Underestimating How Long It Takes to Get Paid
This is the number one killer. New owners budget for rent, salaries, and build-out costs but completely underestimate the gap between opening their doors and receiving insurance payments.
Insurance credentialing and contracting can easily take several months depending on the payer panel status in your area, and Medicare’s own implementation of the IOP benefit came with detailed certification and plan-of-care requirements that take time to set up correctly.CMS IOP billing requirements On top of that, most payers pay on a delayed cycle; for example, Medicare Part B services like PHP have beneficiary coinsurance of 20% after the deductible and are typically paid on a 14–30 day cycle after a clean claim is received.Medicare mental health PHP coverage When you factor in initial claim rejections, corrections, and lag in submitting your first batch of claims, you can be looking at six to nine months of cash burn before revenue feels predictable.
Most first-time owners budget for three months of runway. They usually need closer to nine to twelve, especially if they are also waiting on major commercial contracts to go live.
What to Do Instead
Build your financial model assuming zero collected revenue for the first six months and a very bumpy revenue ramp for the next three. If you can’t stomach that number, you’re either undercapitalized or need to restructure your launch timeline.
Get your credentialing and contracting applications submitted the moment you have your facility license and NPIs, not after you’ve signed a lease and hired staff. Medicare’s IOP guidance, for example, requires that services be delivered under an individualized, physician-certified plan of care with a minimum of 9 hours per week of therapeutic services; those requirements should shape your clinical and documentation infrastructure before you ever bill a day.CMS IOP billing requirements
Choosing a Location Based on Vibes Instead of Data
A lot of new owners pick their location based on where they’d want to work or where they currently live. That’s not how you make a $15K-per-month lease decision.
Your location needs to be driven by payer density, referral source proximity, and competitive landscape. In many markets, commercial insurance penetration and Medicaid enrollment vary significantly by ZIP code, which directly affects your revenue potential and payer mix.KFF insurance coverage data A beautiful office in a suburb 40 minutes from your nearest referral hospital or major outpatient psychiatry group is a beautiful office nobody will regularly refer to.
What to Do Instead
Map your top five referral sources first — hospitals, EDs, residential programs, psychiatrists, pediatricians, and school districts. Then look at where the highest concentration of commercially insured patients lives using publicly available data on employer-sponsored insurance and Medicaid enrollment for your state or county.KFF insurance coverage data Look at where competing programs are located; proximity to them isn’t always bad, but you need to understand why you’d win referrals over them (niche, access, outcomes, hours). Then pick your location.
Getting the Payer Mix Wrong
Not all insurance is created equal, and this is where clinical expertise doesn’t automatically translate to business acumen. A program that’s 80% Medicaid will have a fundamentally different economic profile than one that’s 60% commercial, even if census is the same.
Publicly posted fee schedules and policies show how wide the range can be. For example, some state Medicaid programs reimburse IOP days in the low hundreds of dollars; Vermont Medicaid’s SUD IOP supplement, for instance, specifies at least 9 but not more than 19 hours per week of services in exchange for a relatively modest bundled rate.Vermont Medicaid SUD IOP By contrast, commercial and Medicare IOP/PHP payments can be materially higher on a per-day basis depending on the market and contract, which is why programs with a strong commercial payer mix often end up with more sustainable margins.CMS IOP OPPS rule summary
If you build your budget around higher commercial or Medicare-equivalent rates but your area’s population is predominantly Medicaid or uninsured, you’re going to be short every single month.
What to Do Instead
Before you commit to a market, pull the insurance demographics for your catchment area. Look at what percentage of the population is covered by employer-sponsored/commercial plans, Medicaid, and Medicare using state or county-level data.KFF insurance coverage data Then, review publicly available Medicaid fee schedules and Medicare guidance for PHP/IOP to understand baseline government rates, and talk with your payer reps about typical commercial ranges for your region.Vermont Medicaid SUD IOPCMS IOP billing requirements This data should drive your entire financial model.
Trying to Be Everything to Everyone
First-time owners often launch with the broadest possible clinical scope — depression, anxiety, trauma, substance use, eating disorders, adolescents, adults — because they think casting a wide net means more referrals.
In reality, referral sources tend to send patients to programs that have a clear, specific clinical identity and track record. National organizations have documented that PHPs and IOPs are often organized around particular populations and conditions (for example, mood disorders, SUD, adolescents) with tailored group curricula and outcome measures.NABH telehealth PHP/IOP issue brief A program known as “the best adult PHP for treatment-resistant depression” is much easier for a psychiatrist or hospital case manager to remember and refer to than one marketing itself as “comprehensive outpatient behavioral health services.”
What to Do Instead
Pick a niche based on your clinical expertise, your market’s unmet need, and your payer strategy. For example, you might focus on adults stepping down from inpatient mood disorder units, or adolescents with co-occurring anxiety and school avoidance. You can always expand your programming later; leading with specificity builds referral trust faster and makes it easier to design evidence-based group content that matches your population.SAMHSA IOP clinical guidance
Ignoring Compliance Until It Becomes a Problem
Behavioral health is one of the most regulated segments of healthcare. State licensing requirements, HIPAA, 42 CFR Part 2, payer-specific documentation standards, and utilization review processes all apply from day one, not after you “get busy.”SAMHSA laws and policies
For example, Medicare’s PHP and IOP benefits require that services be provided under a written, individualized plan of treatment established and periodically reviewed by a physician, with specific documentation of the type, amount, frequency, and duration of services and the goals for treatment.CMS IOP billing requirementsCMS LCD PHP guideline Programs that treat compliance as something they’ll “figure out later” often end up with denied claims, adverse audit findings, or even contract terminations.
What to Do Instead
Build your compliance infrastructure before you see your first patient. That means:
Written policies and procedures that align with your state licensing rules and federal privacy laws like HIPAA and 42 CFR Part 2.SAMHSA laws and policies
An EHR configured for proper PHP/IOP documentation, including treatment plans, daily group notes, and physician progress notes that meet payer and Medicare standards.CMS IOP billing requirements
Staff trained on payer-specific requirements and a plan for ongoing utilization review so that your clinical documentation consistently supports medical necessity and level of care.
This is not optional. It’s the foundation.
Hiring a Full Team Before You Have Census
The instinct is understandable: you want a complete clinical team ready when you open. But hiring four therapists, a psychiatrist, a nurse, and an intake coordinator before you have patients is a fast way to burn through your capital.
Labor is typically the largest single category of operating expense for behavioral health programs, often accounting for more than half of total costs when you include benefits and administrative support.MedPAC behavioral health report If you’re paying six clinicians while only treating three patients, your burn rate will bury you long before word-of-mouth kicks in.
What to Do Instead
Start lean. You need enough staff to meet your state’s licensing and safety minimums and to deliver high-quality care, but you don’t need your “steady state” staffing model on day one.State behavioral health licensing examples Build in flexibility to scale up as census grows — which might mean using PRN or contract clinicians during the first three to six months while you stabilize your referral pipeline.
Not Having a Dedicated Admissions Process
Clinical founders often assume that good clinical care will generate its own referrals. Eventually, yes. But “eventually” doesn’t pay the bills in month three.
You need a structured admissions and intake process from day one: someone answering the phone, following up on referrals within hours (not days), verifying benefits before the patient walks in, and tracking every inquiry in a simple CRM or spreadsheet. National data during the COVID-19 era showed that even with big expansions in telehealth PHP/IOP capacity, access gaps persisted and many patients struggled to connect to timely care, which means that programs with responsive admissions processes had a real advantage.NABH telehealth PHP/IOP issue brief
What to Do Instead
Designate an admissions role — even if it’s you in the beginning. Set a standard that every inquiry gets a callback within a few hours during business days, and track your conversion rate from inquiry to admission so you can see where people fall off. This is arguably the single most important operational metric in your first year.
FAQ
How much does it cost to open an IOP or PHP program?
Startup costs typically range from $150,000 to $500,000 depending on your state, facility size, staffing model, and whether you’re building out a new space or taking over an existing one. That range reflects typical build-out, staffing, and pre-revenue runway in healthcare facility launches, but the upper end is common if you plan for six to nine months of operating expenses before revenue stabilizes.MedPAC behavioral health report
How long does it take to open an IOP/PHP from scratch?
Plan for roughly 9 to 14 months from initial planning to treating your first patient. State behavioral health facility licensing alone can take a few months, and Medicare’s new IOP benefit plus commercial credentialing can easily add another several months of setup and contracting time.State behavioral health licensing examplesCMS IOP billing requirements
What licenses do you need to open an IOP or PHP?
Requirements vary by state but generally include a state behavioral health facility license, individual and organizational NPI numbers, and any ancillary approvals required if you perform laboratory testing (such as a CLIA certificate of waiver).CMS CLIA lab guidance Many payers, and some states, either require or strongly prefer accreditation from bodies like CARF or The Joint Commission for PHP-level care.CARF behavioral health standardsThe Joint Commission behavioral health
Can a therapist own an IOP/PHP program?
In most states, yes — though corporate practice of medicine laws in some jurisdictions require that medical services be provided through a physician-owned entity or a specific professional corporation structure.AMA corporate practice of medicine overview You’ll want to review your state’s regulations or talk with counsel, but many successful PHP/IOP programs are clinician-owned with appropriate medical director arrangements.
What’s the most profitable IOP/PHP model?
Programs with a strong commercial payer mix, a defined clinical niche, and efficient staffing models tend to perform best financially, simply because they combine higher average reimbursement with controlled labor costs.MedPAC behavioral health report PHP programs generally generate higher per-patient revenue than IOP due to higher acuity and intensity, but they also come with more stringent staffing and documentation requirements under Medicare and commercial policies.CMS LCD PHP guideline
How many patients does an IOP/PHP need to break even?
This depends heavily on your cost structure and payer mix, but many programs target at least 10 to 15 patients in active treatment to cover operating costs in their initial phase. Programs with higher commercial and Medicare shares tend to reach break-even at lower census than those dependent on Medicaid reimbursement, simply because per-day rates are higher.Vermont Medicaid SUD IOPCMS IOP OPPS rule summary
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.