How to start an IOP in Kentucky: the AODE license, Medicaid tiers and the steps

Who wrote this, honestly

We're Texas operators: we run a licensed Texas outpatient program, PHP through outpatient, and built our own EHR to run it. When we help an owner open in another state, the first task on that client's roadmap is "apply for your state's SUD treatment program license", and the work behind it is finding the state's rule and checking it against the agency's current text. This guide is that check for Kentucky, and it's the same work our IOP / PHP Program Launch does for a client opening outside Texas. Where we couldn't confirm a detail, we left it out or told you who to ask.

Comparing neighbors? Read our guides for Ohio, Tennessee and Virginia, or how to start an IOP or PHP in Texas.

Kentucky at a glance

Question	Kentucky's answer
License for an SUD IOP	Outpatient alcohol and other drug entity (AODE), Cabinet for Health and Family Services; the regulations belong to the Department for Behavioral Health, Developmental and Intellectual Disabilities (DBHDID)
Rules	908 KAR 1:370 (licensing procedures, fees, general requirements) and 908 KAR 1:374 (outpatient AODEs, including intensive outpatient and partial hospitalization)
Fee	$500, plus $80 per outpatient extension site; renewed each year with the same fee
The other license	Behavioral health services organization (BHSO), licensed by the Office of Inspector General under 902 KAR 20:430, $750 initial fee; it's the mental health license
Medicaid	BHSO Tier II for outpatient SUD treatment, which requires the AODE outpatient license (907 KAR 15:022); MCOs Aetna, Humana, Passport by Molina, UnitedHealthcare and WellCare
Counselor credentials	Kentucky Board of Alcohol and Drug Counselors, KRS 309.080 to 309.089 and 201 KAR 35
Brokering	KRS 222.429 bars paying or taking anything for referrals to a treatment program, with federal EKRA safe harbors carved out

AODE or BHSO: which license

Kentucky has two licenses an outpatient behavioral health program might hold, and they're easy to mix up.

	AODE (outpatient)	BHSO
What it covers	Nonhospital substance use treatment: outpatient, intensive outpatient, partial hospitalization, ambulatory withdrawal management, office-based opioid treatment	Mental health services
Regulation	908 KAR 1:370 and 908 KAR 1:374	902 KAR 20:430
Who you deal with	Kentucky Medicaid's guidance tells providers to contact DBHDID for the AODE license, and Medicaid wants a DBHDID letter of approval with it	The Office of Inspector General (OIG)
Fee	$500, plus $80 per extension site	$750 initial, with fire marshal approval of the site dated within 12 months of filing
Medicaid tier	Tier II (outpatient SUD); a residential AODE license is Tier III	Tier I (mental health)

That tier mapping comes from Kentucky Medicaid's BHSO provider type summary, which ties Tier I to the BHSO license and Tiers II and III to AODE outpatient and residential licenses. DBHDID's BHSO application and licensure page explains the BHSO side. If you'll treat co-occurring disorders and also bill mental health services, ask both agencies whether you need both licenses. For how intensive outpatient differs from partial hospitalization and standard outpatient, see IOP vs. PHP vs. outpatient.

The rules to read

Rule or document	What it covers
908 KAR 1:370	Licensing procedures, fees, quality assurance, client rights and records for nonhospital outpatient and residential AODEs; exemptions such as self-help groups
908 KAR 1:374	Added requirements for outpatient AODEs: outpatient, intensive outpatient, partial hospitalization, ambulatory withdrawal management and office-based opioid treatment
907 KAR 15:022	Medicaid coverage of SUD and co-occurring services by BHSOs (Tiers II and III)
Medicaid SUD enrollment guide	Enrolling an SUD provider in the Kentucky Medicaid Partner Portal, with the AODE license and DBHDID letter
KRS 222.429	Kentucky's ban on payments for referrals to treatment programs

Several versions of 908 KAR 1:374 on the legislature's site are marked superseded, so read the current one. Our launch package builds the policy manual as a crosswalk: every requirement in 908 KAR 1:370, 1:374 and your accreditor's standards matched to a policy, form or record.

What 908 KAR 1:374 asks of an IOP

908 KAR 1:374 applies on top of 1:370 to every outpatient AODE. From the versions we read:

Requirement	What it means for your build
Alcohol and other drug counseling, with groups capped at 12 patients per clinician	Twelve is the ceiling; a group of 14 needs a second clinician or two groups. Our group therapy notes guide covers how to document each member
Patient education on set topics, including relapse prevention	Put each required topic in the curriculum and the group notes; our IOP group curriculum has a starting list
Referral to recovery services and medications for addiction treatment	Written referral arrangements, and a MAT pathway; see adding MAT to an IOP
Admission to patients meeting DSM diagnostic and ASAM dimensional criteria (stated for ambulatory withdrawal management and maintenance services)	An ASAM-based assessment in every chart; plans review against ASAM too

We didn't find a weekly hour range for IOP in the licensing rule. The Medicaid plans set their own: Passport by Molina's IOP policy for H0015 and Aetna Better Health of Kentucky's IOP requirements are the documents to build your schedule around. The IOP schedule template shows a typical week.

Fees and renewals

From 908 KAR 1:370 as amended:

Item	Fee or rule	Our notes
Initial AODE license	$500	Filed with the AODE license application
Each outpatient extension site	$80	The site has to meet the regulation's conditions for an extension
Annual renewal	The same application and fee every year	Calendar it from the license date
Change of location	A new application and an $80 processing fee	See relocating a treatment program
Change of ownership	The new owner files within 10 days, with a $500 fee	Buying a program? See buying a treatment center

The state fee is the small number. Rent, staff and build-out before your first claim pays are the big ones; our guide to what it costs to start an IOP walks through them. Want the license work done for you? It's part of the program launch package, or $7,500 on its own as our state facility license application service.

Counselors and staffing

• The board. The Kentucky Board of Alcohol and Drug Counselors credentials addiction professionals under KRS 309.080 to 309.089 and 201 KAR 35:010 to 35:090. KRS 309.0805 protects the titles licensed clinical alcohol and drug counselor, certified alcohol and drug counselor and registered alcohol and drug peer support specialist, and the 2024 act (HB 505) added temporary peer support and associate-level counselor titles.
• Scope. Under the 2015 act, alcohol and drug counseling covers assessment and counseling but not diagnosing or treating mental health conditions. Plan a licensed mental health clinician for diagnosis and co-occurring care.
• Peer support specialists. The board issues a temporary registration (high school diploma or equivalent and at least a year of recovery, before the exam), which ends two years after issue, and a full registration. Its posted fees are $50 to apply, $150 for the exam and $100 at issue.
• Every hire gets checked against the federal OIG exclusion list; ask the cabinet which state background checks it requires.

We build personnel files from our staff credential file checklist and add each state's items; in Kentucky that includes each temporary credential's end date.

Kentucky Medicaid and the MCOs

• Enroll as a BHSO Tier II. Kentucky Medicaid's SUD enrollment guide says an active AODE outpatient license is required when SUD treatment is provided, with a DBHDID letter of approval to accompany it, and enrollment runs through the Kentucky Medicaid Partner Portal.
• Five MCOs. The Department for Medicaid Services' MCO page lists Aetna Better Health of Kentucky, Humana Healthy Horizons in Kentucky, Passport by Molina, UnitedHealthcare and WellCare. Anthem left Kentucky Medicaid managed care effective January 1, 2025, under a court order. A 2025 bill, SB 13, proposed capping the number of MCOs at three with new contracts by 2027; we couldn't confirm its outcome, so check DMS for the current list before you contract.
• Medicare pays for IOP and PHP only through hospitals, community mental health centers and a few other provider types, so most freestanding programs plan without it (CMS 2024 outpatient rule).

Our credentialing service handles Medicaid enrollment, MCO credentialing and facility contracts in any state, and Medicaid enrollment is $500 per clinician. Before every admission, verify benefits and authorization; the prior authorization guide covers what each plan asks for.

KRS 222.429, Kentucky's brokering law

KRS 222.429 bars any person or provider from knowingly and willfully taking payment for referring someone to a treatment program, and from offering payment to induce a referral or in exchange for someone using a program's services. "Treatment program" is defined in KRS 222.427. Conduct protected under the federal EKRA safe harbors (18 U.S.C. 220(b)) and its regulations gets the same protection under the Kentucky law. In practice: pay marketers a salary, never per admission, and run any referral relationship past your attorney. Our guides to patient brokering laws and marketing a treatment center explain where the lines are.

The steps, in order

1. Define the program: outpatient, intensive outpatient, partial hospitalization or all three under 908 KAR 1:374, adults or adolescents, and whether you'll also bill mental health services as a BHSO.
2. Form the business with the Kentucky Secretary of State, get the EIN and the organization NPI, and line up a health-care attorney and CPA.
3. Find a site local zoning allows, line up the fire marshal inspection, and lease with a way out.
4. Write the policy manual from 908 KAR 1:370 and 1:374, plus 42 CFR Part 2 and HIPAA.
5. Hire the director, clinical staff and counselors, with a licensed clinician for diagnosis, and log every credential's end date.
6. Apply for the AODE outpatient license with the $500 fee, and ask DBHDID for the letter of approval Medicaid wants.
7. Set up the EHR before the review: Cima's IOP and PHP plan keeps levels of care, group notes with each member's entry, attendance and authorizations in one place.
8. Enroll with Kentucky Medicaid as a BHSO Tier II through the Partner Portal.
9. Contract with the MCOs your clients carry, and with commercial plans.
10. Renew every year, and keep drills and chart reviews on a schedule with the compliance calendar.

Questions

Do you need a license to open an outpatient rehab in Kentucky?

Yes. A nonhospital outpatient substance use program needs an alcohol and other drug entity (AODE) license under 908 KAR 1:370 and 908 KAR 1:374, which covers outpatient, intensive outpatient and partial hospitalization services.

What's the difference between an AODE and a BHSO in Kentucky?

An AODE license covers substance use treatment; a BHSO license, issued by the Office of Inspector General under 902 KAR 20:430, covers mental health services. Kentucky Medicaid enrolls outpatient SUD treatment as BHSO Tier II, which requires the AODE outpatient license.

How much is an AODE license in Kentucky?

908 KAR 1:370 sets a $500 licensure fee and $80 for each outpatient extension site, with the same fee due at each annual renewal. A BHSO license is $750 initially.

Does Kentucky have a patient brokering law?

Yes. KRS 222.429 bars knowingly and willfully paying or taking anything for referrals to a treatment program, with conduct protected by federal EKRA safe harbors treated the same way under the state law.

Which Medicaid MCOs operate in Kentucky?

Aetna Better Health of Kentucky, Humana Healthy Horizons in Kentucky, Passport by Molina, UnitedHealthcare and WellCare, per the Department for Medicaid Services. Anthem left on January 1, 2025. Check DMS for changes before you contract.

Can a Texas company help with a Kentucky program?

Yes, if it's honest about how. We run a Texas program, so in Kentucky we work from 908 KAR 1:370 and 1:374, the Medicaid regulations and the MCOs' policies, check each against the current text, and tell you where the cabinet, DMS, the MCOs or your attorney has the final word. We don't guarantee a license, contract or date.

Want accreditation in the same project? Program Launch + Accreditation is $54,500. Or book a free 30-minute call and we'll walk through what Kentucky will ask of you.

Cima Consulting isn't a law firm or an accounting firm. Kentucky agencies make their own decisions; we don't guarantee approvals, rates or dates. Never pay or accept anything of value for patient referrals: KRS 222.429 and federal law (EKRA and the Anti-Kickback Statute) both apply.

Sources

• 908 KAR 1:370: legislature.ky.gov, PDF, amendment markup (fees); 908 KAR 1:374: legislature.ky.gov, PDF
• BHSO: 902 KAR 20:430; DBHDID BHSO application and licensure; DMS BHSO provider type summary
• Medicaid: DMS SUD enrollment guide; DMS MCO options; Anthem transition; SB 13 (2025), committee substitute
• MCO IOP policies: Passport by Molina, H0015 (January 2024); Aetna Better Health of Kentucky
• Counselors: Board of Alcohol and Drug Counselors FAQ; peer support specialist instructions; 2015 act; HB 505 (2024)
• Brokering: KRS 222.429; EKRA, 18 U.S.C. 220: Cornell LII
• OIG exclusions: oig.hhs.gov; CMS, CY 2024 outpatient rule: cms.gov

Comparing states? See Texas and our guides for Alabama, Arizona, California, Colorado, Delaware, Florida, Georgia, Illinois, Indiana, Louisiana, Maryland, Massachusetts, Michigan, Minnesota, Missouri, Nevada, New Jersey, New Mexico, New York, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, South Carolina, Tennessee, Utah, Virginia, Washington, West Virginia and Wisconsin, or how to start an IOP for what every state has in common.