This is an exclusive BHB+ story
Interest in establishing new intensive outpatient programs (IOPs) to fill the gap between the therapist’s office and facility-based care has never been higher.
But for all of the clinical and strategic benefits that come with increasing intermediate levels of care, it also comes with a key, if not somewhat underappreciated, consideration. It is a fundamentally risky service model.
Several experts describe to Behavioral Health Business that it is common practice only to pay the elevated rates that IOPs might garner if and only if a patient completes a certain number of hours of therapy in a certain period. Typically, three three-hour sessions in a week. But if that patient doesn’t complete that required number of hours, regardless of the reason, a provider may not get paid at all, even if the patient has already engaged in some therapy during that timeframe. Alternatively, the provider may only receive payment for a limited number of regular outpatient therapy hours at a lower rate, regardless of the actual amount of therapy provided.
The level of risk inherent in an IOP program varies with the obligations that a payer and provider agree to in their contract. However, the fee-for-service nature of the broader behavioral health industry and the stark nature of these contracts may force providers to leave money on the table without any fault.
“It is true that intensive outpatient services (and PHP, partial hospitalization programs) operate under an ‘all or nothing’ framework around reimbursement,” Ted Guastello, CEO of AMFM Healthcare, told BHB. “It is certainly a challenge.”
AMFM Healthcare — based in San Juan Capistrano, California — provides a continuum of outpatient and residential mental health care in California, Washington and Virginia.
Even so, the demand from the general public for more intensive behavioral health services, coupled with the potential for behavioral health providers to profitably address this need, has prompted several new players to enter the market. In turn, that has resulted in numerous transactions. In 2023, the M&A firm The Braff Group tracked 17 deals that involved IOPs and more intensive PHPs, a record-setting level according to the firm’s data.
Most recently, Heath, Texas-based Mindful Health secured a $12 million funding round led by WP Global Partners to create a “mental health home” that offers wellness services, the interventional psychiatry services nasal esketamine and transcranial magnetic stimulation, IOP, PHP, and medication management.
Thousand Oaks, California-based Lightfully Behavioral Health has had two investment rounds led by Regal Healthcare Solutions totaling $50 million since 2021. The latest round was announced in March 2024. The company offers residential services, PHPs, in-person and virtual IOPs in multiple California metros.
What else makes IOP different?
Over the last several years, BHB has tracked several new entrants and incumbents launching IOP programs. Often, these programs serve as a stepping stone within a company’s care continuum, or they operate as a separate B2B business. While not as frequently cited, adding intermediate service to a behavioral health continuum can create business synergy. While not logically incorrect, the synergistic thinking may couch strategic considerations in shaky terms.
“It’s almost like chasing reimbursement that’s higher instead of what IOP is actually meant to be,” Jordan Cox, chief growth and strategy officer for Guidelight Health, told BHB. “There’s a sense of duty and obligation to make sure you have a good IOP program. It’s not like you’re just adding more therapy to an outpatient session so that you can bill more money for it. It’s a whole different level of care.”
Founded in 2023, Guidelight Health offers IOPs and PHPs that focus on skill building, Cox said. In September, the company raised over $16 million. It operates three clinics — in Denver as well as Waltham and Worcester, Massachusetts.
Apart from less-than-likely exceptions built into a payer contract, behavioral health providers only have a handful of options to account for patients missing therapy. Chief of those is to build in redundant care sessions to make up therapy hours, elevating costs for a provider without the certainty that patients will use it. But the key to structuring the make-up hours to work, and the IOP itself to be successful in the first place, is to offer an experience so compelling patients make it the priority of their lives while in the program.
“This [reimbursement structure] pushes us to be a highly engaging provider that is attuned to the needs of our enrollees and prioritizes engagement and opportunity,” Guastello said. “Our programs run for many hours every day so that enrollees can make up sessions and receive clinical services.”
Missing patient hours complicates how providers pay their providers. Depending on the arrangement, patients missing sessions may lead to therapists not getting paid what they expect because of the inability to generate reimbursement. This creates a potential clinician retention challenge for aspiring IOP providers, another risk in the model.
“It’s a competitive employment situation right now,” Cox said. “We pay our therapists and our in-clinic team members whether we have patients or not.”
Clinicians at Guidelight Health receive salaries, and according to Cox, 90% of them work there full-time.
Patients occasionally missing therapy hours are to be expected to some degree. But frequent non-attendance requires deeper examination. At some level, there might need to be a clinical consideration of whether the patient needs an IOP or some enhanced outpatient therapy.
Cox sees the elevated interest in IOPs as long overdue. For the most part, he sees that major investments in behavioral health have gone to the less and most intense ends of the clinical care spectrum. Providers, payers and investors alike have distinct reasons for their interest in IOPs, that is, creating a space where people can get additional care short of a psychiatric hospital or residential facility where care is more expensive and more disruptive to a patient’s life.
IOPs, when effectively designed and executed, largely deliver on patient improvements. One literature review finds that multiple randomized trials and naturalistic analyses find that “IOPs are equally effective when compared with inpatient and residential treatments” for substance use disorder.
Virtual IOPs are increasingly attracting investments from venture capital firms. At least some research shows virtual IOPs can produce similar outcomes but at lower costs while having a longer course of treatment.
Charlie Health, a mental health treatment provider, focuses its care on a virtual IOP model. Last year, the outpatient mental health provider Brightside Health acquired virtual addiction treatment provider Lionrock Recovery. The deal helped the company add the IOP model to its offerings.
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