Non-public fairness specialist Assured Healthcare Companions, previously BlueMountain Capital Administration, is dealing with massive losses on its funding in Guarantees Behavioral Healthcare.
Guarantees, one of many nation’s largest dependancy care specialists, Monday introduced it had accomplished a recapitalization of its debt burdened stability sheet, with out elaborating on the transaction. Final week, in response to emailed questions, Assured Healthcare revealed it was changing Guarantees debt into fairness.
The information is the most recent signal of hassle for traders seeking to revenue from addiction treatment in addition to reimbursement within the sector.
Payers have tried “each trick within the ebook” to disclaim out-of-network in addition to residential dependancy remedy claims because the opiate disaster despatched these claims hovering lately, mentioned Michael Cartwright, founder and former CEO of American Dependancy Facilities, AAC, a serious non-public dependancy middle operator.
The sector has undergone massive structural adjustments as non-public healthcare payers started to scrutinize costly out-of-network and residential remedy advantages, which was a bedrock of the business model upon which a lot of the non-public dependancy remedy middle enterprise was constructed.
States, alarmed at file overdoses yr after yr, have demanded that payers adhere to parity legal guidelines. The Biden administration introduced forth the primary federal enforcement effort on this regard after reaching a settlement with UnitedHealthcare.
However that hasn’t come quickly sufficient for firms like Guarantees, which grew out of the ashes of Parts Behavioral Healthcare.
Groaning underneath the burden of $500M in debt, non-public fairness backed Parts Behavioral went underneath in 2018, the most important chapter in fashionable dependancy remedy historical past. AAC went public in 2014, was delisted by the NYSE in 2019, and shortly after declared chapter. It final December organized financing to proceed operations.
N.Y.-based Assured Healthcare Companions—then BlueMountain Capital—together with companions, paid $40 million for the senior debt of Parts. They pared down belongings, reorganized and rebranded as Guarantees Behavioral Well being, shifting the headquarters from California to Nashville.
However well-placed sources, talking on situation of anonymity, reveal that those self same Parts dependancy remedy belongings, nonetheless pared down, rearranged and rebranded, are usually not performing effectively.
The Guarantees board retained chapter legal professional Chris Ward of the Chicago agency Polsinelli, who shepherded Parts by way of its Chapter 11 travails, the sources mentioned. Ward reportedly made a presentation to the board in August.
On the assembly, board Chairman Rob Waggener mentioned Guarantees hadn’t been capable of organize refinancing for about $75 million in debt and that giant funds on the debt had been due in December, sources mentioned. The board already knew that Guarantees misplaced $20 million within the first half, they mentioned.
In an electronic mail final week, Jim Pieri, managing accomplice of AHP, which controls the “majority” of debt and fairness in Guarantees, mentioned Guarantees’ debt can be transformed to fairness and that AHP continues to fund Guarantees’ progress.
In Monday’s launch, Waggener mentioned these progress initiatives embody “natural, acquisitions and M&A,” together with the acquisition of a facility in Texas in addition to new outpatient applications in Tennessee, Massachusetts and different markets.
Extremely fragmented enterprise
About 80% of the $50 billion dependancy remedy trade is not-for-profit. It is also extremely fragmented with 12,000 plus gamers, 90% of it outpatient care, with residential facilities having a mean of 40 beds.
The remaining possession has been inundated by non-public fairness—gamers like Frazier Healthcare Companions, which backed Parts, Veronis Suhler Stevenson and Furman Capital Advisors—drawn by the promise of a flood of personal insurance coverage fee in response to the opioid disaster.
Overdoses have continued to surge, hovering to a file of more than 93,000 last year, in response to the Facilities for Illness Management and Prevention.
However sufferers, their households and their docs say payers make them leap by way of hoops to realize protection for wanted inpatient and outpatient take care of dependancy, together with medication-assisted remedy, which may usually require prior authorization. Lofty deductibles and copayments are additionally widespread.
Payers spend money on outcomes
Whereas getting robust on claims, payers have additionally targeted on dependancy remedy outcomes. Aetna, for instance, invested $50 million in MAP Health Management of Austin, which provides outcomes-based options to dependancy remedy suppliers.
Some traders did not see the writing on the wall after Cigna flagged a potential payer sea change by briefly pulling out of the Florida Obamacare well being alternate in 2015, mentioned Drew Rothermel, CEO of Austin, TX-based BRC Healthcare.
Cigna cited the excessive value of addictions claims, in addition to scandals, within the enormous South Florida dependancy remedy market, which has traditionally been the East Coast capital of personal dependancy remedy demand and provide.
There are fewer out-of-network dependancy suppliers round, with these surviving now reporting a lot decrease margins, however extra dependable, in-network funds, the very shift payers desired to encourage. However that hasn’t solved everybody’s issues.
“The payers have in the reduction of on dearer, however generally clinically crucial, residential remedy,” mentioned Michael Cartwright, estimating the typical size of residential stays have fallen from 30 days to 18 days.
“We’ll proceed to dedicate substantial assets to alternatives in behavioral well being given the significant worth creation alternatives we are able to affect as a monetary sponsor,” mentioned Jim Pieri, Managing Companion at AHP.
Ted Jackson is a contract author primarily based in Chicago.
