New Players Target Busy Addiction IT Market

August 2006
Commercializing Systems That Were Built In-House, Newcomers are Snagging Big Treatment Clients 

Several years ago, Caron Foundation’s information technology director Bob Wagner found himself at a fork in the road, needing a new IT system. For years, Caron – which in the 1990s effectuated a remarkable turnaround under CEO Doug Tieman’s new leadership – had used Substance Abuse Treatment Information System, SATIS, Betty Ford’s in-house system that the renowned treatment center had decided to commercialize in the 1990s.

At the time of its commercial launching, SATIS was not only a pioneering IT effort within the treatment industry, but also within the highly underdeveloped general healthcare IT world as well. But, after snagging about 30 treatment industry clients – including leading players like Rosecrance and Cumberland Heights – Betty Ford eventually made a strategic decision to exit the commercial information technology business.

Instead, Betty Ford sold SATIS to the nation’s leading provider of behavioral health and treatment center IT systems, Netsmart Technologies. While many of the SATIS clients elected to transition to Netsmart’s Avatar system – which is by far the leading IT offering in the addiction market with over 140 treatment center clients – many did not.

When SATIS changed hands in 2004, Caron’s Wagner decided to conduct an exhaustive search for a new system, not ruling Avatar out, but also wanting to get an insight into what the highly fragmented behavioral health IT marketplace had to offer.

“We looked at 17 different systems,” says Wagner., adding that it soon became apparent that the field would quickly narrow to just a few players. Included in the narrowed field were Netsmart and its arch competitor in the addiction space, Sequest Technologies, which has signed many of the former SATIS clients over the past two years. “What we needed was a fully integrated system, which is offered by relatively few companies,” said Wagner, adding that he required this type of capability to deliver the needed functionality to the more than 450 networked PC stations scattered throughout Caron, up from just 25 a decade earlier.

New Player Wins

But also included in the narrowed field was tiny Sigmund Software, one of a breed of new players that have descended on the fast growing addiction IT space in recent years. In a singular competitive feat, Sigmund ultimately won the Caron business, landing for its first client what is among the most prestigious IT contracts in the treatment industry.

“There is no question this was a very big win for us, a real plum first assignment,” says Sigmund Software CEO Dr. Joseph Santoro, who is also COO and co-founder of Brewster, NY-based psychiatric and addiction services provider SLS Health Group.

Sigmund’s product line, which can be bought in modules based on functionality, is an outgrowth of SLS’s in-house IT system, which the behavioral health provider began developing in the early 1990s. Another new IT system set to hit the market soon is also the product of an in-house effort, one that non-profit powerhouse Valley Hope spent millions of dollars developing, also in the 1990s.

“Our growth strategy is one is which we plan to expand very deliberately and selectively,” says Marcus Sharpe, Sigmund’s president. “We are very focused on quality and client satisfaction, making sure that the product configuration is right for the client and that they are highly pleased with not only the installation and training, but also the promised functionality.”

Competitive Market

But that type of focus on client satisfaction is also a hallmark of both Sequest and Netsmart, both of whom have a far larger footprint in the hotly competitive addiction and behavioral health IT marketplace. But that may not be for long, because, despite Sigmund’s avowed aim to grow at a deliberate pace, the new IT provider has been scooping up new clients at a fast rate.

Backed by strong spending over the last several months on advertising and marketing aimed at building name recognition among treatment center and behavioral health executives, Sigmund has landed full scale implementations at seven major institutions, most of them high profile addiction treatment center accounts, but also a couple of facilities devoted to psychiatric and developmental treatment.

Included among Sigmund’s new accounts are such wellknown addiction treatment names like COPAC, Sundown M Ranch and Cornerstone Recovery Inc. of Tennessee. And IT newcomer Sigmund says it is in the “advanced stages” of negotiations with about a dozen other addiction treatment and psychiatric facilities.

“There is a tremendous amount of opportunity in the addiction treatment IT space,” says Dr. Santoro, adding that he disagrees with recent pronouncements by executives at other IT providers that treatment market opportunities are becoming fewer and far between.

Like Netsmart and Sequest, Sigmund’s product offers the fullest possible range of functionality: clinical and financial administration, referral tracking, utilization and quality review, etc… But where Sigmund delivers truly unique functions is in its ability track patient outcomes, especially in the area of dual diagnosis, which right now is probably the fastest growing part of the addiction treatment industry.

Dual Diagnosis Tracking

SLS Health Group, Sigmund’s parent, has for years been highly focused on delivering truly integrated dual diagnosis treatment, offering such services as far back as the mid-1980s. As there are still relatively few treatment centers that offer integrated dual diagnosis care, SLS’s 20 year history in the field makes it among the most experienced co-occurring diagnosticians and service providers in the nation.

With its dual diagnosis focus, the first module that SLS concentrated on when it began developing the internal IT system that would become Sigmund Software was a system that tracked psychiatric medications, linking the meds with information about patient behavior and psychiatric symptomology. “What came out of this was a module that we call Target Behavior Tracking, in which we at SLS, as well as Sigmund clients, are able to monitor in real time the effectiveness of medications in reducing and ameliorating psychiatric symptoms,” says Dr. Santoro. “We are not aware of any other IT product that offers this type of unique functionality.”

Digital Divide

Certainly, dual diagnosis centers are likely to be attracted to Sigmund’s behavior tracking capability, but the issue of cost is – as it is also with Sequest and Netsmart – likely to loom large for many treatment centers, especially those on the publicly funded side of the business. The systems sold by Sequest, Netsmart and Sigmund often involve hundreds of thousands of dollars in startup costs for servers, training and installation, as well as tens of thousands of dollars in ongoing licensing and support.

And while the private side of the treatment business – where the vast majority of IT contracts have been signed in recent years – is among the most advanced areas in healthcare when it comes to IT, much of the public sector of the business remains an IT backwater. Reporting extensively on the industry’s woeful digital divide in its January 2006 IT Special Report, Treatment Magazine described a public sector in which many centers lacked even the basic infrastructure to support IT installations, with only the very largest having access to any type of integrated system. Recognizing the divide, and also seeing opportunity, Sequest has been a leader in helping public centers forge IT cooperatives where costs can be spread out, a strategy Sigmund says it plans on emulating.

But the underfunded public sector is a market of particular interest to another addiction treatment IT newcomer, Valley Hope, which spent millions developing an internal system to service its treatment operation in the 1990s. The renowned multistate treatment provider is now on the verge of taking that system commercial.

Valley Hope plans on using a completely different technology model than most other providers in the behavioral health IT space, one that is known as an ASP model. With an ASP model, systems and software are hosted and maintained offsite on remote servers and accessed by client personnel via the Internet. Many technologists, including those at Valley Hope, of course, believe this is a superior business and product delivery model. The ASP model has a singular advantage when it comes to offering services to cash tight public providers in that the large upfront costs typically associated with IT installations can be more easily stretched out if the IT pro-provider is willing to roll these costs into the recurring payments that are based on the number of client users, which is the revenue basis of ASP providers. “We plan to be very aggressive in this respect,” says Valley Hope COO John Leipold, who is overseeing the center’s IT commercialization. “Insofar as it is possible, we want to make our product affordable to any treatment center.” With its highly aggressive pricing strategy, Valley Hope may emerge as the provider of choice for smaller, underfunded public centers looking to finally enter the information age. But this does not by any means mean that Valley Hope is ceding the higher-end private market to other players. The non-profit is currently in negociations with a top private California facility it hopes will become its IT system’s first commercial client. TJ