Investor Group Gains Control of Elements Behavioral

09/11/2018 -ATIN- Through a bankruptcy auction held in mid-July, Ben Klein's Chicago-based Platinum Health Care, in partnership with BlueMountain Capital, took control of Elements Behavioral Healthcare, thereby acquiring some of the nation's choicest addiction treatment assets. The auction followed a move made in May, when Klein and partner bought $135M face value of the senior "Tier 1" debt of California-based Elements Behavioral Healthcare for just $40M.

Elements, which declared bankruptcy this spring listing $500M of obligations, is the owner of such global addiction treatment brands as Promises Malibu and has treatment centers in major markets, including California, Texas and Florida.

"We plan on bringing this company back to health and are investing a further $30M to right the ship and fuel growth," says Klein, who made a fortune at Platinum Health Care, once one of Chicago's largest nursing home operators. Furthermore, Klein will be heading up Elements as its new CEO when the company emerges from bankruptcy late this year.
This is, however, far from Klein's first rodeo when it comes to addiction treatment, eyeing the business as he did beginning well over a decade ago from his nursing home perch at Platinum Health Care. He spent 20 years in the nursing home industry, but has sold most of his nursing home properties, looking to pivet out of nursing homes in order to get into addiction treatment.
In 2012 he sent an executive to Florida to start a treatment business. Later, Klein acquired a number of other treatment operations and formed Sunspire Addiction Care, which he sold to prestigious private equity powerhouse Kohlberg & Co a couple of years ago.
"Reimbursements were under pressure from health insurers" said Klein. "We were either going to have to go in-network or face getting squeezed by insurers, by mounting competition and also by fast rising marketing costs if we stayed with the out-of-network reimbursement model.I thought it was a good time to sell.”
The addiction treatment business is a highly fragmented sector of the healthcare marketplace that despite the high profile of the opioid epidemic is often referred to as being an “orphan” within medical services, accounting for just 1 percent of total medical spending. Elements has a wide variety of treatment assets, ranging from the super high end luxury of Promises Malibu, the cost of which can be as much as $40K, to the Right Step property in Houston, which is renowned for being among the most affordable centers and operates mostly in-network.
There are approximately 14,000 addiction treatment centers in the U.S., with the average residential facility having just 40 beds. Over 90% of addiction centers are outpatient facilities.
The rise of medication-based therapies, including the blockbuster opiate treatment drug Suboxone, has been highly disruptive to traditional residential and inpatient addiction treatment models, upon which Elements is heavily reliant. Investment is pouring into medication-based outpatient treatment centers, thousands of which have popped up all over the country in recent years.
And the emergence of addiction as a hot button issue nationwide has attracted a flood of private equity investment into the $35B addiction treatment industry. Elements itself was founded by a group of private equity concerns in 2008, with mergers and acquisitions at the heart of their growth plan for Elements.  Other addiction treatment industry consolidation agents include publicly traded Acadia Healthcare, the largest addiction provider in the world, and Origins Behavioral Healthcare of Texas.
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