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Ebeling Heffernan Report on HYTM

|Includes: Hythiam, Inc. (HYTM)

Hythiam (NAS: HYTM) With cost containment at the forefront of the debate among President Obama and Congress, insurance companies are likely to become even more acutely focused on cost containment and return on investments they make in paying for healthcare services.

One company that could be well positioned to benefit is Hythiam, as the company’s Catasys Program offers payers the ability to reduce the cost of treating substance abuse, which, when left untreated, can significantly increase the cost of healthcare in the long run. Due to the increased focus on cost reduction, timing could be ideal for companies such as Hythiam to gain adoption for innovative ways to treat substance abuse.

However, it appears that insurance companies are not the only parties focused on reigning in healthcare costs. Last month, the company entered into a three year agreement with Ford Motor Company to provide the Catasys integrated substance dependence solution to Ford’s hourly employees in Michigan enrolled in the National PPO and who meet certain criteria. Eligible employees struggling with alcoholism, stimulant and opiate dependence will be covered under the program, which contains medical interventions including naltrexone, Suboxone and the proprietary PROMETA Treatment Program, and psychosocial and care coaching components across 52 weeks.

The company will conduct direct outreach to enroll qualified members, and will also work with UAW-Ford and Ford’s EAP program to ensure the most beneficial treatment pathway for members. Contractual revenues from the agreement are based on a combination of monthly fees for the member population for Catasys, with additional monthly fees for members enrolled into the Catasys program. Operational implementation is expected to begin this quarter. So what is Catasys? It is an integrated treatment approach, under which Hythiam provides specialized behavioral health management services to health plans, employers and unions through a network of licensed and company managed health care providers designed to address substance dependence as a chronic disease.

The program seeks to lower costs and improve member health through the delivery of integrated medical and psychosocial interventions in combination with long term care coaching, including the proprietary Prometa Treatment Program for alcoholism and stimulant dependence. The Prometa Treatment Program, which integrates behavioral, nutritional, and medical components, is also available on a private-pay basis through licensed treatment providers.

The Program works through a combination of behavioral modification treatments designed to correct the mental processes responsible for addictive behavior, a proprietary combination of drugs designed to alleviate physical and mental withdrawal symptoms, and a nutritional component which is designed to promote long term health and recovery through introducing lasting changes in the lifestyles of patients. Empirical support for Prometa’s effectiveness has been demonstrated in a number of studies in recent years.

It has been found to promote a significant difference in use for subjects in active withdrawal in a 2009 alcohol study, in addition to the finding that the Program led to significant differences in use and cravings for subjects with a history of withdrawal and a significantly reduced instance of cravings in patients with methamphetamine addictions. Along with its ability to reduce withdrawal and cravings in substance dependant patients, Prometa has also been demonstrated to significantly reduce costs associated with treating these individuals. In a recent third party payor pilot study, Prometa was found to significantly reduce the costs associated with treating substance dependant individuals, decreasing the behavioral health costs of these individuals by as much as 68%, versus a control group who were not treated with Prometa that demonstrated a 57% increase in cost of care.

Recently, the results of a double-blind, placebo-controlled study on the impact of the medical component of the PROMETA Treatment Program on alcohol dependent subjects was accepted and published in the Journal of Clinical Psychopharmacology, a leading scholarly publication in psychopharmacology that features articles reporting on clinical trials and studies. The results are the first to be published in a peer-reviewed scientific journal from a double-blind, placebo-controlled study conducted to assess the impact of the PROMETA Treatment Program on alcohol dependence and could bolster the company’s marketing claims.

With a treatment program proven to positively impact the lives of substance dependant individuals while reducing the overall cost of treatment, Hythiam appears well positioned to capitalize on the much publicized trend towards reducing healthcare costs. The company provides investors with a unique opportunity to invest in a company making great strides in improving the overall state of healthcare in the U.S. by effectively treating repeat abusers who require hundreds of millions of dollars a year in medical treatments. The company itself has recently undergone restructuring which has left it in a significantly improved financial position achieved through a reduction in operating costs and the completion of a $7 million registered direct offering that is expected to enable it to more effectively capitalize on the almost $2 billion market that it serves.

Disclosure Long HYTM