REBECCA KUZINS

Staff Reporter

As a high school student in Redondo Beach, Jamie fell in with a bad crowd and became a heavy drug user. She started skipping school, dropped out of sports and ran away from home. Her parents enrolled her in a recovery program, but the 15-year-old ran away from there, too.

In short, Jamie was bad news, at least to conventional society.

But to Elliott Sainer, she was great news and so are the growing legions of similarly troubled adolescents nationwide.

Sainer is president and chief executive of Aspen Youth Services, a Cerritos-based company that operates special for-profit education day schools, residential treatment facilities, outdoor intervention programs and other services that aim to return “at-risk youth” to a healthier lifestyle.

The term “at-risk youth” applies to a broad range of adolescents who are having trouble with school, their parents or the law. Most of them are emotionally disturbed, some are learning disabled, others have been released from juvenile correctional institutions.

Treating such young people traditionally has been the domain of government agencies and non-profits. But to the chagrin of at least some educators, the market is attracting a growing number of for-profit companies, like Aspen.

“The private sector is filling a void for services that the public sector can’t reach,” said Sainer. “We can move more quickly, and with more flexibility, than government agencies.”

Roughly 10,000 at-risk youth were enrolled in private-pay therapeutic programs in 1998, generating about $300 million in revenues from some 200 programs, according to the Independent Educational Consultants Association. Just five years ago, the association estimates, no more than 1,000 kids were enrolled in such programs.

But even that tenfold increase over five years is nothing compared with the market’s potential.

James Janesky, an analyst at NationsBanc Montgomery Securities, estimates there is a possible $20 billion market for various services that cater to the needs of at-risk youth. These services, he explained, include job corps programs, foster homes, correctional institutions and a range of other services.

Janesky figures less than 10 percent of the market has been tapped. “There are more youths now than there have been since the Baby Boom,” he said. And even though overall crime is down, at-risk youth “are committing more violent crimes at a younger age.”

Historically, youth service agencies have received the lion’s share of their funding from government agencies. Aspen, by comparison, gets only 50 percent from the government (20 percent from school districts, including Los Angeles Unified School District, and 30 percent from government entities, including L.A. County).

The other 50 percent comes from parents and other private parties, including insurers, who pay an average tuition of $4,000 per month to send their children to Aspen’s therapeutic boarding schools, or $6,600 for the outdoor wilderness programs.

Aspen, a privately held company, generated revenues of about $40 million in 1998. Sainer declined to reveal net income figures, except to say, “we’ve been profitable.”

The industry’s growth potential has not escaped the notice of venture capitalists. Aspen was the largest L.A.-area recipient of venture capital in 1998, having received $22.5 million from New York-based Sprout Group and Seattle-based Frazier & Co.

“Aspen has a terrific platform, with terrific services for a market that’s both growing and underserved,” said Nader Naini, general partner at Frazier. “We looked at similar companies. Aspen’s quality and outcomes were head and shoulders above the others.”

But data about the outcomes of the young people enrolled in these programs remain sketchy.

Sainer said Aspen conducts parent satisfaction surveys and compiles statistics to determine how many children have committed repeat offenses, and how many substance abusers require additional hospitalization after having attended Aspen’s programs.

Naini said the data show Aspen has achieved positive results, but he did not disclose specific numbers. He also acknowledged that the at-risk services business is “still a fairly immature market. Aspen is trying to put in an infrastructure to track outcomes.”

Jamie, the troubled Redondo Beach teenager, has been one of the success stories.

Now 22, she is living in Florida and earning a bachelor’s degree in business. She credits her turnaround to the Aspen Achievement Academy, an outdoor treatment program in which she and seven other kids spent seven weeks learning to make a fire, pitch a tent and perform other survival skills.

“For me, it was an incredible experience,” said Jamie. “I’m very outgoing and sports-minded. To sit in a recovery center is not for me. But to be outside hiking, meeting new people and learning new things was wonderful.”

Treating “at-risk youth” like Jamie has been a role traditionally filled by public schools, other publicly funded institutions and non-profit community agencies. But many such entities are under budgetary constraints, so the private sector has been stepping in to fill the void a trend that some educators find troubling.

“I have a strong concern that institutions for at-risk youth are growing as rapidly as they are,” said Katherine Kendall, a Beverly Hills-based educational consultant. “These programs are more often interested in marketing their products than taking care of their charges. The idea of such companies going public makes this concern even more evident.”

Several of Aspen’s competitors have gone public, including Children’s Comprehensive Services, Youth Services International Inc. and Res-Care Inc. Sainer said Aspen may go public in the future, but in the near term he plans to keep the company private while pursuing an aggressive acquisition strategy.

Last year, Aspen purchased the Rossier School in Orange County and an independent living program in Oregon. Sainer plans to make similar acquisitions this year, with additional access to venture capital from Frazier and Sprout, enabling the company to continue the 35 percent to 40 percent annual growth it has experienced over the past three years.

Sainer said he expects the two venture capital firms which together acquired a 70 percent ownership interest in Aspen in exchange for their funding “to write more checks” in the future.

Kendall asserted that for-profit programs like Aspen are growing because “parents are desperate; they are scared witless about their children. They don’t know where to turn. Parents are receptive to someone who comes in and says ‘We’ll fix the problem for you.’ But it’s misleading to say that after only three or four or five weeks everything will be all right.”

Kendall said she no longer refers her clients to Aspen’s crisis intervention services because, in her opinion, the company does not provide appropriate family counseling, particularly when students complete some of the shorter-course programs, such as Aspen Achievement Academy.

Sainer acknowledged that Aspen could “do a better job” of providing follow-up treatment for students discharged from its programs. Aspen typically refers discharged students to a therapist or other mental health professional in their communities. But students come to Aspen’s programs from all over the country, which can make it tough to find referrals for some of them.

Sainer refuted the criticism that Aspen’s programs are more concerned with bottom-line profits than helping troubled students. He said the major difference between for-profit youth services and non-profit agencies is that Aspen pays taxes, while non-profits do not. “If we don’t do a quality job, then we won’t stay in business,” he said. “If a for-profit or a non-profit has quality programs, the ownership structure is rather irrelevant.”

Several public school districts, including the Los Angeles Unified School District, contract with Aspen to educate children who require special assistance. Aspen’s day schools conduct smaller classes than those at many public schools, enabling students to receive more personalized classroom instruction.

“Students benefit from our smaller classes,” said Sainer.

Sainer, a former hospital administrator, decided to form a youth services company about three years ago. Back then, he was president of College Health Enterprises, a Cerritos-based operator of at-risk youth services and mental health hospitals. In 1996, Sainer noted that College Health was treating a growing number of at-risk youth at Aspen Achievement Academy and other programs.

“We realized the at-risk youth division was driving the success of this company. We felt it was time to let it go on its own,” he said.