2026 PHP & IOP M&A Market Update: Bridging the Gap in Behavioral Health Through Intermediate Care

Partial hospitalization programs (PHPs) and intensive outpatient programs (IOPs) occupy an important position in the care continuum, bridging the gap between traditional outpatient behavioral health care and inpatient or residential treatment. They provide structured, multidisciplinary care for patients who need more support than periodic office visits while also offering a lower-cost alternative to inpatient care for clinically appropriate patients.
For many reasons, PHP and IOP programs have garnered significant attention from investors as well as strategic platforms with existing operations across the continuum. Most notably, investors have been drawn to the sector’s strong underlying demand across mental health, substance use disorder (SUD) and co-occurring conditions, as well as the scalable, flexible delivery model. Group-based treatment creates operating leverage, allowing providers to serve more patients without a corresponding increase in clinical staffing. In-person, virtual and hybrid programs further expand patient access and support growth across geographic markets.
For owners operating in the PHP and IOP sector, strong interest from investors and strategic buyers creates an opportunity to evaluate what a partnership could mean for their business. PGP approaches the decision to evaluate a partnership by assessing what an organization has built, its owners’ objectives and the resources needed to support its next phase of growth. Based on PGP’s experience in the PHP and IOP space, programs with a growing census, strong referral relationships, and demonstrated success across locations may be well positioned to command a premium valuation. Others may benefit from improving utilization, allowing newer programs to mature or expanding services across the care continuum before pursuing a transaction. An early dialogue can help owners weigh continued independence against the capital, infrastructure and expertise a partner could provide, identifying the path that best aligns with their long-term priorities.

The scale of behavioral health needs provides an important backdrop. According to SAMHSA’s 2024 National Survey on Drug Use and Health, 61.5 million U.S. adults—nearly one in four—experienced a mental illness in the past year, yet only 52.1% received mental health treatment. Separately, 48.4 million people aged 12 and older, or 16.8% of that population, had a substance use disorder. The overlap is significant with 21.2 million adults experiencing both a mental illness and a substance use disorder. ¹ The SAMHSA survey findings highlight the breadth of need across the treatment continuum and the importance of programs equipped to address co-occurring conditions.
PHPs and IOPs have gained recognition for their role in addressing a critical gap in behavioral healthcare as PHPs and IOPs offer structured, intensive care while allowing patients to remain at home and connected to their communities. Historically associated with step-down treatment following hospitalization or residential care, PHPs and IOPs increasingly serve as a direct entry point for patients whose needs exceed traditional outpatient capacity as well. Lightfully Behavioral Health, for example, reported increasing direct admissions and strong referral volumes from psychiatrists. ² The shift toward direct admissions has broadened the role of PHPs and IOPs within the healthcare system and supports more diversified referral channels.
Dan Moore from MKH Capital Partners, who recently invested in Haven Health Management, one of the largest SUD providers in the country, provides his view on the sector to PGP. “The sector’s tailwinds are real. Payers are pushing care into lower-cost settings, patients need more than weekly therapy, and the market is still fragmented and ready to consolidate. But the market has moved beyond buying beds. It’s buying continuums. PHP and IOP turn a short detox or residential stay into months of patient engagement, and that’s where both recovery and enterprise value compound.”
In PGP’s view, the opportunity lies in translating this demand into sustainable clinical and financial performance and creating referral synergies that allow patients to transition between levels of care. Buyers will increasingly ascribe more value to programs based on referral relationships, consistent census growth, appropriate staffing, demonstrated outcomes and reimbursement that supports lower cost care delivery. Organizations that combine these qualities with a disciplined growth strategy should be well positioned to attract partners seeking to expand access to intermediate levels of behavioral healthcare.

Given their position within the behavioral health continuum, PHPs and IOPs are particularly effective in aligning patient access, clinical needs and total system costs. Their role extends in both directions across the continuum. As a step-down option, PHPs and IOPs help patients leaving inpatient or residential treatment transition to a less intensive setting while maintaining structure, clinical oversight and therapeutic engagement. As a step-up option, they provide additional support when symptoms worsen or routine outpatient treatment becomes insufficient. Placement based on clinical needs allows providers to adjust treatment intensity as patients’ needs evolve over time.
For providers and strategic platforms, PHP and IOP capabilities strengthen care coordination and create complementary referral pathways. Inpatient and residential organizations gain options for continued treatment following discharge, while outpatient mental health and substance use programs gain access to more intensive services for patients requiring additional support. When clinically appropriate, coordinating these transitions within an integrated organization can simplify handoffs, improve communication among treatment teams and reduce the administrative burden on patients and families. Programs that address co-occurring mental health and substance use conditions further broaden a platform’s ability to serve patients with complex needs.
For payors, the appeal centers on matching patients with the appropriate intensity of treatment while managing the total cost of care. For suitable patients, PHPs and IOPs provide structured services without the expense of a 24-hour inpatient setting. Their potential value extends beyond the cost of an individual treatment day as timely access may help avert escalation to hospitalizations, while coordinated treatment following discharge may reduce gaps that contribute to repeat utilization. Realizing the potential cost savings depends on effective treatment and appropriate utilization. Payors evaluate the full episode of care, including treatment duration, attendance, subsequent emergency department visits and readmissions, alongside clinical improvement and functional recovery. Providers that demonstrate appropriate admissions, measurable progress and reliable transitions to ongoing outpatient care are better positioned to substantiate their value.

While strong demand and investor interest create a favorable backdrop, not all PHP and IOP providers command the same valuation. Based on PGP’s transaction experience and conversations with buyers, buyers will place a premium on organizations that demonstrate strong clinical protocols, consistent financial performance and a repeatable model for growth and expansion. Understanding the value drivers for PHP and IOP programs can help owners identify opportunities to strengthen their business ahead of a transaction.
•Strong Unit Economics and Utilization: Demonstrate how census and attendance translate into profitable treatment delivery. Track group utilization, attended treatment days or hours, staffing costs and net collections. Understand breakeven census and the economics of adding another program. Report margins by location, PHP versus IOP and delivery format.
•Proven Growth: Support the growth story with demonstrated performance in admissions, census and revenue. Separate mature-site growth from new openings and show how recent locations or programs have performed against expectations. Buyers will place greater confidence in expansion plans supported by actual startup costs, historical ramp periods and time to breakeven.

•Scalable Infrastructure and Leadership: Build processes that can support additional locations and patient volume, including centralized intake, benefits verification, authorization, billing and reporting. Demonstrate that clinical recruiting, supervision and local referral development can keep pace with growth, supported by strong leadership.
•Diversified Referrals and Patient Engagement: Establish dependable relationships with hospitals, residential facilities, psychiatrists and outpatient therapists. Track referral concentration, conversion to admission, time to treatment, attendance and early departures. Demonstrate reliable patient access and clinically appropriate transitions between PHP, IOP and other levels of care.
•Differentiated Clinical Programs and Outcomes: Define the populations and conditions each program treats, supported by appropriate staffing and curriculum. Track symptom improvement, treatment completion, discharge disposition and connection to follow-up care. Specialized adolescent, diagnosis-specific or dual diagnosis programs should demonstrate capabilities and results that support their differentiation.

The PHP/IOP buyer universe spans private equity firms, family offices, and strategic operators, with varying areas of focus across mental health, substance use disorder treatment and dual diagnosis care. Each brings a distinct investment rationale shaped by its existing capabilities, position within the care continuum, and growth objectives.
•Private Equity Firms and Family Offices: Investors look for businesses that can serve as a foundation for broader expansion, whether by acquiring other providers, entering new markets or adding treatment programs. Investment decisions often center on the strength of the clinical team, operational readiness to scale, profitability at the program or location level and evidence that growth can be replicated. Many firms within PGP’s rolodex of private equity funds have expressed an interest and thesis in investing into PHP or IOP programs.
•Inpatient and Residential Treatment Providers: Mental health and SUD operators seeking to extend their continuum into PHP and IOP. Acquisitions can provide step-down options for appropriate patients, strengthen discharge coordination and establish outpatient referral relationships that support the broader organization.
•Full-Continuum Behavioral Health Platforms: Organizations already offering multiple levels of care that use PHP/IOP acquisitions to enter new markets, build geographic density or deepen capabilities in specific patient populations. Full-continuum behavioral health platforms may value established referral networks and clinical teams that provide a foundation for broader expansion.

Owners should evaluate potential partners based on both the transaction terms and their vision for the organization’s future. Key considerations that have emerged in past PGP processes include staffing and program investment, the pace of expansion and alignment with leadership. Speaking with references who have previously partnered with the buyer can help assess how those commitments are translated into practice. The strongest fit will support growth while sustaining the clinical standards and culture underlying the business’s success.
PGP’s significant experience in behavioral health provides access to a broad network of private equity firms, family offices and strategic operators. These relationships help owners evaluate potential partners across PHP/IOP platforms, residential and inpatient providers, and organizations offering a broader continuum of care. The goal is to identify a partner whose resources, operating approach and growth strategy align with the organization’s long-term objectives.

PGP believes PHP and IOP providers are well positioned for continued investment as significant behavioral health needs, growing recognition of intermediate levels of care and demand for alternatives to inpatient and residential treatment support growth within the segment. Their role as both an entry point and a transition between levels of care creates opportunities across mental health, substance use disorder and dual diagnosis treatment. Buyers will be particularly focused on organizations that combine strong referral relationships, demonstrated clinical outcomes and attractive program economics with a proven ability to grow.

PGP helps PHP and IOP owners navigate the decisions involved in a sale or partnership, aligning transaction timing, economics and partnership terms with their financial objectives and the long-term needs of the organization, its clinicians and its patients. In PGP’s view, a successful transaction starts with preparation and a clear assessment of the available options. Equally important is evaluating whether a partner has the resources and operating experience to support the next stage of growth.