The Outpatient Future

Written by Ted Jackson 
March 2007

A Tectonic Shift, Post Managed Care, as Outpatient Accounts for Ever Larger Share of Treatment


As early as the 1960s, Dr. David Smith, along with addiction medicine colleagues like Dr. Donald Wesson, were looking into whether compounds like flumazenil and naltrexone were effective in combating the disease of addiction.

Of course, these compounds now form the basis of pharmacological-based treatments that many, including Dr. The Outpatient FutureSmith, believe are just the vanguard of a wave of new treatments that will one day fundamentally alter how addiction is treated and, indeed, perceived.

As founder of the storied Haight Ashbury Free Clinic, Dr. Smith developed the nation’s first outpatient detox program, and he believes that “there are many things coming down the line that many people in the treatment field just don’t seem to be prepared for.”

And it is thus that, at 68, Dr. Smith has embarked on a new venture, one that he feels is the most exciting in his long addiction medicine career. “I’m back where I want to be,” he says. “Training people in the new technologies and bringing about a new addiction treatment paradigm, which is using addiction pharmacotherapies to improve treatment outcomes in an outpatient setting.”

Through his David E. Smith Medical Group, Dr. Smith has teamed up with addiction disease management services company Hythiam Inc. to launch the Prometa Centers, a group of specialty outpatient addiction treatment centers whose focus is on offering a highly medical approach to treating addiction with cutting-edge pharmacological treatments in conjunction with traditional psychotherapeutic approaches.

San Francisco Opening

In February, Dr. Smith oversaw the opening of the second Prometa Center in his hometown of San Francisco, an enterprise that he will oversee directly. Well known addiction medicine specialist Dr. Matthew Torrington has been running the Los Angeles area Prometa Center, located in Santa Monica, for over a year, where he has treated hundreds of clients with Hythiam’s Prometa Protocol, which Hythiam believes is highly effective in reducing craving and improving cognitive functions in those addicted to alcohol, cocaine and methamphetamine ‘The Prometa Centers are centers of excellence,” says Dr. Smith, adding that other pharmacological treatments, such as Vivitrol, Suboxone and others, are also extensively used.

The Santa Monica and San Francisco centers are just the first in a series of Prometa Center openings scheduled by Hythiam, which, partly in partnership with recovering entrepreneur Steve Reiter’s Canterbury Institute, is planning on launching Prometa Centers in many major metropolitan areas within a few years.


Tectonic Shift

Hythiam has as its central business premise the realization of a paradigm shift in addiction care. And the company’s founder, Terren Peizer, has over the last several years raised over $100 million on Wall Street toward achieving that end. Hythiam’s Senior EVP Tony LaMacchia knows all about paradigm shifts in the medical business, having helped the legendary Bernie Salick carry out such a shift in cancer care in the 1980s. As SVP operations for Salick’s Comprehensive Cancer Centers Inc., CCC, LaMacchia helped oversee the development of what the Economist would later call “the world’s first full service disease management firm.”

Sold to what is now AstraZeneca in 1995 at a price that valued the company at $400 million, Comprehensive Cancer Centers pushed a shift in cancer care toward outpatient centers that comprehensively treated the entire range of problems associated with the disease, with CCC later on reaching deals with HMOs to “carve out” their cancer treatment.

Although Peizer’s vision in creating Hythiam several years ago was not in any way influenced by a knowledge of Salick’s experience, LaMacchia sees key parallels: “At Hythiam we are all about offering services that will allow payors to comprehensively manage addiction treatment services, and the outpatient model we are pursuing with the Prometa Centers is a lynchpin of our strategy.”

The Prometa Centers are just the latest, and most high-powered, example of a major shift that has been underway post managed care in the addiction treatment business away from paying for residential and inpatient care toward reimbursing for outpatient. Over nearly 20 years, SAMHSA’s annual snapshot of the treatment industry shows that outpatient has always accounted for the vast majority of clients in treatment at any given time, hovering around 85 percent at the start of the period and reaching nearly 90 percent in 2005.

But this data series masks a tectonic shift that has occurred post managed care with respect to where the dollars are going within the treatment industry. According to data put together by researchers at MEDSTAT, a division of information giant Thomson, the Lewin Group, a Maryland-based consultancy, and SAMHSA, there has been a huge shift in revenues away from residential and inpatient toward outpatient in recent years.

Between 1991 and 2001, the data show that payments for outpatient rose 121 percent to $7.3 billion, accounting fully for 40 percent of all treatment industry revenues in 2001, up from 28 percent 10 years earlier.

During the same period, the combined revenues from residential and inpatient rose by just 30 percent to $9.9 billion, with their contribution falling to 54 percent in 2001 from 67 percent in 1991. Partly driving this, no doubt, has been the well known reluctance of insurance payors to reimburse for inpatient or residential in recent years, arguing as  they do that residential and inpatient do not deliver outcomes to justify the large increase in costs.

And while SAMHSA data show that inpatient does indeed deliver somewhat better outcomes, some say that the improvement perhaps isn’t worth the cost of residential, with 1990s SAMHSA data showing the mean cost per enrolled day of residential being almost seven times that of outpatient.

“Only One in 13 Will Make It”

Steve Reiter remembers vividly the day when, during an  expensive stay at a high-end Northeast center, he was told that only one in 13 clients would stay clean after treatment. “I was shocked that they would  advertise their poor outcomes,” he says. “Especially considering what I was paying.” A successful entrepreneur in the New Jersey recycling industry – his  company’srevenues were approaching $40 million when he sold the business – Reiter says he plans to commit millions of dollars of his own money over the next  couple of years toward building a chain of outpatient clinics with the aim of delivering improved outcomes.

Toward that end he has teamed up with Hythiam, launching the Canterbury Institute, which in February opened its first site in Woodbridge, NJ. “Our centers are for peoplewho are unwilling or unable to seek longterm care,” says Reiter. “We believe that the paradigm requiring a long-term inpatient stay must change. I’m confident that medically based outpatient systems like Prometa combined with outpatient behavioral counseling will be where the big growth occurs in this industry.”

Open only a week, with no marketing or promotion yet, Reiter says the Woodbridge site already fielded about a couple dozen inquiries, some which he says he expects will turn into clients for the center. A second Canterbury Institute center, all of which will be branded under the Prometa Center name, will open in the spring in Boca Raton, adding yet another center to the booming South Florida market for private addiction treatment services. And Canterbury is currently scouting for additional locations in Chicago, Boston and Atlanta, with plans later on to open in Philadelphia and Washington D.C.

There is no doubt that Reiter understands the disruptive potential that Canterbury and the Prometa Centers represent for some sectors of the addiction treatment industry, especially inpatient and residential providers. “I anticipate we’re going to take some arrows,” he says. “But that’s what happens when you shake up the status quo, people naturally perhaps feel a little threatened.”