Private equity expert Assured Healthcare Partners, formerly known as BlueMountain Capital Management, faces huge losses in its investment in Promises Behavioral Healthcare.

Promises, one of the largest addiction care experts in the United States, announced on Monday that it had completed the recapitalization of its debt burden balance sheet, but did not elaborate on the transaction. Last week, in response to an emailed question, Assured Healthcare revealed that it was converting Promises debt into equity.

For investors hoping to profit from it, this news is the latest sign of trouble Addiction treatment And reimbursement for the industry.

Michael Cartwright, the founder and former CEO of the American Addiction Center, said that due to the opioid crisis that has caused these claims to surge in recent years, payers have tried “all the tricks in the book” to deny out-of-network and residential addiction treatments. Claim, the main private addiction center operator.

As private healthcare payers began to review expensive out-of-network and inpatient treatment benefits, the industry has undergone huge structural changes. business model Most of the businesses of private addiction treatment centers are built on this basis.

Year after year, shocked by record overdoses, states require payers to comply with equality laws. After reaching a settlement with UnitedHealthcare, the Biden administration proposed the first federal enforcement effort in this regard.

But for a company like Promises, this is not fast enough, it grew from the ashes of Elements Behavioral Healthcare.

Under the weight of $500 million in debt, Private Equity-backed Elements Behavioral went bankrupt in 2018, the largest bankruptcy in the history of modern addiction treatment. AAC Technology went public in 2014, was delisted by the New York Stock Exchange in 2019, and declared bankruptcy shortly thereafter. It arranged financing in December last year to continue operations.

New York-based Assured Healthcare Partners (then BlueMountain Capital) worked with partners to pay $40 million in senior debt for Elements. They cut assets, reorganized and renamed Promises Behavioral Health, and moved their headquarters from California to Nashville.

However, an unnamed source revealed that the same Elements addiction treatment assets, no matter how they are reduced, rearranged and renamed, have not performed well.

According to sources, the Promises board hired Chris Ward, a bankruptcy lawyer for the Chicago company Polsinelli, who led Elements through the Chapter 11 dilemma. According to reports, Ward made a presentation to the board of directors in August.

According to sources, at the meeting, the chairman of the board of directors Rob Waggener (Rob Waggener) stated that Promises could not arrange for the refinancing of approximately $75 million in debt, and that the large payment for this debt will be due in December. They said the board already knew that Promises had lost $20 million in the first half of the year.

In an email last week, AHP’s managing partner Jim Pieri stated that Promises’ debt and equity will be converted into equity, and AHP will continue to fund the growth of Promises.

In a press release on Monday, Wagner said that these growth plans include “organic, acquisitions and mergers”, including the acquisition of a facility in Texas and new outpatient projects in Tennessee, Massachusetts and other markets.

Highly fragmented business

About 80% of the $50 billion addiction treatment industry is non-profit. It is also highly fragmented, with more than 12,000 players, 90% of which are outpatient care, and the residential center has an average of 40 beds.

The remaining ownership has been overwhelmed by private equity — companies like Frazier Healthcare Partners, which backs Elements, Veronis Suhler Stevenson, and Furman Capital Advisors — are attracted by the promise of massive private insurance payments in response to the opioid crisis.

Overdose continues to surge, soaring to a record More than 93,000 last year, According to the Centers for Disease Control and Prevention.

But patients, their families and their doctors say that the payer lets them jump over the barriers to get the needed addiction inpatient and outpatient care, including drug-assisted treatment, which usually requires prior authorization. High deductibles and co-payments are also common.

Payer invests in results

While taking a hard line on the claim, the payer is also concerned about the results of addiction treatment. For example, Aetna invested $50 million MAP health management in Austin, It provides results-based solutions for addiction treatment providers.

Drew Rothermel, CEO of BRC Healthcare, headquartered in Austin, Texas, said that after Cigna temporarily withdrew from the Florida Obamacare health care exchange in 2015, some investors failed to watch Great changes to possible payers.

Cigna cited the high cost of addiction claims and scandals in the huge South Florida addiction treatment market, which has historically been the East Coast capital of private addiction treatment demand and supply.

There are fewer out-of-network addiction providers around, and those who have survived now report much lower profit margins, but more reliable in-network payments are exactly what shift payers hope to encourage. But this did not solve everyone’s problems.

“Payers have reduced the more expensive but sometimes clinically necessary hospitalizations,” Michael Cartwright said, estimating that the average length of hospitalization has been reduced from 30 days to 18 days.

“Given the meaningful value creation opportunities that we can influence as a financial sponsor, we will continue to invest significant resources in behavioral health opportunities,” said Jim Pieri, managing partner of AHP.

Ted Jackson is a freelance writer based in Chicago.