Why IOP could be the next golden egg for mental health providers

Investment in mental health has increased over the past five years. Still, there remains a big gap between inpatient care and outpatient care, which could be a business opportunity for providers looking to expand.

Specifically, more and more providers are looking to intensive outpatient programs (IOPs) to care for patients who need either a step down from an inpatient program or a step up from a traditional outpatient program. OBT usually consists of at least nine hours of treatment per week for adults, according to the National Alliance on Mental Illness.

Although IOPs have traditionally had an important role in substance use disorder treatment, these types of programs are now gaining momentum in the mental health field as payers look to help patients stay out of the hospital and patients look for ways to returned to his 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 day jobs and manage their daily lives, but they can also seek treatment for more acute diagnoses than in the traditional type of individual model.”

Brentwood, Tennessee-based Odyssey Behavioral Healthcare is an outpatient mental health provider that offers inpatient programs, intensive residential programs, partial hospitalization, ICU, transitional living and detoxification. It established its first ENT clinic in late 2017 as a step down to its Residential Treatment Center (RTC) programs.

Why now

According to a report by the Kaiser Family Foundation and CNN, rates of behavioral health conditions have increased since the COVID-19 pandemic, with 90% of US adults believing the country is facing a mental health crisis. In February 2023, more than 30% of US 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 outpatient psychiatrists and many therapists are starting to see more patients with challenges,” Terry Hyman, managing partner of Northwood Healthcare Partners, told BHB. “They are finding that in some cases, perhaps many cases, they are not appropriate to treat patients based on the acuity of care and attention that these people need.” What’s happened is there’s a bit of a gap in the market between inpatient and outpatient.”

Northwood Healthcare Partners is a private equity firm specializing in healthcare. It previously invested in substance use disorder provider Summit Behavioral Health.

Although ICUs can provide clinicians with an alternative place to refer patients in need of subacute care, Richard Clarke, CEO of Odyssey, noted that this type of service is most effective when placed within the continuum of care.

“We have focused heavily on the growth of IOP and since 2017 have had a lot of success in providing this level of care to our clients,” Clarke told BHB in an email. “IOP services, the lowest level of care we offer, are 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 move clients up and down the continuum in a way that leads to the best possible outcomes.”

As a result, established players in ambulatory behavioral health are now looking to expand their line of services to include VET programs.

Outpatient behavioral health provider Transformations Care Network, for example, is looking to add VOH clinics as part of its 2024 strategic plan. It’s doing so in response to demand for services, CEO Brian Whelan told BHB.

“Inevitably when I look at a place like Massachusetts where we have 20 clinics, you ask what do my current clinicians or patients need,” Whelan said. “It’s difficult for us to get all the discharges from the hospital or we have people who are quite heavy and we have nowhere to put them. The logical conclusion might be: “Let’s build a regional IOP.” So in our case it will be clinically managed.

Transformations Care Network is a Massachusetts-based provider of outpatient mental health services. With clinics in Massachusetts, Pennsylvania, West Virginia, Virginia, Maryland and Washington, DC Transformations Care Network provides services for adults and children.

What payers are saying

It is not only patients and clinicians who are increasing the demand for IOP; services are already beginning to attract the attention of payers.

“If someone can be treated in an IOP setting versus an inpatient setting, on a daily basis, that’s a fraction of the cost,” Hyman said. “And if you can avoid that inpatient stay or one-time ED visit, it’s an extremely cost-effective alternative.”

Inpatient care for behavioral health conditions can be expensive. According to the Agency for Healthcare Research and Quality, the average cost of a mental health inpatient stay was $7,100 in 2016. By comparison, the average cost of treating IOP is between $250 and $350 per day, according to American Addiction Centers.

But reducing costs in the short term is not the only goal for payers. Insurance companies are also focused on achieving long-term results.

“Speaking more generally of what [payers] are looking for, these are organizations with a focus and emphasis on clinical care and quality, but also able to drive the outcomes that they need to see in their populations and that we feel empowered to deliver to our clients and their families,” said Brady . “We believe that in order to do that, we need to offer that end-to-end continuum within that market.”

We are getting ready to start

Although the overhead of setting up an IOP is relatively low compared to inpatient units, there is still some investment to get the space up and running.

“The costs are patient recruitment, delivery costs and then there are some space options. But I think in today’s world group [therapy] he usually recovers pretty well,” Whelan said. “Rates are going up for your therapeutic and psychiatric modalities, and as long as you position yourself as, ‘Hey, I’m signing up for discharge from the hospital or I’m willing to take a diversion from the emergency room,’ then you can say to the payer, ‘This is a good value.’

Whelan noted that small providers often can’t accept patients from emergency rooms or inpatient units because they don’t have psychiatric teams or capacity.

“We are a larger practice. … Our job is to occupy that white space between private practice and community mental health that can deal with the most seriously and persistently mentally ill. There is a huge gap between them,” Whelan said. “We have admissions, psychiatry and therapy teams and a whole bunch of things to deal with these high-acuity patients.”

While some new players are starting out exclusively in the IOP space, it can be difficult for these companies to tap into the full mental health continuum.

“We’re seeing more providers get into exclusively IOP models, but that can be challenging, especially if you don’t have clinical experience in higher levels of care,” Brady said. “And again, there are clients in treatment for IOP who in many cases need to transition to PHP or RTC, so you have to be able to support that client throughout the continuum of care. It’s also attractive to payers and they’re willing to be more engaged if you’re able to offer that full continuum for just a fraction of it.

As for companies like Odyssey that already have an established mental health IOP service line, the goal is to expand.

Brady noted that at Odyssey, outpatient growth comes almost exclusively through de novo initiatives.

Still, the provider is always looking to evaluate M&A opportunities on the outpatient side as well.

“We have a robust de novo growth plan, and so we will continue to execute on that,” Brady said. “And if an M&A opportunity comes along that meets all the requirements, we’ll be in a position to act opportunistically.”

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