Rehab Profiteering and Abuse: The Lesson of National Medical Enterprises

October 28, 2022

It seems like every other day we see a news story about a profiteering addiction rehab engaging in unsavory conduct, such as “body brokering” and discredited therapeutic practices which are little more than torture. For example, the state of Massachusetts ordered a rehab chain to pay $4.5 million in restitution in December 2021, and the Orange County Register ran a series on crooked rehab practices in 2017. There is even a 2021 movie, titled Body Brokers, on the topic.

Yet there is nothing new here. Rampant profiteering and patient mistreatment has been the standard of care for over half a century, ever since addiction treatment became a major industry in the 1960s. The profit motive consistently overrides care. If we do not learn from history, we are doomed to repeat it. What follows is the story of the most flagrant profiteer in the history of the addiction treatment industry.

National Medical Enterprises was founded in 1968 by Richard Keith Eamer, John C. Bedrosian, and Leonard Cohen, and the initial public offering of stock was made on January 1, 1969. Eamer held degrees in accounting and law; he had worked as a truck driver before going to law school and had been a health care tax attorney prior to forming National Medical Enterprises. Bedrosian held degrees in business administration and law. Cohen was a certified public accountant with degrees in accounting and law.

The original purpose of National Medical Enterprises was to own and operate general hospitals. But in 1983, the company expanded into the arena of behavioral health by buying Psychiatric Institutes of America (PIA) and by forming Recovery Centers of America. Both of those companies operated as subsidiaries of National Medical Enterprises. Psychiatric Institutes of America owned and operated psychiatric hospitals which offered both inpatient psychiatric treatment and inpatient “substance abuse” treatment (I use the stigmatizing term in this article to match the historical usage). Recovery Centers of America owned and operated both residential and outpatient facilities which offered substance abuse treatment in a non-hospital setting.

Who would have imagined that patients would suffer at the hands of this profit-making machine?  

By 1990, National Medical Enterprises had replaced CompCare as the largest provider of addiction treatment in the United States. In 1991, it operated 37 general hospitals, 86 psychiatric hospitals and substance abuse centers and 29 physical rehabilitation hospitals. Who would have imagined that patients would suffer at the hands of this profit-making machine?  

National Medical Enterprises is notorious for the fact that in 1994, it had to pay $379 million in fines and restitution as a result of fraud and patient abuse in its psychiatric and substance abuse facilities. As a consequence, the company was forced by the US government to divest itself of its entire behavioral health division. It renamed itself Tenet Healthcare in an attempt to distance itself from the scandal and fool the general public into believing it was a different company. However, in 2004, just 10 short years later, Tenet Healthcare had to pay $395 million in lawsuits over unnecessary cardiac procedures performed on over 750 patients. Sometimes a leopard does not change its spots.

One of the most egregious examples* of patient abuse at a psychiatric hospital operated by National Medical Enterprises occurred when a psychiatrist approached a 5-year-old boy with a rusty pair of pliers and told the boy that if he didn’t behave, he would pull out all his teeth, and if he still didn’t behave, he would cut off his fingers. 

The company also became notorious for diagnosis shifting. A patient would be admitted under one diagnosis, after which the staff would review the patient’s insurance coverage to see what diagnosis allowed for the longest stays at the highest reimbursement. The patient would then be given a new diagnosis guaranteed to bleed the patient’s insurance coverage dry. A patient might also be given multiple consecutive diagnoses to lengthen the stay and max out the insurance policy.

Insurance would be charged for therapy sessions never received, sometimes for multiple therapy sessions which supposedly occurred at the same time. Actual “therapy” often consisted of sitting in silence for hours on end in rows of hard plastic chairs and being punished for speaking. A favorite diagnosis was multiple personality disorder, where the treatment would consist of asking patients to recall instances of childhood Satanic ritual abuse which never actually happened. Since, as Elizabeth Loftus has demonstrated, it is very easy to implant false memories in some people, many patients left with a head full of false memories. And many were severely damaged by the so-called treatment and left much sicker than when they entered. 

Like many rehab operators, the company also paid “referral fees,” i.e., kickbacks, to primary care physicians, therapists, clergy and others to send it patients—or “heads on beds.” 

National Medical Enterprises engaged in excessive and inappropriate use of restraints, such as putting teenagers in straightjackets. Its facilities also used a discredited technique called “rage reduction therapy,” where a young child would be held down by four interns and poked or tickled in the rib cage until a paroxysm of anger was evoked. The child would continue to be restrained until emotionally spent.

The January 8, 1993 issue of the Wall Street Journal told the following story:

Cheryl Paul says she saw such practices first-hand. In 1990, she voluntarily checked into National Medical’s Doctor’s Hospital in Dallas for a two-week substance-abuse treatment program. When she asked to leave, she was strapped down with leather restraints in a four-point, spread-eagle position in a “seclusion room” and kept that way for six or seven weeks, all to cash in on her insurance coverage, she charges in a recent lawsuit against National Medical filed in state court in Dallas. A National Medical spokesman, while declining to comment on pending litigation, says the company has strict rules about when and how to use such restraints.


National Medical Enterprises also conducted a range of activities to keep its facilities full. It ran a publishing division of “self-help” books; for any reader convinced that they were mentally ill and needed to check into a psychiatric hospital, an 800 number for National Medical Enterprises was conveniently printed on the back covers. Like many rehab operators, the company also paid “referral fees,” i.e., kickbacks, to primary care physicians, therapists, clergy and others to send it patients—something the corporate division referred to as “heads on beds.” 

The United States has an overdose crisis in part because the addiction treatment system is broken. Overdose deaths in the US have increased from 6,100 in 1980 to 107,622 in 2021: an increase of over 1,600 percent. Meanwhile, in Switzerland, which is notable for its early introduction of heroin-assisted treatment, overdose deaths decreased from 376 in 1995 to 141 in 2019: a 63 percent decline.

The industry lobbies politicians to keep giving us more of a treatment system which benefits its owners at the expense of its clients. 

The reason the American addiction treatment system is broken is that we’ve put the foxes in charge of guarding the henhouse. The addiction treatment industry—particularly the powerful behemoths that own facilities in many states—lobbies the politicians in Washington to keep giving us more of a treatment system which benefits its owners at the expense of its clients. 

It isn’t only abstinence-oriented rehabs. Methadone clinics want to keep the clinic system in place because they make money hand over fist that way. Pharmacy- and office-based dosing of free methadone and free bupe would both dramatically mitigate the overdose crisis and put them out of business. Profiteering 12-step rehabs, for their part, keep telling the lie that people on medications for opioid use disorder are “still addicted”—they wouldn’t want customers to abandon them, after all.  

It is time to stand up to the capitalist profiteers and tell them, as in the movie Network, “We’re mad as hell, and we’re not going to take it anymore.” The time has come to demand publicly funded, free and accessible methadone, safe consumption sites and safe supply, and to put the profiteers out of business. 



*Two books have been published about the scandals at National Medical Enterprise’s psychiatric hospitals and addiction rehab centers: Bedlam: Greed, Profiteering, and Fraud in a Mental Health System Gone Crazy (1994) by Joe Sharkey and Feeding Frenzy: Organizational Deviance in the Texas Psychiatric Hospital Industry (1999) by Henry Vandenburgh, which I have used as sources for the anecdotes repeated above.

Photograph via RawPixel/Public Domain

Kenneth Anderson

Kenneth is the founder and CEO of HAMS (Harm Reduction, Abstinence, and Moderation Support), the world's only lay-led, free-of-charge support group for harm reduction for alcohol. He is also the author of How to Change Your Drinking: a Harm Reduction Guide to Alcohol; BETTER IS BETTER!: Stories of Alcohol Harm Reduction; and the book series The Untold History of Addiction Treatment in the United States—which currently consists of Strychnine & Gold (Part One), Strychnine & Gold (Part Two), and From Inebriate Asylums to Narcotic Farms, with more to come.

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