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The Short Answer: Payers Are Buying the Continuum, Not the Admission
Commercial payers, state Medicaid agencies, and federal purchasers are paying SUD operators for longitudinal engagement, medication continuation, and post-discharge retention. They are not paying for repeat 28-day residential stays. If your pro forma still assumes residential admissions carry the revenue, you are pricing to a contracting environment that has already moved on.
Last quarter I worked with a 60-bed Level 3.5 residential program in the Southeast. Strong census, decent margins, single-state footprint. 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.
CDC authors were blunt in the June 27, 2024 MMWR: medications for opioid use disorder “substantially reduce mortality” but are underused. That same report documented that in 2022, among the 4% of U.S. Adults who needed OUD treatment, only 25% received recommended medications. The report also noted that 81,806 opioid-involved overdose deaths were reported in 2022, more than in any previous year. Payers are buying medication continuation and longitudinal engagement because the alternative is overdose, readmission, and a treatment gap CDC has now quantified.
What the ASAM Criteria, 4th Edition Actually Changes for Operators
The ASAM Criteria, 4th Edition reframes SUD as a chronic condition and reorganizes the continuum accordingly. IDHS/SUPR describes the transition as an update intended to “further promote a chronic care model that supports seamless transition through a continuum of care.” ASAM introduced a new Level 1.0 Long-Term Remission Monitoring that provides recovery management checkups and rapid reengagement in care when needed. When CEOs reframe SUD as chronic, they change what they build, who they hire, and how they bill.
Operators who take the model seriously integrate 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.
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, I look first at whether the existing pro forma assumes recurring revenue or one-time admissions. Most model the latter. Founders 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 the CDC’s February 25, 2025 release, provisional data predicted a nearly 24% decline in drug overdose deaths for the 12 months ending September 2024, with about 87,000 deaths compared to around 114,000 the previous year. The CDC NCHS update on May 14, 2025 then reported an estimated 80,391 drug overdose deaths in the United States during 2024, a decrease of 26.9% from the 110,037 estimated in 2023. Overdose deaths involving opioids fell from an estimated 83,140 in 2023 to 54,743 in 2024. 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 coverage “in an amount not less than $250,000 per claim, with a minimum annual aggregate of not less than $750,000.” A designated medical director is required for medically supervised components.
In Illinois, on July 1, 2025, IDHS/SUPR adopted the ASAM Criteria, 4th Edition, and beginning that date its compliance monitors began monitoring organizations for compliance with the ASAM 4th Edition. 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. Commercial payer timelines run separately. HCSC Blue Cross Blue Shield plans covering Illinois, Texas, Oklahoma, New Mexico, and Montana moved to the Fourth Edition for adult SUD treatment on January 1, 2025, and Optum Behavioral Health began applying the Fourth Edition to commercial health plans in November 2023. Verify each contracted payer separately.
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.
Allison Arwady, MD, MPH, Director of CDC’s National Center for Injury Prevention and Control, put the recent decline in blunt operator terms in the February 2025 CDC release: “It is unprecedented to see predicted overdose deaths drop by more than 27,000 over a single year,” and “That’s more than 70 lives saved every day.” Some of the decline is naloxone. Some is fentanyl supply shifts. A meaningful portion is MAT expansion and better retention. 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 framing predates the payer pivot. IDHS/SUPR describes the transition to the ASAM Criteria, 4th Edition as an update intended to “further promote a chronic care model that supports seamless transition through a continuum of care.” ASAM’s 4th Edition introduces a new Level 1.0 for Long-Term Remission Monitoring, providing recovery management checkups and rapid reengagement when needed. 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 in Illinois?
IDHS/SUPR adopted the 4th Edition effective July 1, 2025, and beginning that date its compliance monitors began reviewing organizations for 4th-Edition compliance. Operators need to redocument medical necessity, retrain clinicians, update EMR templates, and confirm each managed care organization’s adoption timeline separately. Commercial adoption runs on its own calendar: HCSC Blue Cross Blue Shield plans across Illinois, Texas, Oklahoma, New Mexico, and Montana moved to the 4th Edition for adult SUD treatment on January 1, 2025, and Optum Behavioral Health began applying it to commercial plans in November 2023.
How large is the treatment gap MAT is meant to close?
Per the CDC’s June 27, 2024 MMWR, medications for opioid use disorder substantially reduce mortality but are underused. In 2022, among the 4% of U.S. Adults who needed OUD treatment, only 25% received recommended medications, and 81,806 opioid-involved overdose deaths were reported that year, more than in any previous year. That underuse 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, and professional liability coverage of not less than $250,000 per claim with a $750,000 annual aggregate under Rule 65D-30.0036. 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, June 27, 2024.
- CDC Newsroom. CDC Reports Nearly 24% Decline in U.S. Drug Overdose Deaths. February 25, 2025.
- CDC/NCHS. U.S. Overdose Deaths Decrease Almost 27% in 2024. May 14, 2025.
- Illinois Department of Human Services / SUPR. The ASAM Criteria: Transition from 3rd Edition to 4th Edition.
- American Society of Addiction Medicine. ASAM Criteria, 4th Edition Overview.
- Fla. Admin. Code Ann. R. 65D-30.0036. Licensure Application and Renewal.