The behavioral health system in the U.S. is in a period of rapid change. Rising rates of mental illness and substance use disorders, regulatory and payor shifts, and consumer expectations are reshaping how care is delivered. Many patients need more support than weekly outpatient therapy can provide, but don’t meet the threshold for inpatient care, or can’t afford the cost and disruption.

Mid-acuity options like intensive outpatient programs (IOP) and partial hospitalization programs (PHP) bridge that critical gap in the care continuum. Market forces are shaping the industry in a way that has increased demand for these programs.

Growing Need, Proven Impact

According to SAMHSA’s 2024 National Survey on Drug Use and Health, within the last year:

• 4% of U.S. adults experienced any mental illness.
• 6% of adults reported a serious mental illness (SMI).
• Just 1 in 5 adults who needed substance use treatment actually received it.

These numbers demonstrate the need for accessible behavioral health treatment. Yet many patients with moderate-to-severe symptoms struggle to get the care they need. They require a level of care that lands between outpatient therapy and inpatient treatment.

IOP/PHP models offer a scalable solution, and research has repeatedly shown these care models to be effective.

• IOPs for substance use achieve comparable outcomes to inpatient programs.
• PHPs are effective at managing psychiatric crisis when the patient doesn’t need overnight hospitalization.
• IOPs can be used to treat a variety of mental health diagnoses.
• Flexibility, peer support, and opportunities to practice new skills at home make these models practical and successful.

Still, barriers remain. Workforce shortages, costs, insurance limits, and stigma can affect access to IOP and PHP programs just as they affect access to other types of behavioral health care. For practices, running IOPs requires a broad team of supervisors, prescribers, case managers, and therapists; not every outpatient practice will have adequate staff already in place.

Market Dynamics Driving Growth

Consumer Expectations

Patients today want care that’s flexible, personalized, and accessible. IOP/PHP models are uniquely positioned to meet those needs.

IOPs and PHPs are often structured to provide personalized treatment, and because they don’t require overnight stays, they’re easier to “fit in” around regular life. Telehealth expands the reach of IOPs further, offering access to people who can’t attend programs in-person.

IOP and PHP models also provide care at a fraction of the cost of inpatient programs.

Economic and Social Pressures

Rates of anxiety, depression, loneliness, and co-occurring substance use continue to push demand for mental health services. At the same time, economic stress makes cost-efficient treatment attractive to both patients and payers.

Payer and Reimbursement Trends

We’ve seen important payer shifts in IOP/PHP coverage:

• Medicare coverage (2024): Expanded reimbursement for IOP/PHP services increased access for many patients.
• Cost savings: Payers are recognizing the economic value of avoiding unnecessary inpatient stays.
• Parity enforcement: Mental health parity laws put pressure on insurers to fairly cover these programs.

At the same time, compliance expectations are high. Payers require precise documentation and coding to differentiate IOP/PHP services from outpatient care. Practices that enter this space must be ready to meet those demands.

Headwinds and Uncertainties

The market outlook shows reason for both optimism and caution. Ibisworld reports that U.S. mental health industry revenue has grown at a 5.9% CAGR, reaching $31.4 billion with continued growth expected. This growth is encouraging for practice owners and clinicians.

On the other hand, policy and funding shifts could slow the momentum:

• Cuts to Medicaid, SAMHSA black grants, and the public health workforce could shrink the resources available to IOPs and PHPs.
• Changes to Medicaid eligibility rules could reduce the number of people covered for IOP/PHP treatment.

Providers planning for growth should watch funding streams closely and stay abreast of industry news.

What’s Next for IOP/PHP

Several trends are likely to shape the future of IOP and PHP programs.

• Standardization and outcomes: More consistency in program design, and stronger outcomes tracking, will give payers confidence in the programs and give providers benchmarks for quality.
• Integrated, stepped-care models: Seamless movement between outpatient, IOP, PHP, and inpatient care could become a hallmark of mental health care systems in the future.
• Hybrid and digital augmentation: Telehealth and digital tools will expand access, especially in underserved communities. They’ll also help patients stay engaged with the program and use peer support.
• Value-based reimbursement: Payment models that reward reduction in hospitalization and improvements in functioning will gain traction.
• Equity and access: Modern programs must be distributed, affordable, and culturally competent to meet community needs.
• Supportive technology: Serving the needs of IOPs and PHPs will become more critical to EHRs and other tech solutions in mental health.
• Codifying best practices: As the field evolves, data and clinical experience will drive clearer standards for IOP and PHP care.

Takeaway

IOP/PHP treatment is becoming a larger part of behavioral health care delivery. Backed by evidence, consumer demands, and policy shifts, IOPs and PHPs could play a defining role in the future of mental health.

For providers, investors, and technology partners, the opportunity is clear. Expanding into IOP or PHP treatment is a way to meet urgent patient needs and a strategy for sustainable, future-ready care systems.