|Addiction Treatment Industry Newswire|
|09/29/2013 –ATIN – Just days before the much vaunted insurance exchanges of ObamaCare are set to go live, precious little is known about what the ultimate effect will be on the addiction treatment industry nationwide. There is much speculation about a flood of new clientele as those previously without coverages for addiction ailments supposedly acquire them with policies purchased on the exchanges. But the fact is that addictions health policy experts know pretty much squat about what’s coming down the pike because, as usual, the devil is in the details. And experts admit – former deputy Drug Czar Andrea Barthwell at Moments of Change last week, for example – that those details have basically yet to be worked out and are few and far between so far.
Managed Care Echoes
What is known, though, is that in an effort to hold down what are admittedly totally unsustainable, never-ending annual medical price increases, health insurers are bringing back echoes of dreaded managed care by severely limiting provider choice in the policies being offered on the new exchanges. And while these policies are mostly going to be aimed at the bottom quartile, poorest on the economic ladder, it is possible that the new managed care vogue will percolate up the health insurance food chain. Corporates and unions may jump on board, desperate as they are to cut costs on their self-funded and administered plans, which for the time being will still provide the overwhelming majority of health coverage nationwide. Thus the trend toward offering narrow provider networks – so called “gold plated” policies will in fact be subject to a luxury tax under ObamaCare – could be a slow moving dagger aimed at the heart of key “destination” addictions care markets like South Florida, Arizona, So Cal and lately Eastern Pennsylvania whose revenue models have become to varying degrees highly reliant post managed-care on very expensive out-of-network insurance benefits.
The South Florida Big Four
The net effect of this could be to accelerate the dominance in super out-of-network reliant South Florida of a group of providers Treatment Magazine earlier this year dubbed as the South Florida Big Four, Florida House, Behavioral Health of the Palm Beaches, BHOPB, The Watershed and Caron-Hanley. For the latter the debate is moot because Caron-Hanley is 100 percent self-pay (although executives there tell us that may soon change) and for the other three because they have kept a significant chunk of their payor mix devoted to providing in-network care. Thus these players, and other larger providers like Recovery First, The Treatment Center and a few others, have maintained expertise at providing care in much more difficult to maneuver, low margin in-network operating environments. But for the hundreds of smaller players that dot the South Florida landscape, the ones that are reliant on the Florida Model and are averaged sized 40-beds or less, ObamaCare could be more like a cruel, slow motion Chinese “death-of a-thousand-cuts” execution as those that are unable, or unwilling, fail to adapt – or get Googled-to-death as they go all cash-pay and attempt to compete against deep pocketed marketers like Elements Behavioral and the nation’s largest addiction treatment provider, Bain Capital’s CRC Health Corp. Already these independent, entrepreneur-in-recovery driven smaller centers were hit hard earlier this year as health insurers started closing an easy money urine testing reimbursement gambit that may have created a speculative bubble of new, highly marginal players completely managerially incapable of competing in a more rigorous cost-focused reimbursement environment.
Scale the Name of the Game
Of course, a greater move toward in-network, negotiated compensation is the bane of highly fragmented medical markets like that of the addictions care industry, where currently even the very largest players represent only a few percentage points of overall industry assets. Thus the much vaunted addiction treatment industry consolidation wave – CRC under founder Barry Karlin was more an amalgamation than a consolidation – has already begun to gather considerable steam with scale rapidly becoming the new name of the game. The last two years have been possibly the busiest deal making period in the history of addiction treatment, perhaps even eclipsing the Wild West 1980s, debt fueled era of Parkside and CompCare, a deal wave that was ultimately crushed and dismantled by the emergence of managed care in the early 1990s. The presence of moneyed, Wall Street type interests at the Moments of Change conference in Palm Beach earlier this month was pervasive, with the likelihood that deals may emerge out of introductions made at this year’s event.
Lots of Deals
Last week, in a historic move, Betty Ford and Hazelden said they would combine by early next year into a $150M nation’s largest non-profit, with CEO Mark Mishek indicating a services diversification move into non-residential type care. On the publicly funded side, non-profits up and down the East Coast have been announcing major mergers into much larger regional focused entities all year, the biggest being the emergence of the new Aspire Healthcare in Northern Florida into the Southeast’s largest behavioral health care company. At Moments of Change last week, South Florida’s Palm Partners finally announced what everyone knew already, which is that CEO Peter Harrigan had engineered the year’s most significant consolidation of assets in that market by acquiring women specialist The Orchid and the Giordano family’s Holistic G&G. There is little doubt that scale was a major driving force behind Harrigan’s deal, with Palm Partners announcing that it planned on adding hundreds of beds of new capacity in the wake of the transaction.
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