From the May/June 1994 issue
ABOUT 10 YEARS AGO, I READ NICK CUMMINGS’S presidential address to the American Psychological Association in which he foretold the changes coming in the health-care system. Even though the phrase “managed care” hadn’t yet made it into anyone’s vocabulary, that’s exactly what he spoke of. I had just hung my Ph.D. diploma on the wall and was getting ready to build a practice. But Cummings’s article scared me. He predicted that independent private practices were likely to go the way of the dodo bird; most of us would be working for multisite networks that offered a broad spectrum of medical and mental health services. Private practice would be dead.
“Damn,” I thought to myself, “now what am I going to do?”
For years, I had fantasized about establishing an exclusive private practice with an elegant, finely furnished office complete with a great view. Movie stars, celebrities and the high and mighty would fly in from California and St. Moritz for my counsel. I’d be fantastically wealthy, respected and revered.
Cummings was telling me I was delusional. The future would be dominated by networks of clinics with cozy connections with one or another insurance company. Big business does business with big business, Cummings warned. The small fry, like me, would get lost in the shuffle. Instead of movie stars, I’d be working with whoever wandered in for an appointment; instead of an office atop a skyscraper overlooking a river, I’d be windowless and in a basement with a dozen other therapists.
Meanwhile, I had just talked my way into a job opening at a detoxification center in a small hospital in the neighborhood in which I grew up. They had beds to fill and I thought I might have a way to fill those beds.
Being both a newly recovering drug addict and a newly Ph.D-ed psychologist, the opportunity to work in a detoxification center was a source of status, prestige and a constant reminder of where I, myself, could end up. Yet, amidst the excitement and satisfaction, a growing cloud of uncertainty loomed large.
Already insurers were beginning to tighten their hold on treatment providers. For the first time, insurance companies in the Philadelphia area began denying admissions to our detox center. Unless patients were truly in need of medical care, insurers weren’t going to approve the admission. Worse yet, HMOs were popping up and cutting into some of the detox center’s best referral sources. These HMOs had a new idea about what insurance companies were supposed to do. They didn’t just want to pay the bills when we sent them. They selected a limited number of providers to whom they would refer all of their patients; everyone else was politely invited to stand on the sidelines and watch.
I saw the writing on the wall getting bigger and bigger. The world was changing and I’d better change with it. I was determined not to get caught wondering what had happened; more than that, I knew somehow there were going to be plenty of opportunities in the chaos that was to come.
After several years working at one or another detox or rehab centers, I could see some of the shortcomings of inpatient programs the centerpiece of addiction treatment at that time. Frequently, people didn’t want to “go away” because of a variety of legitimate and sometimes not-so-legitimate reasons. When faced with such patients, I would typically muster all of my best coercive clinical skills and lean on them psychologically. The only alternative was pay-as-you-go individual counseling not a practical alternative for most of the folks I was seeing.
“Wouldn’t it be nice,” I thought, “if there was an outpatient rehabilitation program?” The idea, once conceived, rang true and clear. An organization I worked with for a few months had tried out this idea but failed because the insurers simply wouldn’t pay for it. That was a few year earlier. I wondered whether insurers would be more flexible now that they were being forced to be more cost conscious.
I didn’t have to wonder long. I noticed that the vice president of cost containment for Philadelphia Blue Cross was going to speak at a local conference about the rising costs of substance abuse and mental health services. I decided I would try to spring my idea on him some time during the conference. I caught him as he was packing up his slide projector and handed him a three-page, single-spaced proposal detailing the rationale for the outpatient addiction treatment program I called Rehab After Work, along with the “hows” and “whens” of the program’s operations. He graciously accepted the proposal and stuffed it into his coat pocket. A week later, I was having lunch with him discussing the concept. This powerful man took an interest in my vision and told me it was on target I interpreted his encouragement as a golden endorsement that could pave the way through whatever obstacles lay ahead.
1 REALIZE TODAY THAT I HAD ridiculously naive ideas about what it would take to carry out my ambitious plans. I had little idea of how to go about actually translating these plans into functioning programs. For example, I proposed opening a minimum of three Rehab After Work locations, preferably on the same day (remembering big business does business with big business). To do this, I needed at least $350,000 in startup funds. I had about $1.5 3 in savings.
Fortunately for me, several lawyers who specialized in business matters were sent my way. While I was thinking mostly about security and survival, they assured me I could be wildly successful. Originally, I suggested to the hospital that I would start these programs as an employee; they turned down my proposal, stating that it was simply too risky. That’s when my attorney friends said, “Great. Why not do it as a private corporation?”
My father always worked for someone else. So did my mother. In fact, I had no blood relatives who were ever business owners. The idea thrilled me.
My attorneys were invaluable at this point. They taught me about business plans, venture capital and the many ways of skinning a cat. As I was getting initiated into the world of “projected revenue” and “break-even analyses,” I got a kind of buzz. I was enthralled with the vision of a skyscraper office with a view overlooking the river.
With the help of my attorneys, an agreement was eventually struck with the same hospital that I’d been working for. My main bargaining point was a business plan that detailed how I would raise the money independent of the hospital. The fact that the plan projected a $7,000,000 profit by year three also might have had something to do with their decision to sign on.
Now I was no longer an employee; instead, I had a management agreement fashioned basically as a joint venture. They put up the money and would handle the billing; I designed the program and would manage and market it.
Three years after writing the original draft of my business proposal, I was opening three sites on the same day.
MY DREAM HAD COME TRUE. NOW I had to wake up and make it all happen. At this point, I had successfully managed the detox center for about three years and found that I could handle the administrative functions of the new program well enough. The problem was, how would I generate the referrals? To come close to my projections, I had to convince an awful lot of people to give us a try. There was a great deal of skepticism about outpatient rehab back then; the status quo liked things just as they were.
Even before opening Rehab After Work, I had a conversation with a vice president for one of the area’s largest managed care organizations. They had sent out a notice indicating that they were looking at reshuffling their provider network and were willing to consider us if we went ahead and opened our three sites. The deal they offered, however, was too bad to be true.
For “X dollars per person per month,” Rehab After Work would be responsible for all the inpatient and outpatient treatment their subscribers required. We’d get a monthly “lump of gold” (as they called it), but in exchange for it, we would be responsible for providing all of the chemical dependency treatment services for about 100,000 people. This was called “capitation.”
Good news, bad news. The good news was that this single insurance company would make it possible to fill our three centers, almost immediately. The bad news was that I just didn’t see how we could possibly afford to pay for all the inpatient and outpatient services for which we would be responsible. It simply didn’t seem possible to deliver the care for what they were willing to pay. The lump of gold looked more like a tiny nugget.
We attempted to negotiate a better rate with the insurer. But before we presented a counter-offer, we were informed that there were plenty of other providers quite ready and happy to accept the terms they were offering.
Had I blown it? Had my more sophisticated colleagues seen something I missed? I wasn’t sure, but I just couldn’t see how it would be possible to break even with the rates that were offered.
As it turned out, I was right. The groups that ultimately signed up with this plan were in deep trouble financially and clinically within about two months. They either had to provide the care they felt was ethically required and lose money every month or deny care to those that needed it. To their credit, most of them swallowed their losses and then got out of the contracts after a year. I learned that there were times when drug and alcohol treatment providers had to “just say no” to insurers.
Meanwhile, my joint partner was not particularly pleased with the return on investment. Our expenses were mounting, but our program wasn’t attracting nearly enough referrals. My $7,000,000 profit projections had become a bad joke. Worse than that, many of the patients referred to us weren’t doing very well. Our critics, those that were working for, or married to, the inpatient 28-day model, were sneering as we twisted and turned, hanging by our thumbs.
I wanted to be a front-line therapist again.
Most of the people we admitted to our program that first year failed to complete treatment. By dropping out of treatment, our clients were telling us that our program wasn’t working, but they weren’t being very specific about why. I knew I had to dig deeper into what was going on. After our first six months of operation, we began monitoring a number of outcome measures such as completion rates, attendance rates and self-reported sobriety. In addition, we began collecting monthly satisfaction surveys from all patients: how they viewed our education program, our therapy groups, how they were treated and what they thought of their therapists. This information was carefully studied, shared with the therapists and also with the patients.
Almost immediately, we began to see improvements in our vital statistics. Ever since we instituted these studies, our completion rates and self-reported sobriety rates have increased; today, they are over twice what they were in our first year. As our program improved, I began to feel more hopeful about our future.
About the same time that we began focusing on improving our outcomes, a second managed care firm expressed interest in our program. These folks were a whole lot more reasonable than the first group or so it seemed. They didn’t ask us to share any of the risk through a capitation agreement. Instead, they merely wanted a reasonable discount in exchange for a large volume of patients. This kind of arrangement was just what I was looking for, and so we began working together.
Almost overnight our census doubled. We added staff and office space. We were finally on the map as a major provider of treatment services in the Philadelphia area. Even the hospital detox with whom we were closely affiliated swelled to capacity from our referrals.
For a while, all seemed well, but then two mistakes almost put us out of business. The hospital had assumed responsibility for the billing function Rehab After Work. Down one of their hallways, there was a row of cubicles where I imagined the people who wore green visors and could hit all of the right keys on a calculator without even looking worked. I’d never heard of the term “accounts receivable” until it was almost too late.
As a psychologist who had little background in business, I just assumed that the hospital would know what to do if there were any problems with a payor. Then one day, it was brought to my attention that the managed care firm that was our largest referral source was a million dollars behind in their payments.
What followed was the worst time in my professional life. Because of the growing accounts receivables, a meeting was held with the managed care firm. “What’s the story with the late payments?” we asked. They assured us that all was well; it was a computer problem, nothing more. A check would be in the mail in no time. Don’t worry.
While dribs and drabs of payments trickled in, their promises grew more plentiful. Then, one day, the company that owed us this small fortune “ceased operations.” In a lawyer-filled conference room, we were informed that we would be paid “nine cents on the dollar.” Overnight, Rehab After Work’s balance sheet went from solid black to red.
I learned two huge lessons from this disaster. The first was that / am responsible for what happens with my program. No matter what. It was a mistake to assume that anyone else would be concerned about its fate. The second, related lesson, was that I need to keep my eye on the money. Since that time, I have had at least monthly meetings with my finance director. I watch carefully and don’t accept referrals from slow-paying organizations until they get caught up.
The financial loss was only half of our problem. Because this one, large company was generating so many referrals, we had neglected to develop other referral agreements. We had no marketing staff whatsoever and our marketing materials were old and unsophisticated. While I was uneasy about this dependency on one referral source, I never did anything about it. It was something that I intended to get around to, but never did. When they ceased operations, we had extra staff and extra office space neither of which we could afford. That almost did us in.
Once again, and none too soon, a different managed care organization contacted us. This group asked if we would be interested in a capitation agreement in which we would be responsible for providing all their outpatient chemical dependency services. Their rates, while tight, were acceptable. Equally important, they were very solvent financially. If they went under, it was probably the end of the world anyway.
That was more than two years ago. This managed care firm proved to be a perfect match with Rehab After Work. Today, we operate at four locations and employ about 60 full- and part-time therapists. Staff morale is excellent and patients are doing even better. Together, we are looking at opening additional sites in other parts of the country.
ONE MOMENT STANDS OUT AS I think about my transformation from therapist to executive. Rehab After Work was a few weeks from opening and I was racing around in high gear. At the same time I was attending to a million details concerning contracts, staff orientation and form revisions, I was still seeing each patient in the detox center I managed. I enjoyed my work with the detox patients. I loved making the light go on in their eyes. But it took lots of time and energy. It was around 8:00 pm one evening and I had just finished my last session with the detox patients. As I was leaving, the CEO of that hospital spotted me and asked me to stop into his office. He realized I’d been burning the candle at both ends and knew better than I what was ahead of me. That evening, he explained the facts of life as an administrator.
He told me I needed to focus on the staff, paperwork, quality assurance indicators, marketing and finances. His real point, however, was that I would have to stop seeing patients. There simply wouldn’t be time. I could no longer be a therapist.
I knew what he said was true. I had a couple dozen employees counting on me to do my job be the administrator. Someone had to keep the wheels of the machine greased. But, when I got into my car in the hospital parking lot, I cried. I was sacrificing a therapist on the altar of business.
Today my interventions are on systems rather than individuals or families. Many of my clinical skills are still useful I listen, intuit, negotiate and confront. When I remember, I keep my heart open. My skin has gotten thicker and my spine’s stronger. I worry more and am touched less, but what I’ve gotten in return is the freedom to pursue my vision, constrained only by the bounds of gravity, economics and the creative application of will.
Last year, Rehab After Work treated more than a 1,000 individuals and families; nearly 18,000 individual, family or group counseling sessions were provided. As a private therapist, it would take me a lifetime to work with that many people. Last fall, I got a call from the White House inviting me to comment on their Health Reform Committee’s Mental Health/Chemical Dependency Plan. That was fun. Later this year, the feds will publish guidelines on how to provide intensive outpatient treatment for chemically dependent patients. Our fingerprints are all over the plan.
Years ago, when I finally got sober, I decided I wanted to have as big an impact on addiction as I possibly could. Initially, I thought I would do it by being a great therapist. Today, along with the staff of Rehab After Work, I have visions of opening rehabilitation programs from coast to coast. Together, we share a sense of mission and a belief that we are doing something special. Our program directors are often recruited by competitors, yet they don’t leave. To me, it feels we’ve got our own tight little club, maybe even a family. Thanks, Nick.
Robert F. Forman, Ph.D., is president of Recovery Management Services, which manages Rehab After Work and Mercy Haverford Hospital’s Detoxification Center. His office is on the ground floor of his house overlooking a creek, not a river. Address: 700 South Henderson Road #10, King of Prussia, PA 19406.