Meridian goes upscale with addiction treatment center

Competition in Minnesota and across the country is heating up among addiction treatment centers, with financial analysts predicting growth due to the large pool of patients currently going without treatment.

Last month, New Brighton-based Meridian Behavioral Health Services launched a new residential facility in Owatonna that caters to professionals who can pay $975 per day for treatment.

Offering equine therapy and fine cuisine in addition to standard treatments, the new facility puts Meridian up against longtime residential powerhouse Hazelden, which offers inpatient treatment for a similar list price in Center City.

Following a merger in 2014, Hazelden is expanding the Betty Ford Clinic brand in California while also investing in facilities here. There's activity elsewhere, too.

"Of the nearly 22.7 million people who needed treatment for substance addiction in 2013, only 2.5 million actually received it," wrote Ryan Daniels, a financial analyst with William Blair, in a research note last year. The increase in those needing treatment "is partly driven by nonmedical use of painkillers, from which an addict may move up to heroin as tolerance increases or painkillers become more difficult (and more costly) to find."

Daniels sized up the market in connection with the $69 million initial public offering of stock last fall from Tennessee-based American Addiction Centers. Just this month, another Tennessee firm — Acadia Healthcare — closed on a roughly $1 billion acquisition of CRC Health Group, a national player in addiction treatment circles.

"Relative to other health care services markets, substance abuse treatment is highly fragmented," Daniels wrote. "We believe the substance abuse treatment industry appears to be in the early innings of one of the largest remaining consolidation opportunities in health care."

Meridian Behavioral Health says it's the largest for-profit behavioral health company in Minnesota. For decades, that's meant a focus on patients with coverage from state-sponsored insurance programs, said Fran Sauvageau, the company's president and chief executive.

The Owatonna facility goes by the name Beauterre Recovery Institute, which Sauvageau described as a stand-alone brand and new direction for the firm.

"The best description I could give you is, this is Toyota creating the Lexus brand," Sauvageau said.

The company operates 10 outpatient clinics and seven inpatient addiction treatment facilities, including one it acquired in East Grand Forks, Minn., last year.

Sauvageau declined to provide information about revenue and earnings at Meridian Behavioral Health, which he said is owned by a private equity firm in California, a private investor in New York and Sauvageau himself.

But Beauterre paid more than $3.5 million last summer to acquire the old Daniel C. Gainey Conference Center in Owatonna from the University of St. Thomas. The 180-acre campus now includes a 61-bed residential addiction treatment and recovery center for adults who abuse or are dependent on alcohol or other drugs. The center also is available to people struggling with addiction in addition to mental health problems.

"We've invested, let me just say, several million dollars post our purchase price to create the environment that we have here now," Sauvageau said. Jack Bice, the executive in charge of the Owatonna facility, described the setting as "spa-like. … Our food is spectacular."

The target audience includes such licensed professionals as physicians, nurses, attorneys and pilots. The typical length of stay in residential care tends to be 30 days, but can vary.

Right now, Beauterre is relying on patients who pay their own way and those with "out-of-network" health plan benefits at the facility. In the future, the institute plans to become an in-network option for health insurance subscribers.

The institute is located near a private airport. Operators hope to draw patients initially from Minnesota and the Midwest, and eventually from across the country.

"Ultimately, we foresee this as a destination treatment opportunity," Sauvageau said. Such centers are needed, he said, because of "the ever-growing epidemic of addictive disease."

For decades, patients have traveled from afar to Hazelden in Minnesota for help with addiction problems. The degree to which the new center in Owatonna provides competition depends on the nature of services being offered, said Mark Mishek, the Hazelden chief executive.

There's room for more treatment centers in Minnesota, Mishek said, noting that Hazelden facilities in Center City, Plymouth and St. Paul were almost completely full last year.

Retail rates of about $1,000 per day at Hazelden and the new center for residential treatment are "middle to middle-high," Mishek said, adding that some posh centers in California charge a daily rate of $1,500 to $1,700.

"There's a lot of private equity moving into the field, and what Meridian has done, I think, is consistent with that movement that we're seeing," Mishek said. On amenities, he added: "We're not in the thread count group, as we would call it. … We've got dignified and respectful facilities that are well-maintained."

Over the years, private health insurers have been able to impose tight restrictions on benefits provided for substance abuse treatment, wrote Daniels, the analyst with William Blair. He cited federal data showing about 31 percent of those who don't get treatment say it's because they lack coverage or can't afford it.

But insurance coverage for the services is beginning to expand, Daniels added, with the federal Affordable Care Act.

"Although payers continue to find creative workarounds … we believe the end-result of more people with adequate mental health and substance abuse treatment coverage should be a significant tail-wind for the industry," he wrote.

Patient advocates in Minnesota say they're encouraged to see treatment centers get bigger.

"I think this is definitely a niche that Meridian has looked at and said, 'we think there's an opportunity here,' " said Jill Petsel, executive director of Minnesota Recovery Connection. "I think there's a definite need in the corporate community. There's definitely a need in low-income communities. It's across our society."

"There's all this untreated addiction in the world, so the more treatment centers the better," said Carol Falkowski of Drug Abuse Dialogues, an education training group in St. Paul.

Christopher Snowbeck • 612-673-4744

Twitter: @chrissnowbeck