Stephen Eichler started in the Institute for Human Resources seven years ago in a basement in Rockville. Today his company is a major player in one of the hottest services in corporate health care: offering drug and alcohol counseling services to businesses from coast to coast.

The Institute for Human Resources runs an Employee Assistance Program (EAP). For a yearly fee, the firm sets up counseling services for businesses, listening to employees troubled by substance addiction or other personal problems, and referring them when necessary to specialists and treatment centers in the community.

There are hundreds of similar programs across the country. More than a quarter of the country's work force is now covered by EAPs, as businesses have concluded that paying an outside contractor an annual premium -- typically between $15 and $25 per employee per year -- to provide referral and counseling services makes more sense than paying the eventual cost of leaving employes' emotional problems and addictions unattended.

In the Washington area, EAP growth has been dramatic, with a host of contractors and consultants scrambling to serve the local business community. Eichler's EAP is joined by rapidly growing programs at Alexandria Hospital, the Fairfax Hospital Associations, several local psychiatric hospitals such as Taylor Manor in Ellicott City and Sheppard Pratt in Baltimore, and an even greater number of independent local contractors.

But with the growth has come increasingly acrimonious competition, and a heated debate among local EAP providers sparked by concerns about health care costs and professional ethics.

EAPs first came to prominence 10 years ago, when a number of corporations and government agencies conducted extensive studies on the cost of lowered employee productivity due to alcohol or drug addiction and other personal problems.

The results were startling. Rockwell Corp., for example, estimated the alcoholism alone among its 100,000 employees costs the company $250 million a year. The General Accounting Office put the cost of alcoholism among federal employees at $550 million per year.

"The rule of thumb is that for every dollar an employer invests in an EAP, they'll recover between $3 and $5 in lowered accident rates, decreased tardiness, decreased absences and higher productivity," said Dick Bickerton, an official at the Association of Labor-Management Administrators and Consultants on Alcoholism.

While all EAPs offer same basic service for troubled employees -- they have taken a variety of different forms. Many larger companies run their own EAP services. The remaining market is divided between full-service or psychiatric hospitals that run EAP services in addition to their regular health care facilities, and smaller independent contractors specializing in EAPs.

In recent years, there have been rising tensions between hospitals and contractors that compete to provide EAP services. Some of the hospital-run EAPs, which also have on-site drug and alcohol treatment facilities, have made a practice of referring many of the employees they see to their own rehabilitation centers -- a practice that many of the independent contractors see as unethical.

The contractors argue that this self-referral diminishes the quality of patient care, raises treatment costs, and turns what should be an objective and independent referral service into a marketing ploy for an EAP's parent hospital.

"The EAP professional seeing an employee is given total freedom in making recommendations about that individual's needs," said Don Phillips, president of Cope Inc., a Washington EAP provider serving 55,000 employees. "If you have as your primary agenda that your alcohol treatment center is half full and you need more patients, you're not acting in the best interests of the employee."

"One of the notions behind EAPs is that you should be able to do an objective assessment and make an impartial referralial referral," said Muriel Gray, an independent EAP consultant in Washington. "The question is whether you can do that in this case."

According to Gray, a hospital running an EAP might be inclined to refer patients to its own treatment facilities rather than to cheaper alternative institutions. "Free-standing drug and alcohol treatment centers (those not affiliated with hospitals) usually have lower per diem rates than hospitals, because hospital charges are flat rates that often include the cost of surgical and medical services," Gray said.

"We're talking maybe a $3,000 total difference" over a standard 28-day inpatient program, said George Marko, executive director of the Meadows Recovery Center in Gambrills, Md. The Meadows' daily rate for alcohol or drug rehabilitation is about $250. Average hospital rates can be upwards of $350 a day.

Some independent EAP providers also wonder whether hospitals with EAP programs are inclined to make more serious diagnoses than may be necessary. "It's a major problem," said Ann Crowley, a private health care marketing consultant in Washington. "People are being put in centers when they could have just as effecitvely been put in an outpatient program."

Inpatient treatment for substance abuse brings a hospital between $10,000 and $12,000. A six-month outpatient program involving regular counseling might cost $2,500.

"If a hospital feels they have to provide an EAP, as far as I'm concerned they're doing nothing except insuring that they can fill their beds," Crowley said. "People will tell you that their EAPs are different subsidiaries or use different staffs, but that's just clouding the issue. They're just trying to fill beds."

Conflict-of-interst concerns are so high in the Washington area that a number of EAP contractors provide explicit guarantees to their customers that they have no ties, formal or otherwise, to any treatment facility or counseling program.

"We have clinicians on staff, but they are precluded from referring any EAP case to themselves," said Eichler of the Institute for Human Resources. "That has been our policy since the day we opened our doors . . . Our job is to refer independently and to assess."

Other hospital-in EAPs, including the one run by Alexandria Hospital, take pains to point out that they do not have an alcohol and drug treatment facility on site.

Some hospitals that operate EAP units linked to in-house treatment facilities play down the conflict-of-interest question.

"This is absolutely not something that a company should be worried about," said Sally Ann Polson, marketing director for the EAP at the Fairfax Hospital Association which operates four Northern Virginia hospitals.

Fairfax Hospital runs an EAP serving 12,000 employees locally, as well as a drug and alcohol treatment center.

Polson said there is some self-referral, but that it's insignificant. "We in no way look on this as a feeding mechanism," she said.

Some smaller psychiatric hospitals, which unlike full-service hospitals depend heavily on EAP referrals for new business, react even more strongly to charges of conflict of interest.

"This has been a controversial subject for years and years," said James Quinn, director of Changing Point, an EAP run by Taylor Manor psychiatric hospital in Ellicott City.

Changing Point has two drug and alcohol treatment centers in Maryland, plus a number of outpatient facilities in the Washington suburbs. Quinn said that patients sometimes are referred from the EAP to Changing Point's own treatment centers.

"The program gives us an opportunity to talk about our programs. If we didn't do this, people might never hear of Taylor Manor," Quinn said.

Quinn added, "Our customers can vouch for the fact we don't just refer to our own facilities. If our customers thought for one minute that Changing Point was simply a method of filling beds, we would not have grown as we have." Quinn said the EAP added 13 corporate customers last year.

Another hospital singled out for criticism by many local EAP providers for practicing self-referral is the Psychiatric Institute of Washington.

The Institute doesn't offer a traditional EAP service. Instead of contracting with companies, the hospital promotes a free crisis hotline service through local businesses, and sees patients at crisis centers around the Washington area.

Those centers function like EAP's, seeing and counseling patients, and if necessary, making referrals to alcohol and drug treatment centers in the region -- including those rrun by the hospital.

Officials of the Psychiatric Institute said they refer as much as 50 percent of the cases requiring treatment to the inpatient alcohol and drug facilities at their own hospital in Northwest Washington.

The crisis centers operated by the Institute have never made money, yet continue to charge the lowest rates in the area -- a free first visit and fees as low as $5 for subsequent sessions -- leading some competitors to charge that the crisis centers function simply as a marketing tool for the Psychiatric Institute's alcohol and drug programs.

"Obviously, we're part of the hospital," said Carol Patney, the Psychiatric Institute's director of clinical intake. "And we're going to explain to individuals what our hospitals have to offer."

Some clients of EAPs say they have no trouble with the idea of self-referral. "Look, there's many different ways to skin a cat," said William Woodward, medical director of Hunt Valley-based Mc Cormick & Co., Inc., who has worked with Taylor Manor on the big food and real estate company's EAP since 1984.

"I've heard these arguments a number of times, and they're usually made by disgruntled competitors. The crux of the matter is whether the company and the (EAP provider) have a personal chemistry."