After a five-year hiatus, Richard Taite, the former owner of Cliffside Malibu, the substance abuse treatment center for the rich and famous, has gotten back in the game, buying up one drug abuse treatment business and opening another aimed at wealthy clientele.
Taite, who became an addict during his teen years and has spent decades struggling to stay sober, started Cliffside Malibu 20 years ago from scratch, built it into one of the most successful operations in the substance abuse treatment industry with more than 80 beds and then sold it in 2018 to a major industry player for a sum in the “very low nine figures.” Cliffside Malibu was one of the key pillars of Malibu’s drug treatment cottage industry, giving Malibu the reputation as the “Rehab Riviera.”
The Cliffside sale agreement with Irvine-based Discovery Behavioral Health contained a five-year noncompete clause, but as soon as that period ended, Taite bought the struggling Cheviot Hills-based based 1 Method Treatment Center last summer and launched the luxury Carrara Treatment Wellness and Spa brand in the hills above West Hollywood in January.
For Taite, these ventures are part of his long-term grand vision of opening substance abuse treatment centers to serve every income level. For now, he’s focused primarily on the slice of that market he knows best: building up luxury treatment centers.
“I know how to create a world-renowned brand with luxury treatment,” Taite said in between puffs on a cigar.
Treatment industry financial problems
But Taite, who is 57, may find his second go-around in the substance abuse treatment business more challenging. That’s because the financial landscape of the industry has completely changed.
Consolidation has driven down insurance reimbursement rates to less than half of what they were six or seven years ago, Taite said. Insurance payouts now cover barely a quarter of the treatment center room rates compared to about two-thirds when Taite left the business.
“Corporations came into the addiction field and started buying up mom and pop stores,” said Akikur Mohammad, a former treatment center operator who now consults to the industry. “In their place, they started building larger facilities with 50 to 60 beds in commercial areas – more like motels.”
These larger facilities and the deep-pocketed companies behind them have exercised their economies of scale and pricing power with insurance companies, driving down reimbursement rates for the rest of the industry.
Add to this a sharp rise in labor costs, especially since the pandemic hit. Caring for patients in the throes of addiction has always been a high-turnover business, but it intensified with the pandemic. That turnover, combined with sharp increases in the minimum wage, has translated into significant labor cost increases during the last six years, Mohammad said.
The spread of fentanyl and opioid addiction has made the situation worse. Because it’s so difficult to wean addicts off of fentanyl and opioids, the treatment costs are much higher than for alcohol or other drugs.
“But the insurance rate reimbursements remain the same, so those higher costs go directly to the bottom line,” Mohammad added.
Overall, Mohammad and Taite painted a bleak picture of the industry today.
“For the mom-and-pop operations serving the middle-class patients, the path to viability is increasingly hard to see,” Mohammad said. “Many sell out to the big corporations or shut down entirely.”
Firm statistics on the number of licensed substance abuse treatment centers across the nation are hard to come by, with estimates ranging from 10,000 to 20,000. Multiple sources agree the number has gone down between 2021 and last year, though they diverge on trends in prior years.
1 Method purchase
These cost pressures weighed heavily on the former operators of 1 Method, which had 24 beds spread across four residential facilities. (Under California law, substance abuse rehab facilities in residential areas are limited to six beds per facility.) 1 Method catered to people in middle-and upper-middle income brackets, with room rates averaging around $20,000 per month before insurance.
“I had no idea I was going to buy 1 Method,” Taite said. “But the guy who owned it was an acquaintance of mine: He said he was about to fail to make payroll and was looking at laying off employees. It was also difficult to transfer clients, especially those who had recovered to a certain point and not considered in need of care. They would simply have been put on the street or sent home.”
So Taite, who had plenty of cash on hand from the sale of Cliffside Malibu, bought 1 Method last August for about $1 million.
“I bought the place in one day with no due diligence at all – because I knew I had to act quickly,” he said.
Taite then reached out to many of the employees he had hired at Cliffside Malibu who were still there. Roughly two dozen came over within weeks to help Taite stabilize 1 Method.
Taite hired a chief executive with experience in the behavioral health industry, Candance Henderson, to manage 1 Method and other ventures he has been planning in March.
Carrara treatment center
Even before he bought 1 Method, Taite was laying the groundwork to open another luxury substance abuse treatment center. Taite said he knew that one way to avoid dealing with insurance reimbursement rate shortfalls plaguing the industry was to cater to ultra-high-net-worth individuals with the financial wherewithal to pay most of the cost out-of-pocket.
Last year, Taite bought two homes in the “bird streets” of the Hollywood Hills West neighborhood of Los Angeles, north of the Sunset Strip and just east of the Trousdale Estates neighborhood in Beverly Hills.
One of the homes had a spa in it; rather than tear it up, Taite decided to incorporate it into his new upscale treatment center. He hired an executive with the famous Ojai Valley Inn and Spa to set up and run a spa treatment operation inside the facility. He said it’s the first instance he’s aware of that combines addiction treatment with a spa.
Taite decided on the name Carrara after an Italian region that is home to marble used in famous sculptures like Michelangelo’s “David.”
Carrara Treatment Wellness and Spa opened on Jan. 1 with the two homes in the Hollywood Hills West neighborhood and one in Malibu. Carrara charges monthly room rates as high as $165,000. With the average treatment stay running for about 90 days, that can add up quickly.
But 18 beds represents a very small niche in a region that’s home to scores of billionaires and their families and many more celebrities and centimillionaires. Taite said he figures at least a dozen of those beds will be occupied at any given point in time. The beds are currently fully occupied with a wait list.
“I see Carrara as truly the gold standard of care” for treatment centers, Taite said.
As for dealing with the high relapse rates for opioid and fentanyl users, Taite says the comforts of the spa and other programming options should help.
“Having all these benefits improves the outcomes,” Taite said. “I learned that from Cliffside Malibu. If money is no object, wouldn’t you rather be in a place that isn’t substandard and doesn’t feel like a punishment?”
Looking ahead, Taite said he envisions opening up centers to treat military veterans and the homeless.
“But I know I have to have the most successful treatment center in the world so I can be taken seriously in these other efforts,” he said.
