Private Equity Investment Is Soaring In Addiction Treatment Centers

But recovery advocates are skeptical about the intentions investors have.
Posted at 2:52 PM, Oct 09, 2019

As the rate of opioid addiction soared over the past decade, so did the demand for treatment options. And as more for-profit treatment centers started opening, private equity firms quickly saw an opportunity. 

"Private equity of course wants to make money — that’s what they do — but my question on top of that is, are you using that money to provide the best quality of care so that people can and do get better?” said Tom Hill, vice president of practice improvement at the National Council for Behavioral Health and former presidential appointee to the Substance Abuse and Mental Health Services Administration (SAMHSA).

Private equity investment in addiction treatment centers has been increasing steadily over the past ten years. It really took off in 2014, the same year the Affordable Care Act  — which requires insurers to cover substance abuse treatment — was fully implemented. The mandate led to millions of people getting coverage, and was followed by the creation of more for-profit facilities — some of which are now backed by private equity.

But scandals have left recovery advocates skeptical of whether investors are as patient-driven as they are profit-motivated. Earlier this year, owners and employees of Liberation Way were arrested for scamming insurance companies out of millions of dollars — less than a year after it was acquired by Fulcrum Equity Partners. Meanwhile, American Addiction Centers — a publicly-traded treatment company that attracted investment from Deerfield Management and Morgan Stanley — is facing multiple lawsuits regarding the death of their patients. Fulcrum denied knowing of any wrongdoing going on at Liberation Way, and none of the big-name investors once involved with American Addiction Centers have publicly commented.

Still, a majority of those currently suffering from addiction in the U.S. aren't getting help. And some healthcare experts say private equity is a way to expand access to those who need it.

“I think overall, it’s probably been beneficial to have more investment in the sector. Mental health and substance abuse treatment has always sort of been the weak stepchild of the healthcare system. People haven’t viewed it as real healthcare, but it is,” said Jonathan Gruber, a professor of economics at MIT considered to be the “chief architect” of Obamacare. 

Before private equity firms go into business with addiction treatment centers, they typically conduct due diligence investigations with the help of their legal teams or healthcare investment consultants. Ideally, that process weeds out potential bad actors involved in fraud and abuse, and directs money into centers that are acting ethically. 

But as the U.S. continues to grapple with addiction, Hill says he hopes that investment of any kind will help all forms of care become more widely available. 

“Everybody assumes that treatment equals residential treatment. People think of 28 days of residential treatment or six months of residential. That’s not always the gold standard and it’s not always what’s necessary. We can’t think of the old paradigm and think it’s not enough, because maybe we do have enough right now. We just have to be more diversified in our thinking,” Hill said.