Why Rehabs Struggle to Grow and 7 Tips for Success

Last updated on November 4th, 2019

There is an old adage in recovery: the two things that alcoholics don’t like are change, and when things stay the same.

Our industry is undergoing an extraordinary transformation related to changes in payer coverage and mandates and a “most-favored-nation” status that is resulting in near-feverish merger and acquisition activity. Recently, several centers have been acquired at double-digit EBIDTA multiples and many rehab owners are asking themselves how they can best position themselves for a successful deal. And of course, the answer rests in their current health combined with their potential for growth.

Attractive targets are generally accredited, and have a high quality of earnings and several years of audited financials demonstrating robust margins.-Dr. Omar Manejwala

Owners generally recognize that attractive growth usually involves a core business that is adding patients, a pipeline that includes multiple avenues of growth (adjacencies), and a skilled and engaged management team. Attractive targets are generally accredited, and have a high quality of earnings and several years of audited financials demonstrating robust margins. But even centers that have demonstrated strong financial performance may not be able to sustain that growth in the face of barriers. Understanding and addressing barriers to growth, and developing a resilient growth plan is key to long term success.

Barriers to Growth

Of course, many centers have grown dramatically, yet others struggle to grow. My experience is that the problem isn’t always access to resources. In fact, there are numerous barriers that, if not addressed, can limit the long term potential for addiction treatment programs. I mention a few of those here, and propose a few key principles that can help reposition centers to take advantage of the extraordinary opportunities for growth that exist in the current climate.

A few of the many barriers to growth that rehabs face include:

  • Internal dynamics and culture that are similar to the alcoholic home
  • Short cycle planning process that is more reactive to market forces than proactive/innovative
  • Failure to strategically analyze and take advantage of low hurdle opportunities across the value chain
  • Missed adjacent opportunities (e.g. pure behavioral health, eating disorders, non-chemical, family, virtual service delivery)
  • Failure to address other cultural/philosophical barriers (e.g. buprenorphine, abstinence)
  • Inability to align interests with stakeholders (e.g. missed opportunities for shared value creation with payers)
  • Absent disciplined process for product development and expansion
  • Over attachment to legacy issues and historically popular methods for treatment

I recently reviewed the mission and vision of a handful of addiction treatment programs and found that, in general, these have little connection to the organizations’ current or planned projects menu. Strategic planning, which everyone says they do, is rarely truly strategic. This planning process, for example, often misses the key issues of:

  • Visibility of market or other external forces that plans don’t cover
  • Management processes that are defined and executed in a manner that teaches and controls operations
  • Staff and stakeholder engagement around a vision and a plan to get there
  • Leadership modeling of behaviors that they expect others to emulate
  • Over focus on operations, today’s issues, and non-value organizational noise

What is Needed for Growth?

Driving growth in the face of these barriers requires commitment to a disciplined method of planning, discovery, and stakeholder engagement, followed by a structured approach to execution. Accreditation is valuable, but does not itself ensure growth. Organizations that seek to develop a reliable level of planning and management must have:

  • Clarity over their stakeholders; not just clients, not just staff, not just leadership, not just payers
  • Separate definitions of how those stakeholders view success and how to rationalize those views of success
  • Objective views of problems not just in the current environment but also in the context of how stakeholder needs can be met
  • The disciplined practice of grouping problems for affinity to reliably expose problems that might otherwise be invisible
  • Activity-based measures and a process to update results-based measures
  • A method for prioritizing investments of scarce resources in the context of a plan that looks out eighteen months to a few years
  • An action plan that guides near term work and informs longer terms possibilities

Typical objections are that “the process is too overwhelming,” or “our operation is too small,” or “we have so many fires burning that there is just not time to make this happen.” These are commonplace but also untrue, and will serve to derail growth efforts. Even after committing to a growth protocol, many questions remain that will need answers, including: “As an executive, what will I do differently?”
“How can I get my staff to change?” and “How will I know I am on the right path?”

The trap of blaming people rather than process is seductive but very frequently misplaced.-Dr. Omar Manejwala

The trap of blaming people rather than process is seductive but very frequently misplaced. Organizations that successfully grow target their planning and management processes, breaking them into digestible chunks, and rebuild them and the business in a way that is progressive and resilient. The payoff is a growth plan that offers the best chance of success.

Sustained growth is neither easy nor automatic; strategic growth planning is a process that should be well defined and continually executed, and will consume essential energy from your leadership team.

The addiction treatment climate is poised for dramatic growth, but centers that seek to tap into that growth will need to shift if they hope to participate.

4 minute read 

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