Halfway House Business Plan
Halfway House Business Plan
Halfway House Business Plan
Drug overdose deaths in the U.S. averaged a record 118 per day in 2014, with prescription opioids (e.g.,
Vicodin, Percoset) accounting for 40–50% of the total. Heroin, formerly the scourge of poor and urban
areas has now penetrated middle-to-high income suburban areas with a low cost, high potency product.
Fentanyl, with 40–50x the potency of pure heroin is also available. Alarming headlines, combined with
growing evidence of death and devastation has led to an outcry for additional legislation, manpower
and funding to address substance abuse and dependency disorders.
President Obama recently spoke at the National Rx Drug Abuse and Heroin Summit and promised $1.1
billion in additional funding; he also urged states to increase their engagement.
In this article, we provide an overview of the demographics of drug abuse, its etiology and treatment
principles; the substance abuse and dependency disorders market, with a focus on specialty substance
abuse treatment centers; the for-profit, out-of-network business model and diagnostic testing.
Key findings:
• Rising drug overdose deaths reflect increased severity (and risk) of abuse and not more users.
According to federal officials, heroin at a 50–90% pharmaceutical grade is now available at $5.00 a
button (0.1 gram lasting one day).
• Legislation is increasing the insured pool of potential residential therapy recipients by 0.5–1.4
million, primarily through commercial coverage of children through age 26, public health exchanges and
Medicaid expansion
• Substance abuse and dependency disorder (SUD) are multifactorial and relapsing chronic
conditions. Acute treatment in a residential center does not “cure” the disease; care continuity is
essential
• SUD treatment paradigm needs to be individualized, based on the number and types of illicit
drugs, co-occurrence of alcohol abuse, presence of co-morbid behavioral health disorders and psycho-
social, educational, vocational and other factors. A need for additional evidence-based guidelines exists
inclusive of site of service and therapy duration.
● Fraud has become a headline risk for the sector: Medical necessity (“appropriate and
essential”); kickbacks; failure to collect co-payments, co-insurance and deductible; bundling of
tests and services, etc.
● Payer scrutiny has dramatically increased, inclusive of such measures as reducing allowable
rates, limiting authorization levels across various levels of care, requesting clinical
documentation to review for medical necessity of services rendered and increasing audits to
validate compliance with collection of patient responsibilities. These policy changes apply to
contracted and out-of-network operators.
Rising drug overdose deaths reflect increased severity (and risk) of abuse and not more users
According to the Substance Abuse and Mental Health Services Administration (SAMHSA), 21.6 million
Americans have either had a substance abuse disorder, with repeated adverse social consequences or a
dependency, with associated physiologic withdrawal. Despite the headlines, the number of substance
abuse patients has remained unchanged since 2000.
3.9 4.3
15
10
14.9 14.7
0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Alcohol Only Illicit Drugs Only Both Alcohol and Illicit Drugs
http://www.samhsa.gov/data/sites/default/files/NSDUHresultsPDFWHTML2013/Web/NSDUHresults2013.htm
The recently published 2014 figure of 21.5 million people with a substance use disorder (SUD)—
14.4 million people with alcohol use disorder (only), 4.5 million with an illicit drug use disorder (only)
and 2.6 million who had both—remains relatively unchanged from the prior year.1
In 2014, there were 43,225 deaths related to prescription (60%) and illicit (40%) drug overdose, more
than triple the reported deaths (13, 153) in 1999.2 Opioids account for twice as many as heroin deaths,
followed by benzodiazepines (e.g., Xanax, Valium) and cocaine.
Emergency Department visits for first-Listed Diagnosis of Substance Related Disorders (CCS 661)
increased from 404,643 in 2006 to 656,388 in 2013, an increase of 62%.3 The rise in ED visits also reflects
the acuity of the underlying abuse disorder. An analysis of the data suggests that the majority of visitors
are male (60%), relatively young (18–44: 67%, 45–64: 24%) and either uninsured (31%) or on Medicaid
(29%); private payers account for 20% of the total, followed by Medicare at 15%.
It has been estimated that 2.1 million people abuse prescription opioid pain relievers, whereas another
0.5 million are addicted to heroin.4 Contributors to prescription drug abuse include a dramatic rise in the
number of opioid prescriptions written by physicians for post-operative, acute and chronic pain and
increased from 126 million in 2000 to 207 million in 2013, combined with the increased social
acceptability of hydrocodone (Vicodin) and oxycodone (Percoset).5 Fentanyl, inexpensive, readily
available and 40–50x the potency of pharmaceutical grade, 100% pure heroin (itself 80–100x that of
morphine) has become a major contributor to the rise in overdose deaths.6
SUBSTANCE ABUSE AND DEPENDENCE POPULATION UNCHANGED,
THOUGH WITH RISING DRUG OVERDOSE DEATHS, 1999-2014
50,000
45,000 43,225
40,000
35,000
30,000
25,000
20,000
15,000 13,153
10,000
5,000
0
https://www.drugabuse.gov/related-topics/trends-statistics/overdose-death-rates
Other substances of abuse include alcohol (16.6M), cocaine (855k), stimulants (469k), tranquilizers
(423k) and hallucinogens (277k). Combined alcohol and drug use, as well as poly-pharmacy, among drug
abusers are common. Marijuana is used by 4.2M people and is considered legal for medical purposes in
18 states and for recreational use in four.
The number of patients reported in treatment (during the late-March SAMHSA survey period)
increased from nearly 1,092,546 in 2003 to 1,249,629, + 14.4% in the years between2003 and2013.7
Legislation increasing insured pool of potential residential therapy recipients by 0.5–1.4 million
Approximately 4.1 (19.0%) of the 21.6 million Americans with substance abuse and / or dependence
disorders seek treatment; of these, 2.5 million (61.0%) receive treatment during the year.8
Among the reasons for not receiving treatment cited from 2010 to 2013 includes lack of coverage, cost
and access—barriers subsequently affected by the Patient Protection and Affordable Care Act (PPACA)
and the Mental Health Parity and Addiction Equity Act (MHPAEA) of 2008.
REASONS FOR NOT RECEIVING TREATMENT AMONG THOSE WHO
NEEDED AND MADE AN EFFORT TO SEEK TREATMENT
0 5 10 15 20 25 30 35 40
Percent Reporting Reason
The number of uninsured 18–64 year olds has declined from 40.3 million in 2012 to 25.3 million in
September 2015, a decline of 37.2%.9 Assuming a 3.0% prevalence rate of illicit drug use (+ / - alcohol)
and 9.2% of alcohol abuse (+ / - illicit drugs) implies an incremental 450,000 to 1.4 million SUD patients
receiving insurance coverage.
Contributing to the decline is the PPACA mandated coverage of 18–26 year olds under parental health
plans, affecting 3.0 million young adults; use of health exchanges by individuals and families with
incomes between 1.33 and 4.0x the Federal Poverty Level, representing an incremental 3.8 million
people; and Medicaid expansion in 32 states, affecting 8.2 million non-elderly individuals with incomes
at or below 133 percent of FPL.10
The Mental Health Parity and Addiction Equity Act (MHPAEA) of 2008 provides for equal coverage
between mental health services and physical medical health services:11
• Applies to plans sponsored by private and public sector employers with more than 50
employees, including self-insured as well as fully insured arrangements; and health insurance issuers
who sell coverage to employers with more than 50 employees.
• Requires group health plans and health insurance issuers to ensure that financial requirements
(such as co-pays, deductibles) and treatment limitations (such as visit limits) applicable to mental health
or substance use disorder (MH/SUD) benefits are no more restrictive than the predominant
requirements or limitations applied to substantially all medical / surgical benefits.
• If a plan or issuer that offers medical / surgical benefits on an out-of-network basis also offers
MH / SUD benefits, it must offer the MH / SUD benefits on an out-of-network basis, as well.
• Although MHPAEA provides significant new protections to participants in group health plans, it
is important to note that MHPAEA does not mandate that a plan provide MH / SUD benefits. Rather, if a
plan provides medical / surgical and MH / SUD benefits, it must comply with the MHPAEA’s parity
provisions.
In February, President Obama's proposed budget for 2017 included $1.1 billion in new mandatory
funding to expand access to drug addiction treatment.12
On March 28, 2016, the Centers for Medicare and Medicaid Services (CMS) finalized a rule that is
expected to increase access to mental health and substance use services for 23 million low-income
Americans with coverage under Medicaid by (a) “requiring insurance plans [Managed Medicaid] to
disclose information on mental health and substance use disorder benefits upon request, including the
criteria for determinations of medical necessity and (b) mandating that states disclose the reason for
any denial of reimbursement or payment for mental health and substance use disorder services
rendered”.13
Substance abuse and dependency disorder (SUD): A multifactorial and relapsing chronic condition
The direct cost of substance abuse treatment (2014: $31 billion), is dwarfed by the indirect costs (2011:
$193billion) driven by lost productivity ($120billion), crime ($61billion) and non-homicide and other
health costs ($12billion).14 The indirect cost figure does not include the cost of family disintegration,
domestic violence or child abuse.
Understanding the profile of SUD patients could explain the chronicity and high indirect costs.
Mechanistically, substance abuse and dependency disorders have multiple risk factors including
genetics, the environment and actual changes to the brain structure and function.
SUBSTANCE ABUSE AND DEPENDENCY IS MECHANISTICALLY COMPLEX
Risk Factors
Addictions
https://www.drugabuse.gov/sites/default/files/images/soa_007_big.gif
Nearly one-half to two-thirds of SUD patients in treatment centers have a dual diagnosis inclusive of co-
morbid mental health disorders such as depression, anxiety, bipolar disease, traumatic distress and / or
conduct disorders (aggressive conduct, and deceitful and destructive behaviors).15
This compares unfavorably with a U.S. adult population rate of any mental illness (AMI) among those 18
years and older of 18.1% and serious mental illness (SMI) of 4.1%.16 The labor participation rate of 25–
50% is significantly below the U.S. average of 63%.17 Education is also lagging with 6% having elementary
school up to Grade 8, 27% having 9–11 years of education, 33% graduating from high school and 34%
having some college.18 Despite the potential for harmful consequences, compulsive drug seeking and
use often results from prior exposures affecting brain centers involved in “reward and motivation,
learning and memory, and inhibitory control over behavior”.19
SUD treatment is multi-dimensional incorporating specific efforts to “stop using drugs, maintain a drug-
free lifestyle, and achieve productive functioning in the family, at work, and in society.”20 A litany of
mental health, medical, educational, social, legal, psychosocial and vocational needs require
consideration. Treatment must also be appropriate for age, race, ethnicity and gender. According to the
National Institute on Drug Abuse (NIDA), participation in residential or outpatient treatment for less than
90 days is of limited effectiveness, whereas for methadone maintenance, a minimum of 12 months is
required to become effective.20 Recovery is a long-term process subject to periodic relapse that may
necessitate several residential stays.
https://www.drugabuse.gov/publications/principles-adolescent-substance-use-disorder-treatment-research-based-guide/principles-
adolescent-substance-use-disorder-treatment
Thirteen principles of effective treatment have been defined by NIDA and include:20
● Addiction is a complex but treatable disease that affects brain function and behavior
● No single treatment is appropriate for everyone (i.e., varies by type of drug and patient
characteristics)
● Treatment needs to be immediately available and readily accessible
● Effective treatment attends to multiple needs of the individual, not just his or her drug abuse
● Remaining in treatment for an adequate period of time is critical. NIDA states: “Research
indicates that most addicted individuals need at least 3 months in treatment to significantly
reduce or stop their drug use and that the best outcomes occur with longer durations of
treatment.”
● Behavioral therapies—including individual, family or group counseling—are the most commonly
used forms of drug abuse treatment
● Medications are an important element of treatment for many patients, especially when
combined with counseling and other behavioral therapies
● An individual’s treatment and services plan must be assessed continually and modified as
necessary to ensure that it meets his or her changing needs
● Many drug-addicted individuals also have other mental disorders
● Medically assisted detoxification is only the first stage of addiction treatment and by itself does
little to change long-term drug abuse
● Treatment does not need to be voluntary to be effective; e.g., family, employment and criminal
justice incentives
● Drug use during treatment must be monitored continuously, as lapses during treatment do
occur
● Treatment programs should test patients for the presence of HIV / AIDS, hepatitis B and C,
tuberculosis and other infectious diseases, as well as provide targeted risk-reduction counseling,
linking patients to treatment if necessary
Industry overview: Substance abuse and dependency disorder (SUD) market
The substance abuse and dependency market approximated $31 billion in 2014, and is forecast to reach
$42 billion, +35% in 2020, reflecting a 5.2% compound annual growth rate (CAGR).21 The market is
divided into six segments, the largest being specialty substance abuse centers, hospitals (primarily
involved in short stay detoxification) and office-based professionals. Retail (non-hospital) drugs are
primarily used to treat co-morbid behavioral health issues and heroin addiction, known for severe drug
carvings.
DISTRIBUTION OF SUD SPENDING BY PROVIDER TYPE
$45,000
$40,000
$35,000
Millions ($000,000)
$30,000
$25,000
$20,000
$15,000
$10,000
$5,000
$0
1986 2009 2014 2020
Specialty SA Centers Hospitals Office-based professionals
Insurance admin Retail RX drugs Specialty MH Centers
Source: Projections of National Expenditures for Mental and Substance Abuse Services, 2010-2020; SAMHSA
Definitions:
● Hospital care includes (a) General hospitals: community medical or surgical and specialty
hospitals other than MH and SA specialty hospitals providing diagnostic and medical treatment,
including psychiatric care in specialized treatment units of general hospitals, detoxification and
other MHSA treatment services in inpatient, outpatient, emergency department and residential
settings; and (b) Specialty hospitals: hospitals primarily engaged in providing diagnostic, medical
treatment and monitoring services for patients with mental illness or substance use diagnoses
● Other professional services: care provided in locations operated by independent health
practitioners other than physicians and dentists, such as psychologists, social workers and
counselors.
● Physician services: independently billed services provided by Doctors of Medicine (M.D.) and
Doctors of Osteopathy (D.O.), plus the independently-billed portion of medical laboratory
services.
● Specialty MH centers: organizations providing outpatient and / or residential mental health
services and / or co-occurring mental health and substance abuse treatment services to
individuals with mental illness or with co-occurring mental illness and substance use diagnoses.
● Specialty SA centers: organizations providing residential and / or outpatient substance abuse
services to individuals with substance use diagnoses.
Strong growth is projected for specialty substance abuse centers and office-based professional services
due to the rising demand associated with increased coverage and rising severity of addiction.
$14.0 $6.0
$12.0 $5.0
$10.0 $4.0
$8.0 $3.0
$6.0 $2.0
$4.0 $1.0
$2.3
$2.0 $0.0
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
$0.0
1986
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Approximately two-thirds of institutions participating in SAMSHA’s annual survey are either not-for-
profit or government-led entities; the remaining one-third is for-profit. The number of for-profit
facilities has increased from 3,403 (25.0% of total) in 2003 to 4,574+34% (32.3% of total) in 2013.
TYPE OF CARE OFFERED BY TYPE OF SERVICE, 2013
NOTE, A FACILITY MAY OFFER MORE THAN ONE TYPE OF SERVICE LEADING TO >100%
40.0%
40.0% 32.3%
30.0%
30.0%
20.0% 13.2%
20.0% 12.4% 10.0%
10.0%
0.0%
0.0% Not-for-Profit For-profit Government
Not-for-Profit For-profit Government
60.0%
40.0%
28.7%
40.0% 30.0%
19.7%
20.0%
20.0% 14.9%
10.0% 10.0%
0.0% 0.0%
Not-for-Profit For-profit Government Not-for-Profit For-profit Government
Source: Table 4.1 2013 National Survey of Substance Abuse Treatment Services http://www.samhsa.gov/data/sites/default/files/2013_N-
SSATS_National_Survey_of_Substance_Abuse_Treatment_Services/2013_N-SSATS_National_Survey_of_Substance_Abuse_Treatment_Services.pdf;
During this period, the number of clients in for-profit outpatient and residential SUD treatment
increased from 282,161 (25.8% of total) to 430,362, +53% (34.4% of total).
Data is available on 103,776 (96.3%) of the 107,727 designated beds in SUD treatment centers during
the late-March SAMHSA survey period: 78,754 are in private not-for-profit facilities (75.9%), 15,712 in
private for-profit facilities (15.1%) and 9,310 in government facilities (9.0%).22 The number of beds per
SUD residential treatment facility for private not-for-profit (30.4), private for-profit (30.5) and
government facilities (27.0) are similar.
CLIENTS IN TREATMENT BY FACILITY OPERATION
700,000
600,000
500,000
400,000
300,000
200,000
100,000
0
2003 2005 2007 2009 2011 2013
Private Not-For-Profit Private For-Profit Government
For-profit entities tend to be over-represented (relative to the overall industry average) in outpatient
facilities (91.8%) and under-represented in residential facilities (11.3%).
TYPE OF CARE OFFERED BY OWNERSHIP STATUS, 2013
NOTE, A FACILITY MAY OFFER MORE THAN ONE TYPE OF SERVICE LEADING TO >100%
60.0% 80.0%
60.0%
40.0% 33.1%
40.0%
20.0% 20.0% 11.3%
5.0% 4.7%
0.0% 0.0%
Inpatient Residential Outpatient Inpatient Residential Outpatient
Source: Table 4.1 2013 National Survey of Substance Abuse Treatment Services http://www.samhsa.gov/data/sites/default/files/2013_N-
SSATS_National_Survey_of_Substance_Abuse_Treatment_Services/2013_N-SSATS_National_Survey_of_Substance_Abuse_Treatment_Services.pdf;
The private for-profit SUD market remains highly fragmented, with 60.7% of facilities having fewer than
60 clients per year. The distribution of not-for-profit facilities is somewhat similar.23 The largest for-
profit provider, Acadia CRC Health, established in 2005 and publicly-traded, has 216 U.S. facilities; the
number of residential SUD centers remains unknown.
SUD MARKET HIGHLY FRAGMENTED
1,000
600
200
20.1%
0
Private payers account for 29% of total spending—out-of-pocket (9%), commercial (16%), other (4%)—
whereas, public payers account for 71%—Medicaid (28%), other state and local (28%), federal programs
(10%) and Medicare (5%). An analysis of Emergency Department payer mix based on insurance status
(not spending) suggests a payer distribution led by Medicaid (29%) and the uninsured (31%), followed by
private pay (20%), Medicare (15%) and other (4%).24 It’s not inconceivable that 24% of patients (private
pay, other) account for 29% (or higher) of total SUD market spending.
Commercial payers, historically willing to pay for a broad range of in-network and out-of-network
services, are increasing their scrutiny of the approach to treatment, specific service offerings, site and
duration of service and payment model. Approaches to treatment are complex given the multitude of
illicit drugs, potential for concomitant alcohol abuse, co-morbid behavioral disorders, range of social,
vocational and legal issues, and the possibility of HepC, HIV and other transmittable diseases. Scientific
evidence beyond anecdotal and expert opinions, and perhaps, observational studies (case reports, case
series, case control studies and cohort) are somewhat limited.
The American Society of Addiction Medicine (ASAM) “structures multidimensional assessment around
six dimensions to provide a common language of holistic, bio-psychosocial assessment and treatment
across addiction treatment, physical health, and mental health services, which addresses as well the
spiritual issues relevant in recovery”.
https://www.changecompanies.net/blogs/tipsntopics/2011/12/
ASAM has also identified four levels of service based on daily requirements for physician care, nursing
care, counseling and other services; and the ability of the patient to use a full active milieu or
therapeutic community.
ASAM LEVELS OF CARE
a
Level of Care Adolescent Title Adult Title Description
Assessment and education for at-risk individuals who do not meet diagnostic
0.5 Early Intervention Early Intervention
criteria for substance use disorder
Clinically Managed Low- Clinically Managed Low- 24-hour structure with available trained personnel; at least 5 hours of clinical
3.1
Intensity Residential Intensity Residential service/week
*This Level of Care is not Clinically Managed Population- 24-hour care with trained counselors to stabilize multi-dimensional imminent
3.3 designated for adolescent Specific High-Intensity danger. Less intense milieu and group treatment for those with cognitive or
populations Residential impairments unable to use full active milieu or therapeutic community
24-hour care with trained counselors to stabilize multi-dimensional imminent
Clinically Managed Medium- Clinically Managed High-
3.5 danger and prepare for outpatient treatment. Able to tolerate and use full
Intensity Residential Intensity Residential
active milieu or therapeutic community
Medically Monitored High- Medically Monitored Intensive 24-hour nursing care with physician availability for significant problems in
3.7
Intensity Inpatient Inpatient Dimensions 1, 2, or 3. Sixteen hours/day counselor availability
Medically Managed Intensive Medically Managed Intensive 24-hour nursing care and daily physician care for severe, unstable problems in
4
Inpatient Inpatient Dimensions 1, 2, or 3. Counseling available to engage patient in treatment.
*OTPs not specified here for Daily or several times weekly opioid agonist medication and counseling
OTP Opioid Treatment Program
adolescent populations, available to maintain multidimensional stability for those with severe opioid
(Level 1) (Level 1)
though information may be use disorder
http://www.naadac.org/assets/1959/meelee_asam_criteria.pdf
Sites of care may include inpatient hospitals, residential services, “safe houses” and outpatient centers.
Third-party insurers cover the cost of residential treatment, including the related “room and board”,
only when deemed “medically necessary” (typically 2–4 weeks). Patients potentially benefiting from
longer stays at the treatment facility may choose to personally cover the “room and board” cost of
staying on campus in non-medical housing.
SITES OF CARE AND REIMBURSEMENT
Partial
Detox Residential hospitalization Outpatient
services services services services
(1-5 days) (7-28 days) (>20 hours per
week)
Clinically managed
Medically monitored low-intensity Level I <9 hours/week
intensive Clinically managed
population-specific Level II Intensive >9
Medically managed high-intensity hours/week
intensive
Clinically managed Opioid Treatment
high-intensity Program (OTP)
Detoxification, a medically supervised program to manage the acute physical symptoms of withdrawal
associated with stopping drug use, may occur in a hospital or residential center. Detoxification may
include cravings, mood and sleep disturbances, flu-like and other symptoms (e.g., pain, tremors),
confusion, seizures and hallucinations. The severity of withdrawal reflects the type and amount of drugs
and / or alcohol, duration of abuse and presence of mental and physical co-morbidities.25
Methamphetamine and crack cocaine addicts do not require detoxification.
Residential (non-hospital) services may include medically managed detoxification, and clinically
managed short-term (<30 days) and longer-term (>30 days) stays
Outpatient services include <9 hours / week (regular), 9–20 hours / week (intensive or IOP), >20 hours /
week (partial hospitalization or PHP); and outpatient treatment programs (methadone or
buprenorphine maintenance and / or or Vivitrol® (naltrexone) treatment)
Many different types of therapy, as well as service offerings—transitional, ancillary and other
disorders—are used in the treatment of substance abuse and dependency disorders. Nearly all
treatment centers offer substance abuse counseling, relapse prevention, cognitive behavioral therapy,
motivational interviewing techniques and other behavioral approaches. A description of each form of
therapy is provided in the Appendix of the article.
100%
90%
80%
% Used sometimes
70%
60%
50%
40%
30%
20%
10%
0%
http://www.samhsa.gov/data/sites/default/files/2013_N-SSATS_National_Survey_of_Substance_Abuse_Treatment_Services/2013_N-
SSATS_National_Survey_of_Substance_Abuse_Treatment_Services.pdf
SERVICES PROVIDED BY PRIVATE FOR-PROFIT OPERATIONS
Assistance with obtaining social services 36.0 Residential beds for clients’ children 0.5
Source: Table 4.8 2013 National Survey of Substance Abuse Treatment Services http://www.samhsa.gov/data/sites/default/files/2013_N-
SSATS_National_Survey_of_Substance_Abuse_Treatment_Services/2013_N-SSATS_National_Survey_of_Substance_Abuse_Treatment_Services.pdf;
Detailed and standardized evidence-based guidelines for addiction treatment have not been developed
due to the variability in patient need; i.e., drugs of abuse, co-morbidities, psychosocial factors, etc. In
addition, most treatment centers do not have longer-term longitudinal outcomes data. Data from
Hazelden, a nationally recognized nonprofit addiction organization founded in 1949, suggests more
favorable outcomes from alcohol abuse (95%) at one year post-discharge relative to illicit drug use
(50%). The Hazelden results may not be generalizable to other treatment centers due to patient
selection bias and difference in treatment approach.
HAZELDEN: MEASURING TREATMENT OUTCOMES
The success of the programmed can be measured in multiple ways such as % of patients who
remained continuously abstained, and % days of abstinence for a patient
Source: ‘Outcomes of Alcohol/Other Drug Dependency Treatment’, Butler Center for Research (February 2011)
The substance abuse market is bifurcated into two segments: commercial and out-of-pocket (29%), and
Medicaid, the majority of the remainder. The commercial segment is unlike any other in healthcare,
with high out-of-pocket expenditures of 30–100% depending upon the arrangement. For plastic surgery,
100% out-of-pocket is considered a discretionary expenditure, whereas SUD is potentially an acute
emergency that potentially can lead to accidental death due to overdose.
Common performance metrics such as the “Average Patient Revenue (APR)” and “Average Net Patient
Revenue (ANPR)” reflect the aggregation of multiple factors including:
1- Network status. Is the residential treatment center (RTC) in-network or out-of-network? Many
privately funded, for-profit RTCs’ are out-of-network. The traditional in-network payment is
negotiated by the insurance company and represents a percentage of charges; i.e., allowable.
The insurance company then pays 80% of the allowable (after the individual deductible is met),
whereas the client pays the remaining 20%.
The out-of-network model is far different. RTC’s essentially charge “whatever” and then assume
an allowance for doubtful accounts. The insurance company may pay a percentage of the
charge, typically 40–60% but can be less, with the client accountable for the remainder.
Essentially, the client is paying an “out-of-network” penalty based on the insurance company
payment policy. Families are often desperate and often assume the liability. Out-of-network
costs are an economic burden for the vast majority of Americans.
2- Payer mix, service coverage and payment methodology. Among the services provided include
detoxification, residential services, partial hospitalization (>20 hours per week in residential
setting) and outpatient services. Insurance companies tend to cover detoxification services,
assuming medical necessity for <5 days, residential services for 7–28 days and many (but not all)
of the services provided as partial hospitalization and outpatient services. Until recently, most
insurance companies covered inpatient stays of 28–60 days, excluding room and board charges
associated with partial hospitalization and / or outpatient services in a “safe house” (“sober
living”), the latter often being the direct (out-of-pocket) payment responsibility of the client.
Facilities are often reimbursed on a per diem basis rather than per service.
BCBS COVERAGE POLICIES: IN-NETWORK PREFERRED (15% CO-
PAY), IN-NETWORK PARTICIPATING MEMBER (35% CO-PAY TO
ALLOWABLE) AND OUT-OF-NETWORK (35% CO-PAY TO CHARGE)
Outpatient hospital or other covered facility You Pay
Standard Option Basic Option
Outpatient services provided and billed by a Preferred: 15% of the Plan Preferred: $25 copayment
hospital or other covered facility allowance (deductible per day per facility
applies)
- Individiual psychotherapy Member: 35% of the Plan Member / Non-member: You
allowance (deductible pay all charges
applies)
- Group psychotherapy
- Pharmacologic (medication) management
- Partial hospitalization
- Intensive outpatient treatment
Note: A residential treatment center is a
covered favility for outpatient care (see
Section 10, Definitions , for more
information). We cover inpatient mental
health and substance abuse services or
supplies provided and billed by residential
treatment centers, other than room and
board and inpatient physician care, at the
levels shown here.
Outpatient services provided and billed by a Preferred: 15% of the Plan Preferred: Nothing
hospital or other covered facility allowance (deductible
applies)
- Diagnositic tests Member: 35% of the Plan Member / Non-member:
allowance (deductible Nothing
applies)
- Psychological testing
Note: A residential treatment center is a
covered favility for outpatient care (see
Section 10, Definitions, for more
information). We cover inpatient mental
health and substance abuse services or
supplies provided and billed by residential
treatment nters, other than room and board
and inpatient physician care, at the levels
shown here.
Per Diem reimbursement varies dramatically by a factor of 2–4x. BCBS is typically at the lower
end of per diem reimbursement, with national carriers not exhibiting a consistent trend.
Residential reimbursement can vary from $600 to $2,000+ per day, partial hospitalization from
$500 to $1,500+ per day and intensive outpatient therapy from $400 to $1,000 per day.
Alternatively, reimbursement could be provided for a bundle of assumed services or on a
service-by-service basis.
70%
60%
50%
40%
30%
20%
10%
0%
2006 2007 2008 2009 2010 2011 2012 2013 2014
HMO PPO POS HDHP
HMO – More restrictive in terms of physician and hospital network, fewer opportunities to see a non-network provider There are also typically more
restrictions for coverage than other plans, such as allowing only a certain number of visits, tests or treatments. PCP gatekeeper
PPO – Less restrictive network, typically with higher employee co-payments for out-of-network providers. Higher premiums and deductible than HMO
POS - Combines characteristics of the HMO and PPO,with lower medical costs in exchange for more limited choice.
5- Continuum of services. Average length of stay (LOS) and average net daily revenue (ANDR) are
important performance measures. The average LOS reflects the range of offered services, from
detoxification to residential, partial hospitalization and outpatient services whereas the ANDR reflects
the mix of payments for services, net of allowances.
6- Admissions. Publicly-traded companies such as Acadia Healthcare (Ticker: ACHC) and American
Addiction Centers (Ticker: AAC) have grown via acquisition. Opportunities for leverage of sales and
marketing, information technology, revenue cycle (collections) and corporate overhead exist. The
overall utilization rate for for-profit designated beds is 96.8%. Performance measures include client
admissions and average daily census.
7- Regulatory compliance. Fraud has been reported among a few operators of SUD services. Typical
allegations include a failure to collect the full deductible or required co-payments; and the provision of
unnecessary services.
Diagnostic testing represents a key component for some, but not all SUD facilities.
Excessive testing of SUD clients has been reported. Specific testing protocols have been developed for
screening and confirmatory tests, the frequency of testing and the number of tests in a specific panel.
Testing is usually done at the class level (e.g., opiate), and not substrate (i.e., types of opiates such as
hydromorphone, oxymorphone, dihydrocodiene, methadone, fentanyl, etc.). The University of Colorado
and others have developed test panels capable of identifying over 100 different substrates from a single
sample. Samples may be tested in-house, and at in-network and out-of-network labs.
Fraud has been reported in the SUD diagnostic testing segment resulting in increased payer scrutiny and
changes in carrier and employer coverage policies. Among the allegation include physician and patient
kickbacks, the performance of tests that were not necessary or medically appropriate, upcoding (i.e.,
billing for a higher-priced treatment than was actually provided) and unbundling (e.g., billing for
individual tests comprising a panel menu).
Historically, organizations have benefited from favorable rates on diagnostic testing. Payers are
reducing reimbursement on drug screenings through three primary initiatives:
1) Requiring a positive qualitative result before ordering a more comprehensive and costly
quantitative panel
2) Reduction in the number of approved tests per year, regardless of service provider
3) Reduction in the allowable rate of individual tests and test panels
Sky Labs drove physicians to provide patient referrals and over-prescribe tests at its out-of-network
labs through profit-sharing incentives; it also billed Cigna ~$20 million through fraudulent practices
• Cigna noticed a vast increase in its out-of-networks costs and upon investigation discovered overbilling in
drug testing schemes involving substance use disorder patients in Florida
Situation • The fraud was being driven by out-of-network labs—Sky Toxicology, Frontier Toxicology, and Hill
Country Toxicology—which drove physicians to prescribe out-of-network tests among other fraudulent
business model practices
Source: ‘Cigna accuses urine drug toxicology laboratories of fraud, kickback scheme’, The Pathology Blawg (August 2015)
Recommendations:
Our recommendations will vary somewhat based on whether an entity is currently utilizing a
predominantly out-of-network or out-of-pocket revenue model. We believe the inordinately high
operating margins are unlikely to be sustainable in the not-too-distant future due to increasing payer
scrutiny and changes in policies, including the formation of narrow networks of treatment centers.
Ongoing carrier consolidation (e.g., Anthem-Cigna, Aetna-Humana) is likely to accelerate the policy
standardization process, and perhaps with increased market clout, lead to unilaterally imposed payment
policies. The diagnostic testing market is already undergoing significant price pressures.
Operators will increasingly need to consider short-term practices within the context of longer-term
industry trends; i.e., generate a 3–5 year strategic plan. Opportunities to utilize in-network commercial
models, enhance end-to-end revenue cycle management capabilities, invest in infrastructure (coding,
compliance and clinical documentation) and add clinically-oriented case management capabilities (to
better interface with payers) require consideration.
The need for professional managerial talent familiar with healthcare policies and procedures, combined
with other investment requirements, highlight the potential for competitive advantage associated with
scale. Robust capabilities and infrastructure in pricing optimization, managed care contracting,
regulatory compliance and care transition management (from remote residential to community of origin
outpatient) will become increasingly important. The total “price of recovery” includes the cost of
ancillary services, inclusive of diagnostics.
Opportunities may also exist for a distinct offering in Medicaid, given the rising level of funding and
unmet needs; as well as the commercial government employee sector (federal, state and local)—and its
requirement for compliance with various OIG provisions. Marketing practices such as those highlighted
in the March 19, 2016, BuzzFeedNews article entitled “Addicts for Sale” will no longer be possible.29
Despite the industry risks, opportunities exist to provide a more evidence-based, cost-effective and in-
network treatment regimen. The unmet need continues to grow.
David Gruber MD, MBA is a Managing Director and Director of Research with the Alvarez & Marsal
(A&M) Healthcare Industry Group in New York, specializing in strategy, business development,
commercial due diligence, analytics and health benefits. He has more than thirty-two years of diversified
healthcare experience as a corporate executive, Wall Street analyst and consultant.
Steven Boyd, Managing Director is a Managing Director with Alvarez & Marsal’s Healthcare Industry
Group with more than fifteen years of financial and operating experience serving private equity owned
healthcare companies. Mr. Boyd has deep operating experience in several segments of healthcare
including toxicology laboratories, medical devices & diagnostics, physical therapy, dental service
organizations, urgent care, and specialty physician practice management organizations.
Jeffrey Noonan is a Managing Director with Alvarez & Marsal’s Healthcare Industry Group and leads its
Revenue Cycle practice. Mr. Noonan has more than fifteen years of healthcare revenue cycle
experience across a wide variety of providers including hospitals, physician networks, DME companies,
toxicology labs, behavioral health providers and post-acute providers.
____________________________________________________________________________________
1
Behavioral Health Trends in the United States: Results from the 2014 National Survey on Drug Use and
Health, SAMSHA http://www.samhsa.gov/data/sites/default/files/NSDUH-FRR1-2014/NSDUH-FRR1-
2014.pdf
2
https://www.drugabuse.gov/related-topics/trends-statistics/overdose-death-rates.
3
http://hcupnet.ahrq.gov/HCUPnet.jsp?Id=3E79ED34C6EE818B&Form=DispTab&JS=Y&Action=Accept
4
Nora D. Volkow, M.D. of the National Institute of Drug Abuse, NIH, presentation to the Senate Caucus
on International Narcotics Control on May 14, 2014 https://www.drugabuse.gov/about-
nida/legislative-activities/testimony-to-congress/2016/americas-addiction-to-opioids-heroin-
prescription-drug-abuse
5
https://www.drugabuse.gov/about-nida/legislative-activities/testimony-to-congress/2016/americas-
addiction-to-opioids-heroin-prescription-drug-abuse
6
Heroin epidemic is yielding to a deadlier cousin: Fentanyl; March 26, 2016
http://www.boston.com/news/health/2016/03/26/554498
7
Table 3.1 Clients in treatment, by facility operation. National Survey of Substance Abuse Treatment
Services, 2013 http://www.samhsa.gov/data/sites/default/files/2013_N-
SSATS_National_Survey_of_Substance_Abuse_Treatment_Services/2013_N-
SSATS_National_Survey_of_Substance_Abuse_Treatment_Services.pdf
8
National Survey of Substance Abuse Treatment Services, 2013
http://www.samhsa.gov/data/sites/default/files/2013_N-
SSATS_National_Survey_of_Substance_Abuse_Treatment_Services/2013_N-
SSATS_National_Survey_of_Substance_Abuse_Treatment_Services.pdf
9
Table 1.1a Early Release of Selected Estimates Based on Data from the National Health Interview
Survey, January–September 2015
http://www.cdc.gov/nchs/data/nhis/earlyrelease/earlyrelease201602_01.pdf
10
http://www.thedailybeast.com/articles/2013/06/07/obamacare-throws-lifeline-to-young-adults-
seeking-health-insurance.html; Families USA: A 50-State Look at Medicaid Expansion
http://familiesusa.org/product/50-state-look-medicaid-expansion
11
U.S. Department of Labor Fact Sheet: The Mental Health Parity and Addiction Equity Act of 2008;
January 29, 2010 http://www.dol.gov/ebsa/newsroom/fsmhpaea.html
12
https://www.whitehouse.gov/the-press-office/2016/02/02/president-obama-proposes-11-billion-
new-funding-address-prescription
13
Revenue Cycle Insights. Expansion of mental health and substance use benefits to provide coverage to
millions; March 30, 2016 http://www.revenuecycleinsights.com/news/expansion-mental-health-and-
substance-use-benefits-provide-coverage-
millions?mkt_tok=3RkMMJWWfF9wsRonuKzJcO%2FhmjTEU5z16OgtWKW1gYkz2EFye%2BLIHETpodcMT
cZnM7HYDBceEJhqyQJxPr3MLtINwNlqRhPrCg%3D%3D
14
National Drug Intelligence Center (2011). The Economic Impact of Illicit Drug Use on American Society.
Washington D.C.: United States Department of Justice.
http://www.justice.gov/archive/ndic/pubs44/44731/44731p.pdf.
15
2013 National Survey of Substance Abuse Treatment Services and Chan,YF, Dennis ML and Funk RL.
Prevalence and comorbidity of major internalizing and externalizing problems among adolesecnts and
adults presenting to substance abuse treatment. Journal of Substance Abuse Treatment 34(1): 14-24,
2008
16
Behavioral Health Trends in the United States: Results from the 2014 National Survey on Drug Use and
Health, SAMSHA http://www.samhsa.gov/data/sites/default/files/NSDUH-FRR1-2014/NSDUH-FRR1-
2014.pdf
17
SAMSHA; Bureau of Labor Statistics http://www.tradingeconomics.com/united-states/labor-force-
participation-rate.
18
Years of Education of Treatment Recipients; NSDUH 2005–2010
https://www.drugabuse.gov/sites/default/files/podat_1.pdf
19
https://www.drugabuse.gov/sites/default/files/podat_1.pdf
20
Principles of Drug Addiction Treatment: A Research-based Guide, National Institute of Drug Abuse,
National Institutes of Health, HHS, 3rd Edition, December 2012
https://www.drugabuse.gov/sites/default/files/podat_1.pdf
21
Projections of National Expenditures for Mental and Substance Abuse Services, 2010–2020, SAMHSA.
22
Table 4.6. Facility capacity and utilization of residential (non-hospital) care, by facility operation:
March 29, 2013 http://www.samhsa.gov/data/sites/default/files/2013_N-
SSATS_National_Survey_of_Substance_Abuse_Treatment_Services/2013_N-
SSATS_National_Survey_of_Substance_Abuse_Treatment_Services.pdf
23
Table 4.4 Facility size in terms of number of clients, by facility operations; National Survey of Substance
Abuse Treatment Services, 2013 http://www.samhsa.gov/data/sites/default/files/2013_N-
SSATS_National_Survey_of_Substance_Abuse_Treatment_Services/2013_N-
SSATS_National_Survey_of_Substance_Abuse_Treatment_Services.pdf.
24
http://hcupnet.ahrq.gov/HCUPnet.jsp?Id=3E79ED34C6EE818B&Form=DispTab&JS=Y&Action=Accept
25
http://luxury.rehabs.com/drug-detox/#withdrawal; http://www.webmd.com/mental-
health/addiction/alcohol-withdrawal-symptoms-treatments.
26
National Health Expenditures, Projected. Table 3 https://www.cms.gov/Research-Statistics-Data-and-
Systems/Statistics-Trends-and-
Reports/NationalHealthExpendData/NationalHealthAccountsProjected.html
27
http://healthaffairs.org/blog/2015/10/07/trouble-ahead-for-high-deductible-health-plans/
28
http://politics.blog.ajc.com/2016/03/22/barack-obama-to-headline-drug-abuse-summit-in-atlanta/
29
http://www.buzzfeed.com/catferguson/addiction-marketplace.