British Politician’s ‘Repeated Failure’ To Help Secluded Autistic People May Be U.S. Healthcare Company’s Lifeline
Matt Hancock said in 2019 that the NHS is ‘not for sale’ to the U.S. — However, recent reports suggest he may have already sold it…
Just last Wednesday, February 12th, U.K. media outlet iNews reported that “Health Secretary Matt Hancock is facing legal action over the ‘repeated failure’ to give people with learning difficulties and autism the appropriate accommodation.”
On November 9, 2019, after a year-and-a-half of recognizable public outrage, Hancock (who serves as Secretary of State for Health and Social Care) apologized and guaranteed in-depth investigations into prolonged seclusions of autistic children and adults. The focus of that particular public outrage was an 18-year-old autistic woman called “Bethany,” who was (at the time) in the custody of a U.S. company — Nashville, Tennessee, USA-based, and publicly traded, Acadia Healthcare Company Inc. (Nasdaq: ACHC).
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The verifiable mistreatment of patients, in many cases being categorized as “cash cows,” is the practice that prompted one journalist to call Hancock out on live television, forcing action. She also reported that Acadia admitted to “getting (Bethany’s) care wrong.”
Hancock kept his promise to free Bethany. Now, British watchdogs are saying ‘time is up’ and threatening to pursue a mandamus which would expedite the liberation of this population of roughly 2,000 human beings. This, the same population that was labeled victims of human rights violations at the hands of the National Health Service (“NHS”) by a Parliamentary Joint Committee in a November 1, 2019 report.
Acadia’s U.K. facilities represent 35-percent of their total revenues, of which 90.6-percent comes directly from the NHS which is also the United Kingdom’s “single-payer” healthcare system.
In contravention of his claim (via twitter, seen below) that the NHS was “not for sale” to his “American friends,” it appears the transaction has already taken place. Now, both Hancock, and Acadia are in a much more precarious situation.
Last May, under the apparent guise of a “strategic alternative,” Acadia leadership expressed wishes to sell the entirety of their U.K. operation, known locally (for the most part) as The Priory Group.
Little to no substantiated reports of actual buyers have surfaced.
( From 2011–2015, Substance-use disorder revenue and “zero interest rate policy” (ZIRP)’, helped Acadia transform from a small provider (owning roughly a dozen hospitals) into a global conglomerate of 580-plus facilities. That revenue has since subsided.)
Under the U.K. mental health laws, Assessment and Treatment Units (ATUs) are intended to stabilize and assess high-risk patients and usually sectioned for a maximum of 12-weeks. However, any patient’s diagnosis can result in extended and sometimes extreme outcomes. ATU reimbursements, netting U.S. companies up to approximately USD 20,000.00 per week, are exceptionally lucrative. So lucrative, reports say they often lead to deliberate misclassifications and misdiagnosis.’
According to a Daily Mail article, “Incredibly, the average stay for these patients at ATUs was five-and-a-half years.” The average cost for Isabelle Garnett’s son ‘Matthew’s case’ was 13,000 GBP-per week with price-levels ranging from 416,000 GBP to 83,000 GBP annually when moved to a private home. According to “Jeremy,” NHS has been paying upwards of 750,000 GBP-per years as cash-strapped local municipalities offload patients to inpatient settings where NHS foots the bill.
“Jeremy and Bethany”
Arguably, the most conspicuous of those many uncountable stories is either that of “Jeremy” and his daughter, “Bethany,” or the horror depicted in an undercover BBC report from May 2019 at UHS’s Whorlton Hall (also owned by a U.S. Company: Universal Health Services (Nasdaq: UHS). While the latter speaks for itself, Jeremy began an advocacy campaign by taking to Twitter and has made tremendous waves.
In January, I traveled to Birmingham, England, to interview Jeremy for the second time. He claims his daughter experienced nearly three years in total seclusion, the majority of which transpired at St. Andrew’s, a private hospital contracted with the NHS. The tail-end of solitude for Bethany, however, occurred in custody of Acadia Healthcare. Of course, it was also Acadia that terminated their previous CEO two days after the first signs of the fallout following Jeremy’s testimony to Parliament in December 2018.
In a statement geared toward Acadia’s director Reeve Waud and CEO Debra Osteen, Beth’s scorned father said:
“Use some of your horrifically gained profits and go out and buy yourself some humanity.”
Like Bethany, thousands of other parents and guardians have reported the seclusion of their children as well. It’s been shown that a majority of extreme cases, however, don’t span much further back than five years. This is about the same time when both UHS and Acadia Healthcare entered the market. UHS purchased Cygnet for £200m in 2014 and began to grow their footprint from there. Acadia, on the other hand, came in stealthily, taking on enormous new debt to fund a $2 billion (£1.15 billion) takeover of The Priory Group in 2016.
Profits Over Patients
At the same time Acadia bought The Priory Group, their insiders were dumping stock, a process that began in August 2015. That was the same month another U.S. healthcare provider, AAC Holdings (delisted in 2019 from NYSE), was indicted for murder. Hindsight suggests the murder indictment, which didn’t result in a conviction, was the black swan event that exposed significant fraud and abuse stemming from United States legislation passed in 2008 that required insurers to pay for these disorders; therefore, many treatments are unproven and costly. Nonetheless, American insurers and the government had to give mental health conditions the same level of financial backing as they would, say, to a patient needing treatment for a broken leg. This invited fraud — and lots of it. In the case of AAC holdings, it was revealed that much of their value was derived from overbilling for urine tests, thus collapsing company value.
Acadia Seeks No Redemption
In the U.S., Acadia Healthcare has yet to publicly address claims of insider trading or a missing teacher/mom-of-two from their flagship center. They’ve yet to acknowledge allegations of sexual assaults of children and vulnerable adults. However, in a CPS report from a Detroit facility, site-level staff told officials that sex between two 14-year-olds in their care was “OK because it was consensual sex.” Yes…that happened (see below).
In early 2019, a former officer of a U.S. acute psychiatric hospital-owned by Acadia Healthcare came forward. The source alleged that undocumented immigrant children sectioned into one facility had been secluded for up to six months with no school — costing state taxpayers $650-per day.
As for the stock dumping, the Acadia insiders (i.e., directors, officers, and board members) dumped about £770 million (around USD 1 billion) in less than a week in August of 2015 and continued to do so even while negotiating the Priory deal. By 2018, they had dumped it from 30% down to less than 2%. Insiders continue to sell out of their shares into 2020.
Big banks that also have significant stakes in Acadia’s credit obligations quickly bought it all (at slightly lower prices). To their credit, a default with 3,000 children in custody isn’t a good idea financially, or morally — and this is a concern for Acadia, as evidenced by:
- The banking sector’s investment in the roughly $3 billion in debt
- The fact that interest rates are either rising or flat
- Acadia’s minimal cash-on-hand (hovering around $40-$80 million in recent years)
- Their accounts receivable being arguably uncollectible, as it compares to firms outside healthcare, yet just as easily levered.
Acadia’s Lowers FY 2019 Guidance
Acadia’s Q3 2019 earnings report missed both EPS ($0.52 vs. $0.56-per share), and revenue ($777.25 vs. $790.39 million) estimates. Acadia’s U.S. Facilities were comprised of 223 behavioral healthcare facilities and 9,300 beds, generating $509.4 million in Q3 revenues. Acadia’s U.K. Facilities included 365 behavioral healthcare facilities and 8,700 beds making $267.9 million in revenues, a drop from $272.3 million YOY revenues for the same quarter. U.K. revenues represent 35-percent of total revenues, of which 90.6-percent comes from a single-payer, the NHS. Despite a 2.7-percent rate increase from NHS in Q3 2019 and purported “same facility” revenue growth of 4-percent, the negative 1.1-percent decrease inpatient days and a negative 1.5-percent drop in admissions resulted in a YOY decline in U.K. revenues of negative 1.1-percent for three-months and 1.9-percent drop for nine-months ending September 30, 2019. The U.K. revenue trajectory is down. Acadia issued downside guidance for FY 2019 with EPS of $2.00–2.05, excluding non-recurring items, versus $2.15 S&P Capital IQ Consensus and FY19 revenues of $3.100–3.125 billion versus $3.14 billion S&P Capital IQ Consensus. They blamed the shortfall on continued impact from hurricanes and California wildfires resulting in the temporary closures of five facilities accounting for $9-million in revenue shortfall with estimated a total revenue impact of $15 million. The more significant threat is what transpired in the final months of 2019.
Improving Shareholder Value Through Amputation?
On the Q3 2019 earnings conference call, CEO Debra Osteen confirmed the Acadia’s intent to “explore the sale of the entirety of the U.K. business” and expects to “solicit bids for the U.K. business early next year” noting the Company will engage after the December U.K. elections. David Duckworth again stressed on the conference call. “Our goal is to look at a sale of the entirety of the U.K. operations.”. What the analysts didn’t ask is why they are so intent on selling the “entirety” of the U.K. business? The generic answer is to improve shareholder value, but how does offloading over 50-percent of total facilities and beds, which account for 35-percent of total revenues “improve” shareholder value? This sounds more like an amputation than a strategy. Or perhaps, the U.K. operations is a ticking time bomb where amputation is the only measure to keep the contagion from spreading to U.S. operations.
The systemic poison has been so infected that there have been no takers in almost a year.
Hancock’s Forced-Hand May Trigger the Time Bomb
Jeremy reports that the NHS is looking to find more suitable placements for this population, and his daughter has set a precedent for a mass-liberation which would likely end all ATU revenue for Acadia. While it’s unclear how much revenue ATUs generate for Acadia, the gruesome practice and inappropriate admissions do speak volumes.
All this aside, however, a sale of the U.K. business alone will still result in a lower valuation for Acadia shares. The speculation of a deal backed by a buoyant stock market is what is holding up share prices.
That would also leave Acadia stranded with solely the very questionable stateside revenue they hoped to offset by heading to the U.K. in the first place.
Four years later, the landscape is much worse — embodied by fines, reimbursement adjustments, forced shutdowns, billing investigations, lawsuits, and regulatory changes, which are all are detrimental to finding a top-line.
Thus, for investors wanting to see how things will shake out for Acadia, they should monitor the shakedown of Hancock very closely! Acadia’s entire fate may lie in the forced hand of Hancock who has been caught playing the role of the pot….“calling the kettle ‘black.’”
(Acadia’s 4th Quarter 2019 earnings release is scheduled for February 27, 2020. Their Chairman, Reeve Waud, and CEO Debra Osteen, both failed to respond requests for comment.)