In recent years, substance use disorder (SUD) treatment programs have become shorter and outpatient treatment program options have become more popular.
Residential inpatient treatment programs, often more expensive than outpatient options, may be going out of vogue among payers and investors. Still, patients will always need an option for residential care, industry insiders told Addiction Treatment Business.
Tom Greer, partner at Fulcrum Equity Partners, says he considered investing in outpatient-only SUD treatment before deciding to invest in Jackson, Mississippi-based Defining Wellness Centers.
Atlanta-based Fulcrum invests in health care services and B2B tech companies seeking between $5 million and $30 million of equity.
“One of the things that appealed to us about Defining Wellness was it did have that entire service under one umbrella,” Greer told ATB.
Defining Wellness Centers has a full continuum of care, including medical detox, inpatient rehab, partial hospitalization and outpatient. The provider may soon branch out to offer even more service types.
Others in the industry are looking for exclusively outpatient investments, but choosing to specialize may have consequences down the road.
Residential downsides
Outpatient programs have significant benefits for patients, payers and investors. One big benefit is cost savings.
The cost for the cheapest inpatient rehabilitation program per month is $6,000, while the cost of a 3-month outpatient rehabilitation program is $5,000, according to the National Center for Drug Abuse Statistics.
Costs for payers can be exacerbated by the so-called “revolving door” of SUD treatment, in which patients are continually admitted and readmitted to treatment programs.
To stop that “revolving door,” VNS Health launched a program in June of 2023 in which care managers help patients transition from higher acuity care to lower acuity care.
“The facilities let our care managers right onto the unit to engage with folks while they’re there,” Jessica Fear, senior vice president of behavioral health at VNS Health, told Addiction Treatment Business. “Then we follow them into the community after they’re discharged and really just knock down every barrier to them staying stable in care.”
New York City-based VNS Health is a nonprofit home and community health care provider headquartered in New York that provides behavioral health and SUD treatment as well as home, hospice and palliative care, among other services.
Without a supportive network in their communities, patients can easily return to a prior habit of substance use, Fear said. VNS’s program creates scaffolding to ensure patients get consistent treatment and have the right “tools in their toolkit” to avoid falling into old habits.
“We walk them through every step of the journey of recovery to try to keep them in the community really where they can be most successful,” Fear said.
The program stays with patients for six to nine months in order to establish consistent outpatient treatment. This time period is the most beneficial, Fear said, but the program allows for an option to check back in with patients six months after they “graduate.”
For a large swath of the population, getting acclimated to life in the community post-residential treatment is not the only challenge. Medicare does not cover residential SUD treatment, leaving inpatient and outpatient as the only options.
The payer and investor perspective
Outpatient programs are not just cheaper and more accessible for patients; they are also preferable for payers and investors.
“Payers love outpatient,” Drew Rothermel, Defining Wellness Centers’ new CEO, said. “It’s cheaper. Investors have liked it and are really bidding up the multiples on pureplay outpatient deals.”
Outpatient treatment facilities are easier to grow, Rothermel said, making them an attractive option for investors. He saw outpatient deals bid up to “unconscionable levels” in the past year.
“You rent some office space in a strip mall and you can open a new facility,” he said. “It’s easier to scale.”
Not offering residential options can limit growth potential down the road, however. With outpatient-only offerings, businesses can be dependent on referral sources, likely from residential programs.
“If you’re outpatient only, I guarantee over 50% of the patients that you get a call from need to go to detoxing residential for at least a period of time,” Rothermel said. “So you refer them out and if those places have a full continuum of care, you’re never going to see them again.”
Continuum of care
While outpatient treatment boasts several benefits that are lacking in the more expensive, less accessible residential options, both are needed for a full continuum of care.
“Is residential even needed? Our thinking is yes, it is,” Greer said. “But outpatient is a much more important part and …focused area than ever before.”
Depending on acuity and a specific patient’s needs, residential programs can be a necessary component of treatment.
But residential treatment can sometimes be misidentified as only necessary when SUD-related problems become extremely acute, according to Kate Appleman, senior director of clinical practice and professional development at Caron Treatment Centers.
Wernersville, Pennsylvania-based Caron Treatment Centers is a nonprofit provider that serves patients with substance use disorders. It operates in Pennsylvania, Florida, Washington, D.C., Georgia and New York.
“Some people look at inpatient treatment as a last resort, so by the time they get to inpatient treatment as a level of care, they have a significant substance use disorder,” Appleman told ATB. “We don’t have to wait until we have really significant symptoms to consider residential treatment.”
“The truth is that continuum at different levels of care is really what is needed,” Appleman added.
