Investment in mental health has exploded over the last five years. Still, there remains a large gap between inpatient care and outpatient treatment, which could be a business opportunity for providers looking to expand.
Specifically, more and more providers are eyeing intensive outpatient programs (IOPs) to care for patients that need either a step down from an inpatient program or a step up from a traditional outpatient program. IOPs typically consist of at least nine hours of treatment a week for adults, according to the National Alliance of Mental Illness.
Although IOPs have traditionally had an important role in substance use disorder treatment, this type of program is now gaining steam in the mental health space as payers look to help patients stay out of the hospital and patients seek ways to return to their community.
“There is an overlap of payer engagement and market demand for these services,” Rush Brady, associate vice president of development at Odyssey Behavioral Healthcare, told Behavioral Health Business. “Clients can still have a day job and manage their daily life, but can also seek treatment for more acute diagnoses than in a traditional one-on-one type of model.”
Brentwood, Tennessee-based Odyssey Behavioral Healthcare is an outpatient mental health provider that offers inpatient programs, intensive residential programs, partial hospitalization, IOPs, transitional living and detoxification. It established its first IOP clinic in late 2017 as a step down for its residential treatment center (RTC) programs.
Why now
According to a Kaiser Family Foundation and CNN report, rates of behavioral health conditions spiked in the wake of the COVID-19 pandemic, with 90% of adults in the U.S. believing that the country is facing a mental health crisis. In February 2023, more than 30% of U.S. adults reported symptoms of anxiety and/or depression.
This has left some providers at a loss for what to do when patients need higher levels of care.
“What I think has happened is that the psychiatrists practicing on an outpatient basis, and many therapists, are starting to see increasingly challenged patients,” Terry Hyman, managing partner of Northwood Healthcare Partners, told BHB. “They are finding that in some cases, perhaps many cases, they’re not well suited to treat the patients based on the acuity of care and attention that those people need. What’s happened is there’s a bit of a void in the market between the inpatient facilities and the outpatient.”
Northwood Healthcare Partners is a private equity firm specializing in health care. It has previously invested in substance use disorder provider Summit Behavioral Health.
While IOPs may provide clinicians an alternative spot to refer patients needing sub-acute care, Richard Clark, CEO of Odyssey, noted that this type of service is most effective when placed in a continuum of care.
“We’ve been focusing heavily on IOP growth, and since 2017, we’ve experienced a lot of success in providing that level of care for our clients,” Clark told BHB in an email. “IOP services, the lowest level of care we offer, is an important part of our continuum of care. In most markets, we offer [RTC], partial hospital programs (PHP) and IOP services. We are able to step clients up and down through the continuum in a way that results in the best possible outcomes.”
As a result, established players in the outpatient behavioral health space are now looking to grow their service line to include IOP programs.
Outpatient behavioral health provider Transformations Care Network, for instance, is looking to add IOP clinics as part of its strategic plan for 2024. It’s doing so in response to the demand for services, CEO Brian Wheelan told BHB.
“Inevitably, as I look at a place like Massachusetts, where we have 20 clinics, you ask what my existing clinicians or patients need,” Wheelan said. “We have a hard time receiving all of our hospital discharges, or we’ve got people who are quite severe and have no place to put them. The logical conclusion might be, ‘Let’s build a regional IOP.’ So in our case, it would be clinically driven.”
Transformations Care Network is a Massachusetts-based outpatient mental health provider. It has clinics in Massachusetts, Pennsylvania, West Virginia, Virginia, Maryland and Washington, D.C. Transformations Care Network provides services for adults and children.
What payers are saying
It isn’t just patients and clinicians driving up IOP demand; the services are now beginning to garner payer attention.
“If someone can be treated in an IOP setting versus an inpatient setting, on a per diem basis, it’s a fraction of the cost,” Hyman said. “And if you can avoid that inpatient stay or a single ED visit, it is a highly economical alternative.”
Inpatient care for behavioral health conditions can be costly. According to the Agency for Healthcare Research and Quality, the mean cost of a mental health inpatient stay was $7,100 in 2016. In comparison, the average cost of IOP treatment is between $250 and $350 per day, according to American Addiction Centers.
But cutting costs in the short term isn’t the only goal for payers. Insurance companies are also focused on driving long-term outcomes.
“Speaking more broadly about what [payers] are looking for, it’s organizations with a focus and emphasis on clinical care and quality, but also being able to drive the outcomes that they need to see in their populations and that we feel mandated to provide our clients and their families,” Brady said. “We believe in order to do that, we need to offer that end-to-end continuum within that market.”
Getting started
While the overhead cost of setting up an IOP is relatively low compared to inpatient units, there is still some investment in getting started in the space.
“The costs are patient acquisition, delivery costs, and then there are some space opportunity costs. But I think in today’s world, group [therapy] tends to be pretty well reimbursed,” Wheelan said. “Rates are rising for your therapy and psychiatry modalities, and as long as you position yourself as, ‘Hey, I am signing up to take hospital discharges, or I am willing to take emergency room diversion,’ then you can say to a payer, ‘This is good value.’”
Wheelan noted that small providers often can’t take patients from emergency departments or inpatient units because they don’t have psychiatry teams or capacity.
“We’re a bigger practice. … Our job is to occupy that white space between private practice and community mental health, which can handle the most seriously and persistently mentally ill. There’s a huge gap in between,” Wheelan said. “We’ve got intake teams, and psychiatry and therapy, and a whole bunch of things to deal with those high-acuity patients.”
While some new players are exclusively getting started in the IOP space, it can be difficult for these companies to plug into the full mental health continuum.
“We’re seeing more providers getting into exclusively IOP models, but that can be challenging, especially if you don’t have the clinical experience in higher levels of care,” Brady said. “And, again, there are clients in IOP treatment that, in many cases, need to be stepped up to PHP or RTC, and so you need to be able to support that client through the full care continuum. That’s also attractive to payers, and they’re willing to be more engaged if you’re able to offer that fulsome continuum versus just a piece of it.”
As for companies like Odyssey that already have an established mental health IOP service line, the goal is expansion.
Brady noted that at Odyssey, the outpatient growth comes almost exclusively through de novo initiatives.
Still, the provider is always looking to evaluate M&A opportunities on the outpatient side too.
“We’ve got a robust playbook for the de novo growth and so we’ll continue to execute on that,” Brady said. “And if there’s an M&A opportunity that comes along that checks all the boxes, we’ll be in a position to move opportunistically.”
Companies featured in this article:
Northwood Healthcare Partners, Odyssey Behavioral Healthcare, Transformations Care Network
