Table of Contents
Ready to See Results?
From strategy through execution, Atlantic Health Strategies integrates compliance, operations, and growth into durable, measurable results. Let’s put our expertise to work for your organization.
The Short Answer: Payers Are Buying the Continuum, Not the Admission
If you are still building a substance use disorder (SUD) pro forma around residential admissions, you are pricing to a contracting environment that already moved on. Commercial payers, state Medicaid agencies, and federal purchasers are paying for longitudinal engagement, medication continuation, and post-discharge retention. Not repeat 28-day stays.
Last quarter I worked with a 60-bed Level 3.5 residential program in the Southeast. Strong census, decent margins, single-state footprint. The payer mix was telling the founder something he did not want to hear. Two of his three largest commercial contracts had tightened concurrent review on residential days, and one was offering enhanced rates for outpatient bundles that included MAT induction, care coordination, and 90-day post-discharge engagement. The residential admission was no longer the prize. The continuum was.
The clinical evidence backs the payers. CDC authors were blunt in the June 27, 2024 MMWR: “Medications for opioid use disorder (OUD), particularly buprenorphine and methadone, substantially reduce overdose-related and overall mortality.” That same report documented 81,806 opioid-involved overdose deaths in 2022, more than in any previous year, and found that among the roughly 4% of U.S. Adults who needed OUD treatment, only 25% received the recommended medications. That gap is the payer’s business case. Payers are buying medication continuation and engagement because the alternative is overdose and readmission.
What the ASAM 4th Edition Actually Changes for Operators
The ASAM Criteria, 4th Edition reframes SUD as a chronic condition and reorganizes the continuum accordingly. IDHS/SUPR summarized the intent of the transition as an update to “further promote a chronic care model that supports seamless transition through a continuum of care” (see the IDHS/SUPR Transition guidance). The 4th Edition added a new Level 1.0, Long-Term Remission Monitoring, for ongoing recovery management and rapid reengagement.
When CEOs reframe SUD as a chronic disease, they change what they build, who they hire, and how they bill. A real longitudinal model integrates MAT (buprenorphine, naltrexone, methadone where licensed), primary care touchpoints, behavioral health therapy, and care coordination across at least 12 months post-acute. Patients move from residential settings down through Level 2.5 (an outpatient level of care under the 4th Edition), Level 2.1 IOP, Level 1.5 outpatient therapy, and into recovery management. The handoffs are documented, warm, and measurable.
Operationally, that means a few things most operators are not set up for:
- Shared EMR instances across levels of care so a patient’s record actually follows them.
- Care coordinators with defined caseloads and documented contact cadence.
- MAT prescribers credentialed across your service lines, not just at the residential site.
- Outcome data captured at intake, discharge, 30, 90, and 180 days.
- Co-occurring capability built into the standard of care, not bolted on.
Optum’s Dr. Deb Nussbaum told a joint ASAM/NAATP webinar that Level 4 Inpatient is now reserved for acute care general hospitals only, while a new “Level 4 Psych” category applies to inpatient psychiatric care with co-occurring SUD needs. That single change reshapes contracting for freestanding psychiatric hospitals. Without the right structure, your UM team cannot tell a payer a credible story about longitudinal value, and your billing team cannot post the codes that are starting to matter.
Feasibility Studies and Pro Formas: Stop Modeling One-Time Admissions
When AHS runs a feasibility study for a buyer or a CEO considering expansion, the first thing I look at is whether the existing pro forma assumes recurring revenue or one-time admissions. Most model the latter. Operators use average length of stay, average daily rate, and a churn assumption. That math works in a stable residential market. It does not work when your largest payer wants to contract for a 12-month episode of care with quality bonuses tied to retention and MAT continuation.
Operators who build a longitudinal pro forma correctly model patient-months rather than admissions. They assume a smaller residential footprint feeding a larger outpatient and IOP footprint, with care coordinators and MAT management generating recurring touchpoints. They account for the staffing ratios required to deliver Level 2.5 and Level 2.1 IOP at the weekly hour minimums payers will hold them to in utilization review. Miss those thresholds and your UR defense collapses.
Then stress-test the model. What happens when commercial payers shift 20 percent of their authorized days from residential to outpatient? If your pro forma breaks under that scenario, you do not have a model. You have a bet.
The clinical case for that shift is not soft. Per CDC’s May 14, 2025 NCHS release, U.S. Drug overdose deaths fell from an estimated 110,037 in 2023 to about 80,391 in 2024, and opioid-involved overdose deaths dropped from 83,140 to 54,743 in the same period. Naloxone helped. Fentanyl supply shifts helped. MAT expansion and better retention helped too. Payers will keep buying what works.
Licensure and Build/Buy Decisions for Completing the Continuum
If you are residential-only today and want to be defensible in five years, you have a build-or-buy decision in front of you. Licensure pathways for outpatient, IOP, and care coordination vary sharply by state.
In Florida, the Department of Children and Families licenses SUD providers under Chapter 397, Florida Statutes, and Chapter 65D-30, Florida Administrative Code, with separate program components for detoxification, residential, day/night treatment, IOP, outpatient, aftercare, and MAT. DCF issues a separate license for each service component. Rule 65D-30.0036 requires professional liability insurance of not less than $250,000 per claim with a minimum annual aggregate of $750,000. A designated medical director is required for medically supervised components; outpatient services do not require one under current DCF rule interpretation.
In Illinois, IDHS/SUPR formally adopted the ASAM Criteria, 4th Edition effective July 1, 2025, and its compliance monitors began reviewing organizations for 4th-Edition compliance beginning that date. The Illinois Administrative Code, Part 2060 incorporates the 4th Edition by reference as of the same effective date. That changes how providers document medical necessity and request authorization. It changes what UM staff must be trained on before the effective date, not after.
None of this is insurmountable. None of it is a 60-day project either. For PE-backed buyers, the more common move is acquisition of an existing outpatient platform and integration into a residential portfolio. That works only if diligence covers what actually breaks post-close: payer contracts that do not transfer cleanly, EMR systems that cannot share records, UR processes that are not aligned across sites, and documentation standards that do not match across legacy and acquired entities. I have watched buyers close on strong financials and then lose 18 months unwinding compliance gaps that should have been priced into the LOI.
What CEOs Should Do in the Next 90 Days
Three concrete moves.
- Pull your authorization data. Have your UM lead pull the last 12 months of authorization decisions and the trend line on residential days approved versus outpatient days approved by your top five payers. If residential is flat or declining and outpatient is growing, follow the money.
- Commission a longitudinal feasibility study. Model your existing book under a longitudinal reimbursement assumption, not an admissions assumption. If you do not like what you see, you have time to fix it.
- Audit your continuum for handoff points. Where do patients fall out between Level 3.5 and Level 2.5? Between IOP and outpatient therapy? Those gaps are where outcomes die and where payers are watching. The ASAM Level of Care Assessment is a reasonable starting point for standardizing transition decisions.
Allison Arwady, MD, MPH, Director of CDC’s National Center for Injury Prevention and Control, put the recent decline in blunt operator terms: “It is unprecedented to see predicted overdose deaths drop by more than 27,000 over a single year.” That statement is in CDC’s February 2025 release. Some of the decline is naloxone. Some is fentanyl supply shifts. A meaningful portion is MAT expansion and better retention. Payers will keep buying what works, and CEOs who build for that reality will still be operating in five years.
Shalini Karapetian and I will both be at WCSAD 2026 in late May, and AHS is sponsoring the South Florida Behavioral Health Coffee Morning at Harvest Patio in Boca Raton on May 20. If you are working through a feasibility study, a continuum build-out, or pre-acquisition diligence, find us at either. These conversations go better in person than over email.
Frequently asked questions
Is SUD really a chronic disease, or is that a payer talking point?
Both, and the clinical consensus predates the payer pivot. IDHS/SUPR explicitly frames the transition to the ASAM Criteria, 4th Edition as promoting “a chronic care model that supports seamless transition through a continuum of care.” Commercial payers and state Medicaid agencies are using that clinical consensus to justify longitudinal contracts, retention bonuses, and MAT continuation incentives.
What does the ASAM Criteria, 4th Edition change for behavioral health operators?
The 4th Edition, released in fall 2023, restructures the continuum and adds a new Level 1.0 Long-Term Remission Monitoring for ongoing medication management and recovery management checkups. Per Optum’s remarks at a joint ASAM/NAATP webinar, Level 4 Inpatient is now reserved for acute care general hospitals only, and a new Level 4 Psych category applies to inpatient psychiatric care with co-occurring SUD needs. Operators need to redocument medical necessity, retrain clinicians, update EMR templates, and confirm each state Medicaid agency’s adoption timeline. In Illinois, IDHS/SUPR adopted the 4th Edition effective July 1, 2025.
How large is the treatment gap MAT is meant to close?
Per CDC’s June 27, 2024 MMWR, in 2022 an estimated 4% of U.S. Adults needed OUD treatment, but only about 25% received medications for OUD. That gap is the clinical, ethical, and financial argument for building MAT capacity across every level of care, not just at the residential site.
If I am residential-only in Florida today, what is the fastest path to a defensible continuum?
Florida DCF licenses each service component separately under Chapter 397, F.S. And Chapter 65D-30, F.A.C., so adding outpatient, IOP, day/night treatment, or MAT means separate license applications, separate physical plant and staffing standards, professional liability coverage of not less than $250,000 per claim with a $750,000 annual aggregate under Rule 65D-30.0036, and a designated medical director for medically supervised components. The fastest defensible path is usually a staged build: add outpatient and IOP components first, credential MAT prescribers across sites, then decide whether to buy an existing licensed platform for scale rather than build every component from zero.
References
- Dowell D, et al. Treatment for Opioid Use Disorder: Population Estimates. United States, 2022. MMWR Morb Mortal Wkly Rep 2024;73(25):567–574.
- NCHS Press Release: U.S. Overdose Deaths Decrease Almost 27% in 2024 (CDC, May 14, 2025).
- CDC Newsroom: CDC Reports Nearly 24% Decline in U.S. Drug Overdose Deaths (February 2025).
- IDHS/SUPR: The ASAM Criteria. Transition from 3rd Edition to 4th Edition (Illinois Department of Human Services).
- Illinois Administrative Code, Title 77, Part 2060. Substance Use Disorder Intervention and Treatment Services.
- Florida Administrative Code, Chapter 65D-30. Substance Abuse Services Office.
- Fla. Admin. Code R. 65D-30.0036. Licensure Application and Renewal (professional liability requirements).
- NAATP: ASAM Criteria 4th Edition Implementation Webinar Summary (Optum/NAATP/NABH/National Council).