Treatment program closings changed the landscape in 2009

In anAddiction Professional online poll this month, 70 percent of respondents said there were more treatment program closings than openings in their community over the past year. That’s not surprising, given the national economic downturn. There have been some high-profile closings in the industry this year; the names include New River Cove in Belize, Hanley Hall near Vero Beach, Florida, and Alta Mira Treatment Center and TouchStone Treatment Center in California. In addition, large operations such as the up-and-coming Townsend Recovery downsized from a multi-state presence to the much more modest Townsend now operating in Louisiana.

Smaller programs that opened in the last few years were most at risk, according to observers. The program cost for the mostly self-pay New River Cove was relatively affordable—$26,000 for 90 days—but patients had to travel to get there. The program had a capacity of 18, so even a few empty beds meant a relatively large financial shortfall.
“The self-pay market was more dependent on credit than we knew or realized,” says Ronald J. Hunsicker, president and CEO of the National Association of Addiction Treatment Providers (NAATP). “2009 has been a particularly difficult year for that segment, because access to credit tightened up significantly.”
In general, those programs that depended on patients who needed to access credit, via home equity loans or credit cards, to pay for their treatment were the most vulnerable, says Hunsicker. Even if programs haven’t had to close, they have had to cut back—on staff and services, says Doug Tieman, president and CEO of Caron Treatment Centers. Tieman is in a position to hear about struggling programs, because they often call him for help.
“The survival plan for some facilities is to be taken over by a larger program,” he says. These inquiring programs tend to be newer programs that are too undercapitalized to handle a downturn, he says. “They put together plans in 2006 and 2007 that only made sense if the economy of those years continued.” It didn’t, and the programs weren’t able financially to withstand two bad years.
“These looked like good organizations, with good people,” Tieman says. “They would have done just fine if the economy had held up. That’s the sad part.” But some programs might have banked too much on the economy when it was good, not making any plans for a downturn and possibly determining their own fate as a result. “Some higher-end cash-only facilities expanded too rapidly when the economy was strong,” says George Joseph, CEO of The Right Step, which has programs in Texas and New Mexico. “I feel confident that this was a correction that needed to take place,” he says of recent activity in the treatment industry. “People looked at their strengths, tried to keep the doors open, and rightsized.”
Hunsicker agrees, saying that many programs, instead of closing, are focusing on their core mission and on services that can be cost-effective. “In the good times you can make bad business decisions, but in the bad times you can’t,” he says.
Middle-class patients
The patients who have suffered the most are the middle class, for whom access poses more of a challenge today than two years ago, says Tieman. These patients no longer can afford treatment, unless the program will subsidize their care.

“We have as many people today as we did two years ago paying full price,” which is between $20,000 and $30,000 for the first month, Tieman says. But for those patients who do need financial assistance, the amount they need is more, because they can’t get a home equity loan and their stock portfolio or IRA took a major hit.
“There’s a huge gap now between the haves and the have-nots,” says Tieman. Programs that have been around for a long time and have fund-raising operations and a large roster of alumni can provide charity care, but other smaller, newer programs can’t.
Not the ’90s
Both Hunsicker and Tieman recall the early 1990s, when managed care decimated the treatment field—and not just smaller, newly opened facilities. “Top-flight legitimate quality programs were dying,” says Tieman. Due to managed care, these programs—many of them for-profit—ended up not delivering a high enough return on investment, and the owners looked for other opportunities.

In general, not-for-profits stay closer to their core mission, and therefore may be less vulnerable during a financial downturn, says Hunsicker. “They don’t get tempted as often by an interesting business deal that may or may not work.”
Getting hard data on the number of programs that recently have closed is difficult, because there’s no agreement in the industry on what even constitutes a program. “When you find out, let me know,” says Hunsicker, when asked how many treatment programs there are in the United States.
There are about 2,000 programs represented by the State Associations of Addiction Services (SAAS). And the federal database includes about 8,000 providers, many of whom may provide treatment only some of the time or in a limited way. Because nobody knows how many treatment providers there are, it’s hard to derive data on the percentage of programs that have closed. More programs did close in 2009 than have closed in recent years, Hunsicker says. But he added that new programs have opened, and NAATP membership is growing. “NAATP is probably going to end the year with a net growth of 20 to 22 members,” he says. NAATP now has 312 members; in 1997, it had 81.
While health reform and parity might enhance treatment programs’ economic viability, there’s no clear path for that yet. And until employment and credit situations improve for patients, there still will be some uncertainty about payment. “Receivables can be problems that emerge later,” says Tieman. “You can think you’re doing OK, your census is OK, but that’s because you’re assuming you’ll get paid by the state or by an insurance company. If in 2011 it still hasn’t happened, you’ll be writing off a lot.”
Public programs
Public-sector programs will definitely have a more difficult year in 2010 than in 2009, because state budgets will be in even worse shape than they have been, says Becky Vaughn, executive director of SAAS. “That doesn’t necessarily mean there will be more closures, but there will be more mergers,” she says.
Programs will be more efficient, relying on economies of scale, especially in administration, Vaughn says. There will be fewer smaller providers. While Vaughn isn’t opposed to mergers conceptually, she does point out a downside: They can reduce access, especially in geographic areas where one closure means patients have to drive to treatment services that are hours away.
And the distinction between public and private programs is getting blurred, she says, adding that public programs need to operate more like private ones, with an eye on diversification of funding streams. Some programs are now members of both SAAS and NAATP. Some private programs take TANF (federal welfare) patients. This kind of innovation is essential to survival, Vaughn says. “We are moving out of a social service model into a business model,” she says.
This is a time of great possibility for the field. Programs can use the economy as “an excuse, or put another way, as an opportunity” to focus on good management decisions, says Hunsicker. This will maximize the chances that they will stay open not just next year, but for the next decade. Alison Knopf is a freelance writer based in New York.