The embattled youth treatment company will soon shutter its Northern Illinois Academy, the 13th closure since 2019, while creditors doubt it can repay its debts.
Sequel Youth & Family Services, a company that once sought to dominate the youth behavioral health industry, is facing growing financial turmoil amid new allegations of mistreating children. The company announced this month that it was shuttering a highly profitable facility in Illinois, the latest in a string of closures. Meanwhile, Sequel’s creditors are publicly doubting the company’s ability to pay its debts.
On May 14, four state agencies in Illinois announced they were removing all 51 children in their custody from Sequel’s Northern Illinois Academy. The removals followed a state investigation that found chronic understaffing, improper use of seclusion, excessive physical restraints and other problems. The company disputed the allegations but said in a statement that it will surrender the facility’s license.
When Northern Illinois Academy shuts down, Sequel will have closed 13 treatment centers since 2019. About one-third of its national footprint has vanished.
Sequel was the subject of an APM Reports investigation, published in September, that found dozens of cases of abuse and neglect at its facilities around the country. Sequel’s treatment centers provide housing and treatment to children with behavioral problems in the juvenile justice, foster care and mental health systems.
After publication of the story, children’s advocates called for the company to shut down, and members of Congress urged a comprehensive review of the youth treatment industry.
Sequel has been under growing scrutiny in recent years, especially after staff at a facility in Michigan were charged with killing a 16-year-old resident in 2020. NBC News, Vice, the San Francisco Chronicle, Imprint News, OPB, Investigate West and 10TV in Columbus have all published in-depth investigations of the company, further intensifying public pressure.
Northern Illinois Academy will be the fourth Sequel facility to close this year. In February, the company announced it was voluntarily shutting down centers in Iowa, Wyoming and North Carolina, saying they were no longer financially viable. The Iowa and Wyoming facilities were heavily dependent on children from California, historically one of Sequel’s biggest customers. California’s Department of Social Services announced in December that it would no longer allow counties to send foster kids to Sequel or other out-of-state providers.
Sequel’s financial troubles are raising concerns among the company’s creditors. Last week, two major lenders announced that they doubted Sequel’s ability to repay nearly $200 million in loans. The lenders, FS KKR Capital Corp. and a related affiliate, released quarterly financial reports showing they expected to recoup just $78 million of the $199 million they had loaned to the company — a mere 39 cents on the dollar. Neither Sequel nor FS KKR have responded to questions about the debt.
In 2017, the year Sequel was acquired by the private equity firm Altamont Capital Partners, the youth treatment company was earning more than $200 million in annual revenue, with ambitious plans to expand in an industry it deemed “ripe for consolidation,” according to company documents.
Northern Illinois Academy contributed significantly to Sequel’s bottom line. In a 2018 financial statement to Oregon officials, the facility reportedly collected more than $15 million in revenue and $460,000 in net income.
NIA’s budget forecast shows the facility had ambitious financial goals. It planned to increase profits to $3 million in 2020 — six times what it booked two years earlier. The forecast predicted the company would grow revenues by keeping nearly all its 87 beds full, while simultaneously slashing expenses by more than $1.5 million.
NIA was one of Sequel’s most expensive facilities because it accepted young children with severe autism, developmental disabilities, psychiatric conditions and behavioral problems. The facility charged between $450 and $850 per day for each child, according to the Illinois State Board of Education.
Oregon state Sen. Sara Gelser became concerned about conditions at the Illinois facility in 2019, when she learned that three children from her state had been sent there, some 2,000 miles away, for treatment. She made an unannounced visit to NIA in August 2019 and was appalled by the condition of the building and the way she saw staff treat a young girl.
Gelser reported what she saw to Illinois regulators and to the federal Center for Medicare & Medicaid Services, which found deficiencies “so serious they constitute an immediate threat to patient health and safety.” In January 2020, federal officials terminated the facility’s certification and ordered it to stop marketing itself as a psychiatric residential treatment facility, because it did not meet the legal requirements.
Despite the federal action, NIA remained in business, Gelser said, because it derived most of its revenue from state agencies.
“I do not understand why it took Illinois so long to follow suit,” Gelser said. “The money kept rolling in, Sequel executives kept profiting and kids kept getting hurt.”
The APM Reports investigation revealed a string of shocking incidents at NIA, including two cases in which the state found that staff body-slammed residents. Last year, a staffer was charged with three counts of aggravated battery for allegedly strangling a child under age 13 with a “profound intellectual disability.” Surveillance video from the investigation appears to show a staffer dragging a child across the floor by the arm.
State records also reveal that an employee sent love letters to a resident, gave her drugs, “rubbed her butt and bit her neck.” Another former employee was convicted of raping a resident and was sentenced to 10 years in prison. Last year, an 18-year-old resident was charged with allegedly raping a much younger girl.
In January, four months after the APM Reports investigation was published, Equip for Equality, an organization that advocates for people with disabilities in Illinois, conducted an audit of NIA under a contract with the state Department of Children and Family Services. The group’s scathing report released earlier this month concluded that problems at the facility were systemic and recommended the state shut it down.
By announcing it would remove almost all the children there, the state effectively forced NIA to close. Gelser was overcome with emotion at the news.
“I started to cry,” she said. “I think about NIA every day — and have thought about it every day — since I visited. I have worried so much about those children. And my remaining concern is that the kids are still there. I think they should be pulled immediately.”
Illinois officials say the children will remain at NIA until the state can find new places to send them, but it has a monitor working on site to ensure their safety. The state’s goal is to find new places for them within four months. Many Sequel facilities accept residents that other residential treatment providers won’t, because of the complexity of their cases.
In a statement, Sequel said it was “deeply troubled by what appear to be extensive factual inaccuracies and mischaracterizations about our program” in the Equip for Equality report. The company said it would prepare a thorough response once it had finished reviewing the report.
“At this time, our number one priority is to ensure the safe transfer of youth to appropriate placements, where they can continue to receive the compassionate and therapeutic care they desperately need and deserve,” the written statement said.
Even after NIA closes, Sequel will continue to do business in Illinois. Bass, Berry & Sims, a national law firm, announced in February that it had represented Sequel “in its acquisition of North Shore Pediatric Therapy,” which provides day treatment to children with autism in the Chicago area. In response to questions about this arrangement, Sequel downplayed its role in North Shore’s business, saying it provided “back-office and management services,” but that another company was in charge of operations there.