The U.S. health care system is on the brink of a profound transformation. According to a new report by consulting powerhouse McKinsey & Co., as much as $265 billion in Medicare fee-for-service spending could transition from traditional health care facilities to home-based care by 2025. This large-scale migration, known as the Medicare Home Health Care Shift, has the potential to redefine how—and where—care is delivered across specialties, including behavioral health.
While acute care services make up the largest portion of this projected spending shift, the impact on behavioral health is both significant and nuanced. To truly understand what lies ahead, behavioral health providers must look beyond the numbers and into the changing models of care.
Breaking Down the Medicare Home Health Care Shift
McKinsey’s report estimates that between $180 billion and $265 billion of Medicare fee-for-service spending will move out of institutions and into patient homes by 2025. This shift represents a three- to four-fold increase in Medicare spending on in-home care services.
A relatively smaller portion—approximately $5 billion—is expected to come from behavioral health services currently delivered in facilities. While that might sound minor in comparison, experts stress that this figure is misleading without the proper context. Behavioral health has already made enormous strides toward virtual care, and much of its Medicare Home Health Care Shift has already occurred.
Telebehavioral Health: A Quiet Revolution in Full Swing
The reason behavioral health represents a smaller slice of the Medicare Home Health Care Shift is due to its swift and early adoption of telehealth during the COVID-19 pandemic. As many providers scrambled to find solutions in 2020, behavioral health professionals leaned into telehealth almost overnight—capitalizing on their existing comfort with virtual care.
Oleg Bestsennyy, expert associate partner at McKinsey and co-author of the report, emphasized this point:
“It’s not that the potential is small — it is that the majority of the potential has already been realized by push into telebehavioral health.”
Indeed, behavioral health saw a 3,090% increase in telehealth visits in 2020 compared to the previous year. The Medicare Home Health Care Shift in this space wasn’t so much a new direction—it was an acceleration of trends already underway.
Making Pandemic-Era Changes Permanent
While the behavioral health sector has already made significant progress in transitioning care to the home, the next phase of the Medicare Home Health Care Shift depends heavily on policy. During the pandemic, temporary waivers and federal flexibility allowed behavioral health to flourish in a virtual environment.
Now, many stakeholders are calling for those rules to become permanent, ensuring that Medicare beneficiaries can continue to access high-quality behavioral health services from the comfort of their homes. If those changes are codified at the federal and state levels, they’ll further cement behavioral health’s place in the Medicare Home Health Care Shift.
Opportunity and Innovation in Behavioral Health
Even though behavioral health has already embraced telehealth, there is still substantial room for growth and innovation within the Medicare Home Health Care Shift. McKinsey estimates that up to 30% to 40% of behavioral health services currently offered in provider offices could transition to the home, indicating that further adoption is possible with the right investments and support.
However, to reach this potential, the industry must overcome several challenges:
- Business model innovation: Providers must rethink how care is delivered, packaged, and reimbursed.
- Internet access: Disparities in broadband infrastructure could limit access to virtual care in rural and underserved areas.
- Technology training: Both patients and providers may require support to use new platforms effectively.
These obstacles must be addressed for behavioral health to maximize its role in the broader Medicare Home Health Care Shift.
What About Digital Therapeutics?
One key element missing from McKinsey’s forecast is digital therapeutics—a fast-emerging segment where treatment is delivered through digital platforms without real-time clinician involvement. These therapies use evidence-based interventions and AI to offer patients structured care, often accessible via smartphones.
For instance, Woebot Health, a San Francisco-based company, uses artificial intelligence to simulate a human therapeutic bond and deliver conversational mental health care. The company raised $90 million in Series B funding in 2021 and is considered a pioneer in this space.
Although not included in the report due to its early-stage status, digital therapeutics could significantly shape the future of the Medicare Home Health Care Shift, especially in treating ADHD, anxiety, and substance use disorders.
“We see promising companies evolving in the substance use disorder space and in the ADHD space — we’re hoping that more of that will be coming forward,” said Bestsennyy.
The Bigger Picture: Behavioral Health at Home
As the Medicare Home Health Care Shift progresses, it’s becoming increasingly clear that behavioral health is well-positioned to lead this evolution—not follow it. The sector’s early embrace of telehealth, coupled with growing interest in digital tools and virtual-first care models, places it at the forefront of a decentralized health care future.
What’s next? Stakeholders across the industry must collaborate to:
- Advocate for sustainable reimbursement policies
- Invest in digital infrastructure
- Create equitable access to telehealth
- Support technology-driven behavioral care models
With proper support and innovation, the behavioral health industry can continue to push boundaries and expand access in the home setting—turning the Medicare Home Health Care Shift into a sustainable and scalable model for decades to come.
Final Thoughts
The Medicare Health Care Shift is more than a cost reallocation—it’s a complete reimagining of where and how care happens. For behavioral health, it’s both a validation of its pioneering work in telehealth and a challenge to keep innovating.
As we approach 2025, behavioral health providers must double down on flexibility, accessibility, and digital engagement to meet the growing demand for home-based services. The opportunity is not just to be part of the Medicare Health Care Shift, but to lead it.
