The behavioral health demand gap isn’t theoretical anymore — it’s showing up in every clinic schedule, ER psych consult, and waitlist. In 2024, an estimated 61.5 million U.S. adults experienced any mental illness, and about 48% did not receive mental health treatment in the past year.(SAMHSA) At the same time, roughly 52.6 million people aged 12 or older were estimated to need substance use treatment, and only about 10.2 million received it — meaning close to 80% went untreated.(NACo summary of SAMHSA NSDUH 2024)
These aren’t just big numbers. They represent people who needed more than a weekly therapy session but less than a locked inpatient unit — the exact gap that intensive outpatient programs (IOP) and partial hospitalization programs (PHP) are built to fill.(CMS) And right now, that middle level of care is still one of the most underbuilt parts of the behavioral health system.
If you’re a clinician or entrepreneur thinking about opening an IOP or PHP, understanding this demand gap isn’t just “nice to know.” It’s the core of the business case.
What the Behavioral Health Demand Gap Actually Looks Like
The demand gap isn’t just about people who can’t find a therapist. It’s about the mismatch between people who need structured, intensive treatment and the number of programs available to serve them.
Here’s the high-level picture from the 2024 National Survey on Drug Use and Health (NSDUH):
About 61.5 million adults had any mental illness (AMI) in the past year.(SAMHSA)
About 52.1% of those adults received some form of mental health treatment, meaning roughly 48% did not.(SAMHSA)
Roughly 52.6 million people aged 12+ needed substance use treatment, and only about 10.2 million received it — close to one in five.(NACo / SAMHSA)
Not everyone in those groups needs IOP/PHP-level care. But the patients falling through the cracks are often those with moderate to severe symptoms or co-occurring conditions who need more structure than standard outpatient but don’t meet criteria for 24/7 inpatient or residential care.(HHS/ASPE)
That’s exactly where IOP and PHP sit: typically 9–15 hours per week for IOP and 20–30 hours per week for PHP, with group therapy, individual sessions, family work, and psychiatric oversight organized into a cohesive treatment plan.(CMS IOP benefit description) The problem is simple: in many markets, there just aren’t enough slots.
Why the IOP/PHP Program Shortage Persists
If demand is this strong, you might assume the market would have corrected by now. It hasn’t. There are structural reasons.
1. The Workforce Bottleneck Is Real
Every operator feels this: the workforce is the first bottleneck.
HRSA and HHS project persistent shortages across nearly every behavioral health discipline over the next decade-plus, including addiction counselors, mental health counselors, psychologists, and psychiatrists.(HHS/ASPE workforce report) As of late 2023, more than half of the U.S. population lived in a federally designated Mental Health Professional Shortage Area.(HRSA Behavioral Health Workforce Brief)
Running an IOP or PHP isn’t like running a solo practice. You need:
Licensed clinicians to run groups and individual sessions
A medical director or prescribing clinician
Case management and care coordination
Administrative and billing staff who understand behavioral health coding and authorization rules
Building that team in markets that already have provider shortages is a real operational challenge, not just a “recruiting problem.”
2. Regulatory Complexity Scares People Off
Every state has its own rules for licensing outpatient behavioral health facilities, IOPs, and PHPs. State regulations commonly spell out requirements around:
Program licensure categories (e.g., clinic vs. day treatment vs. partial hospitalization)
Staffing and supervision ratios
Physician or psychiatric oversight
Treatment planning, documentation, and quality assurance
Facility and life safety codes
State behavioral health or health facility licensing agencies publish these requirements, and they vary widely by state.(Example: state behavioral health licensing statutes via HHS/ASPE overview)
For a clinician who’s spent their career focused on direct care, this regulatory maze can feel impenetrable. For non-clinical entrepreneurs, the compliance risk and uncertainty can be enough to keep them on the sidelines. It’s a very real barrier — but not an insurmountable one. The operators who learn the rules (or partner with people who already know them) can build a durable moat in many markets.
3. Insurance Credentialing Takes a Long Time
Payer credentialing and contracting are often the longest lead-time items in a launch. Credentialing and paneling timelines with commercial insurers and Medicaid managed care plans commonly run several months, and it’s not unusual for the full process from application to first paid claim to stretch into the 90–180 day range in real-world operations. This is reflected in payer-facing guidance and provider feedback summarized in policy and workforce reports.(HHS/ASPE)
During that time, you’re usually paying for rent, buildout, early staff, and technology without meaningful revenue. Underestimating this burn period is one of the most common reasons new programs get into trouble before they ever hit steady census.
4. Payers Are Actually Pushing Toward IOP/PHP
Here’s the counterintuitive piece: payers want more access to this level of care.
Inpatient psychiatric and residential stays are expensive, often running into thousands of dollars per day once you factor in facility, staffing, and medical costs. Public and private payers have been explicit about wanting more community-based, intermediate levels of care that can prevent or shorten hospitalizations.(CMS)
Medicare formalized a new IOP benefit in 2024, as required by the Consolidated Appropriations Act, 2023. The final rule:
Created a distinct IOP benefit under Medicare
Allowed hospital outpatient departments, community mental health centers, Federally Qualified Health Centers (FQHCs), and Rural Health Clinics (RHCs) to bill for IOP services starting January 1, 2024
Set payment based on a per-day rate tied to hospital outpatient payment, with special rules for FQHCs and RHCs
(CMS CY 2024 OPPS/ASC Final Rule)
Commercial payers, while not governed by the same rule, have been steadily adding and refining IOP/PHP benefits for the same basic reason: if IOP/PHP can stabilize someone and keep them out of the hospital, everyone saves money and the patient often prefers staying in their community.
The demand from patients is there. The financial incentive from payers is there. The shortage persists because the operational and regulatory friction is still high enough to keep supply constrained.
What This Means If You’re Thinking About Opening an IOP/PHP Program
The behavioral health demand gap has created an unusual situation: sustained demand, supportive payer dynamics, and limited local competition in many markets. That combination is rare in healthcare.
You’re Probably Not Entering a Saturated Market
Yes, the IOP/PHP space is getting more attention. Large systems and national providers talk openly in earnings calls and investor reports about expanding outpatient and day-treatment lines because of favorable reimbursement and rising demand. That said, their focus tends to be specific geographies, major metros, and areas near existing hospital assets.
Meanwhile, many suburban, exurban, and rural communities still have few or no IOP/PHP options, even as they struggle with high rates of depression, anxiety, and substance use. National data consistently show that rural counties are more likely than urban counties to lack behavioral health providers, which amplifies access challenges for higher-acuity outpatient levels of care.(HRSA Behavioral Health Workforce Brief)
If you’re operating in one of those markets, you’re often the first or only local option at this intensity level — which changes everything about outreach, referral relationships, and census-building.
IOP/PHP Has a Favorable Operating Model
From a pure operating model standpoint, IOP and PHP sit in a sweet spot between traditional outpatient and inpatient:
You don’t need overnight beds or 24/7 nursing and security.
Facility requirements are significant but still closer to a clinic or medical office than a hospital.
Staff mix is multidisciplinary, but you’re typically not staffing three shifts around the clock.
Regulations and accreditation standards (from organizations like The Joint Commission, CARF, and others) do dictate specific requirements around treatment planning, staffing, and quality, but they are designed for outpatient/day treatment settings rather than inpatient units.(The Joint Commission Behavioral Health Care standards)
Financially, IOP/PHP can generate meaningful recurring revenue when you maintain census and ensure patients attend enough hours to meet payer billing requirements. Medicare’s IOP benefit, for example, pays per IOP “day” with a defined minimum number of services and hours, and many commercial payers similarly require around 9 or more hours per week for IOP and 20 or more for PHP.(CMS IOP payment policy)
In practice, that means your biggest operational levers are:
Keeping people engaged long enough to complete treatment
Managing no-shows and cancellations
Designing schedules that work for your population (evenings, weekend options, etc.)
The demand side is rarely the limiting factor once you’re visible to referrers and in-network with key payers.
The Window Won’t Stay Open Forever
The opportunity is strong right now, but it isn’t static.
Private equity firms, health systems, and multistate operators are all paying attention to this space because the fundamentals line up: large unmet need, growing public and commercial coverage, and a clear policy push toward community-based care.(HHS/ASPE)
Markets with:
Strong commercial insurance penetration
Robust Medicaid reimbursement for intensive outpatient services
Growing populations
More complex licensing and accreditation requirements
often end up being some of the most attractive for operators who get in early. The same regulatory complexity that scares people off creates competitive insulation once you’ve done the hard work of getting licensed, accredited, and contracted.
The Bottom Line on the IOP/PHP Program Shortage
The behavioral health demand gap isn’t closing anytime soon.
We have tens of millions of adults with mental illness, tens of millions more who need substance use treatment, and a system that still reaches only a portion of them — especially at the intermediate levels of care where IOP and PHP live.(SAMHSA)[(NACo / SAMHSA)] Workforce shortages are projected to persist through at least the mid-2030s, and policymakers and payers are explicitly trying to steer more care into intensive outpatient and partial hospitalization models.(HRSA)[(CMS)]
For clinicians and operators who are willing to navigate the licensing, staffing, and payer hurdles — or partner with teams who specialize in that side of the work — this remains one of the clearest opportunities in behavioral healthcare.
Patients are already looking for this level of care. The question is whether your market will have enough programs when they finally raise their hand.
Frequently Asked Questions
How many people need IOP/PHP treatment but can’t access it?
In 2024, an estimated 61.5 million adults had any mental illness, and about 48% did not receive mental health treatment in the past year.(SAMHSA) Around 52.6 million people 12+ were estimated to need substance use treatment, but only about 10.2 million received it, leaving a large group who often lack access to the intermediate level of care between weekly therapy and inpatient hospitalization.(NACo / SAMHSA)
What’s driving the IOP/PHP program shortage?
Three big forces keep IOP/PHP supply constrained: persistent behavioral health workforce shortages, complex state-by-state licensing and accreditation rules, and long payer credentialing and contracting timelines.(HRSA)[(HHS/ASPE)] Even though patient demand and payer enthusiasm are both strong, those operational barriers slow down new entrants and expansions.
Is it a good time to open an IOP or PHP program?
From a market and policy standpoint, this is a favorable moment. Demand is high, Medicare has created a specific IOP benefit and opened billing to hospital outpatient departments, CMHCs, FQHCs, and RHCs, and commercial plans increasingly recognize IOP/PHP as cost-effective alternatives to inpatient care.(CMS) While competition is growing, many communities — particularly suburban and rural areas — remain significantly underserved.(HRSA)
How much does it cost to start an IOP/PHP program?
Startup costs vary widely based on state, location, and program design, but IOP/PHP generally require less capital than inpatient or residential facilities because they don’t need overnight beds or 24/7 staffing. Major cost drivers include facility lease and buildout, clinical and medical staffing, licensing and accreditation fees, health IT/EHR systems, and working capital to cover the several-month lag between launching operations and receiving payer reimbursements.(HHS/ASPE)
What’s the difference between IOP and PHP?
Intensive outpatient programs (IOP) typically provide about 9–15 hours of structured behavioral health services per week, usually spread over three to five days, and are designed for people who need more than weekly therapy but can still function outside of treatment hours.(CMS IOP definition) Partial hospitalization programs (PHP) are more intensive, often offering around 20–30 hours per week and operating as full- or near-full-day programs five days a week, while still allowing patients to go home at night.(CMS PHP and IOP descriptions)
Which states are best for opening an IOP/PHP program?
The “best” markets tend to combine strong demand with reimbursement and regulatory conditions that support sustainable operations. Factors to look at include the state’s behavioral health provider shortages, Medicaid and commercial payer mix, reimbursement policies for intensive outpatient services, and the complexity and timelines of facility licensing and accreditation processes.(HRSA)[(HHS/ASPE)]
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.