Tikvah Lake Recovery changed for the better when it “got rid of the 20 year olds on their phones,” according to Adam Nesenoff.
Nesenoff has co-owed Tikvah Lake with his father, David Nesenoff, since 2016. It is a residential addiction treatment center in Sebring, Florida. More specifically, it is a self-described luxury rehabilitation center, charging patients up to $85,000 a month for their stay, Adam Nesenoff said.
A patient paying that much, often mostly out of pocket, deserves more than bored-looking young adults in reception, Nesenoff explained. With that in mind, Tikvah Lake has a concierge service that aims “to anticipate the guest’s needs before they have those needs,” Nesenoff said. No one wants a patient “complaining in therapy about the toilet paper instead of dealing with deep trauma.”
Investors like the Nesenoffs are rare these days in the addiction treatment business.
Because all U.S. luxury rehabilitation centers are privately owned, it is difficult to get the numbers on how many providers are thriving, or struggling to survive. But for reasons scandalous and straightforward, dealmaking in the space sharply declined over the last 10 years – with no expectations for a rebound.
“Luxury rehab is probably at its maturity,” Brad Mostowy, a vice president with Fifth Third Securities, Fifth Third’s health care investment group, told Addiction Treatment Business.
Fly-in country
Gourmet chefs, masseuses, acupuncturists and gleaming pools typify luxury rehab, but perhaps its most important characteristic is a serene location.
“Facilities are historically located in places like Malibu and Miami with folks flying in,” Rebecca Springer, lead health care analyst at Pitchbook, told ATB.
Tikvah Lake is a “luxurious sanctuary for healing.” Another luxury rehab center, Annandale Behavioral Health, offers “tranquil, private accommodations nestled in beautiful Pasadena, California, as we know the interconnectedness of nature and wellness.”
The idea is an outgrowth of the 80-year-old “Minnesota Model” for addiction treatment that posited people could recover if they were far away from their problems. The model served for decades as a template for addiction treatment.
So when addiction treatment investments increased following the 2008 Mental Health Parity and Addiction Act and 2010 Affordable Care Act, money went to treatment centers in tropical locales.
Tennessee-headquartered American Addiction Centers had a difficult run as a publicly traded company that purchased treatment facilities in California and Florida, but other investors followed suit with a specific eye to the high end. For example, in 2018, Discovery Behavioral Health purchased Cliffside Malibu, a high-profile treatment center whose prior patients included Lindsay Lohan.
At the time, Cliffside Malibu reportedly charged $68,000 a month per room. Investors saw the eye-popping per patient revenue as a driver of high margins. The mid-2010s featured more deals in residential high-end than more affordable residential or outpatient counseling, according to data from the Braff Group, a Pittsburgh-based company that advises on health care mergers and acquisitions.
“The first [wave] of substance use disorder treatment consolidation focused largely on high-end providers given the margins,” Dexter Braff, CEO of M&A advisory firm The Braff Group, told ATB in an email.
Increased investment, though, coincided with increased scrutiny. As early as 2014, an article in the journal Medical Care questioned the scientific rigor of residential treatment centers, finding for-profit locales were “significantly less likely than nonprofit and public programs to offer comprehensive services.”
The sometimes unorthodox methods of high-end treatment also ran into specific scandals. Christopher Bathum, who ran treatment centers in Southern California and near Colorado ski resort areas, was convicted in 2018 of sexually assaulting seven women who were his patients. Bathum’s centers, called Community Recovery, featured art therapy through art and recording studios.
In 2019, a Los Angeles jury found that Cliffsides Malibu, under its previous ownership, created a fake news website to promote its treatment, and disparage a competitor, Passages Malibu. A judge later reversed the decision, finding that the plaintiff, Passages Malibu, had also engaged in rampant false advertising.
Though such examples were extremes, luxury treatment began to be dogged by “questions of clinical efficacy,” Springer said, just as alternatives such as partial hospitalization and intensive outpatient treatment began to grow.
Newer providers promised “more clinically rigorous models,” Springer said, including demonstrating the value of staying in one’s community in order to keep a job or social network.
These models also involved less to operate.
“The general direction seems to be more outpatient,” Springer said. “Since COVID, it is very hard to staff residential treatment facilities.”
A ‘high fixed-cost industry’
By 2022, according to Braff Group data, the number of mergers and acquisitions in residential high-end fell to zero. Besides the aforementioned factors, there is one simple reason for the decline. Luxury centers struggle to strike deals with insurers that would make their services in-network for patients.
“Insurers will not reimburse a meaningful portion of treatment,” Mostowy said.
Adam and David Nesenoff, who founded Behavioral Health Acquisitions last year to focus on luxury rehab investments, have made efforts to change this. At Tikvah Lake Recovery and other treatment centers they own in Avon Park, Florida, and Lahaina, Hawaii, insurance can cover a fraction of the cost.
Still, patients often pay over $50,000 per month out of pocket. Adam Nesenoff said the facilities are in the process of striking in-network deals, but that even if those happen, the clientele is still limited by price.
Meanwhile, luxury is a “high fixed-cost industry,” Nesneoff said.
This is partly due to employee payroll, including hiring clinicians who promise evidence-based cognitive behavioral therapy, a step that aligns the luxury treatment center with overall trends in addiction treatment.
There is also the high price of real estate where the centers are located, making expansion difficult, Nesenoff said.
One way insurance can help, Nesenoff said, is to increase the client pool “from the .001 percent to the one percent,” so that instead of people flying in on private jets there are business professionals from across the country.
Indeed, while experts see luxury rehab as a largely dormant investment, it retains promise, even stability, as a niche space.
“A lot of lawyers and doctors high-income earners require privacy and treatment,” Mostowy said.
Nesneoff said his treatment centers are profitable, and that he puts the income back into both operating and investing in luxury rehab.
“I will say that I am contrarian in that sense.”
