How to start a partial hospitalization program

What a PHP is

A partial hospitalization program gives a full treatment day, usually five days a week, to people who need daily structure and close clinical contact but are safe to go home each night. Clients often step down to it from a hospital, detox or residential stay, or step up to it when outpatient care or an IOP isn't enough. In The ASAM Criteria for substance use it's Level 2.5, which the 4th edition renames high-intensity outpatient (California DHCS summary); see IOP vs. PHP vs. outpatient for the levels side by side.

Opening a PHP follows the same path as any program: levels and population, demand, the entity, a site that can be licensed, the state license, policies, the clinical program, staffing, payer contracts and accreditation. Our guide on how to start an intensive outpatient program walks through each step with a timeline and example budget. This page covers what's different for PHP.

How a PHP differs from an IOP

	IOP	PHP
Hours	At least 9 a week, usually 3 days of 3 hours	About 20 a week, usually 5 days of 4 to 6 hours
Who it fits	Needs more than weekly therapy, can keep up with work, school or home	Needs daily treatment and close monitoring, would otherwise need a hospital or residential level
Medical oversight	A medical director for policies and admissions questions; prescriber visits as needed	Closer physician involvement: psychiatric evaluation, regular medication management, and for Medicare a physician's certification and plan of care
Staffing	Counselors leading groups, a clinical director, intake and UR	More clinical hours per client every day, daily access to a prescriber, and often nursing; check your state rule and contracts
Documentation	A note for each service, plan reviews on the program's schedule	The same, every day, plus more frequent plan reviews and, for Medicare, recertification
Payer scrutiny	Authorizations and concurrent reviews	Closer: a PHP day costs a plan more, so expect shorter authorizations, more frequent reviews and more record requests
Typical code	H0015 (SUD) or S9480 (mental health), per diem	S0201 per diem; some plans want H0035 or H2012, or a UB-04 with revenue codes 0912/0913

The hours are the ones most payers expect; each sets its own minimum in its contract and medical policy, and many count only service time, not lunch, breaks or check-in. Build the schedule around your strictest payer.

Licensing a PHP

• Substance use PHP usually falls under the same state license or certification as your other SUD outpatient levels, sometimes as a separately named level of care with its own staffing and hour rules. Read your state's rule for the PHP or day treatment section.
• Mental health PHP varies the most. Some states license or certify it as its own program type, some only allow it inside a hospital or a licensed clinic, and some regulate the clinicians rather than the program. Confirm with your state's behavioral health agency and your attorney before you design anything. How to find your state's agency and rules.
• In Texas, substance use PHPs are licensed by HHSC as chemical dependency treatment facilities; for mental health PHP, confirm with HHSC first. Our Texas IOP and PHP guide has the details.

Medicare and freestanding programs

This is the question that changes the business plan, so settle it first; it's one of the first steps on the roadmap in our IOP / PHP Program Launch, right after the levels of care are chosen. Medicare pays for partial hospitalization only when it's furnished by a hospital outpatient department or a community mental health center (CMHC). Since January 1, 2024, under the CY 2024 outpatient payment rule, Medicare also pays for intensive outpatient services from those providers and from federally qualified health centers and rural health clinics, and opioid treatment programs can furnish IOP for opioid use disorder. A freestanding program that is none of these generally can't bill Medicare for PHP or IOP.

What Medicare requires for PHP

• Per the Medicare Benefit Policy Manual, chapter 6, a physician certifies that the person needs at least 20 hours of services a week and would otherwise need inpatient psychiatric care, under a physician-established plan of care.
• The first recertification is due by the 18th day of PHP, then at least every 30 days. (IOP needs a certification of at least 9 hours a week, recertified at least every 60 days.)
• PHP claims carry condition code 41 and IOP claims condition code 92 (CMS MLN MM13222).

Becoming a CMHC

• A CMHC is a specific Medicare provider type with its own conditions of participation, not just a mental health clinic. Among other things, 42 CFR 410.2 requires that at least 40% of its services go to people who aren't eligible for Medicare, and a newly enrolling or revalidating CMHC must send CMS a certification from an independent entity that it meets that rule.
• CMHC enrollment brings Medicare surveys and close review. Weigh it with a health-care attorney before you plan on it; most freestanding programs that open PHP plan their payer mix around commercial plans, Medicaid where it pays, and self-pay.
• Medicare Advantage plans manage their own networks. Ask each plan in your area whether and how it contracts for PHP before counting on it.

Building the PHP

• Criteria: admission, continued-stay and step-down criteria for PHP specifically. For substance use, the ASAM dimensions at Level 2.5; for mental health, the medical-necessity guidelines your plans use. Spell out what moves a client from PHP to IOP, because payers will ask at every review.
• The day: a schedule of process groups, skills groups, specialty groups (family, trauma-informed care, relapse prevention), individual sessions, case management and psychiatric visits that adds up to the hours without counting lunch or breaks.
• Medical coverage: a medical director's agreement that covers PHP admissions, medication management frequency, who responds to a medical or psychiatric change during the day, and when a client goes to a higher level.
• Space: PHP clients are on site all day: enough group rooms for overlapping groups, rooms for individual sessions and prescriber visits, a place to eat, and safe space for someone in crisis.
• Records: a daily note for every service, attendance that shows the hours, a treatment plan that names the PHP goals and the step-down plan, and the reviews and authorizations on a calendar. An EHR built for programs, like Cima EHR's Program plan, keeps attendance, group notes and authorizations together.

Adding PHP to an IOP you already run

Most programs add PHP once the IOP is licensed, contracted and running well. The steps below are the same ones the PHP pieces of our program launch package follow:

1. Check the license. Does your state license or certification already cover PHP, or do you need an amendment, a new category or an inspection? Get the answer in writing.
2. Check the referral flow. PHP depends on step-downs from hospitals, detox and residential programs. If those relationships aren't there, build them first.
3. Check the contracts. Ask each plan whether your contract already includes PHP, and if not, how it adds a level of care, the code and claim form it wants, and the rate. Some treat it as an amendment, some as a new application.
4. Staff it. More clinical hours, daily prescriber access and often a nurse. Hire before the first PHP admission, not after.
5. Write the PHP pieces: criteria, schedule, policies for medical monitoring and crisis response, and the step-down path into your IOP.
6. Tell your accreditor. A new level of care may need to be added to your accreditation's scope. Ask before you open it.
7. Set up billing and UR for the new level: the code and revenue codes each plan wants, authorization requirements and the review calendar. See the prior authorization guide.

The money

In the example our financial projection starts from (assumptions, not anyone's contracted rates), a PHP day pays $400 and an IOP day $225. A PHP client five days a week brings in about $2,000 a week; an IOP client three days a week about $675. That's why PHP is attractive, and why payers watch it closely. It also costs more to deliver: more staff hours per client, prescriber time and space for a full day. The full example budget for a program with both levels, including how much cash it takes to open, is in the IOP guide.

Mistakes to avoid

• Planning on Medicare without being a hospital department or a certified CMHC.
• Counting lunch, breaks and check-in toward the 20 hours.
• Keeping clients in PHP after they meet the criteria for IOP. Payers review this closely, and days billed past that point may be denied or taken back later.
• Thin medical coverage: a medical director on paper who is never there for PHP clients.
• Opening PHP before the referral sources exist to fill a full-day schedule.

Questions

What's the difference between PHP and IOP?

Intensity. A PHP is about 20 hours a week, usually five days, for people who need daily treatment and close monitoring; an IOP is at least 9 hours a week, usually three days, for people who can keep up with work, school or home. PHP has closer medical oversight, more staff per client and closer payer review.

Can a freestanding PHP bill Medicare?

Generally not. Medicare pays for PHP only through hospital outpatient departments and community mental health centers, and a CMHC must meet its own conditions, including providing at least 40% of its services to people who aren't eligible for Medicare.

Do I need a separate license for a PHP?

It depends on the state and on whether it's a substance use or mental health program. Some states cover PHP under the same SUD program license; some license mental health PHP separately or only within a hospital. Ask your state's licensing agency in writing.

Should I open PHP and IOP at the same time?

Usually IOP and outpatient first, then PHP once referrals, staffing and utilization review are working. The exception is a market where hospitals and residential programs already need a PHP step-down. See which level to open first.

Already open and adding PHP? Book a free 30-minute call; we'll tell you what it takes in your state.

Sources

• CMS, CY 2024 outpatient (OPPS) final rule fact sheet: the Medicare IOP benefit and who can furnish it.
• CMS, Medicare Benefit Policy Manual, chapter 6: PHP and IOP certification, plan of care and recertification.
• CMS, MLN MM13222: condition codes 41 (PHP) and 92 (IOP).
• 42 CFR 410.2, definition of a community mental health center, including the 40% rule.
• CMS, program integrity transmittal on the CMHC 40% requirement.
• California DHCS, BH-CONNECT and CalAIM workgroup slides: ASAM 4th edition renames Level 2.5.
• Example rates: Cima Consulting's financial projection (example assumptions, 2026).