For years, partial hospitalization (PHP) and intensive outpatient programs (IOP) occupied a cloudy middle ground in behavioral health.

The treatments, where patients mostly live at home but spend several hours a week in acute care, existed somewhere in between once-a-week therapy appointments and residential treatment.

That has changed, say PHP and IOP providers, who report a bullish fundraising environment and increasing referrals from other health care professionals.

“This intermediate level of care is perfectly situated to resolve some of the biggest problems we’re facing right now,” Andy Cruz, co-founder and chief medical officer of Guidelight Health, said during a panel at the Behavioral Health Business conference INVEST 2024.

Guidelight Health is a mental health care provider headquartered in Glencoe, Illinois.

Cruz notes that the IOP and PHP space played only a minor role in the rush of post-Affordable Care Act behavioral health investment. In 2014, there were only three deals total in the PHP/IOP outpatient sector, according to the Braff Group, compared to 24 deals involving residential treatment centers.

“Investors really looked at behavioral health as low-acuity solutions like coaching, self-care, maybe a little bit of therapy,” said Dr. Monika Roots, president and chief medical officer at Bend Health. “That was really the sweet spot.”

When it came to intensive care, there had been a thought it should take place in a residential setting, said Brittany Freiden, senior vice president of strategy at Lightfully Behavioral Health. That thinking changed a few years ago, a shift that COVID accelerated.

“COVID was the digital transformation engine for most health care companies, and behavioral health was certainly not excluded,” Freiden said. “People started to realize, not only can I access care for higher acuity problems at lower acuity settings, but we can deliver reliable, quality outcomes in that capacity as well.”

Thousand Oaks, California-based Lightfully Behavioral Health has received two rounds of investments the last three years from Regal Healthcare Solutions totaling $80 million. The company has PHP, which it administers through 12 brick-and-mortar facilities, and a virtual IOP program.

Bend Health, a pediatric mental health provider based in Madison, Wisconsin, emerged from a quiet start in its fundraising efforts to announce $32 million in outside financing last year.

And Guidelight Health disclosed a $16 million raise last year due in part to Google Ventures (GV).

These companies’ fundraising exploits broadly mirror overall investor interest. For example, while 2023 was a relative down year in behavioral health dealmaking, PHP and IOP transactions increased. In terms of mergers and acquisitions, Braff Group data showed 17 total deals in PHP IOP in 2023, compared to 12 in residential.

Previously, Roots said, investors were attracted more to companies that provided one specific care solution. But the Bend co-founder argued that companies like hers that feature coaching, collaborative care, psychiatry and neuropsychological testing fit better into the reality of how mental health disorders can be treated.

“Mental health is a chronic condition that changes over time between low acuity and high acuity,” Roots said. “We need these full spectrum service providers.”

Behavioral Health Business

The panelists described a growing appreciation for PHP and IOP services from not just investors but also psychiatrists, primary care physicians and emergency room personnel.

“We actually see psychiatrists as one of the highest referring volumes,” said Freiden. The Lightfully Health executive added, more patients are coming first to PHPs and IOPs, as opposed to stepping down from higher levels of care.

As the industry grows, it does wrestle with questions of identity, including whether providers should offer both PHP and IOP, or specialize in one of the two.

“A lot of people talk about the business as PHP/IOP,” Cruz said, whose company offers both. “They’re very different, actually. The IOP is an extra nine hours of support a week that you can blend into your day-to-day life.”

Meanwhile, PHP is more time-intensive. And the in-person care aspect is not provided by companies like Bend Health that are entirely virtual.

Roots acknowledged that virtual is not best for everybody and that Bend Health has multiple residential care providers it refers clients toward.

In many aspects, though, virtual is superior at addressing staffing shortages and offering additional services, providers said.

“I just think there are certain populations where virtual is super necessary,” Cruz said.