Some drug treatment centers make big profits by cutting treatment costs

Sarah SmithJanuary 31, 2023

Near the end of his planned three-month stay at a rehab facility outside of Austin, Texas, Daniel McKegney was forced to tell his father in North Carolina that he needed more time and more money, as he recently recalled.

His father has already received bills from BRC Recovery totaling about $150,000 to cover McKegney’s treatment for addiction to the powerful opioid fentanyl, according to insurance claims provided by KHN. But McKegney, 20, said he found the program “suffocating” and was unhappy with his care.

He was advised not to take long-term Suboxone, a drug often recommended for the treatment of opioid addiction, because the BRC does not consider it a form of abstinence. After an initial five-day detox period last April, McKegney’s exit plan has mostly included weekly therapy sessions and 12-step group meetings, which are free nationwide.

McKegney said a BRC employee recommended he stay for a fourth month and even attended a call to his father.

“They used my life and [my] dad’s love for me to get another 20 grand out of him,” said McKegney, who told KHN he’s started using fentanyl again after an expensive stay.

The BRC did not respond to specific concerns raised by McKegney. But in an emailed statement, Mandy Baker, president and chief clinical officer of BRC Healthcare, said many of the complaints they shared with KHN from patients and former employees were “no longer true” or were related to coronavirus-related safety measures.

But addiction researchers and private equity watchers say models like the one used by the BRC—charging high fees from patients with no guarantee of access to evidence-based care—are common throughout the country’s addiction treatment industry.

The model and growing demand is why addiction treatment is becoming more and more attractive to private equity firms looking to make big profits. And they’re betting on projections that predict the market will grow $10 billion – doubling in size – by the end of the decade as drug overdose deaths and alcohol-related deaths rise.

“There’s a lot of money to be made,” said Eileen O’Grady, director of research and campaigns at the Private Equity Stakeholder Project, a nonprofit that tracks private investment in healthcare, housing and other industries. “But that’s not necessarily consistent with high-quality treatment.”

There were 127 mergers and acquisitions in the mental health sector, including the treatment of substance use disorders, in 2021, a recovery after years of decline, according to investment banking firm Capstone Partners. Private equity investment has spurred much of the activity in an industry that is highly fragmented and growing rapidly and has historically had few barriers to getting patients the right care.

Approximately 14,000 treatment centers are scattered throughout the country. They are distributed as addiction rates rise and as health plans are required to offer better drug and alcohol treatment coverage. Treatment options vary widely and do not always follow the recommendations of the Federal Substance Abuse and Mental Health Administration. Despite efforts to standardize care, industry critics say private equity groups are investing in centers with untested practices and curtailed services that, while unprofitable, can promote long-term recovery.

Baker said BRC treats people who have failed elsewhere and does so with the involvement of both clients and their families.

Private capital saves on known standards

There are many centers that discourage or ban the use of FDA-approved drugs for the treatment of substance use disorders, but they do not align with the American Society for Substance Abuse Medicine guidelines on how to treat the disorder. associated with opioid use for a long time. long term.

Suboxone, for example, combines the pain reliever buprenorphine and naloxone, which interferes with the action of opioids. The drug blocks overdose and also reduces patient cravings and withdrawal symptoms.

“It’s inconceivable to me that an addiction treatment provider that deals with opioid use disorder doesn’t offer medication,” said Robert Lubran, a former federal official and chairman of the board of the Danya Institute, a nonprofit organization that supports states and treatment providers.

Residential hospitals, where patients stay for weeks or months, play a role in addiction treatment but are often overused, said Brendan Saloner, assistant professor of health policy and management at the Johns Hopkins Bloomberg School of Public Health.

Many patients return to drug and alcohol use after a hospital stay, but studies show that drug use can reduce relapse rates for certain types of addiction. McKegney said he now takes Suboxone regularly.

“The last three years of my life have been hell,” he said.

Along with access to medications, high-quality addiction treatment usually requires long-term care, according to Shatterproof, a non-profit organization dedicated to improving addiction treatment. And, ideally, treatment is individualized for the patient. While the Twelve Steps program developed by Alcoholics Anonymous may help some patients, others may require other behavioral therapies.

But when seeking investment, private equity groups focus on profits, not how well the program is designed, says Laura Katz Olson, a political science professor at Lehigh University who has written a book on private equity investment in American health care.

In medical companies, investors often cut services and reduce staff costs, hiring fewer and less trained workers, she said. Typically, private equity firms buy “a place that works really well and then cut it down to the bone,” Olson said. During his stay, according to McKegney, trips to the movies or to the lake abruptly stopped, food changed from poke bowls and pork tenderloin to “dishwashing soap” flavored chili, and staff turnover was high.

Almost three years ago, BRC received support from NewSpring Capital and Veronis Suhler Stevenson, two private equity firms with wide portfolios. Their assets include a payroll company, a bridal wear designer and a donut franchise. With fresh funds in hand, BRC began expanding and bought several wastewater treatment plants in Tennessee.

NewSpring Capital and Veronis Suhler Stevenson did not respond to emails or phone calls from KHN.

High prices and low overheads = big business

Prior to the BRC sale, approximately 80% of the center’s offerings were free, according to Nashville Recovery Center co-founder Ryan Kane. Anyone could come to the 12-step meetings, meet a sponsor, or just play pool. But the new owners focused on a new, high-end sobriety program that cost thousands of dollars a month and relied on employees to get well.

In 2021, 48-year-old Nancy Milam emptied her 401(k) pension fund to complete a sobriety program and kick her alcohol addiction. She had only been sober for six months when she was hired as a house manager to look after some of the same residents with whom she had gone through the program. She had to deal with other residents’ medications, which she said she might have abused. Milam said she was lucky to stay sober.

“I think it met their needs. And I was ambitious. But that shouldn’t have happened,” Milam said, adding that she left because the company didn’t help her get certified as a drug counselor as promised.

In late 2021, a license violation was reported to Tennessee regulators that involved an employee who was later fired for having sex with a resident in a warehouse. And KHN received a copy of an 911 call made in August 2022 — after a resident drank half a bottle of mouthwash — during which an employee admitted there was no nurse on site, which is required in some other states.

Removing the burden on consumers

Health care provider rules are mostly focused on health and safety rather than clinical guidelines. Only a few states, including New York and Massachusetts, require licensed addiction treatment centers to offer medication for opioid use disorders and follow other best practices.

“We have a huge problem in an area where licensing standards don’t meet what we know to be the most effective quality standards for healthcare,” said Michael Botticelli, former director of the Office of National Drug Control Policy during the Obama era. administration and clinical advisory board member of the privately invested Behavioral Health Group. Some organizations, including Shatterproof, refer patients to proper care. The federal and state governments primarily direct public funds to centers that meet clinical quality standards.

But access to treatment is limited, and desperate patients and families often don’t know where to turn. State or federal regulators do not control rehab claims such as the “99% success rate” advertised by BRC.

“We can’t place the burden on patients and their families” to navigate the system, said a Johns Hopkins University saloner. “It really breaks my heart for people who spend thousands of dollars on fake software.”

When her niece was ready for inpatient rehab in the summer of 2020, Marina said sending her to the BRC was “a knee-jerk reaction.” Marina, a doctor in Southern California, asked that she be referred to only by her middle name to protect the privacy of her niece, who is addicted to alcohol.

She had explored the object three years earlier, but did not investigate further because she feared her niece would change her mind. BRC has advertised success stories on the TV show Dr. Phil” and posted confirmations on social networks.

Marina agreed to BRC advance payments of $30,000 a month for a three-month stay in Texas, which she paid out of her own pocket as her niece had no insurance. She allowed the KHN to look through some of her niece’s drug and treatment bills.

Marina said she paid for the fourth month, but said the program ultimately did not help her niece, who is still “terribly sick.” She said her niece felt constant guilt and shame in rehab. Marina felt that the medical supervision was inadequate and said the program “bribed” her with additional services, such as doctor visits, which she thought would be included.

“It almost doesn’t matter if you are educated and smart,” Marina said. “When it’s your loved one, you’re just desperate.”

KHN (Kaiser Health News) is a national news service that produces in-depth journalism on health issues. Together with Policy Analysis and Polling, KHN is one of the three main operating programs of the KFF (Kaiser Family Foundation). KFF is a charitable non-profit organization providing health information to the nation.