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For-profit trend leaves not-for-profits nervous

April 29, 2015
by Julie Miller, Editor in Chief
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In a $35 billion industry with significant growth potential, there’s room for everyone, experts say. Still, as more for-profit and private-equity-backed addiction treatment centers enter the market, many longstanding providers are reluctant to welcome the profit-making newcomers.

“There is still a lot of hand-wringing about it,” Charles Ingoglia, senior vice president of the National Council for Behavioral Health, tells Behavioral Healthcare. “We need to be reassured that these aren’t real estate deals, that there is commitment to access and science-based services.”

For-profit and not-for-profit centers alike agree that the quality of the treatment remains the critical factor. Rather than setting a goal based on the number of intakes, leaders say, they want to aim for more high-quality care.

“That means we have to be open to new models of service delivery and to recognize that in the marketplace of dealing with substance use disorder (SUD), there has to be room for a diversity of approaches and methodologies,” says Herb Paine, a not-for-profit consultant in Phoenix.

No generalizations

There is bristling among SUD providers at the idea of positioning the specialty as a profit-making source for investors who are largely focused on financial payoff. According to Paine, however, that generalization might be a bit short-sighted because not all for-profits are measuring success by their investors’ financial returns. Many in the SUD treatment business are using surplus to subsidize care for low-income patients in the form of scholarships. And he says centers that honestly want to provide good care shouldn’t be immediately discounted specifically because of their business model.

Pricing can be a more serious sticking point. A community with higher-cost and lower-cost centers provides choice but can also separate patients by payment source, according to Paine. He says for those who can afford the private setting through robust insurance coverage or out-of-pocket financial resources, the for-profits are there to offer a broader range of therapeutic strategies “with environments that are cosmetically more attractive.”

 “As big as this industry is becoming, the reality is that the for-profits are well positioned to cater to the high-end patient,” Paine says. “So you have a bifurcated system of treatment.”

The question yet to be answered is how the for-profits will act in the future should their profits decrease, he says. Treatment services might be cut rather than amenities or marketing campaigns. As the industry continues to grow, centers of all types need long-term sustainability plans to survive, regardless of their size, scope or profit status.

Dick Dillon, CEO of Innovaision in St. Louis, says the bigger question is in not profit per se but how an organization uses the money it earns. A for-profit center can use its dollars to deliver better clinical care, just as a not-for-profit can use its incoming funds to enhance the business side of the organization.

“Even as a non-profit, you need to make some money over and above what it takes to deliver the service because you need to repair buildings and invest in new technologies, for example,” Dillon says.  “If you think about the EHR systems that agencies have to buy or develop these days, the money they need to do that can be substantial. So if you’re not ‘making any money’ at the end of the day, you’ll probably be in trouble.”

At the same time, every center must be cognizant of whether it has enough capital to deliver the quality and the type of services they promise to deliver, Dillon says.

“Some for-profits have a primary goal of making money for other people,” he says. “And there are also non-profits who are not doing a great job with the money they’ve been given.”

The crux of the argument is where the trade-off comes in. To attract investors, an organization must offer a return on investment. To satisfy commercial insurers, an organization must offer effective treatment. To earn a government contract, an organization must follow prescribed rules of governance and reporting.

“It’s a balancing act, regardless,” Dillon says.

 

Future of not-for-profits

Paine says the not-for-profits will have a difficult future in the new era of healthcare expansion under the Affordable Care Act.

“The reality is that the stand-alone, single program just ain’t gonna make it,” Paine says. “To be sustainable in the new healthcare market requires the non-profits to focus on the imperative to integrate with primary care. To be sustainable means you’ve got to be able to demonstrate outcomes and that means you have to have metrics and the capability in technology to produce those metrics.” Traditional non-profits don’t typically have those tools at the ready, he says, and that’s why so many smaller centers are being acquired by larger ones. In some cases, two centers might merge for economies of scale—whether it’s simply a good opportunity or to save one of them from closing its doors.

The more obvious reason why the single, not-for-profit is at risk is because the business model relies on public-sector funding, which historically fails to cover the true cost of delivering services, also which needs to be supplemented by hard-earned charitable contributions. When it comes to long-term SUD care, the public sector funding is even more difficult to secure.

Paine anticipates fewer, but larger, not-for-profit centers. They aren’t going to fade away, but they might have a harder time competing, he says.

 

Future of for-profits

With the expansion of healthcare coverage and increasing requirements from commercial insurers, for-profits might have certain advantages.

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