Adolescent Treatment Resurgent

April 2006
In the late 1990s, the family that owned diversified medical and behavioral health services provider College Health Enterprises made a fateful move, resolving that they would sell the youth division of the company. Hindsight is golden, but maybe they would have decided differently had they known that the unit, now known as Aspen Education Group, would become one of nation’s largest and fastest growing private providers of therapeutic services to the country’s growing ranks of troubled teens.

Certainly, Aspen’s investors -Frazier Healthcare Ventures and Sprout Group in 1998 and then Warburg Pincus in 2002- have hit a major home run, being early movers into the now booming marketplace for therapeutic boarding schools and programs.

Growth has been phenomenal. Reports estimate that the number of youths attending these types of schools and programs have quadrupled over the last decade to 100,000 last year, with annual therapeutic school revenues now estimated to be in the area of $1 billion. And expansion is expected to be strong for the foreseeable future, with Aspen Education Group CEO Elliot Sainer forecasting growth for his company at 20 percent annually for the next several years. “We have gone from just 6 schools and programs in 1998 to 34 currently,” says Sainer, adding that revenues this year are expected to climb to $150 million, up from $28 million in the same period.

And while Aspen’s facilities treat youth with a wide range of psychiatric and behavioral health afflictions, Aspen says that more than any other problem, addiction is the thread that runs through it all. “Most of our kids have dealt with substance abuse at one point in their lives,” says Dr David Sack, senior vice president and medical director at Aspen. “But, as is the case generally with adolescents, the diagnoses are often multi-layered.”

And the very rapid growth of companies like Aspen, as well as other big players like Huntsville, AL-based Three Springs, has caught the interest of very large behavioral health providers like Universal Health Services. UHS, which has a strong profile in addiction treatment through its ownership of premier facilities like Atlanta’s Talbott Recovery Campus, has recently stepped up its presence substantially in the therapeutic schools and programs marketplace. Already a player through its purchase of one of the oldest therapeutic schools in the nation, Provo Canyon School in Utah – which was acquired as part of a $105 million purchase of 12 facilities from bankrupt Charter Behavioral Health Systems in 2001 – UHS paid $13.5 million last year to pick up three schools in the Northwest an one in Vermont from venerable CEDU.

With a history that stretches back to the 1960s, CEDU ran six therapeutic schools and is often credited with founding the private therapeutic schools industry. It appears that UHS may have gotten itself a bargain, buying the CEDU schools in a bankruptcy auction of the assets of The Brown Schools. The Brown Schools, whose own history in publicly funded adolescent treatment dated back to the 1940s, bought CEDU in 1998 for $78 million, a very high price that the company said ultimately contributed to its bankruptcy. Also contributing to the bankruptcy, perhaps even more than overpaying for CEDU, were legal costs and a series of settlements from lawsuits alleging abuse and neglect at Brown facilities. The lawsuits, as well as complaints from parents whose children’s tuition was lost as result of the bankruptcy filings, left a somewhat of a black eye on the reputation of the therapeutic schools industry.

Unlike for adolescent centers operated by some of the leading providers of more traditional style adolescent treatment like Caron, Hazelden and Rosecrance, only some states license the schools and accrediting entities like JCAHO and CARP rarely monitor quality standards, although therapeutic schools are taking vigorous action to regulate themselves. “The vast majority of my time is spent working to help our members adhere to the highest quality and ethics standards that are laid out in our guidelines,” says Jan Moss, executive director of the National Association of Therapeutic Schools and Programs, NATSAP, which was founded in 1999 with just six programs and now counts 166 programs as members.

There is no doubt that the booming popularity of boarding school and wilderness program formats, which has also attracted a slew of small entrepreneurial players like Peter Boeschenstein of Gray Wolf Ranch in Washington state, has meant that there has been relatively little growth left over for providers of traditional adolescent treatment. And the advent of managed care, like with adult programs, has also put a dent in the growth of adolescent programs at more traditional treatment providers, according to Albert Senella, COO at Southern California-based Tarzana Treatment Centers, which runs a substantial adolescent substance abuse treatment operation. Indeed, SAMHSA data tend to validate the conclusion that private providers of traditional style adolescent substance abuse treatment have been basically treading water since managed care reared its ugly head in the early 1990s. From 1992 to 2002, adolescent referrals from sources that tend to refer to private centers – schools, healthcare providers and self-referrals – declined substantially to 38 percent of overall adolescent treatment referrals from 50 percent. “My understanding also is that the managed care crisis hit the adolescent side particularly hard,” said Hazelden CEO Ellen Breyer, agreeing with Senella.

But Breyer points out that the lack of capacity expansion at traditional centers in recent years has left a market gap that needs to be filled. “We now have substantial waiting lists at our youth center [in Plymouth, MN] and wherever we refer out to there also tends to be waiting list.” Seeing the need, last year Hazelden’s board approved a plan to open a facility for adolescents in the Northeast, upon which management is making substantial progress. And another major non-profit provider of adolescent services, the Caron Foundation, is in the midst of negotiations to set up a 40-bed youth facility in Atlanta at a former treatment center.

And while managed care and competition from boarding school and wilderness program formats have put a crimp in the growth of the private side of the adolescent treatment business, aggregate admissions for adolescents have been skyrocketing in recent years. In fact, according to SAMHSA, the total number of annual adolescent treatment admissions soared by 65 percent between 1992 and 2002 to 156,000, almost triple the rate of increase in overall treatment admissions during the period. Referral data from SAMHSA show that virtually all the huge increase comes from referrals from the justice system, which by 2002 accounted for 54 percent of all adolescent treatment referrals, up from just 40 percent ten years earlier. As the vast majority of criminal justice referrals tend to flow to publicly funded treatment centers – the largest by far sector of the treatment business that relies on Medcaid, state block grants and other federal funding for its revenues – the big increase in referrals from courts has likely put a strain on overburdened public systems.

Probably the nation’s largest provider of treatment services to adolescents, Phoenix House has seen a big increase in referrals from the justice system, according to COO Kevin McEneaney. And while Phoenix House offers a broad array of adolescent addiction treatment services, its youth mainstay is the Phoenix Academy, 10 of which are scattered around the country in places like New York, Los Angeles and Dallas. With a total of about 700 beds nationwide, the Phoenix Academies employ a format for adolescents that, ironically, is very similar to the therapeutic boarding school model that has become so popular recently in the private-pay marketplace. With five new academies built in the last five years, and a another new academy planned for Tampa, FL, in the near future, Phoenix Academies employ a therapeutic community style rehabilitation model. “The individual attending Phoenix Academy is living in a hybrid environment in which he is being schooled while also going to treatment,” says McEneaney, adding that there is a very strong emphasis on promoting participation in self-help groups like Alcoholics Anonymous. “We aim to change their value system through their attendance at the academy and by working with the families,” he said.

With the Phoenix Academies there is a very high commitment to a long-term level of care, which costs on average about $37,000 a year, according to McEneaney, who points out that a Rand Corporation study of the Los Angeles academy found the Phoenix House approach to be highly effective. “You also have to compare the cost to a juvenile detention center – where most of our youth are heading if they don’t come here – which is about $80,000 a year,” he said. In fact so effective has the model of integrating adolescent treatment with schooling been, that Phoenix House is in the process of expanding the concept to include day schooling, allying itself with school districts that desperately need help handling teens with behavior and addiction problems. “The thing with schools is that there is this tremendous need,” said McEneaney. “By law they have to provide schooling to these youths, who often end up in schools that have little more than computers for teachers. What we are offering is an alternative for school systems that don’t know how to handle addicted teens.” So far, there are three day schools on the model that Phoenix House is promoting, two in New York and one in Texas.

And Phoenix House is not alone in attempting to integrate treatment and recovery into the teen schooling experience. Last year, Indianapolis based Fairbanks Hospital received approval from city authorities to open a recovery high school. JW