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Private equity looks to give addicts the treatment

Marketplace Staff Feb 20, 2007

Private equity looks to give addicts the treatment

Marketplace Staff Feb 20, 2007

KAI RYSSDAL: Even if you didn’t click on the link out of some sense of being above that kind of news, you probably saw the headline over the weekend that Britney Spears shaved her head. No comment so far from the singer as to why she did it, but we got some insight today. Her publicist confirmed she’s checked herself into a rehabilitation facility here in Los Angeles.

Drug and alcohol rehab centers are seeing more and more business lately. Not just from celebs abusing their fame and fortune. But from everyday folk. And private equity investment groups have surely taken notice. From WBUR in Boston, Monica Brady-Myerov has more.

SUPPORT GROUP LEADER: Good evening everybody, and welcome to Learn to Cope

. Learn to Cope is a support group for parents dealing with the current opiate crisis . . .

MONICA BRADY-MYEROV: Every Monday, this support group meets to swap horror stories about heroin addiction. Mary Duramo’s 23-year-old daughter has been shooting up for three years.

MARY DURAMO: One time, when we found her blue with the needle in her arm, in our home . . . did CPR on her. After that, we sent her to the $14,000 upstate New York place for six weeks. Because we were desperate.

These are middle- to upper-class families from the suburbs of Boston who can afford to pay out-of-pocket what insurance doesn’t cover. And insurance companies don’t cover much in the way of drug treatment. The government pays for the majority of treatment.

That’s why private equity is jumping in. It’s a growth business aimed at the middle and upper classes.

DAN PRIMACK: It is the type of deal that a private equity firm likes.

Dan Primack writes about private equity for Thompson Financial.

PRIMACK: You’ve got underlying assets in the sense of both real estate and equipment. You have, really, kind of a never-ending supply of customers. You know, this isn’t technology or a software play where, you know, the customers might move on to something new. There isn’t something new. This is rehab.

An estimated 22 million Americans are addicted to drugs or alcohol — and the problem is growing. The chemical dependency industry is worth about $12 billion a year. And on average, 35 percent of people who’ve been through a short-term detox for heroin relapse within three months.

That’s good for business, says Primack.

PRIMACK: Clients often end up having to come back. They’re, you know . . . it’s a hard thing to say. You obviously want to be a good rehab center and cure people, for the bottom line it’s sometimes better if you don’t.

In 2004, there were 10 private equity deals; 2005, 15; and nine last year. One of the players is Bain Capital. The Boston-based private equity firm bought CRC Health Group of California for $723 million last year. CRC is the nation’s largest provider of drug and alcohol treatment services.

Dr. Barry Carlin, head of CRC, doesn’t apologize for making money off drug addicts. Because, he says, addiction is a chronic disease.

DR. BARRY CARLIN: So the idea that, you know, we’re making money off people who have that . . . you know, alcoholism or drug abuse, you know is an absurdity. That’s like saying you can’t make money by treating a person with diabetes or cancer.

Carlin says that traditionally investors have shunned drug addiction as a problem society would rather sweep under the rug. Private equity is legitimizing the rehab business and giving centers like his better status in Washington policy circles.

CARLIN: It really upgrades the whole industry. It’s a statement from someone like Bain that this is an important industry. It’s an industry that warrants investment from our society. And so from our perspective, it’s been a tremendous boon.

Bain Capital says their investment is increasing access to treatment. And CRC needs Bain’s money to expand facilities to meet the growing need. An estimated 18.5 million people are chemically dependent, but not yet getting treatment.

In Boston, I’m Monica Brady-Myerov for Marketplace.

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