Editor’s Note: Today, we’re pleased to welcome Alison Knopf, editor of the Alcoholism & Drug Abuse Weekly, as a first-time Points guest blogger. We’re republishing, with her kind permission, her article on addiction treatment as big business, which first appeared at A&DAW on November 5th, 2012. Several interesting issues raised in this piece, we thought, will merit further discussion among our readership.
In September, when Tennessee-based Acadia Healthcare Company paid $90 million for Timberline Knolls, a 122-bed inpatient treatment program in Chicago, treatment providers wondered if their programs were worth that kind of money, bed for bed. Other deals in recent months, including Foundations Recovery Network’s acquisition in early October by Nick Pritzker Capital Management for an undisclosed amount, point to the possibility that addiction treatment — at least in the commercial (non-Medicaid, nonpublic) sector — is a profitable enterprise. For this story, ADAW talked to some of the most influential leaders of the addiction treatment field in the private for-profit sector.
In early September, Michael Cartwright, founder and former CEO of Foundations, and Jerrod Menz of Forterus, which in 2008 began investing in addiction treatment programs (see ADAW, October 20, 2008), joined with Treatment Solutions to form American Addiction Centers, which announced that it would provide “a comprehensive and cutting-edge suite of treatment-related services to the masses.” Forterus’ main treatment program is A Better Tomorrow.
Cartwright, who started his career as an inner-city case worker making $16,000 a year and is now on his fourth addiction treatment company, said that the treatment business is not ready for the stock market. “Forterus went public, and that was a mistake,” he told ADAW. But it is ready for private equity, or for just personal investment, he said.
Cartwright thinks addiction treatment is a good investment — for commercially insured patients — because 3.5 million people a year go to treatment, there have been no rate decreases and the average length of stay is consistent.
Cartwright’s first company was a not-for-profit. His second was a managed care company that he sold to the employees. The third was a privately held company that he sold to private equity — Foundations. And his fourth — American Addiction Centers — now has operations in six states and a healthy revenue stream, he said. But it is not ready for an initial public offering, which he said requires $100 million, and which most addiction treatment providers — with the exception of CRC Health Group — don’t have.