Acadia Healthcare: Destructive Greed

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We are short Acadia Healthcare (NASDAQ: ACHC) because the company has concealed widespread patient abuse and neglect that results from pervasive understaffing at its facilities. At Acadia, cutting staffing costs to the bone is the “secret sauce” used by management to inflate short term profits. Acadia’s existence makes the world a worse place because its business model depends on acquiring new facilities and then degrading care, a losing proposition that victimizes patients. We believe the fundamental problem for investors is that Acadia’s slash and burn approach to behavioral healthcare is inherently unsustainable and increasingly at risk of unraveling.

CEO Joey Jacobs and his management team first used this recipe at Psychiatric Solutions (PSI) a decade ago, where investors sued for fraud alleging that Jacobs had “downplayed the alarming incidents of abuse, neglect, and even death” at company facilities, ultimately winning a $65 million settlement. After selling PSI to competitor UHS in 2010 amidst regulatory investigations, Jacobs reassembled his PSI executive team at Acadia to replicate this approach.  Once again, we believe Jacobs has misrepresented the true nature of his company to investors.

Over several months, we gathered and reviewed thousands of pages of public documents including over 600 state and federal inspection reports as well as court records, media reports, lawsuits, and police records. We found that numerous patients, including children and teenagers, have died due to alleged negligence or malpractice at Acadia facilities. We found recurring reports of sexual abuse and physical assaults on vulnerable patients that have allegedly been perpetrated by Acadia employees or unmonitored patients.  We found repeated instances of patient neglect or deficient care linked directly to staffing problems at Acadia facilities.  We found a pattern of whistleblower allegations made by former employees who say Acadia retaliated against them after they reported fraud or misconduct.

Acadia’s undisclosed problems are not isolated to just a few bad facilities or a handful of rogue employees. We found indications of understaffing or deficient care at over 75 Acadia facilities in 24 states. Not only did we uncover problems at the majority of Acadia’s U.S. inpatient hospitals, which in aggregate generate 43% of the company’s U.S. revenue, but we also flagged significant issues within Acadia’s national network of outpatient addiction facilities. We have posted extensive source documents at, where we will individually profile 30 of Acadia’s most problematic facilities in a series of additional releases. Some of these facilities are also reportedly under government investigation, have received patient referral holds, or are being permanently closed.

Acadia’s true business model is premised on borrowing billions of dollars to acquire behavioral health facilities, then wringing out profits by cutting staffing expenditures while increasing beds. Underspending on staffing temporarily juices profits, because it’s the company’s largest expense, but it leads to chaos, violence, and deficient care since many patients are vulnerable or dangerous and need substantial direct attention. That’s why government inspections have repeatedly attributed patient death and neglect at Acadia facilities to problems with both the quantity and quality of staff.

Up until now, Acadia was able to conceal the extent of its problems because most investors hadn’t connected the dots between the vast number of disparate public documents and local news reports that repeatedly detail deaths and assaults at problematic Acadia facilities across the country.  Also, many of Acadia’s victims are young, disabled, or suffer from serious disorders that makes it difficult for them to sue the company or publicize what happened to them. Now that the truth has emerged, we anticipate that Jacobs will attempt to falsely depict these problems as isolated and sensationalized or the product of past issues or difficult patients – this is exactly what he tried to do after journalists exposed similar problems at PSI.

The truth coming out hurts Acadia because it contradicts Jacob’s claims and leads to increased public scrutiny.  The stock price of competitor American Addiction Centers has lost nearly 75% of its value since a short seller reported that the company was covering up patient deaths. Former employees, including that company’s President, were criminally indicted by the State of California for second degree murder in 2015 for the death of a patient (the murder charge was later dismissed). At Acadia, not only are there undisclosed criminal indictments and convictions of former employees for the death or assault of patients, but we found allegations that Acadia has:

  • Destroyed evidence
  • Falsified documents
  • Duped regulators during audits
  • Covered up incidents of patient abuse
  • Submitted fictitious billings to the government
  • Failed to disclose regulatory investigations involving certain facilities
  • Retaliated against multiple whistleblowers

As undisclosed problems have mounted, Acadia’s four top officers dumped over $40 million worth of stock last year—with Jacobs divesting half of his stake and later purchasing a portion of the Nashville Predators professional hockey team.  Acadia’s top five officers have received more than $63 million in compensation over the past three fiscal years under the watch of a Compensation Chairman, Wade Miquelon, who was charged by the SEC last month for “misleading investors” during his tenure as Walgreens CFO.

We believe Acadia’s profits are largely fleeting. History demonstrates that roll-up business models like Acadia unravel when the underlying financial engineering driving the reported financials loses momentum. This is precisely what we see starting to happen. Because Acadia’s costs have already been cut to the bone, the company has exhausted its primary means of driving profits from existing facilities.  Acadia has missed earnings estimates two of the past four quarters and same facility revenue growth is slowing while facility expenses have started to increase. We believe staffing expenses are likely to increase significantly as scrutiny from the public and regulators intensifies because Acadia will face increased pressure to improve patient care. But Acadia has over $3.2 Billion in debt it needs to service, which leaves the company little room to weather increased expenses or reduced revenues.  We therefore see significant downside potential in Acadia shares.

A video presentation on Acadia Healthcare can be found here.

Systemic Patient Abuse, Neglect, and Understaffing Infects Acadia Facilities Across the Country.

Acadia investors have been led to believe the company is isolated from the fraud and patient care scandals that have historically plagued other publicly traded behavioral health companies such as Psychiatric Solutions (PSI), Universal Health Services (UHS), and American Addiction Centers (AAC).  CEO Joey Jacobs has publicly claimed that “everybody wants to be Acadia”, while the sell-side, for example, has touted that “claims about understaffing typically are focused on ACHC’s competitors” and “fraud, abuse in behavioral industry mainly limited to the addiction segment, where ACHC has a small presence”. But this narrative is simply false.

Because staffing is Acadia’s single largest expense, currently representing roughly 53% of total revenues, we believe that Jacobs and his team have inflated short-term reported profits by cutting staffing expenses at Acadia facilities to unsafe levels.  Yet having appropriate staffing, in terms of both quantity and quality of people, is critical because some patients are dangerous to themselves and others, requiring intense supervision and precise administration of treatment. A senior industry executive with over 20 years of experience told us that “the way to think about it is that if you cut staffing or hire the wrong people, you’re more likely to have an adverse event”. This is exactly why we believe underspending on staffing makes it so difficult for many Acadia facilities to properly supervise and protect vulnerable patients, much less treat them effectively.

The nexus between understaffing and deficient patient care at Acadia is demonstrated by our analysis of Centers for Medicare & Medicaid Services (“CMS”) inspection reports. Although Acadia operates 209 behavioral healthcare facilities nationwide, 43% of its US revenue (over $775 million) comes from acute inpatient facilities. CMS typically inspects hospitals at least every four years but will conduct more frequent inspections in the event of complaints or problems. We located CMS inspection reports for 31 of the 40 US hospitals listed on Acadia’s website. Federal inspectors uncovered staffing deficiencies at 28 of the 31 Acadia hospitals we reviewed, including repeated violations for not having enough nurses or qualified practitioners on hand.  Of the 28 hospitals that had staffing deficiencies, 25 were also cited by inspectors for having deficiencies related to patient safety or care, including violations involving patient deaths, suicides, elopements (escapes), improper or erroneous administration of medications, improper use of restraints, and physical or sexual assaults.  Inspectors also found managerial deficiencies at 27 of the 31 facilities we reviewed, which includes failures to report incidents to law enforcement or even investigate patient abuse allegations, and failures to provide proper oversight or follow or establish appropriate patient safety protocols.

Our analysis indicates that Acadia’s hospitals are also measurably worse than its publicly traded competitor UHS. We compared the results of 70 CMS inspection reports of Acadia facilities from 2015-2017 to 153 CMS inspection reports we found for 58 different UHS behavioral hospitals over the same time period.  The Acadia facilities averaged 4.8 violations per inspection, 60% higher than the 3 violations per inspection averaged by the UHS facilities. Our review found that Acadia facilities also received more violations per inspection involving patient safety or care deficiencies (double) and staffing problems (quadruple).  We consider this performance especially poor since some UHS facilities have well known problems that have attracted significant media scrutiny as well as multiple criminal and civil government investigations.

Source: Internal analysis of CMS inspection data.

The conditions inside Acadia’s facilities claim real victims. Examples of undisclosed incidents include:

Note: This report references numerous lawsuits, regulatory documents, and criminal proceedings. You should assume that Acadia or the referenced defendants deny all allegations. Some of the referenced lawsuits have been settled, dismissed, or removed.

  • A five-year-old boy was killed in June 2017 at Acadia’s Ascent Children’s, a chain of youth facilities in Arkansas. Staffers left the boy inside a hot van with a disabled safety alarm, resulting in felony manslaughter indictments of four former Acadia employees. This month, the facility abruptly announced it would permanently close all of its seven facilities. State officials had launched an additional investigation in December into incidents of alleged child maltreatment at the center.
  • Police are investigating two recent patient deaths and a sexual assault at Acadia’s Park Royal Hospital in Florida, according to a February 2018 media report. Federal inspectors have flagged patient safety issues at the hospital, which has a pattern of patient abuse that has already seen one former Acadia employee imprisoned for raping 11 patients.
  • Patient referrals to Acadia’s Ohio Hospital for Psychiatry were temporarily halted in May 2018, after patient safety and staffing issues were revealed on a website created by an area rights group. A sexual assault allegedly perpetrated by an Acadia nurse with a history of disciplinary actions is the latest following what a local news outlet reported as “years of complaints, state investigations and violations of safety and care standards”.
  • Acadia staff members allegedly assaulted children and “would encourage kids to fight for their entertainment” according to a February 2018 local news investigation into Acadia’s Resource Residential youth facility in Indiana. The Indiana Department of Child Services placed a referral hold at the facility in April 2018, according to a local news report, meaning that they will not send any more kids to the facility.
  • In June 2018, CMS inspectors declared Immediate Jeopardy, commonly interpreted as a “crisis situation”, at Acadia’s Lakeland Behavioral hospital after CMS directed an unannounced inspection that found “the facility failed to protect two patients from sexual misconduct”. Inspectors had previously declared Immediate Jeopardy in 2017 after finding the facility failed to prevent patient assaults.
  • Federal inspectors last year discovered that 26 patient deaths went unreported to the governing body of Acadia’s Rolling Hills Hospital in Oklahoma in 2016 alone. According to a lawsuit, reports of sexual assaults against young patients triggered government investigations “which resulted in the removal of all DHS [Oklahoma Department of Human Services] children” from the premises.
  • At Acadia Montana, state inspectors documented “128 patient assaults” that occurred during a 13 week review period in 2016. According to inspectors, “Staff reported the facility is understaffed” and one resident reported that staffers watch porn in front of the kids.
  • Multiple instances of child abuse by staff at Acadia’s Capstone Academy in Michigan have been substantiated by state child welfare investigators. We obtained a December 2017 letter (see page 41) to the facility from the Michigan Department of Health and Human Services which demands, in bold print, “an explanation why previous corrective action plans have not obtained and maintained compliance for rules found in repeat noncompliance”.
  • After a vulnerable child was assaulted by an Acadia staffer at Sonora Behavioral in Arizona, federal inspectors found that the facility failed to report the incident to the parents or police in 2016. A string of young patients have died at the facility and inspection reports detail numerous other violations including understaffing, medication errors, and failures involving patient injuries.
  • Two patients died due to allegedly being improperly treated with dangerous medications at Acadia’s Seven Hills Hospital in Nevada, according to two wrongful death suits (here, here). The doctor accused of the misconduct is still practicing at the hospital.
  • Arkansas regulators reportedly opened an investigation into Acadia’s Piney Ridge Treatment Center in 2016 after parents and former patients told local reporters the facility actually operates “more like a kid’s fighting ring”. A former facility staffer was arrested in April 2018 and charged with one felony count of engaging children in sexually explicit conduct.  Former employees told a local news stations that Piney Ridge overlooked the misconduct and had attempted to “sweep it under the rug”.
  • Undercover footage of patient brutality at an Acadia facility in the UK was aired on Dispatches in February 2018 including evidence of severe understaffing and improper safety practices.
  • A teenage girl was violently raped by another resident at Acadia’s Valley Behavioral facility in Arkansas because of low staffing at the facility, according to a negligence suit filed in 2016 against Acadia. A 10 year old patient was raped in the presence of a van driver who has subsequently pleaded guilty to a felony, according to a lawsuit filed against Acadia and the van company that is reportedly headed to trial in late 2018.
  • A malpractice suit filed in 2017 states that “a detective threatened to shut down the Longleaf Hospital”, an Acadia facility in Louisiana, after an adolescent patient was assaulted by Acadia representatives who then “obstructed and prevented several law enforcement officers from entering the facility”.
  • Violations surrounding a patient’s death and incidents of abuse and neglect are highlighted in a series of recent federal inspections of Acadia’s Cross Creek Hospital in Texas.
  • Inspectors found that a patient who staff “failed to monitor” died after a series of falls at Acadia’s StoneCrest Center. Federal inspectors were told by a patient that “all the staff were sleeping, even the nurse” and uncovered numerous patient safety deficiencies including “unmet care needs”. They also found indications that patients were “coerced into taking medications or receiving treatment that they did not agree to” by the nurses.
  • Two patients committed suicide in a five day period last year at Acadia’s Belmont Behavioral Hospital, according to a state inspection and a lawsuit that blames understaffing.
  • In addition to instances of abuse, federal inspectors report that senior citizens failed to receive basic care such as baths and wound treatment at Acadia’s Delta Medical Center.

Our investigation also found problems within Acadia’s national network of addiction centers, treatment clinics, and residential facilities. Acadia is soliciting taxpayer funds by promoting itself as a solution to America’s Opioid addiction crisis. Jacobs has told investors that “we have lobbyists in every state, working with states and communicating our position on how we think this money [opiate crisis funding] should be used”.  But our analysis of inspection reports for outpatient facilities in various states indicates that Acadia is providing deficient care to many of these patients.  To illustrate this point, we reviewed inspection reports for 36 Acadia addiction facilities in Pennsylvania, which we chose to sample because Acadia derives 7% of its total revenue from Pennsylvania, more than any other state.  Pennsylvania inspectors uncovered 542 violations at these Acadia addiction centers since 2015 including deficiencies related to patient safety, treatment, and/or staffing at 97% the locations. Not only did inspectors find that patients often lack basic treatment, but Acadia invests so little in some of these facilities that that inspectors found locations infested with rodents, mold, and even bullet holes in the windows.


Slash & Burn: The True Nature of Acadia’s Business Model

Acadia’s CEO Joey Jacobs and his management team previously ran PSI which pursued a roll-up strategy focused on aggressively cutting costs at acquired facilities. ProPublica and the LA Times published an investigative series on PSI a decade ago which exposed patient deaths, assaults, and how “poor patient supervision, understaffing and inadequate worker training have led to instances of chaos and brutality”.

The Department of Justice and other regulators opened investigations into PSI and at least four whistleblowers filed lawsuits alleging misconduct or fraud at the company. PSI investors sued Jacobs and the company for fraud in 2009 alleging that Jacobs had “downplayed the alarming incidents of abuse, neglect, and even death” at company facilities because PSI had become “addicted to debt” and needed to cover up its operating problems:

Above:  Civil Action No. 3:09-cv-00882-WJH.  The suit was settled by UHS for $65 million without admitting guilt, Jacobs and PSI denied the allegations.

After selling PSI to UHS in 2010, Joey Jacobs founded Acadia in 2011 with five other former PSI executives.  Jacobs has replicated PSI’s roll-up strategy at Acadia, thus far acquiring over $5 Billion worth of behavioral healthcare facilities while hiring certain former PSI lieutenants to run and oversee them. Like PSI, our research demonstrates that cutting staffing expenses is the heart of Acadia’s business model.

Acadia’s financials show that the company’s staffing expenditures have declined sharply over the past eight years. Acadia’s reported same-facility salary, wages, and benefits (“SWB”) expressed as a percentage of revenue, essentially an “apples to apples” comparison of facility level staffing expenditures, has declined from 62.1% of sales in 2010 to 51.2% in in June 2018.  SWB expenses had declined 6 of the past 8 years, but began to increase slightly in 2017 and so far this year.

Source: data from Acadia SEC Filings


Staffing problems at Acadia are consistently detailed in CMS inspection reports. CMS requires staffing to be based on the needs, or “acuity,” of the patient population. More staff per patient is required when the facility has more patients requiring intense, at times one-on-one, care than others.  For instance, the Behavioral Health Executive explains that facility policies typically call for checks on suicidal or dangerous patients at least every 15 minutes and “the failure could be that you haven’t hired enough staff to do the check”. Federal inspectors have repeatedly attributed patient deaths to Acadia’s failures to properly perform such checks:

Source: CMS Inspection of North Tampa

Source: CMS Inspection of Sonora

Source: CMS Inspection of Park Royal

Inspectors have also repeatedly found that Acadia facilities simply don’t have enough nurses or staff to properly care for patients. For instance, after inspectors found Acadia’s Options Behavioral did not come close to meeting the required 1:6 licensed nurse to patient ratio in 2017, the Director of Nursing admitted that “she was aware of the short staff and the management was also fully aware regarding the short staff issue”.

Source: CMS Inspection of Options Behavioral

During an April 2018 CMS inspection of Acadia’s Cedar Crest Hospital in Texas, inspectors found that “units were not staffed to facility staffing standards, often resulting in injuries to both patients and staff as well as patient elopements”.  Staff members told the inspectors that “it’s terrible here. There’s no staff. It’s not safe”, “we have begged for help”, “there’s never enough staff to take care of the patients”.  Another staff member explained that “it’s outrageous…patients physically intervene because we don’t have enough staff on the unit. Sometimes interns are used as subs for staff coveragesometimes we breakdown and cry… The CEO knows what is going on in this hospital. He knows we are understaffed”.

Source:  CMS Cedar Crest Inspection

Acadia also appears to increase profits by crowding more beds into facilities without adding enough staff. For example, the CEO of Acadia’s Longleaf Hospital admitted to inspectors he was aware of the ‘broken system’ of the hospital. Longleaf’s Medical Director told inspectors that “it became difficult to staff” the facility because “since the current owners [Acadia] acquired the hospital, they have grown and increased beds by 24. As soon as more beds became available, there was more pressure to admit more patients”.  When inspectors asked a nurse if patient safety incidents at the hospital are connected to inadequate staffing, she stated “it’s absolutely horrendous, they put people on the schedule they know won’t show up, people who aren’t even there”.  Inspectors also found instances of alleged patient abuse and wrote that Longleaf “provided the opportunity for alleged perpetrators to continue to provide direct patient care”.   When inspectors spoke with the facility’s risk manager she “indicated she ‘could cry right now’…she had only been in the position manager of Risk Manager for 5 months and had a 3 day training with corporate staff”.

Source: CMS Inspection of Longleaf

At Harbor Oaks, an Acadia facility in Michigan, former employees say that Acadia deceived regulators by increasing staffing levels immediately prior to audits before quickly reducing it again after the inspectors left. A detailed recent investigation of Harbor Oaks aired by WXYZ News in Detroit featured interviews with four former employees who described how Acadia understaffed the facility to maximize profits. The WXYZ investigation detailed multiple alleged instances of patient neglect and violence, including “scores” of police reports regarding physical and sexual assaults as well as 76 OHSA reports of workplace violence.  One whistleblower says that she was tasked with overseeing 32 patients by herself and sustained severe injuries after being attacked by a large patient.

Inspections we reviewed also repeatedly suggest that Acadia has limited the availability of medical professionals or hired unqualified or improperly trained staff, further degrading patient care. This is a serious issue because patients suffering from psychological disorders or addiction often require skilled and personalized care to get better. A former senior employee of CRC Healthcare we spoke with explained that after Acadia acquired the company in 2015, Jacobs and his team cut millions in costs by gutting successful corporate programs specifically designed to track and improve patient outcomes:

When Acadia acquired us, they dumped it all… In service of the bottom line, they decided to let all the clinical work that we had done go… Do I think the quality of care has gone down in many of the facilities there? I absolutely do. Do I think the outcomes aren’t as good as they were? I absolutely do.

For example, after multiple young patients died at Acadia’s Sonora Behavioral, inspectors found that the only Acadia staff person working in the unit during one of these deaths “was not qualified” and “his/her only documented prior employment was as a ‘driver’” (below).  A local news investigation from May 2018 identified other staffing problems including “a nurse without a valid license to work in Arizona, a behavioral health technician who assaulted a child patient, and a nurse accused of being drunk on the job”.

Source: CMS inspection of Sonora Behavioral

In February, a former nurse at Acadia’s Resource Residential told a local news outlet investigating problems at the youth facility that “the majority of the employees are young and vastly underqualified”.  She also said she was aware of misconduct including a “male staff member who engaged in sexual activity with the female residents”:

Similarly, a whistleblower suit (here) filed in August 2017 by the former Human Resources Director of Acadia’s Pacific Grove Hospital. The suit alleges that she was fired after reporting “unsafe and illegal practices within the hospital” including staff operating without requisite training, licensure, or background checks. We note that federal inspectors declared an immediate jeopardy situation at Pacific Grove in 2016 after finding problems impacting the safety of patients related to unsafe use of restraints and seclusion”.

Staffing was so thin at Acadia’s Fashion Valley Treatment Center in California “that non-medical personnel such as the secretary were making treatment decisions”, according to allegations made in a different whistleblower suit filed in May 2018 by a former nurse (here).  The nurse explains that serious problems began to surface after Acadia began to slash the staffing at the facility while cutting corners “because Acadia wanted to increase their total number of patients and reach their quotas”. The suit also says that chaos ensued causing patients to become increasingly frustrated and violent while “Clinical and Regional Directors would make the nurses back date patients intake and other forms”.  The nurse says she reported her concerns to Acadia’s corporate office, but the company retaliated in “an attempt to silence” her before she was terminated.  Similar allegations were made in an additional whistleblower suit (here) filed in September by a former Fashion Valley counselor who also says she was fired after reporting “unlawful and/or unethical conduct with respect to patient treatment” as well as “practices to inflate the patient and/or billing figures”.

Endres vs Acadia Healthcare Company (2018)


At Acadia’s Vermillion Behavioral inspectors noted “psychiatrists failing to participate in the patient’s treatment team as stipulated in the by-laws”.  A psychiatrist told inspectors that even though patients were being admitted under her name, in reality, “she had very little oversight at this hospital”.  An Acadia nurse explained that “patients are admitted under [the psychiatrist’s] services, but she [the nurse] treats them”.

Source: CMS Inspection of Vermillion Behavioral

As previously mentioned, Federal inspectors last year discovered that 26 patient deaths went unreported to the governing body of Acadia’s Rolling Hills Hospital in Oklahoma in 2016 alone. The Senior Industry Executive told us this is “a huge problem, that’s mind-boggling”. The inspectors also found that “the hospital failed to ensure a registered nurse (RN) supervised and evaluated the nursing care for each patient…this occurred in 28 of 28 open and closed medical records reviewed”. In total, inspectors have documented 64 separate violations at this facility since Acadia first acquired it in 2012, including “failed practices” related to patient care, staffing, and even failures to investigate allegations of patient abuse.

Source: CMS Inspection of Rolling Hills

Two different lawsuits (here, here) were filed in December 2017 against Acadia by guardians of former Rolling Hills patients, one of whom allegedly suffered permanent brain damage after being violently assaulted at the hospital.  The other suit describes how a boy was raped by another patient who had a history of alleged assaults (and has subsequently pled guilty) at an affiliated group home owned and operated by Acadia. The suit alleges that “Acadia ordered its employees to remove security cameras and to destroy video surveillance footage”, failed to report the incident to police, and ejected a state case worker from the premises.  Also, according to the lawsuit, additional reports of sexual assaults triggered government investigations “which resulted in the removal of all DHS [Oklahoma Department of Human Services] children” from the premises. Area media reports confirm that this Acadia facility has indeed been closed.

Joshua Edwards vs Rolling Hills Hospital (2017)

Acadia facilities often treat children and teens, many of whom have been placed under Acadia’s care after incidents of abuse by their former caregivers. But we found evidence of violence, abuse, and neglect at Acadia youth facilities driven by staffing problems, including previously mentioned episodes at Ascent Children’s, Capstone Academy (Detroit Behavioral), Piney Ridge, and Resource Residential.  At Acadia Montana, state inspectors documented “128 patient assaults and 26 incidents of residents causing property damage occurring during this 13 week review period” in 2016.  This followed a 2015 “statement of deficiency report citing the facility is not providing a safe environment” issued by the department after inspectors reported “the facility has had 132 patient assaults” during that 13 week review period.  The inspectors wrote “the facility failed to implement significant changes in programming in order to ensure patient safety and reduce the number of serious incidents as indicated in the plan of correction”. According to inspectors “youth reported not feeling safe in the facility due to physical assaults by peers and lack of staff intervention” and “Staff reported the facility is understaffed”. One resident reported that staff even watch porn in front of the kids.

Source: Acadia Montana Inspection Report

We also found indications that overtaxed Acadia medical providers resort to using chemical restraints—i.e. deliberately overmedicating patients for the convenience of Acadia’s staff.  For example, a state inspection of Acadia’s Options Behavioral “determined that the on-call physician wrote orders for chemical restraints in conflict with the facility policy that restricted this practice”.  Federal inspectors also found that this facility “failed to have adequate numbers of licensed registered nurses to provide nursing care”.

Source: Options Behavioral Inspection Reports (Here, Here)


This practice appears to have been going on for some time. At Acadia’s Red River Hospital in Texas, a whistleblower suit filed by a former employee in 2012 alleges that patients were neglected and references a recording of an elderly patient left strapped to a chair for an entire 12-hour shift while being periodically injected with sedatives by Acadia staff.  According to the suit, the neglect was the product of an allegedly fraudulent campaign to get more elderly Medicare patients in the door to increase revenues for Acadia even though the facility didn’t have the resources to properly treat the patients.

Source: Yvonne Downs v. Red River Hospital (2013) Afterwards, Red River allegedly implemented a new video retention policy, only retaining the most recent 14 days of footage.

Other allegations of fraud at Acadia include:

  • A whistleblower suit filed in June 2018 by a former nurse at Acadia’s North Tampa Behavioral Health Hospital. The nurse says she was directed “to falsify medical documents” and was fired after reporting “inadequate staffing, patient safety, employee safety”.

Source: Young vs. North Tampa Behavioral Health (2018)


  • A former employee at Acadia’s Millcreek facility “was terminated after making her supervisor aware of multiple acts of Medicaid fraud”, according to allegations in a lawsuit filed by a former employee in 2017. (Madeline McNease vs Acadia Healthcare Company Inc.)


  • A 2015 whistleblower suit states that Cedar Crest was billing Medicare, Tricare, and private insurers for phantom services. The whistleblower alleged that the hospital falsified patient records before state audits and experienced retaliation after reporting the malfeasance to Acadia’s corporate compliance department.

Russell vs HMIH Cedar Crest (2015)


We See Substantial Downside Potential in Acadia Shares

Acadia’s business model is premised on borrowing billions of dollars to acquire behavioral health facilities, then wringing out profits by cutting staffing and patient care expenditures while adding beds. The fundamental problem, in our opinion, is that this model is inherently unsustainable because it depends on degrading patient care- a losing proposition. The consequences of Jacob’s slash and burn approach to behavioral healthcare, which has caused many of the problems we found at Acadia facilities across the country, now appear to be spilling over into Acadia’s financials.

The true nature of Acadia’s business practices finally coming to light hurts the company because it contradicts management’s public claims and increases public scrutiny. The former UHS facility CEO told us that after Buzzfeed published articles exposing patient safety issues at UHS, there was an “immediate impact” and “Once an article like that goes out, first of all, any provider in the local market won’t hardly dare send you a patient, because they don’t want to be associated with it.”  Loved ones also become less likely to send family members to facilities associated with patient safety scandals or misconduct. This dynamic already appears to have begun at Acadia’s Ohio Hospital of Psychiatry, where referrals were temporarily halted earlier this year after an area rights group released a report. Similarly, the Indiana Department of Child Services placed a referral hold at Acadia’s Resource Residential youth facility in April 2018, meaning that they will not send any more kids to the facility.

Based on the recurring problems in inspection reports we reviewed, we find it likely that state and federal regulators have already begun to scrutinize Acadia’s business practices. The former UHS facility CEO also explained that increased inspections, investigations, and potential fines or facility closures is why “It’s a painful sentence once you’re on the [regulatory] radar. Plus, it’s worth the extra bodies [proper staffing] to stay off the radar, it’s worth it.”  AAC’s stock price has lost 75% of its value since news of criminal indictments broke, while UHS has closed over 20 facilities since 2011 amidst myriad government investigations. Just this month, Acadia’s Ascent Children’s announced that it would permanently close all seven of its facilities after Arkansas regulators opened an investigation into child maltreatment and four former employees were criminally indicted for the death of a young boy.

Furthermore, the Department of Justice and other regulators have historically charged operators for billing for deficient care (here, here, here), which strikes us as a particularly acute risk for Acadia given that multiple whistleblowers have accused the company of fraudulent practices.

We believe Acadia’s profits are largely fleeting. Since Acadia’s costs have already been cut to the bone, the company has exhausted its primary means of driving profits from existing facilities.  As scrutiny from the public and regulators intensifies, we believe Acadia will likely be pressured to improve patient care, driving up operating costs significantly. This dynamic already appears to have started.

Acadia has missed earnings estimates two of the past four quarters and same facility revenue growth is slowing while facility expenses have started to increase. We estimate that Acadia will need to increase staffing expenditures by at least 10-20% to improve patient care, which would cost Acadia approximately $150 to $300 million in incremental annual expenses and reduce reported EBITDA by 25-50%.  For context, we spoke to the CEO of a privately-owned facility who has over a decade of experience, including at UHS. The Private Facility CEO estimates that his current facility has 40 to 50% more staff relative to patients than the former PSI facility he managed at UHS (which we believe approximates the staffing levels at Acadia).  Unsurprisingly, he believes the patient care at his facility is much improved and patient safety issues are now limited because he has more staff than before.

Acadia has little room to weather increased expenses or reduced revenues because it has over $3.2 billion in debt it needs to service.  Leverage stands at more than 5x Debt/EBITDA, already at the high end of Jacob’s stated objective of “operating not much higher than the 5 times [Debt/EBITDA]”.  Acadia is also significantly more levered than PSI was, which was operating at approximately 3.7x Debt/EBITDA in 2009 according to Bloomberg data.

We therefore see substantial downside potential in Acadia shares.