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If you count the birth of the modern treatment industry as starting with the introduction of the Minnesota Model, then the modern treatment business is well over 50 years old. I have studied many industries as a financial journalist, but never before have I run across a business as mature as the treatment industry that is still as fragmented.
There are many thousands of treatment centers in the $20 billion a year U.S. treatment business - SAMSHA lists over 11,000 nationwide, and Treatment Magazine distributes to about 3,000 - with the average residential operator having only about 40 beds.
Some treatment executives we’ve talked to ascribe the industry’s extremely high degree of fragmentation to something inherent in the nature of the treatment business, with some saying that good addiction treatment simply doesn’t lend itself to large scale operations. And while that may be true, we don’t think it has anything to do with why the industry is still so fragmented. In the 1980s, as commercial insurance dollars flooded the industry, big investors saw opportunity and engaged in large scale leveraged rollups. If not for managed care, rollup plays like Parkside and CompCare would likely still be around and the private treatment industry would also likely be considerably less fragmented than it is today, with large national players dominating the private industry.
But managed care did intervene, and it has been higher end private pay services that have been driving growth in the private treatment industry over the last decade. With these types of services, smaller is clearly better as clients demand highly personal, non-institutional type care. CRC Health Corp. has definitely understood this, a key part of its rollup strategy being to keep acquired center storefronts intact. But CRC’s deal pace has been relatively slow. The company has done only a few small scale treatment deals a year over the past couple of years.
The result is that, while CRC is by far the largest provider in the nation, it represents perhaps five percent to 10 percent of the private treatment industry and perhaps about 2 percent of the overall industry.
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Publisher's Note 
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