For the first 50 years of the addiction treatment industry, the field was dominated by not-for-profits and profit-making companies that operated much like their not-for-profit counterparts. In fact, the only significant difference for most was an IRS classification, since in practice, all the organizations provided charity care.
Over the last 10 years, there has been a 400 percent increase in new residential treatment facilities in the United States, largely as a result of private equity firms financing “for profit” facilities. There has also been a 30 percent growth in residential treatment demand by consumers over the same period.
On the surface, there are many upsides to this expansion since addiction has been woefully underserved throughout our nation’s history. The most notable benefits are the additional beds, resources, expertise and focus that certainly help many more people and their families recover from addiction. Private equity has brought much needed capital, business expertise, technology and visibility to our nation’s number one healthcare problem, which is a significant advantage for our society.
While all of these elements are positive and more people are getting help, I’d like to provide a historical perspective. As someone who has been in this field for a long time—32 years to be exact—I saw a similar growth phenomenon in the late 1980s when reimbursement from both insurance and government was ample, and the number of “corporate” treatment centers increased.
That growth was followed by government funding and managed care significantly limiting behavioral healthcare resources in the 1990s. Reimbursement dried up, and all of the large “corporate” treatment providers disappeared. In fact, there was a 50 percent reduction in treatment beds between 1990 and 1995. The clear message was that when profitability left the treatment industry, the large “for-profits” exited the field. Those that remained were the historic not-for-profits and those for-profits that were committed to the mission of recovery for their patients, not just a return on an investment.
It is important to remember that private equity’s goal is to earn dividends and/or develop appreciation of the assets for their investors. Every investor has this expectation of any of the investments that are made. In the healthcare arena, there is significant work that must be done that often does not have a return on investment: activities such as research, advocacy, prevention, education and charity care.
It may be that one of the most important ingredients in the not-for-profit world is sharing of best practices. Not-for-profits readily share what we know with others with the hopes of raising the bar for the entire industry. Investors are less willing to share those same competitive advantages with others.
My biggest concern is that when there is not enough reimbursement for the private equity facilities to be as profitable, they will exit the field as they did 25 years ago, which will leave many communities without addiction treatment and recovery resources, creating added challenges for families seeking to access care. Therefore an important message for all of us is to support our local/regional/national not-for-profit organizations. It is critical that we continue to thrive during this private equity growth period because in five years we may be the only resources available to provide much needed addiction and behavioral healthcare. In the not-for-profit world, our motto is really simple: “Recovery is our only bottom line.”
Doug Tieman is President and CEO of Caron Treatment Centers and a Behavioral Healthcare editorial advisor.
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