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Will tough times get tougher?

December 1, 2008
by Gary A. Enos, Editor
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Addiction treatment centers consider merits of growth strategies in today's economy

No answers, new questions. That has seemed to be the prevailing theme in the final months of 2008 for anyone who runs an organization—nonprofit or for-profit, private or public. For addiction treatment centers, the national economic crisis has reintroduced memories of past recessions and of managed care's whirlwind arrival more than a decade ago. Without the benefit of hindsight on the present situation, few are willing to predict how damaging this period will prove to be to the treatment community and the people it serves.

Yet while discussion of tightened capital markets, slumping reimbursements, and shaky staff morale prevail throughout the field at the close of the year, in many organizations there also is discussion of long-term strategic planning that might leave many centers in a better place financially and psychologically.

“You need to be mission- and market-focused in your analysis; don't be lemming-like,” urges Craig Savage, principal with North Carolina-based healthcare consultant Health Planning Source, which has offered guidance to several community behavioral health organizations. “You need to go through a deliberate process to identify what your strategy needs to be to deal with uncertain times.”

Most leaders and observers of the addiction treatment community believe that organizations in uncertain financial times tend to look first at curbing expansion plans. “I would suspect that credit is tight for everyone and that because of this organizations are experiencing the pinch and consumers are also not able to access the disposable income they once could,” says Ronald J. Hunsicker, president and CEO of the National Association of Addiction Treatment Providers (NAATP). “This may impact any capital expansion as much as anything.”

Douglas Tieman, president and CEO of Caron Treatment Centers in eastern Pennsylvania and a frequent speaker on fundraising strategies for treatment centers, has predicted that patient census in many facilities could see a steady decline in the coming months. Families concerned about the economy might see less of an “investment value” in treatment right now, and also might worry that their loved one will not have a job waiting for him/her after treatment is completed.

Even those who do enter treatment might have difficulty paying for any portion of care not covered by insurance, Tieman says, and if facilities decide to extend credit as they have during other slowdown periods, that can create some long-term problems for operations. Ultimately, Tieman says, these day-to-day problems will at the very least complicate decisions on longer-range goals and new initiatives.

“People will ask, ‘If times are tough, is it out of the question that we build this new building?’” he says.

Ironically, Tieman and others believe this might still be an ideal time to proceed with certain expansions, since construction costs are relatively reasonable right now. “The current market conditions are not permanent, and most expansion projects are long-term,” Paul D. Whittle, president of Harmony Foundation in Estes Park, Colorado wrote in a recent e-mail to Addiction Professional editors.

“While I do think we have to cope with these short-term conditions with prudence, our long-term outlook at the Harmony Foundation is to grow, and expand our facilities to meet the demand in our area,” Whittle stated in his message.

Investing in the field

Perhaps one of the most encouraging signs for the addiction treatment industry's prospects lies in recent interest from outside entities investing in the field, even during these uncertain times.

Last spring, the California investment firm Forterus made news in the field by making its first addiction treatment program acquisition. Its purchase of the California center A Better Tomorrow for nearly $13 million indicated that outside investors see this market as maintaining an ability to perform despite challenges in the economy. A Better Tomorrow now operates as a behavioral health subsidiary of Forterus.

Then in October, New York City-based Branford Castle inked an agreement to become the investment partner of the fast-growing Townsend Recovery, which in just its second year of existence already operates more than a dozen centers in five states in the South (see this issue's cover story, page 8).

While these agreements certainly appear encouraging, members of the addiction treatment community will be watching carefully to see whether outside investment dollars will help preserve quality of care or will somehow alter the mission of the entities involved.

And overall, some authorities are saying that health organizations' ability to access capital markets hasn't yet been compromised to the degree that one might expect. Cambridge Realty Capital Companies, one of the nation's leading lenders in the healthcare and senior housing markets, reported in late October that its volume of loan origination business in the fall was actually fairly brisk given the nation's financial conditions.

Still, there is evidence that some organizations are proceeding cautiously with any growth plans. In an October online poll conducted via the Addiction Professional Web site, more than 8 in 10 respondents said concerns about the economy had at least slowed expansion plans or new initiatives in their organizations.

Partnership opportunities

Health Planning Source's Savage believes that with reimbursements getting squeezed and the credit markets looking more restrictive, more behavioral health organizations might see partnerships with other behavioral health entities as a conduit to expanded product offerings, access to top talent, and leverage in negotiating with payers.