Most people who get burned buying a treatment center didn't skip due diligence — they did the wrong due diligence. Behavioral health deals look great on a broker deck, but the real risk lives in payers, people, and paperwork, not just the revenue line.
Behavioral health acquisitions are uniquely tricky because so much of the value is invisible: payer relationships, staff retention, clinical reputation, and regulatory standing that only shows up in state files and payer portals, not on a P&L. If you're a clinician or healthcare entrepreneur evaluating an IOP or PHP acquisition, this checklist is what you actually need to review before you commit a dollar.tn+1
Start With the Financials — But Don't Stop There
The first thing any broker will hand you is a revenue summary. Look past it.
What to pull:
24–36 months of bank statements (not just P&Ls — bank statements are much harder to manipulate than management reports).
Monthly revenue broken down by payer type: commercial insurance, Medicaid, Medicare, self-pay. Medicaid typically reimburses significantly less than Medicare and commercial insurance for behavioral health, often in the range of 70–80% of Medicare or lower in many states.behavehealth+1
Average length of stay and average daily census over the past 12 months.
Accounts receivable aging report, segmented by payer, with a clear view of what’s sitting at 90, 120, and 180+ days.
A center showing $2M in annual revenue might have a large chunk of that sitting in AR that’s 180+ days out and at high risk of non-collection; in many practices, older AR is substantially less likely to be paid. That changes the real picture entirely.[cms]
Pay close attention to payer mix. A PHP that’s heavily weighted toward Medicaid will usually have a very different margin profile than one with a strong commercial book, because Medicaid reimbursement for psychiatric services tends to lag Medicare and commercial rates across most states. In practical terms, it’s common to see commercial plans pay 120–200% of Medicare benchmarks for some behavioral health services, while Medicaid may sit well below Medicare for the same codes, which is why payer mix can effectively move your revenue per unit of service by a factor of two or more.pmc.ncbi.nlm.nih+2
Licensing and Regulatory Standing
This is where treatment center acquisitions get complicated fast.
Behavioral health facility licenses are issued at the state level, and in many states they are not automatically transferable to a new owner; a change of ownership often requires either a new license application or formal approval before operations can continue under the new entity. Some states allow an expedited process; others require a full re-application, and relocation or other changes can also trigger a new license requirement. Either way, you should plan for a potential gap period — sometimes measured in months, not weeks — where you may face limits on billing or operations under the new entity.law.cornell+2
What to verify:
Current license status with the state behavioral health licensing authority (and that the license is active and in good standing).[tn]
Any open investigations, complaints, or corrective action plans (CAPs) on file with the state.
Accreditation status (CARF or Joint Commission) and expiration dates, since many payers and referral sources either prefer or require accredited programs.[beckersbehavioralhealth]
Certificate of Need (CON) requirements if operating in a CON state, as new ownership or expansion can trigger additional review in those markets.
A center with an open licensing complaint is not automatically a dealbreaker, but you need to know exactly what it is, how far along the resolution is, and whether it could affect your ability to maintain accreditation or credential with payers post-acquisition.law.cornell+1
Payer Contracts and Credentialing
This is the single most overlooked area in behavioral health acquisitions, and it’s where a lot of deals fall apart after closing.
Payer contracts for facilities are typically held at the entity level, and changes in ownership, tax ID, or corporate structure often require notification and re-credentialing rather than a simple “transfer” of contracts. For many payers, the credentialing or re-credentialing process can take several months; industry guidance and payer FAQs commonly describe timelines of 90–180 days, and sometimes longer if applications are incomplete or backlogs are high. During that window, you may be out-of-network or unable to bill under the new entity, which has obvious implications for cash flow.[cms]
What to audit before closing:
Full list of active payer contracts with current contracted rates and key utilization management terms.
Which contracts are assignable and which explicitly require re-credentialing or new agreements in the event of a change of ownership.
Any payer audits currently in progress or resolved in the past 24 months, including the scope, findings, and any corrective actions.
Clawback history — have payers recouped funds based on documentation or medical necessity concerns in the last few years?
If a center has had multiple commercial payers conduct audits in a short period, that’s a red flag worth digging into even if they technically “passed”; it may suggest documentation gaps, utilization patterns payers are watching, or inconsistent application of medical necessity criteria.[beckersbehavioralhealth]
Clinical Operations and Staff
A treatment center without its clinical team is just a building with a license.
The LCSW or LPC who runs groups, the psychiatrist who does med management, the intake coordinator who has relationships with every referral source in town — these people often carry most of the day-to-day value of the business. When ownership changes, some of them will at least consider leaving, and turnover in behavioral health settings has been linked to increased stress on remaining staff and disruptions in service delivery.[pmc.ncbi.nlm.nih]
What to assess:
Organizational chart with credential type for each clinical role, so you understand exactly who is providing what level of care.
Employment vs. contractor status for clinical staff; contractor-heavy models can carry more regulatory and employment-law risk if misclassified.
Non-compete or non-solicitation agreements in place, especially for key clinicians and referral-facing roles, while keeping in mind that enforceability varies by state.
Key man dependency: is there one or two people whose departure would materially affect census, reputation, or clinical quality?
Talk to the clinical director before you close. Not to negotiate the deal, but to understand whether they plan to stay, what would make that realistic, and whether they believe the rest of the team is likely to ride out a transition.
Census, Referral Sources, and Outcomes Data
Occupancy tells you how the center is actually performing day-to-day.
Ask for a 12-month census report showing average daily census by month. Look for seasonality patterns and whether there’s been a recent unexplained dip — sometimes that signals a referral source relationship that broke down or a staff departure that hasn’t fully hit the financials yet.
Referral source analysis:
What percentage of admissions come from the top 5 referral sources?
Are any referral relationships informal or personal to the current owner or one key staff member?
Is there a documented outreach strategy, or is census essentially dependent on word of mouth and a few personal relationships?
A center where a large share of admissions comes from the owner’s personal network carries real concentration risk; if that owner exits and doesn’t stay involved, some of that volume will likely follow them.
Outcomes data is increasingly important for payer relationships, accreditation, and value-based discussions. Many behavioral health programs use tools like PHQ-9 and GAD-7 to track symptom change over time, and payers and regulators are paying more attention to these kinds of standardized outcomes when evaluating programs. Absence of this data isn’t necessarily disqualifying — many smaller centers still don’t track it rigorously — but having reliable, measurement-based outcomes can strengthen your position in payer audits and negotiations.thinkitive+1
Real Estate, Equipment, and Contracts
Lease: Is the current space leased? What are the terms, and is it assignable to a new owner or entity? Some healthcare facility licenses are address-specific, which makes lease continuity and landlord consent especially important when you’re planning a change of ownership or location. A center locked into a long-term lease at above-market rates is a liability, not an asset, unless you have a clear plan to offset those costs.[tn]
Equipment: Confirm ownership of all clinical equipment, furniture, and technology systems. Ask which EHR is in use and what it would take — in time, cost, and data migration effort — to move to your preferred platform if you don’t plan to keep the current system.
Vendor contracts: Billing company, cleaning, laundry, food service if applicable, lab services, transportation — understand what you’re inheriting, what the auto-renewal and termination terms look like, and whether any vendors are tied to owners or related parties.
The Conversation Most Buyers Avoid
Ask the seller directly: why are you selling?
Burnout, retirement, relocation, or a clear strategic pivot are all plausible reasons. When you get a vague answer from someone who otherwise appears to be in their prime working years with no obvious external catalyst, it’s at least a signal to keep asking follow-up questions.
You won’t always get the full story in this conversation, but how the seller answers — and whether they’re transparent about recent challenges — tells you a lot. If the broker consistently jumps in to answer questions that really should come from the owner, that’s a data point too.
FAQ
What’s a fair multiple for a treatment center acquisition?
Most IOP/PHP acquisitions commonly trade in the mid‑single‑digit EBITDA range, with stronger multiples for programs that have stable commercial payer mix, accreditation, and consistent census. Distressed centers or those with significant licensing or payer issues often end up priced closer to asset value or below, because buyers are underwriting substantial turnaround risk.[bhbusiness]
Do I need a healthcare attorney for a treatment center acquisition?
In practice, yes. Healthcare transactions layer licensure, payer participation rules, fraud and abuse laws, and privacy requirements on top of standard M&A issues, and those are areas general corporate counsel may not fully catch. Working with an attorney who knows behavioral health or healthcare deals in your state usually pays for itself in avoided mistakes.law.cornell+1
How long does it take to close a behavioral health acquisition?
A 60–120 day window from signed LOI to close is common in smaller deals, but that assumes clean financials and straightforward licensing. Licensing changes and payer credentialing can add several more months depending on the state, which means your realistic timeline for full, in‑network revenue under the new entity can easily stretch past six months in some markets.cms+1
What’s the biggest red flag in treatment center due diligence?
Undisclosed payer audits or clawbacks are near the top of the list, because they suggest either documentation problems, medical necessity concerns, or both. Heavy revenue concentration in a single payer or referral source is a close second, because any change in that relationship can hit census and cash flow quickly.[beckersbehavioralhealth]
Can I acquire a center without experience running one?
You can, but going in without operational support is risky. Running a behavioral health business involves staffing, compliance, payer relations, and revenue cycle work that are very different from doing direct clinical care, which is why many first‑time owners lean on experienced operators, management teams, or MSOs to fill those gaps.[beckersbehavioralhealth]
What happens to the existing staff after an acquisition?
That’s ultimately up to you as the new owner, but how you handle communication and incentives during the transition will heavily influence retention. Research on healthcare settings shows that staff turnover increases workload and strain on remaining employees, which can undermine both operations and patient experience if not actively managed.[pmc.ncbi.nlm.nih]
ForwardCare is a behavioral health MSO (Management Services Organization) that partners with clinicians, sober living operators, healthcare entrepreneurs, and investors to launch and scale behavioral health treatment centers. We handle the business side — licensing support, insurance credentialing, billing, compliance, and operational infrastructure — so our partners can focus on growth and clinical quality.
If you’re serious about opening or expanding a behavioral health treatment center but don’t want to navigate the business side alone, ForwardCare may be worth a conversation.