After Years of Playing Defense, AAC Preps 2020 Offensive Strategy

CEO Andrew McWilliams took the helm of AAC Holdings (OTC: AACH) at a time when many people would have jumped ship.

In fact, last year, several company leaders did just that, with exits from president and COO Michael Nanko and four board members. The parent company of American Addiction Centers also suffered its share of financial struggles in 2019 and was delisted from the New York Stock Exchange (NYSE).

Despite all that, McWilliams told Behavioral Health Business he was excited to step into his new position in January. He first joined AAC as chief accounting officer in 2014 and was promoted to CFO in 2018.

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The move allows Michael Cartwright, who had been filling the role of CEO and chairman of the board since 2011, to now focus on one job instead of two. It also helps position AAC — which has dozens of facilities across eight states — back on the offensive, after years of playing defense in response to industry headwinds.

BHB recently caught up with McWilliams to learn more about that and his plan to get the company back on track. You can find the conversation below, edited for length and clarity. 

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Congrats on the new role! How are things going since you transitioned last month?

McWilliams: Things are going really well.

This wasn’t something that abruptly hit us or came out of left field. This is something board chairman Michael Cartwright and myself had been talking about for over a year.

Michael is the reason I’m here at the company. His vision for this space ultimately attracted me to AAC to begin with, so we see the long-term vision very similarly.

Him … getting his hooks into the things that the chairman does and me moving into CEO and focusing on those [responsibilities] is very good for the company because those are two full time jobs in and of themselves. Trying to do those as one, we weren’t able to do some things we really wanted to do.

You’re definitely coming into the role at a trying time. Candidly, why were you interested in becoming CEO following such industry and company turmoil?

There are much easier paths than this, without a doubt. My family will testify to that.

The number of hours I’ve put in and will continue to put in are going to be extreme, to put it mildly. But I love what I do, and I love this space.

I see a real need in this space for some scale. It needs a little bit of aggregation and to develop some standards of care. It’s been the Wild West in the disease of addiction.

When I look at the employees that we have, they are so passionate about what we do. They want to see the industry and AAC succeed. That gets me so excited and so energized.

I’m really, truly humbled to be the CEO of this organization.

Still, 2019 was a tough year for substance abuse treatment providers, AAC included. Going into 2020, how are you going to get things back on track?

It’s a very odd thing when you sit back and look at it. You’re seeing pressure around lengths of stays [and] reimbursement. You have new interest coming into the space at the same time treatment providers are consolidating or closing beds.

You’re not wrong that 2018 and 2019 were tough for a lot of providers. Certainly they were tough for AAC.

We are the largest company solely focused on addiction. With that, we bring some additional resources that unfortunately some smaller providers do not, so we’ve been able to weather [payer challenges] a little bit better than others. But it’s certainly been challenging.

We did start to make some positive momentum in the back half of 2019. If you look at the progress we made coming off the fourth quarter of 2018 through the first, second and third quarters [of 2019], you see some nice trajectory from the company.

At the same time, we did have to consolidate beds to get our operating costs right-sized with the new reimbursement landscape.

When I think about where we’re at already, what we’re doing and the progress we’re making, I get really excited about 2020. I get even more excited about 2021. From being able to really focus on our clinical product [and] our outreach to clients [to] discussions and progress we’re making with payers, I’m really pleased by all the momentum we’ve got.

Can you provide a little bit more color around how you guys went about reducing your operating costs?

In certain markets — like take Nevada, for example — we looked at the number of beds we had and our census levels and said, “We need to consolidate the beds in that market.”

That was a way to reduce operating costs. We did that in several markets. We did it in Florida. We did it in Southern California. We did it in Nevada. [Those] were the primaries.

We also took a look at our corporate overhead and our infrastructure there, as well, to right-size it with that new bed count. The way we approached it was very strategic. I’m very proud of the way we did that.

What we didn’t attack was our clinical product.

We didn’t go in and reduce staffing ratios at existing facilities. We didn’t go in and gut clinical or medical directorship. In fact, even with those operating costs, the quality of our medical directors, for example, is better than it’s ever been.

Can you talk about some of those outside factors that pushed AAC to that point?

If you talk to any provider … [and] ask them what their No. 1 issue is, it’s going to be payers and reimbursement from those payers.

That’s manifested itself in a lot of different ways. On one hand, there’s just lower reimbursement in certain cases. But the one I’m more frustrated about and think is really unfortunate is the authorization for services.

Everything we do essentially [needs] pre-authorization.

Not all the payers, but certain payers, have gotten really aggressive at authorizing the lengths of say … and denying services, which, in the middle of an opioid crisis, is really a shame.

Our charity care has actually gone up dramatically because once [patients] are in our system of care and an insurance company is not authorizing services, we still need to do right by that client. That could be a very dangerous situation. Unfortunately, a lot of times we’re treating that client for free if the insurance company denies coverage.

I think the providers need to be a little bit louder about that. We need to be using [industry] trade organizations, and we need to have some good, honest dialogue with these payer networks.

Shifting gears a little bit: Late last year, you helped map out a 10 year plan for AAC. Are things still on track with that or have you shifted your priorities at all?

I worked with Michael fairly closely on some of the details of that, and I do believe in it.

If you really unwind what that plan really was saying, it’s about truly individualized care and utilizing the latest technology and the latest diagnostics, which will actually lower the cost of delivery of care and make it more effective.

The space is going there, whether providers want it or not, so those that embrace it will be successful.

We do tend to treat a younger demographic, … and I think our clients are going to be looking for different solutions. Designing care that’s individualized to their needs is critically important.

Can you dig into some of those tech plans you have for the next 20 years?

Let me talk about a few we already have in place.

One of those is called EarlySense technology. This is a device that goes underneath the mattress [usually in a detox facility].

It’s a way to help monitor the vitals of a patient while they’re sleeping without interrupting their sleep patterns. It’s using technology to deliver better care inside a facility versus a nurse waking up a client every two hours and taking vitals. This has been a great way to provide advanced treatments.

Another area is diagnostic testing, which we’ve invested very heavily in. I’m very proud of the toxicology testing that we do today. I personally believe it’s the best in the country. You layer on pharmacogenetics testing, and … you can hone in on which medications may work better for [patients] and what dosage levels are appropriate and get them on a better treatment plan a lot quicker with a little less trial and error than we’re currently doing.

There’s some really interesting stuff being done with brain scan technology. There’s a lot on the diagnostic side where we’re looking at different factors that may be contributors to addiction and other mental health diseases.

And we’re certainly exploring and embracing [telehealth] in a big way.

Even though AAC was delisted from the NYSE, executives have said the company will remain public. Can you walk me through the plan on that?

We are still public today.

We were listed on the NYSE. Our market capitalization had certain minimum thresholds, and we fell below those, so we are no longer listed on the NYSE. If we meet those, we can go back to the NYSE, if we so chose.

Today we trade on the OTC. We have not yet made a decision on yet where the best place to be listed is, but we’re taking a look at some different options.

You haven’t announced when your Q4 and year-end earnings yet. Do you have any idea when those will be?

It likely will be sometime at the end of March.

Earlier this month, the Trump administration came out with its 2021 budget proposal, which included a lot of opioid funding. What are your thoughts on that?

Whether you’re Democrat, Republican or somewhere inbetween, the support for improving and funding the disease of addiction is certainly there.

I see a lot of government funding going toward access to care. Overall, I would love to see more dollars going into prevention and education.

But I will applaud any additional funding coming into space, whether it’s something we can take advantage of or not. A lot of the funding is into Medicaid, which is a space we operate in a little bit, but [not] in most of our states.

You’re also seeing a lot of funds flow into medication-assisted treatment (MAT) expansion services. I think that’s one area the industry as a whole needs to be a little careful of.

While there’s certainly a place for MAT, it needs to be always thoughtful paired with a really good clinical product for good long-term success. Unfortunately, people tend to oversimplify the disease of addiction and are looking for the magic pill, so to speak.

The disease is a lot more complicated than that, so throwing some money to add access to MAT without appropriately providing the clinical services and other things that need to go with that could be a mistake.

I do worry about additional providers coming in who may see an opportunity and are not necessarily focused on the clinical product as much as they should be. To be honest, I think there should be more barriers to entry in this space.

But, again, I will applaud any additional funding that’s coming into the space because it’s desperately needed.

Looking forward, what trends and opportunities do you expect in the year ahead?

I look at this year as the beginning of stability in this space.

[In years past], we’ve had, unfortunately, a lot of providers either cease providing services or merge. You’ll see some more consolidation, but overall, I think you’ll start to see some stability with some of the larger players. That’ll be good for the space.

I think you’ll see the insurance companies getting into a new norm, so to speak.

That stability enables us … to get back to our core mission, which is to continue to develop the best clinical products and to help improve the treatment of the disease of addiction for ourselves — and hopefully to help other providers do the same thing.

We can focus on that a little bit more full-time. We’ve been playing defense for the past year and a half to two years. [This year,] we’ll get back to a little bit more offense.

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