In third quarter earnings calls, the atmosphere was positive as large behavioral health operators continue to ride current growth trends.
Universal Health Services
Universal Health Services (UHS) made two acquisitions in Q3. In August, the Alpha Hospitals Holdings deal added four behavioral healthcare hospitals with 305 beds located in the U.K. to the UHS portfolio. Officials said on the call that they remain positive about the U.K. market overall and are working to grow the platform.
Universal also acquired Foundations Recovery Network, adding eight outpatient centers and 330 beds, which officials said is relatively small in the context of UHS’s total of 20,000 beds, but it was “a strategically important” deal.
“The Foundations acquisition very nicely complements our addiction business, as we probably have eight or nine addiction facilities in our portfolio today, as well as the fact that we offer addiction services in many of our other facilities,” said Steve Filton, CFO, speaking on the call. “We think the Foundations model in terms of patient treatment as well as their model for patient capture is one that will have relevance for us throughout our other addiction businesses, and quite frankly, in some of our other lines of business, such as eating disorders, etc.”
Filton also said there are 140 beds in the queue for Foundations in the next 12 months. Meanwhile, UHS will continue to look for more behavioral acquisitions, he said.
In the behavioral unit, net revenues increased 5 percent while adjusted admissions and adjusted patient days each increased 1.6 percent as compared to Q3 of 2014.
American Addiction Centers
Now one year after its initial public offering, American Addiction Centers Holdings (AAC) has increased bed capacity from 487 to 935 beds through acquisitions and de novo activity, and officials said they intend to continue expanding the portfolio. Bed capacity is expected to increase to more than 1,200 by the first half of 2017.
Revenues increased 57 percent to $57.4 million from $36.6 million, and admissions increased 55 percent to 1,980 over Q3 of last year.
Officials say in spite of the pending litigation and pricing pressures in the market, AAC has performed well.
In recent months, there has been a spotlight across the industry on revenue earned from laboratory testing. Q3 revenue from AAC’s ancillary services, which includes point-of-care drug testing, definitive laboratory services, professional groups and other services, was 26 percent of total client-related revenue compared with 38 percent in Q2 of 2015. AAC increased its lab space by 8,000 square feet in August.
In the call, CFO Kirk Manz cautioned that AAC expects lower testing and lab revenue in future quarters.
Additionally, CEO Michael Cartwright said urinalysis is an essential component of drug and alcohol addiction treatment, and it’s not going to go away. He remains bullish and isn’t concerned about reduced rates from insurers for testing services. Clinicians will drive the testing strategy according to clinical guidance, he said, but are aware of the increased market scrutiny.
“You can probably bet that more of those individuals are becoming more conservative in writing those [testing] orders,” he said. “We don’t drive that from corporate.”
Cartwright also noted that in the past year, AAC has grown to 935 beds—with 19 percent in-network—and has experienced growth in outpatient visits:
Q1 – 1,500;
Q3 – 4,300.
Call center volume is in the 20,000 to 30,000 calls per month range, but Cartwright says AAC has set a goal of 50,000 calls per month, in light of the recent expansion to its call center facility. The conversion rate is about 2 percent to 3 percent.
In July, AAC acquired online marketers Referral Solutions Group for $32.5 million in cash and stock and Taj Media for $2.2 million in cash stock.
AAC is moving into a new, larger headquarters building in Brentwood, Tenn., during the last week of October. A hearing on a pending indictment is scheduled for November 12 with arraignment on December 1, according to officials.
Acadia Healthcare's Q3 earnings call is scheduled for November 4.
Join us in Scottsdale, Ariz., December 14-16, 2015, for the Treatment Center Investment and Valuation Retreat.