What are your thoughts on this approach?

Not-For-Profit Organizations and Competitive Dynamics

The IDD industry continues to operate with a substantial number of not-for-profit organizations. In some states, we've seen a preference among referral agencies for supporting them over others. There are states where over 50% of consumers are cared for by not-for-profit organizations. It's unclear to me if this preference for not-for-profits is better for the clients. Perhaps someone has information to share on this topic.

My point in raising the topic is only to ask if the presence of not-for-profits and possible preference should be considered in one's evaluation of an attractive market for investment.

Perhaps a measurement of a market's attractiveness would be better measured by the entire competitive landscape. By that I mean the number of competitors, and their size and strength, might be a better measurement.

Market Intelligence

At one point in my career, I was directed by the CEO of a large IDD company to acquire companies in a certain market. When I inquired as to his interest, he said, "Because we have a small presence there, we're losing money, and some acquisitions would really boost employee morale."

I reached out to the owners of every IDD provider in the state. I executed confidentiality agreements, met with owners, and reviewed financial results. Mostly, I got a lot of bewildered owners asking me, "Why would anyone want to buy here? None of us are making money."

I did not make any acquisitions for that CEO. In fact, my firm sold its operations shortly after that research. It's helpful to have a clear understanding of how well other providers are doing in the market.

Perhaps one way to think of the IDD landscape is that there are both attractive markets for investment and unattractive markets where profitability is unlikely. Within the group of attractive markets, there are strategies for success one can define and follow.

Percentage of the Population Receiving Supports

I've never seen research on the incidence of IDD by region of by state. I've assumed that IDD shows up as a percentage of the population regardless of all other factors. It's concerning when you see states with a very low percentage of the population receiving supports. Is this a helpful measurement?

Allow me to make another point about population. Our table shows a total of almost 1.6 million people receiving aid. Other studies, including one recently published by the University of Minnesota, shows that there are approximately 8.4 million people in the country with IDD.

Spend Based on Services Provided by Each State

Each state has its own approach to the IDD services provided and their funding. Some services are obviously more expensive than others. A state offering less expensive services might spend less than another based only on the mix of reimbursed services. Normalizing costs across service lines can be accomplished easily.

A similar point regarding services funded is the direction a state is trending with supports by service. Getting ahead of the changes is smart business. Expansion of services through organic growth or acquisitions has been proven very effective.

Payors

The consideration of payors is a critically important one. There are many subjects that we could get into under the heading of payors. Due to both its importance and the volume of material, I have chosen to park this topic for either another article or open it to an online discussion. I would very much like to hear others' perspective on payors.

Dealmaking

There are over 30,000 providers of IDD services in the U.S., and many of them consider a sale every year. The number of providers means that even after consideration of unusually long ownership periods, hundreds of providers can come up for sale in any given year.

We speak with buyers and sellers daily. We are uniquely positioned to be of help. Having worked with hundreds of buyers, we know the target geographies, services, and sizes of all the large buyers. We know the track record of buyers getting from a letter of intent phase to closing. Frankly, we know which buyers are most efficient and easiest to work with. This kind of experience and knowledge invaluable to sellers

Dave Turgeon, CM&AA

VERTESS is an advisory firm that works exclusively in healthcare. The behavioral health industry has been a foundational piece of the firm's business. Tom Schramski, one of the firm's founding partners, spent his career in this specialty. More recently, I, Dave Turgeon, have managed the behavioral health space for the firm. I transitioned to a focus in behavioral health M&A after working for decades in broader healthcare M&A. The transition was based on a family member with IDD and the desire to help those in the IDD industry who provide supports and services to this population.

Contact Dave at dturgeon@vertess.com or (617) 640-7239. He welcomes your feedback and input!