Acadia Healthcare: Very Scary Findings From A 14-Month Investigation

Acadia Healthcare: Very Scary Findings From A 14-Month Investigation - Acadia Healthcare Co.
(NASDAQ:ACHC) | Seeking Alpha 1/1/19, 12'26 AM
Short Ideas | Healthcare
Acadia Healthcare: Very Scary Findings From A 14-Month Investigation

Nov. 16, 2018 8:57 AM ET4 comments | 3 Likes
by: Penn Little
Summary
Many patients and families are alleging various incidents of misconduct, which
include wrongful death, sexual assault, and abuse/neglect of patients, some of
whom are under 18.
Since mid-August 2015, insider holdings have dwindled from 30% to less than 1%.
Questionable accounting for goodwill and PPE depreciation expenses.
Company has a NEGATIVE tangible net worth.
Directional short thesis.
Editor's note: Seeking Alpha is proud to welcome Penn Little as a new contributor. It's
easy to become a Seeking Alpha contributor and earn money for your best investment
ideas. Active contributors also get free access to the SA PRO archive. Click here to find
out more »
Insider Trading Volume Since 2015. Source: MarketBeat
I was once a patient in two facilities that were later purchased by Acadia Healthcare
Company, Inc. (Nasdaq: ACHC), specifically Sierra Tucson (Oro Valley, AZ) in 2006 and
Bayside Marin (San Rafael, CA) in 2007. I found sobriety just over a decade ago, after
further treatment at the Hazelden Foundation and Prescott House. I have served in many
aspects of the oft-misunderstood, exploited, but also necessary field for over seven years.
https://seekingalpha.com/article/4222788-acadia-healthcare-scary-findings-14-month-investigation Page 1 of 28
Acadia Healthcare: Very Scary Findings From A 14-Month Investigation - Acadia Healthcare Co. (NASDAQ:ACHC) | Seeking Alpha 1/1/19, 12'26 AM
As a subject matter expert, these are my observations surrounding Acadia Healthcare.
I. The Beginning: A Legislative Triple-Threat
On October 3, 2008, President Bush signed the Mental Health Parity and Addiction Equity
Act into law. Prior to the act, insurers could require people to pay a greater share of the
cost associated with mental health and substance abuse. Insurers could also limit the
Mental Health (MH) and Substance Use Dependence (SUD) services offered in benefit
packages.
But after the act, insurers became required to treat MH/SUD services with parity, meaning
they have to provide the exact same coverage for MH/SUD services as they do for
medical and surgical benefits.
Another law, passed in 1997, had tried to achieve something similar. It was called the
National Mental Health Parity Act (MHPA). Though that law had wonderful intentions, it
was far too narrow; it included no provisions for substance use or dependency issues.
Additionally, the provisions it did have were woefully ineffective. Insurers instantly
discovered ways to circumvent it. All they had to do was limit the number of provider visits
or the number of days they would cover for mental health patients. They also increased
cost sharing through higher deductibles, co-pays, and out-of-pocket payments.
Seeing that the 1997 law had no effect on ensuring people could get the mental health
and substance use care they needed, and desperate to induce actual change, Senator
Ted Kennedy and his son, Patrick, were key in adding the Mental Health Parity and
Addiction Equity Act of 2008 (MHPAEA) as a rider to the Troubled Asset Relief Program
(TARP). It closed all of the loopholes insurers used to circumvent the prior Mental Health
Parity Act of 1997 (MHPA).
Three months after the MHPAEA went into effect, Obamacare was signed into law. Its
purpose was to ensure that all Americans had access to affordable health insurance –
health insurance that was now required by law to provide access to MH and SUD care on
par with traditional healthcare.
Combined, the two laws were meant to guarantee that all people suffering from addiction
and mental health disorders could get access to the care they needed. The two bills:
1. Required insurers to cover substance abuse treatment without exception – on an out-of-

network basis (Out-of-network, meaning "PPO Plans" or the type of revenue from which
most publicly traded companies or institutional dollars seek to derive their profit).
2. Barred companies from rejecting those with pre-existing conditions.
3. Allowed young people to stay on their parents' insurance until the age of 26.
While both acts were written with the clear intention of ensuring that people with MH and
SUD would receive adequate care, it was passed without clear economic foresight.
II. The MH/SUD Gold Rush

In effect, the three combined laws were a mandate for the $3 trillion insurance industry
to pay out unlimited reimbursements for a lifetime disease with no cost-effective
solution. Regulators had inadvertently created an environment ripe for investment.
Naturally, investment firms jumped on the opportunity. According to Crain's:
... there's been a flood of private-equity investment into the $35 billion-a-year
addiction treatment industry.
The best natural target was opioid addiction, with its high demand for substance abuse
treatment services. This epidemic in the United States exploded throughout the mid-
2010s, skyrocketing the number of Substance Use Disorder (SUD) centers. Many users
were young adults and children on their parents' insurance plans.
Most drug addicts are treated through Substance Use Disorder centers. The concept of
treating addiction is broadly defined. No clear federal definition exists for what constitutes
a SUD center, so some entrepreneurs started opening centers in strip malls, filling them
with beds, signing users up – often through unethical methods.
Unscrupulous operators resorted to extreme exploitation of minimal regulation via patient

brokering, or "junkie hunting," as it's often called, to increase revenues further.
Prosecutors say that treatment centers frequently – illegally – waive co-pays and
deductibles, telling patients and parents that insurance will cover everything. Or they will
rack up huge bills for patients, charging $4,000 for every unnecessary urine test.
According to The New York Times:
Starting in 2010, as opioid abuse evolved into a crisis and the Affordable Care Act
offered insurance to millions more young people, the cost of urinalysis tests soared.
It was soon common for clinics and labs to charge more than $4,000 per test, and to
test clients two or three times a week.
Earlier this year in California, Christopher Bathum, the owner of a facility, was convicted of
multiple sexual assaults of patients. Both he and his partner were convicted of financial
crimes as well. This is the embodiment of the operational and financial abuses that have
permeated this industry.
The low-interest rate environment made borrowing extremely cheap. The entire industry,
which was previously a cash-pay or a charitably-supported field filled with legitimate
actors, became a massive gold rush, according to Bloomberg News.
The heavy leverage lining the industry artificially inflated valuations beyond 30X EBITDA,
spurring many clinicians with a plethora of "modalities" to set up their own shops. Many
have been subjected to buyouts and the large checks that accompany them.
Instead of the traditional time-and-capital intensive method of building new (de novo)
facilities and adding beds, companies soon found that they could consolidate existing
facilities and capitalize on the fragmented nature of the industry.
Today, regulations have finally set in in some states; costs are cut so far that treatment
centers often have misleading or dangerous living conditions, and fail to provide
individuals with the treatment they desperately need.
Florida State Attorney Dave Aronberg said:
This is an entire industry that's been corrupted by easy money. Unscrupulous

actors have taken advantage of well-intended federal law, and a lack of any
good law at the state level, to profit off people at the lowest stages of their
lives.
But, as a profit measure, it worked. Absent sufficient regulation, the industry saw nearly
every publicly-listed behavioral healthcare provider’s stock soar from 2012-2015, as seen
below:
ACHC data by YCharts
Stock Price for ACHC (Time Range: Initial Public Offering - 11/13/18). Source: YCharts
III. From Six To Nearly Six Hundred

In 2005, Waud Capital Partners, founded by Chicago's Reeve B. Waud created a new
behavioral healthcare company called Acadia Healthcare. By 2010, they had opened or
acquired a total of six facilities.
Reeve Waud (left) with Governor Bruce Rauner (R-IL) (right). Source: Chicagosplash.com
Since the passage of the three new laws, they replaced their first CEO, Norman King
"Trey" Carter III, with Joey Jacobs, the former CEO of Psychiatric Solutions, Inc. Then,
nearly the entire management team that led PSI accompanied Jacobs to Acadia after PSI
was sold to Universal Health Services (Nasdaq: UHS).
In regards to Jacobs' tenure as CEO of PSI, himself and his team were subjected to
various allegations and litigation after the sale to UHS. A Ms. Alisha Rocinek, on behalf of
herself and various shareholders, sued Jacobs and the PSI Management in Federal
District Court,
for violations of Sections 14 and 20 of the Securities Exchange Act of 1934

(“Exchange Act”), and as a class action for breaches of fiduciary duties, unjust
enrichment and rescission in connection with the proposed sale of PSI to Universal
Health Services, Inc.
Source: Complaint in US District Court (Rocinek et al v. PSI, Filed 7/20/2010)
A separate claim, filed in 2009, names the same defendants. That case was filed by
counsel on behalf of the Garden City Employees Retirement System and other affected
PSI shareholders. The 2009 suit alleged:
(PSI) suffered from systematic quality of care and patient safety problems. The
deficiencies led to a failure by the Company to: protect patients from sexual abuse;
provide patient care in a safe environment; ensure its patients were adequately
monitored; ensure its facilities were adequate(ly) staffed, adequately train and
supervise its staff; and ensure incidents were properly reported to state and federal
authorities." (Page 2, Paragraph 3 of the complaint).
"Defendants are liable for: (1) making false statements; or (II) failing to disclose
adverse facts known to them about Psychiatric Solutions. Defendants' fraudulent
scheme and course of business that operated as a fraud or deceit on purchasers of
Psychiatric Solutions...
...common stock was a success, as it: (I) deceived the investing public regarding
Psychiatric Solutions prospects and business; (II) artificially inflated the price of
Psychiatric Solutions' common stock; (III) allowed certain of the defendants to reap
over $5.6 million in insider selling proceeds; and (iv) caused plaintiff and other
members of the Class to purchase Psychiatric Solutions common stock at inflated
prices." (Page 6, Paragraph 1 of the complaint.
Source: Complaint in US District Court (Garden City Employees Ret. System et al v.

PSI, Filed 9/21/2009)
On January 17, 2015, a settlement was announced in the Garden City Employees et al
case against PSI leadership. A press release on that date, issued by the plaintiff('s)
counsel, Robbins, Geller, Rudman, & Dowd LLP, stated that Jacobs and the PSI
leadership ended the dispute,
by making a substantial payment to investors harmed by the fraud perpetrated by

defendants.
ACHC data by YCharts
MH/SUD Peers vs. S&P 500 (Normalized). Source: YCharts
In 2015, American Addiction Centers ((NASDAQ:AAC)) was charged with murder in

California – the first-ever corporation to be charged with second-degree murder. When
Bleecker Street Research brought to light ACC’s over-billing practices for urine tests, that
was the fatal blow. Its stock plummeted on August 4, 2015, and the sector's public players
peaked, as seen above. The charges were dismissed.
In just under two weeks after Acadia's stock reached the highest peak it would ever
achieve, a few insiders unloaded $1 billion worth of stock onto the market. Insider
ownership has plummeted over the last three years, from 30% to now less than 2.5% (See
the ACHC Proxy Statement Extractions below, starting with 2012).
1 /1
Cap Table: 2012 ACHC Proxy Statement (pp. 15). Courtesy Acadia Healthcare
1 /1
Cap Table: 2013 ACHC Proxy Statement (pp. 27). Courtesy: Acadia Healthcare
1 /1
Cap Table: 2014 ACHC Proxy Statement (pp. 17). Courtesy Acadia Healthcare
1 /1
ACHC: Insider Holdings Decline Since 2015. Source: Y Charts
1 /1
1 /1
1 /1
Today, the company appears to be owned by (predominantly) passive dollars. Meanwhile,

Acadia has fought to continue its rapid growth.
Cash from operations growth has dried up. Acadia has been unable to raise any additional
funds, either through financing or through additional stock placement, since Q2 2016.
It has been saddled with $3.7 billion in debt, unable to pay it down since Q1 2017. While it
says that it is keeping debt high to make additional acquisitions, those acquisitions have
not happened. M&A activity in the sector leveled off and has declined from 60 deals in
2016 to 47 deals in 2017, according to The Braff Group. Acadia was involved in
approximately zero of those transactions.
Behavioral Healthcare M&A Deal Volume. Source: The Braff Group
VII. Apparent Morbid Reality

To combat these financial challenges, Acadia has purportedly tried:
Increasing the number of beds in existing facilities for additional revenue. That
works for a little while, but does not scale. Acadia's existing facilities now have as
many beds as they can fit in them.
Buying more companies. That has not worked at all. The last purchase Acadia tried
was in 2016 and it was forced to back out of it at the end of the year.
Cutting expenses to raise margins. That works for a while – margins peaked in 2017
at 28.1% – but does not scale either, per the admission of Joey Jacobs, their CEO, on
Q2 2018's shareholder call.
Defending what, ultimately, is a damaged reputation. Acadia gets most of its

business from referrals. However, an industry expert and former nurse who also holds
an MBA, says that Acadia has been losing referrals because:
...reputable clinicians and physicians don't want to work with Acadia.
Yet cost-cutting has persisted. When a behavioral healthcare company stops growing
its business, but revenue and profit margins continue to grow, that's a problem.
This is only attained by reducing the quality of care.
So, it was not surprising when a research site named 'Aurelius Research' launched a site
called 'Acadia Exposed' that has compiled relatively voluminous copies of pending
litigation aimed at facilities Acadia owns, as well as the parent company itself.
Take these seven facilities as a representative example of allegations consistent with

declining quality of care:
West Memphis, AR: Ascent Treatment & Outpatient Clinic. In June 2017, four
employees were charged with manslaughter after a 5-year-old boy died. The following
month, the child's family filed a wrongful death suit against Ascent (owned by Acadia), the
employees, and its corporate entities for $135 million. KARK reported that:
Ascent Children's Health Services CEO Dan Sullivan admits some employees didn't
follow correct protocol and were fired.
Coverage of this has been widespread, as seen below:
From KARK:
Boy, 5, Found Dead After Spending 8 Hours in Van Outside Children's Health Clinic: Cops
From KAIT:
Ascent Children's Health Services to close all facilities
Philadelphia, PA, Belmont Hospital. In a one-week period in 2017, two suicides

occurred at the facility. A lawsuit charges that the facility lacks sufficient and appropriately
trained staff. The State cited (Belmont-Combined-State-Inspections.pdf) the facility for lack
of staff and lack of facilities that would prevent suicides, among other things. When state
inspectors visited in November of 2017, they declared a state of imminent danger.
Fort Myers, FL, Park Royal Hospital. Last year, the location's top physician since 2012
resigned, citing the decline of the facility under Acadia. He said:
Ultimately, it became a matter of principle over passion, and the former was non-
negotiable for me.
The hospital risk physician told regulators that she had:
... walked into a hot mess of an organization,
According to a report from the Centers for Medicare and Medicaid Services. Federal
inspectors back them up, saying in a report (source) that the facility is:
... too short-staffed to properly supervise patients,
ignoring their complaints, and had poor quality control procedures in place. Sexual assault
against patients is alleged to have occurred as well.
New Baltimore, MI, Harbor Oaks Hospital. The facility has been accused of rampant
patient and staff abuse, and allegedly inflates staff to appropriate levels only when a visit
from the Joint Commission is expected. A month-long news investigation by WXYZ of
Detroit, MI, found:
... a pattern of assaults on staff dating back years, repeated allegations of physical
and sexual abuse involving patients.
Ada, OK, Rolling Hills Hospital. An alleged cover-up attempt at the hospital by not
reporting the deaths of patients to the facility's governing body. A lawsuit from one of the
victims, Shannon Archer, highlights the conditions of neglect. This patient was admitted
for alcoholism, but suffered permanent brain damage when, allegedly, a patient violently
grabbed her from behind, grasping her hair and viciously slammed her head into the
concrete floor. The other lawsuit, which involves an unnamed minor, alleges denial of
critical emergency medical care, as well as multiple sexual assaults against children.
According to the Archer complaint, there was no supervision or security present at the
time of the incident due to the understaffed personnel. I was made aware that the
Oklahoma Department of Human Services apparently ordered the removal of all ODHS
children from the facility.
Investigations by health inspectors from the Centers for Medicare and Medicaid Services
revealed over 50 pages of violations ranging from unqualified staff to infection control
deficiencies, patient rights, and maintenance issues. What we found most alarming were
the instances of restraint and seclusion violations where adolescents were left
unmonitored in seclusion rooms.
Lemont, IL, Timberline Knolls. According to the Acadia website, this facility is:
located on 43 tranquil acres in the suburbs of Chicago. Residential treatment at

Timberline Knolls includes a state-approved school for adolescents and 24-hour, 7
day per week medical care. Our intensive, holistic 6 treatment model results in a
depth of recovery that is transformational for residents, and fulfilling for our staff.
The women's substance abuse and eating disorder treatment facility is one for which
Waud’s company paid $90 million for in 2012. Two lawsuits have been filed against the
facility this year. One complaint alleges wrongful death due to the neglect of patient Grace
Cho. The other alleges sexual assault by Michael Jacksa, 40, a former counselor at the
facility. Another suit, from 2015, alleges child neglect.
Henderson, NV, Seven Hills Hospital. Multiple allegations of sexual assault of a patient
exists, including McCardle v Seven Hills/Acadia, in which a patient exposes himself to a
young woman.
According to a national survey, abuse in this industry by staff is much more common than
many would think; some of the data from 958 respondents in California is below:
% Characteristics
5% Patient was a minor at the time of the intimacies1
3% Patient married the therapist
32% Patient had experienced incest or other child sex abuse
10% Patient had experienced rape prior to intimacies with therapist
11% Patient required hospitalization considered to be at least partially a result of the intimacies
14% Patient attempted suicide
1% Patient committed suicide
17% Patient achieved complete recovery from any harmful effects of intimacies2
20% Patient seen pro bono or for reduced fee
12% Patient filed formal (e.g., licensing, malpractice) complaint
Source: https://kspope.com/sexiss/sex2.php
On February 28, 2018, The Attorney General's office was notified upon first discovery of
potentially harmful misconduct at Acadia. A second attempt to contact AG Sessions was
made on April 26, 2018. Attorney General Sessions has since resigned.
An attempt was made to notify Tom Graber of the Oklahoma Attorney General’s office in
July of 2018, hoping to implore them to investigate, as well as to gather commentary for
this account. No response was provided or has been since. In terms of at the federal level,
Oklahoma-based Special Agent Alan Carpenter of the FBI did respond to the original
inquiry, however, nothing has been addressed in Oklahoma, or nationally, to date.
He stated in a June 11, 2018 response email, "I have been looking for the appropriate
office to look into the allegations you have made regarding the healthcare industry. I
should know more later this week. I will advise when I have more information." Carpenter
didn’t respond further.
According to another friendly FBI source (reached via phone in July 2018), Special Agent
Tara Smith of Chicago, discussed the link between cost-cutting, potential fraud, and
patient harm, and said:
... it's just not something we do, and it's a challenge to connect the two.
Overall, the sexual assault allegations are eerily similar to the lawsuits from the
Jacobs et al. era at Psychiatric Solutions. A hospital, now owned by UHS, hasn’t appeared
to change much. Even this year, surfacing rape allegations at Houston’s Kingwood Pines
Hospital (previously a Psychiatric Solutions facility managed by Jacobs and this same
management team) points to the sparse revenue potential for providers across the
spectrum. While these occurrences are industry-wide, the combination of Acadia’s mere
size and potential for profit appear to position it in similitude with a brewing disaster.
VIII. Staff Sentiment

In a June 20, 2018, Glassdoor online review entitled "Used to Be Better, Now It's Just
About Acquiring as Much as Possible," one employee in the corporate office wrote the
following:
Pros:
People you work with; Corporate office is in a nice area.
Cons:
No time off; Little regard for employee’s happiness/overall mental health (ironic); No
flexibility; Extreme lack of communication company-wide; Unless promoted, raise is
2% max; Lack of ethics.
Advice to Management:
Treat employees better before every ounce of talent is gone and working for
competitors. Little time off, no office time flexibility, constant “urgency,” lack of
communication (from corporate down to the facility level – ESPECIALLY at the
facility level), and underpaying employees are the opposite of what this company
was built on. SLOW DOWN. The company cannot continue to acquire and grow
successfully when many departments are understaffed and employees are
suffering/completely maxed out on what they can do. Fix the multitude of issues with
the current facilities and get a solid foundation before trying to build higher.
A member of the direct care team at Acadia's flagship facility, Sierra Tucson (located in
Oro Valley, AZ), mentioned the following in another Glassdoor employment review entitled
"Short staffed to the point that patients are put in danger,"
I have been working at Acadia Healthcare full-time (More than a year).
Pros:
Beautiful vistas. *Some* good colleagues.
Cons:
Too few staff members to treat patients appropriately. As a result, Sierra Tucson has
been charged with several wrongful deaths. Working here will land you with people's
deaths on your conscience. The company rampantly and openly commits insurance
fraud. Staff is asked to gaslight patients who complain and rely on their illnesses to
disregard their complaints.
Advice to Management:
SHUT THIS PLACE DOWN BEFORE ANYONE ELSE IS KILLED.
IX. Other Concerns

Interest rates. With $3.7 billion in debt, Acadia is poorly positioned in a rising interest rate
climate. In the shareholder earnings call for Q2, Joey Jacobs said they were expecting
one more interest rate hike by the end of the year. However, one has already happened
since then – and another is expected that is not accounted for by Acadia. Then three more
in 2019. Jacobs said they have chosen not to change their loans to fixed-rate instruments
because they found that financially inviable for the company. This likely indicates that they
will be unable to weather the coming rate hikes.
Oversight. The American Addiction Centers incident led to increased oversight into the
industry – and increasing regulation. As more government dollars pour into behavioral
healthcare, government watchdogs are calling for the creation of a regulatory body to
investigate fraud in the SUD industry. Legislators from Florida are flabbergasted by this
issue, and, according to ABC News:
The problem of insurance fraud and patient abuse is so bad in the Sunshine State
that it's been nicknamed 'The Florida Shuffle,' where patients are lured here for
treatment, then go from one treatment center to another until their insurance benefits
run out.
Patient acceptance restrictions. According to an anonymous industry expert trained in

both business and medicine, "due to the number of suicides at some of their facilities,
Acadia's ability to accept certain patients has been restricted by state-level governments."
Medicare/Medicaid contract risk. In 2017, the majority of Acadia's US revenue came

from Medicaid and Medicare contracts.
Inability to Expand. At the same time that Acadia's debt burden is close to becoming
unserviceable, it keeps saying it will continue expansion.
The company expects to add more than 800 beds to current and new facilities in
2018.
But, it has added a grand total of 152 beds (out of more than 17,000 total) – and that
marginal growth has been off of deals struck in 2016.
A weak UK environment. 30% of Acadia’s revenue comes from the UK, but problems
exist, such as:
A weak exchange rate. At the end of Q2, Acadia dropped its estimate for the
exchange rate for Q3 from $1.35 to $1.30. It will likely have to drop it again for Q4.
Low census. Despite Jacobs' reassurance of an analyst that it has no problem filling
beds, Acadia has been unable to fill beds in the UK.
Shortages of staff. Jacobs noted:
The shortage of nursing staff in the UK is cause for alarm bells,
... according to the Royal College of Nursing. In the last two years, the number of nurse
vacancies has risen by 17%. More nurses are leaving the profession than joining, leaving
Acadia without sufficient staff to care for its UK patients.
Acadia Healthcare CEO Joey Jacobs. Source: Nashville Post
From the Q2 ACHC shareholder call. Joey Jacobs stated:
The company remains actively engaged with its acquisition pipeline and expects its
2018 acquisition...activity to be heavily skewed toward acute facilities in the United
States.
Yet Acadia has not made any purchases in the last two years, and they have begun to
champion joint venture de novo projects like the one with St. Thomas Hospital in
Nashville, for example.
Seasonality. Acadia struggles with severe seasonality in the summer months. A partial
reason is that poor people are inclined to seek free shelter in a behavioral healthcare
center when it is warm outside. An analyst asked Joey about that at the end of Q2:
Are you comfortable with your assumptions going into the summer months?”
Jacobs responded:
We've got our fingers crossed.
A damaged reputation. Acadia gets most of its business from referrals. However, an
expert in the industry says that Acadia has developed an industry-wide reputation for not
providing quality care, cutting costs, and cannibalizing their own programs in order to raise
profits. As a result, reputable clinicians are willing to refer to Acadia less and less.
X. Today's Situation
Acadia's books do not look good. Interest expense for the last half of the year is
expected to be around $95 million. Net cash provided by operating activities for the first
half of 2018 was $217 million. Again, this is assuming they'll collect all billed revenue.
Acadia is nearing a high-risk of default, and logically, would soon be unable to continue to
borrow for growth.
Acadia has $6 billion in long-term assets and $3.4 in long-term liabilities, yet when the
goodwill from purchases is removed from the books, the company's worth approaches $0.
There has been speculation of a private equity buyout of the company; however, this has
not been verified.
Most importantly, the "private equity offer" publicized in early October by Reuters was for
$38 a share – but the company was trading as high as $45 a share last week.
On November 1st, 2018, just a few days shy of the November 5th, 2018 earnings call for
Q3 2018, Director Reeve Waud, dumped more stock. This, the day after the NY Post
reported that Kohlberg Kravis Roberts and Co. Inc. (NYSE: KKR) was looking to acquire
Acadia. This is reminiscent of Q2 2018 earnings, when just days before a shy miss of
analyst estimates, Waud dumped stock as well. However, when they outperformed at Q4
2017, Waud dumped stock after the release of earnings in February.
In the two previous years, it has experienced a 20%+ drop after its Q3 earnings
announcement. This most recent quarter (Q3, 2018), they missed earnings by $.10. Some
notable issues stated in the conference call or in public filings were:
1. Acadia has experienced almost no bed growth in 2018.

2. Acadia will likely be forced to impair goodwill due to Brexit putting downward pressure
on Priory Group.
3. Acadia is 98% owned by institutions. If one of them sells, it will trigger a mad rush for
the door as they look for higher-growth opportunities (healthcare is experiencing
13.7% growth, while Acadia's has shrunk to 9.5%).
4. Acadia is experiencing severe interest rate and currency exchange headwinds.
5. Acadia has no apparent ability to raise profit margins any further.
6. Acadia is experiencing skyrocketing competition from legitimate firms.
7. Acadia has been unable to hire and retain professional personnel.
8. Acadia would suffer greatly from any changes in the regulatory environment.
9. If any of the above happens, it will likely cause Mizuho (which currently has a $60 price
target) and Wells Fargo to downgrade the stock as they have in the past, causing a
further sell-off. Astonishingly, in their time since becoming publicly traded, no bank has
ever issued a sell rating. Ever. All present ratings appear optimistic despite numerous
red flags.
ACHC 2018 Recommendations. Source: Marketwatch
Again, the leadership has, for the most part, cashed in.
Reeve Waud is $638 million richer solely from the sales of individually owned stock, but
still holds over 700,000 shares in various entities, according to Nasdaq. Waud also has a
new house, widely known as Maine's "largest mansion."
Waud was also the nominee of Governor Bruce Rauner, R-Ill., and presently chairs the
Illinois State Police Merit Board, which provides oversight, the approval of promotions, and
other major decisions for the state's highest law enforcement body.
Joey Jacobs has extracted about $78 million from the company thus far (not including his
compensation and bonus package). He recently acquired an ownership stake in the
Nashville Predators, according to The Tennessean.
With all of these facts considered, it is challenging to locate a path forward for Acadia
Healthcare Company, Inc. It's even harder to find an intrinsic value above $0.
Most importantly, after all of this, is anyone worried about the patients, their
pension, or more importantly, the many children in care, separated from their
families?
Lastly, contact was made with Acadia Healthcare and Waud Capital Partners via
telephone and email. Neither party has chosen to respond or provide any comment to the
substance brought forth herein. The various questions for Acadia surrounded the
accounting discrepancies, the insider stock sell-off, and the widespread alleged
misconduct.
----
***Sources for financial data found within the audited financial filings for Acadia Healthcare
Company, Inc., including:
SEC filings (10-K, 10-Q): 2014-18

ACHC press release on Q2 earnings from 2018
ACHC presentation Wells Fargo Healthcare Conference 9/2018
ACHC proxy statements
Disclosure: I/we have no positions in any stocks mentioned, but may initiate a short position in ACHC, UHS, AAC over
the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I
have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: All Relevant Litigation Discovered to Date Can Be Found at:
www.dropbox.com/...
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Acadia Healthcare: Very Scary Findings From A 14-Month Investigation - Acadia Healthcare Co. (NASDAQ:ACHC) - Seeking Alpha

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Acadia Healthcare: Very Scary Findings From A 14-Month Investigation - Acadia Healthcare Co. (NASDAQ:ACHC) - Seeking Alpha

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Acadia Healthcare: Very Scary Findings From A 14-Month Investigation - Acadia Healthcare Co.

(NASDAQ:ACHC) | Seeking Alpha 1/1/19, 12'26 AM

Short Ideas | Healthcare

Questionable accounting for goodwill and PPE depreciation expenses.

Company has a NEGATIVE tangible net worth.

Directional short thesis.

Insider Trading Volume Since 2015. Source: MarketBeat

As a subject matter expert, these are my observations surrounding Acadia Healthcare.

I. The Beginning: A Legislative Triple-Threat

1. Required insurers to cover substance abuse treatment without exception – on an out-of-

2. Barred companies from rejecting those with pre-existing conditions.

II. The MH/SUD Gold Rush

Naturally, investment firms jumped on the opportunity. According to Crain's:

Unscrupulous operators resorted to extreme exploitation of minimal regulation via patient

Florida State Attorney Dave Aronberg said:

This is an entire industry that's been corrupted by easy money. Unscrupulous

ACHC data by YCharts

III. From Six To Nearly Six Hundred

for violations of Sections 14 and 20 of the Securities Exchange Act of 1934

Source: Complaint in US District Court (Rocinek et al v. PSI, Filed 7/20/2010)

Source: Complaint in US District Court (Garden City Employees Ret. System et al v.

by making a substantial payment to investors harmed by the fraud perpetrated by

ACHC data by YCharts

MH/SUD Peers vs. S&P 500 (Normalized). Source: YCharts

In 2015, American Addiction Centers ((NASDAQ:AAC)) was charged with murder in

ACHC: Insider Holdings Decline Since 2015. Source: Y Charts

Today, the company appears to be owned by (predominantly) passive dollars. Meanwhile,

Behavioral Healthcare M&A Deal Volume. Source: The Braff Group

VII. Apparent Morbid Reality

Defending what, ultimately, is a damaged reputation. Acadia gets most of its

...reputable clinicians and physicians don't want to work with Acadia.

Take these seven facilities as a representative example of allegations consistent with

Coverage of this has been widespread, as seen below:

Ascent Children's Health Services to close all facilities

Philadelphia, PA, Belmont Hospital. In a one-week period in 2017, two suicides

The hospital risk physician told regulators that she had:

... walked into a hot mess of an organization,

... too short-staffed to properly supervise patients,

located on 43 tranquil acres in the suburbs of Chicago. Residential treatment at

5% Patient was a minor at the time of the intimacies1

3% Patient married the therapist

32% Patient had experienced incest or other child sex abuse

10% Patient had experienced rape prior to intimacies with therapist

14% Patient attempted suicide

1% Patient committed suicide

20% Patient seen pro bono or for reduced fee

12% Patient filed formal (e.g., licensing, malpractice) complaint

VIII. Staff Sentiment

People you work with; Corporate office is in a nice area.

I have been working at Acadia Healthcare full-time (More than a year).

Beautiful vistas. *Some* good colleagues.

SHUT THIS PLACE DOWN BEFORE ANYONE ELSE IS KILLED.

IX. Other Concerns

Patient acceptance restrictions. According to an anonymous industry expert trained in

Medicare/Medicaid contract risk. In 2017, the majority of Acadia's US revenue came

The shortage of nursing staff in the UK is cause for alarm bells,

Acadia Healthcare CEO Joey Jacobs. Source: Nashville Post

From the Q2 ACHC shareholder call. Joey Jacobs stated:

We've got our fingers crossed.

1. Acadia has experienced almost no bed growth in 2018.

ACHC 2018 Recommendations. Source: Marketwatch

SEC filings (10-K, 10-Q): 2014-18

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Beautiful vistas. Some good colleagues.