American Addiction Centers: Grand Jury Testimony Creates Doubts About AAC's Defense (OTCMKTS:AACH-DEFUNCT-459435) | Seeking Alpha
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American Addiction Centers: Grand Jury Testimony Creates Doubts About AAC's Defense

Dec. 04, 2015 9:30 AM ETAAC Holdings, Inc. (AACH) Stock8 Comments

Summary

  • Grand jury testimony shows that the chief coroner believes that the patient would not have died if he had constant access to oxygen.
  • This undermines AAC's claim that the patient died of natural causes as the primary defense from the company.
  • Testimony from Jose Ochoa also tells the story of Jerrod Menz fleeing from the Irongate facility - where the patient died - with a garbage bag filled with prescriptions "house meds".

AAC Holding's (AAC) main defense since the news that Jerrod Menz and serveral others as well as the Forterus subsidiary were indicted on second degree murder has been that the coroner's report stated that the patient died of natural causes. New evidence from the Grand Jury has surfaced however that reveals that this defense is questionable as the lead coroner believes that the patient would still be alive if he had access to supplemental oxygen. Further testimony describes eyewitness accounts of Jerrod Menz fleeing the scene of the crime with a garbage bag full of "house meds."

AAC's Defense

From the first day that the news broke, AAC's main defense has been that the coroner ruled that the patient had died of natural causes.

On the second quarter conference call:

"We firmly believe that the California Department of Justice case is without merit. We will vigorously defend the company and each individual in court. The case involves the death in 2010 of a client who was found dead of natural causes in his room the morning after he checked into one of our facilities."

And later on that same conference call:

"We are not currently aware of any evidence that the company or any of these individuals charged were responsible for the resident's death. The coroner concluded the client died of hypertension cardiovascular disease. The individual also had a history of chronic obstructive pulmonary disease according to a police report. The coroner made absolutely no findings that the death had anything to do with his treatment at our facility."

However, the Chief Coroner believes that the patient died from a lack of oxygen, not from natural causes.

In testimony from the Grand Jury, however, Riverside County Chief Coroner Dr. Joseph Cohen suggested otherwise. Dr. Fajardo did the first autopsy and concluded that the patient had

This article was written by

Bleecker Street Research is focussed on situations where there are divergences between perception and reality. You can view our website and sign up for our mailing list at BleeckerStreetResearch.com.

Analyst’s Disclosure: I am/we are short AAC. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Comments (8)

f
So now with the recent news, the murder case is slowly going away and the company is diversifying its lab business. The latter will take away the short thesis about the high margin urine test dependency. Also, it should be good for margins when you compare AAC to DGX or LH. Granted the DSOs need to come down, but with the other issues on the mend, and a 50% short position what is not to like?
T
I have worked in the addictions field. And, I have owned an IOP (Intensive Outpatient Program). Unfortunately, most are own by businessmen or by former addicts who either see the money which can be made or who, now that they are clean and sober, be one idealistic and want to save the world. Very, very few are owned and run by psychologists or other properly trained and licensed mental health professionals. Learned the story of how AAC started and expanded. They are run, even if they have good intentions, by business who are not mental healthcare professionals. They follow a different set of ethics. The challenges AAC is experiencing tells more about the failures of the addiction treatment industry in general rather than the moral or ethical failures of AAC in particular.
m
So you being a "trained psychologist or other properly trained and licensed mental health professionals." made you run a better clinic than somebody who was a serial entrepreneur that has started numerous successful healthcare companies or a former addict who is extremely passionate about truly helping people and has actually been thru it? Or somebody who is both those things? ( which is myself and the founders of AAC ) So how many IOP locations do you have now? How many people have you helped due to your stellar business acumen? Yeah thats what I thought! Is it even still in business and if not did you sell it to a larger organization which could continue helping this much underserved population of opiate addicts in the US currently? I am just amazed sometimes??????
T
Yes, it has taken me two years to respond to your comments. When you and I had our exchange, AAC share price was at 7.90 a share (February 10, 2017). Today, April 22, 2019, the share price of AAC is at 1.45 a share. I bought some shares of AAC in August of 2015 at around $30. In 4 years, the stock price of AAC went from around $30 to less than $1.50 a share.

The anger in your response to my comments about AAC was palpable. I did not respond to you because Seeking Alpha is a financial forum, and part of our (you and me) issue was an opinion on how to run an ethical treatment center for addictions. After our encounter on here, I did research AAC more thoroughly, and although AAC did have some ethical issues and some deaths of patients in their facilities, given the nature of working with addicts, that is an unfortunate and sad occurrence. When I learned more about AAC, I realized that it was no worse (or better for that matter) than any of the other treatment centers founded by former addicts all over Florida and other parts of the USA. You, and the founders of AAC did a better job of expanding on a national level instead of remaining on a local, regional level. There is something to be admired about anyone who can build up a company to that level. There also is something to be said about anyone (you) who has worked with addicts in early recovered for a long time. It is hard work. Despite your arrogant comments, typical of people in recovery who think that their experiences fighting addiction make them experts in treating addiction and depression and anxiety, you did accomplish something difficult and amazing.

Let’s talk about your comments. It is wonderful that you are, or were, so passionate about truly helping people. The implication in what you wrote in response to me is that I do not have passion for helping people. I had just owned one IOP. We later sold it to one of our partners. My private practice continued and continues to serve individuals in early recovery as well as people who suffer from anxiety and depression.

While I may not be able to treat individuals on a scale as massive as yours, the idea that “trained psychologist or other properly trained and licensed mental health professionals” cannot run a clinic, or that somehow an addict is better equipped to run a drug treatment facility is ridiculous. Having recovered from cancer does not qualify someone to be an oncologist. Having recovered from major depressive disorder does not qualify someone to open an office or treatment center for the treatment of depression. It is typical of the arrogance of the addict who has found a better life in sobriety and abstinence to think that now they have everything they need to proselytize to others.

Since Seeking Alpha is a forum for discussing investing and business and stocks, and not a forum for discussing addictions treatment, let’s talk about your statement that you are a “serial entrepreneur that has started numerous successful healthcare companies.”

When you and I had our exchange, AAC share price was at 7.90 a share (February 10, 2017). Today, April 22, 2019, the share price of AAC is at 1.45 a share. I had bought some shares of AAC in August of 2015 at around $30. In 4 years, the stock price of AAC went from around $30 to less than $1.50 a share.

The opioid crisis in America is not going to go away. Patient brokering, exploitive marketing to get patients, fraudulent urinalysis testing, also are not going to go away. I am not accusing you or AAC of doing anything illegal or unethical. It is just that addictions treatment is a dirty and tough business, and the research evidence shows that no particular therapeutic modality of treatment is more effective than any other in addictions treatment and that the critical factor seems to be the individual’s readiness and willingness to change. (Also, the longer an addict is kept from using in a protected environment, the more likely they will have long term sobriety.)

All that being said, AAC is a terrible investment. Over the past 4 years, the stock price has gone from around $30 to $1.50. Why? You said you are a serial entrepreneur who has started numerous successful companies.

Would you say that AAC is currently successful?

How should we, investors, measure that success? Is it by AAC’ stock price? (I still own shares of AAC which I bough at around $30) Is it by the dividends it pays out to share holders? Is it by comparing the relapse rate of patients who have been its programs against the relapse rate across the industry?
Certainly, based upon stock price, AAC is not a successful company. Just curious, is your salary correlated to stock price or do you get the same compensation regardless of stock performance and relapse rate of clients?

I am just amazed sometimes!!!
m
@Teknical Well stated and now your $30 stock has dropped to $.03 per share with lenders beating down the doors, along with the numerous wrongful death lawsuits that some attorneys refused to settle and let the jury hear all of the lurid details of how incompetent and greedy these people are. I have owned an outpatient addiction treatment program for 35 years and we have never had a death. In all that time, our loan sentinel event was a grand Mal seizure that occurred 22 days after the last drink and having been cleared by physicians in an inpatient facility.
m
I own 4 state licensed outpatient MAT clinics in PA. ( the largest in Western PA ) We average about 2-3 deaths per year over the last decade in business. Every death is reviewed by a special board setup by the PA Dept of Health. Unfortunately it comes with the business because you are dealing with a very high risk patient population. Unlike AAC we are a OP facility so our deaths don't happen in our clinics and almost all are from overdose deaths due to polysubstance abuse ( mixing say opiates with BZD's etc ). We always follow the states standard of care and are always cleared of any wrongdoing. This could very well be the case with AAC but only time will tell. I have met the owner/founder of AAC and he is a reputable honest businessman who cares about his patients. I don't know if this grand jury testimony is true or not about him "running out with bag of "house meds"? I do know that this business is huge and growing at 12% annually so even if they didn't follow the CA standard of care I feel the company will go on and recover from this. This is a tough industry to operate in and we deal with a very challenging patient population. I guess time will tell how this plays out but if I had to guess I think the company will survive this in the end. The industry is just to big and hot currently. AAC has built up a large group of centers and is still the only "Pure Play" trading. I would have been concerned if BOFA pulled their letter of credit or other creditors accused them of violating their covenants but I saw none of that? The SEC also doesn't seemed concerned about disclosure issues so although this will hurt them for some time I see the stock coming back.
m
@mroup not a chance. Cancer spreads throughout the system and theirs has metastasized throughout their system.
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