Execs Red Flag Soaring Addiction Treatment Marketing Costs  E-mail
Addiction Treatment Industry Newswire

12/07/2016 - ATIN- Soaring marketing costs, especially in out-of-network payment modelled treatment centers, have become a key risk factor flagged by the growing swell of institutional money that has been descending on the addiction treatment sector of the healthcare business in recent years.

These marketing costs have become among the very biggest cost and management issues faced by owners of treatment centers as they seek to navigate a treatment market that seems to get more competitive by the day," say treatmet center owners who have have talked to Treatment Magazine.

"Marketing costs are for many centers becoming an existential level crisis," says Alan Stevens, a former top Behaviorial Health of the Palm Beaches executive with direct report to co-owner Jack Coscia, who co-founded the $60M-a-year for-profit with the late Don Mullaney. In fact, Stevens is now advising on a consulting basis a top for-profit center on a range of issues with a particular emphasis on marketing, especially Internet marketing.

Private equity in particular have been active buyers of treatment centers recently, with dozens of transactions closing over the past five years. The trend of private equity interest goes back nearly 20 years, the hallmark early transaction being Bain Capital's 1990s $750M purchase of CRC Health Corp., then the largest treatment center in the nation. Bain cashed out of its treatment play by selling CRC recently to Acadia Healthcare, the publicly traded behavioral health company founded by Psychiatric Solutions founder Joey Jacobs.

High marketing costs are nothing new in the higher end, private insurance pay and private pay sector of the treatment market, a sector that likely represents 10 percent to 20 percent of the $35B-a-year treatment business. At the root of these costs are centers' inability to wrestle themselves out of the monopoly grasp of Google, specifically Google's iron hold on Internet pay-per-click.

It's a vicious circle type thing, with huge $125+ per click prices for top addiction search terms in recent years. Higher and higher marketing costs drive higher prices that are passed on to consumers and insurers, and on an on. Its an issue that has enormous policy implications given the epidemic, high publicity nature of the addiction problem in the U.S. One big center owner revealed to Treatment Magazine a couple of years ago that it cost his center as much as $7K to acquire a single client on an out-of-network or private pay basis.

That the higher end of the treatment business had high client acquisition costs - driven paradoxically by the enormous $40K to $60K monthly stay charges that Malibu centers, for example, routinely get - is not new. When people talk about the treatment "boom" in recent years, they are referring to what has been prinicipally a boom in capacity without a corresponding boom in revenues - a dangerous economic mismatch that typically heralds the popping of an asset bubble followed by financial pain. It's the capacity boom that's new, making competition at the high end of the market increasingly a viscious, cutthroat, beggar-thy-neighbor type game that makes client acquisition evermore a problem.

Investment bankers who are increasingly focused on addiction treatement in recent years say they are aware of this mismatch. "Buyers of treatment centers are now more than ever aware of the risk that marketing costs pose and in some cases are discounting the prices they offer for centers based on that, especially out-of-network payment reliant centers,"

Ted Jackson


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