This is an exclusive BHB+ article
Over the last five years, intensive outpatient programs (IOPs) and partial hospitalization programs (PHPs) have proliferated nationwide to fill the gap between outpatient services and inpatient psychiatric care.
Intermediate care providers have been a big hit with payers who are looking for ways to keep their members out of expensive inpatient stays. The services have also hit home with patients who want to remain in their communities during care.
Many new players on the market mean more competition in the space.
“PHPs and IOPs are great service offerings. There are reasons why investors like it; it’s highly scalable, and there’s a ton of demand out there,” Ted Guastello, CEO of AMFM Healthcare, said at INVEST. “I think the flip side to being highly scalable means, typically, it comes along with lower barriers to entry. And I think what we have seen more recently, in those lines of business, PHP, IOP, are getting more competitive. They’re more entrants, more people in the marketplace, offering similar services, and harder to differentiate.”
AMFM Healthcare is a provider of residential mental health treatment centers.
While payers generally favor IOP and PHP care, ensuring patients attend enough sessions to meet reimbursement thresholds remains a challenge.
Additionally, intermediate care is a difficult service to provide in a silo. IOPs and PHPs sit between outpatient and inpatient care, often requiring a step-down or step-up in services. It’s essential for intermediate care providers to either have a continuum of services or have relationships with providers that can offer diversified services.
While IOP and PHP growth shows no signs of slowing, providers should carefully weigh the business challenges alongside the opportunities drawing so many to the space.
In this BHB+ Update I will explore:
–The IOP and PHP landscape
–The top reimbursement challenge for providers
–The importance of a care continuum
The landscape
IOPs and PHPs are types of behavioral health care that allow individuals to remain in their communities while receiving more intensive therapy than in a traditional outpatient setting. IOPs typically provide 10 to 15 hours of care per week, and PHPs offer 25 to 30 hours per week.
While the services aren’t new, the use of virtual health and the emphasis on outpatient care have led to a rise in offerings over the past few years.
“IOP is a model that has existed for over 50 years before virtual forms of intensive outpatient treatment,” Carter Barnhart, CEO of Charlie Health, said at INVEST. “Though it was underutilized, only 5% of the population had access to intensive outpatient services despite it being a proven effective treatment model. Today, we know that 90% of the population now has access to intensive outpatient services because there are now virtual intensive outpatient programs.”
Charlie Health offers virtual IOP services for children, teens and adults.
Major players and newcomers have taken notice of the growing interest in IOPs and PHPs. For example, GV (formerly Google Ventures) invested $16.35 million in Guidelight Health, a behavioral care provider, in 2023. Additionally, Lightfully Behavioral Health, which offers residential services, PHPs, and in-person and virtual IOPs, has raised $50 million across two funding rounds.
Established behavioral health giants increasingly want to step-down services, such as IOPs and PHPs. In fact, during Universal Healthcare’s (NYSE: UHS) Q3 earnings call, CFO Steve Filton noted the future opportunity in this space.
“Where we haven’t really had much of a presence historically is what we describe as step-in business,” Steve Filton, executive vice president and CFO for UHS, said during the call. “These are patients who enter the behavioral system in an outpatient setting, and often are not comfortable doing that and entering the system on a hospital campus.”
The company is looking to expand its presence in the space with the launch of 10 “step-in” outpatient programs, which will operate under local brands. Additionally, its UHS Thousand Branches Wellness programs offer freestanding outpatient facilities, which include IOP services for teens.
UHS’ main competitor, Acadia Healthcare (Nasdaq: ACHC), has also been eyeing future expansion in IOP and PHP.
“We’re really excited about outpatient and partial hospitalization overall,” Acadia CEO Christopher Hunter said during the Bank of America Securities Healthcare Conference in 2024. “It is a small financial contributor to the business today, but I think it’s just one that we have significant upside over time.”
Challenges for intermediate care
While IOPs and PHPs’ expansion offers many benefits, for the business to be sustainable going forward, providers must factor in the sector’s unique challenges.
One of the main pain points for intermediate care providers is ensuring patients receive the required hours to bill for those services.
“You are not able to build à la carte per day,” Guastello said. “So if a plan’s clinical requirement is for nine hours of intensive therapy over the course of a week, over three sessions, that’s the minimum threshold. If they only meet eight hours or seven and a half hours that week, then you’re not getting reimbursed.”
Still, savvy providers have found ways to make it easier for patients to get the minimum number of hours needed.
“There are strategies to mitigate the impact of that, but I would also say emphatically, thus, the importance of virtual care,” Guastello said. “I’ve heard in some of our hallways and breakout discussions questions about the relevancy or efficacy of virtual care. I think that’s like being in Detroit in the 1930s, debating if horses are better than cars. Virtual care is here. Let’s embrace it. It’s effective, it’s important, and most of all, it gets people into care.”
But reimbursement isn’t the only challenge facing IOP and PHP providers today. Since these providers sit in the middle of the care continuum between inpatient and outpatient care, it’s critical for providers to be able to move patients to the appropriate level of care.
Establishment players like UHS and Acadia have an upper hand in directing patients to their respective levels of care. However, more specialized teams can do that as well with good partnerships.
“Since we’re just one stop in the continuum, it’s so important that we have good partnerships with higher levels of care and lower levels of care, so that we can seamlessly transition people from residential level of care into our virtual intensive outpatient or if they’re just in once a week outpatient therapy, help them step up into our program,” Barnhart said.
Conclusion
I think the benefits that IOPs and PHPs offer to all behavioral health care stakeholders mean that these services are only going to grow. Still, it would be unfortunate for providers and investors to see these levels of service as the next shiny object and get over their skis before fully understanding the challenges.
Like all things in life, it’s important to proceed with caution.
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