The clinic parking lot is jammed at 10:30 on a Monday morning. Inside a bustling waiting room, patients talk to staff members and wait their turn at the medicine window. A young blond woman fights off sleep, slumping against a suitcase.
Everyone is here for one reason: to get a dose of methadone.
Clinics like this one on Topeka Street in Boston can be lifesavers for addicts trying to kick heroin or other opiates. Reports of heroin overdoses and deaths are on the rise as cheap and potent versions of the drug — sometimes laced with the pain medication fentanyl — flood the market. Governor Deval Patrick has declared it a public health emergency.
For Bain Capital, it’s also a potential profit opportunity.
The Boston-based private equity firm recently took over Habit OPCO Inc., the largest chain of substance treatment facilities in Massachusetts, with 13 locations from Boston to Springfield. Bain paid $58 million to acquire the for-profit centers through CRC Health Corp., a California company it has owned since 2006. CRC Health is the biggest provider of substance abuse treatment and behavioral health services in the country.
This foray into one of the most challenging, and financially complex, areas of health care may seem contrary to the kind of dealmaking Bain Capital is best known for — investments in brand-name companies like Dunkin’ Donuts and Bright Horizons child care.
But as opiates ravage communities from rural Vermont to Hollywood, treating addiction has become big business. The push for national health care, and recent changes to federal health insurance laws could make it even more attractive. Substance abuse treatment is a $7.7 billion industry, according to a recent report by IBISWorld Inc., a New York research firm, and growing at an annual rate of about 2 percent.
‘The way to make a lot of money in this particular business is to do it badly. We’re just not going to do that.’Deni Carise, CRC Health
Heroin and prescription drug addiction is “a giant problem in Boston; it’s a giant problem across the country,’’ said General Barry R. McCaffrey, who served as drug czar in the Clinton administration and has been on the CRC Health board since before Bain was involved with the company. Methadone is often stigmatized, he acknowledged, but for some addicts — when it’s used in combination with counseling and other treatments — the substitute drug makes a dramatic difference in their lives.
“Methadone will allow you to go from a dangerous, chaotic life to getting control of your life, getting your children back, getting a job,’’ McCaffrey said.
In 2012, there were 669,000 heroin users nationwide, up nearly 50 percent from 455,000 in 2009, according to the Substance Abuse and Mental Health Services Administration. Dive into those numbers and you will find many addicts who don’t fit the stereotype of back-alley junkies.
Opiates are affecting “a more middle- and upper-middle-class demographic,” said Deni Carise, deputy chief clinical officer for CRC Health. “Addiction has always been an equal opportunity illness.’’
That may mean more well-insured clients, but treating them remains a tricky business proposition.
For one, health care professionals say addicts can be difficult patients. Beyond that, running a clinic is expensive and labor intensive.
Habit OPCO charges patients $135 a week for methadone treatment. That includes daily doses of liquid medication, access to doctors and nurses, therapists, and other services. Some people have private insurance; others use Medicaid, the government program for low-income people; or they pay cash.
Many patients take methadone, an opiate that’s safer than heroin, for months or years. It doesn’t cure addiction, but relieves withdrawal symptoms and allows many people to function and work without getting high. While Habit OPCO follows up with patients, it’s often hard to know how their recoveries will play out over the long term.
“Our success stories don’t want to be out there bragging that they used to be heroin addicts. Sometimes, they leave treatment with us and we don’t hear from them again,’’ said JoAnne Forson, a regional vice president with Habit OPCO. “It’s very different from other forms of health care, where people take pride in being a survivor and want to talk about that.”
Formerly known as Habit Management, the company started in Kenmore Square in 1985. Soon after, it launched a van program in Brockton, and now treats about 860 people a day in Boston alone, according to Forson, who has been with the company for 20 years. The Boston clinic is located in a worn industrial area near the Southeast Expressway and the Greater Boston Food Bank.
Even as it treats 30,000 people a day at 145 facilities, the footprint of CRC — Habit OPCO’s parent — is relatively small. The company has 2 to 3 percent of the market, according to industry reports and CRC itself. Drug recovery treatment is responsible for the lion’s share of its $456 million in annual revenues, including $43.4 million from Habit OPCO.
Many health care providers involved in substance-abuse treatment believe methadone clinics are an essential option. News last week that Boston officials plan to close the only city-run methadone center, near Boston Medical Center, has alarmed some doctors.
“It’s hard to find a good methadone clinic,’’ said Dr. Kevin P. Hill, director of the Substance Abuse Consultation Service at McLean Hospital in Belmont. The staff at the city clinic, just blocks from Habit OPCO’s Boston location, “are very highly thought of,’’ he said. “They’re certainly one of the best, if not the best, and treat some of the most difficult patients.’’
If the city-run operation shuts down, just four licensed methadone clinics will remain in Boston, two of them for-profits, according to the state Department of Public Health. Without singling out Habit OPCO, Hill said he worries for-profits cut corners that diminish the quality of care.
“The problem I find with some of the for-profit clinics is the absolute minimum required by law becomes the absolute maximum they’re willing to do for their patients,’’ Hill said.
Staff at CRC and at Habit OPCO say profits are not their priority. That’s an unusual position to take for executives at an enterprise owned by Bain. The investment firm makes money by buying companies and reselling them at a profit, often after reducing staff and costs.
“Frankly, the way to make a lot of money in this particular business is to do it badly,’’ CRC’s Carise said. “We’re just not going to do that.’’
Both CRC and Habit OPCO were previously owned by venture capitalists, so this is not their first foray into for-profit management. But private equity firm ownership can add a financial burden by heaping debt on a company’s books.
Bain bought CRC for $723 million, putting $295 million of its investors’ money down and borrowing the rest. CRC currently owes $775 million to bankers. The interest payments alone are $49 million a year — enough to wipe out most of CRC’s $64.8 million operating profit in 2012.
So far, Bain’s bet on methadone clinics has not paid off. Not only does the firm still have all of its money in CRC, it still owns the company after eight years. Typically, Bain sells within five to seven years.
All of that increases the pressure to grow profits at CRC and Habit OPCO. Bain executives declined to comment, but CRC officials said they consider acquisitions like Habit OPCO to be opportunities to increase scale and bring in more business. In addition, CRC’s Carise said, the federal Affordable Care Act and a law requiring equal insurance coverage for mental health conditions will give clinics more access to private payers, and help make services more affordable for people who were previously uninsured.
For now, the revenue trend is heading in the right direction for Bain. CRC’s net income of $6.3 million in 2012 marked an improvement from $2.5 million in 2011, and a loss of $46 million in 2010. Figures for 2013 are not available, because the company no longer has to make them public.
“This field, substance abuse, is going to be more changed than any other,’’ Carise said. “We’ve pretty much convinced the country now that this is a health care issue. This isn’t about bad people trying to become good. This is about ill people trying to get well.’’