More Investors Pour Money Into Rehab Centers As Health Reform Increases Coverage

Operators of rehab centers are seeing an influx of funding from investors as more Americans receive health care coverage for addiction treatment under the Affordable Care Act, Reuters reports.

The investment boom is triggering a consolidation of rehab centers. Treatment of drug addiction and alcohol abuse are considered “essential health benefits” that most health insurance plans must offer under the Affordable Care Act. Many Americans who previously could not afford addiction treatment now are eligible for coverage. The law also permits young adults to stay on their parents’ insurance plan until they are 26, which expands coverage to those who are struggling with substance abuse. More people can also afford coverage now that the economy is recovering, the article notes.

The market for addiction services has grown to $35 billion a year, from $21 billion in 2003. Investors include Goldman Sachs Group Inc’s private equity arm and investment banking boutique Brentwood Capital Advisors.

In 2013, 22.7 million people ages 12 or older needed treatment for an illicit drug or alcohol use problem, but only 2.5 million received treatment at a specialty facility, according to the 2013 National Survey on Drug Use and Health.

There are more than 14,500 specialized drug treatment facilities in the United States providing care for substance use disorders, Reuters reports. Currently the industry is very fragmented, with even the largest operators owning no more than several dozen treatment centers. The average facility has no more than 150 beds. Investors are eager to consolidate facilities to increase efficiencies of scale and profits. They are most interested in facilities that focus on patients who can pay through private insurance or with their own funds, instead of relying on government programs.