CRC Health Becoming Force In Addiction; Acquisition Makes Company Largest

Posted at March 3, 2003 | Categories : 2003 | 0 Comment

Alcoholism & Drug Abuse Weekly

Recent acquisition makes company largest in field

A company that has only been around since 1995 has all of a sudden become the largest private addiction treatment provider in the country. With its announced acquisition of Comprehensive Addiction Programs Inc. (CAPS) last week, San Jose, Calif.-based CRC Health Corporation now owns 71 facilities across 16 states and employs more than 1700 people.

While privately held CRC has certainly been an established provider for several years, its most notable development until last week’s announcement had been the creation of its online treatment component, eGetGoing and its teenGetGoing, representing the first forays into online treatment by an addiction treatment provider (see ADAW, Nov. 18, 2002).

The acquisition of CAPS allows CRC to expand into nine more states – Pennsylvania, South Dakota, Virginia, Florida, North Carolina, South Carolina, Massachusetts, Maryland and Delaware. The acquisition gives the company a stronger presence on the East Coast.
“We are really excited about this acquisition because it substantially increases our geographic coverage into regions we don’t currently have coverage,” CRC Founder and chief executive Barry Karlin told ADAW.

CRC’s three divisions – Residential Outpatient Facilities, Opiate Treatment Programs, and eGetGoing now, in the words of Karlin, “reach throughout the country and permit a full continuum of care.”

The creation and expansion of CRC is the dream of Karlin, who left the high tech field to get involved with what he calls the more satisfying field of addiction treatment. What Karlin brought from his previous endeavor, however, was the business acumen and financial contacts to get CRC to the level of success it has achieved.

Karlin started his dream with the acquisition of The Camp, a residential treatment facility in Northern California. When The Camp performed well, CRC was able to raise funds to acquire Azure Acres, a residential treatment facility in San Francisco.

The ability to raise funds from investors has been critical to the expansion of CRC. “Because we had done well, investors had confidence that we knew what we were doing,” said Karlin. The acquisition of CAPS was completed with $40 million in financing from North Castle Partners (lead investor) and Credit Suisse First

Boston, as well as $70 million in senior debt financing led by BNP Paribas and Madison Capital.

Karlin said that he saw an opportunity in this fragmented industry to introduce best business practices and expand and improve through acquiring facilities. While CRC has expanded fairly rapidly, Karlin said that they have done so carefully and with respect for the facilities they acquire.

“We respect the different cultures,” said Karlin. “Typically, whatever the counselors are doing works well, and the local referral sources and the ambience as a set of characteristics are unique – you don’t want to mess with that.” Karlin added that his company is paying and cherishes and nurtures these unique characteristics and works around them in ways that do not disrupt the culture.

What CRC tries to do is add value to their acquisitions. “For example, we’ll work with them to install more sophisticated information systems that will enable the local facility to do things more efficiently,” said Karlin. Targeted marketing is another area where CRC will work with local facilities, said Karlin.

Efforts are also made to bring clinicians from different facilities together. “They learn from one another and begin to make changes for the better,” said Karlin.
While CRC has had impressive business success, Karlin lists as the company’s first goal a clinical one: helping to close the treatment gap – bringing high quality treatment to as many people as possible, Karlin says. The clientele of CRC are primarily “middle-class America,” said Karlin.

While CRC facilities hold some county contracts that serve the lower end of the socioeconomic scale, and their 31 methadone clinics serve many Medicaid clients, they mostly serve insured and private pay clients. The cost of treatment at CRC facilities is generally between $5,000 and $15,000 for a 30-day stay. “We currently do not have a facility in the $25,000 a month range,” said Karlin.

What that means is that they work a lot with managed care, and Karlin’s not complaining. “We enjoy a pretty good relationship with the managed care world – we’re committed to working with them.”

Karlin said the key to working with managed care is to recognize that they have their own pressures and work with them on a case-bycase basis. He recommends seeking approval for treatment based on medical need. “You can’t go into it asking 30 days for everyone.”
Karlin maintains that CRC has been able to get authorized lengths of stay that are comparable to their non-managed care clients. The average length of stay company-wide for CRC clients is 21 days, said Karlin.

Karlin acknowledges that the size of CRC helps in negotiating with managed care. “It’s hard to do when you’re small and not a super-profitable business.”
While the business side of CRC has been successful, Karlin maintains that the patients are the core focus of the business. Goal number two on Karlin’s list: enhancing the quality of treatment. This includes raising the education level and sophistication of counselors in the field. “In some respects, the industry hasn’t changed in a long time,” said Karlin.

As for the business side, Karlin maintains that the company has treaded carefully despite its fairly rapid expansion. “We’re well financed with a fair amount of equity,” said Karlin. “We have a fairly conservative level of debt.” Karlin added that the current capital markets are conservative. “It’s really tough, nearly impossible, to try to leverage yourself too highly – we back it up with a lot of equity.”

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