The behavioral health industry is undergoing a fundamental transformation. For decades, the dominant fee-for-service (FFS) reimbursement model has shaped how providers deliver care, but this system often leads to fragmented, episodic treatment rather than integrated, outcomes-driven care. Substance use disorder (SUD) providers are now poised to lead a shift toward alternative payment models in behavioral health in 2024 — a change that promises to improve patient outcomes, align incentives, and foster more collaborative relationships between providers and payers.
This blog explores the current landscape of behavioral health reimbursement, highlights key players spearheading the move toward value-based care, discusses the role of federal initiatives, and unpacks the challenges and opportunities ahead in adopting alternative payment models in behavioral health.
Why Fee-for-Service Falls Short in Behavioral Health
The fee-for-service model reimburses providers based on the quantity of services rendered — the more sessions, tests, or treatments, the more providers get paid. While straightforward, this approach often inadvertently encourages volume over value. For complex behavioral health and SUD care, this can mean:
- Fragmented services without coordination
- Limited focus on long-term recovery and relapse prevention
- Difficulty measuring and rewarding true treatment effectiveness
This fragmented system hampers providers’ ability to innovate or invest in more comprehensive, integrated care models that address the multifaceted needs of patients struggling with addiction and mental health disorders. Moving toward alternative payment models in behavioral health can help solve these issues by incentivizing quality over quantity.
What Are Alternative Payment Models in Behavioral Health?
Alternative payment models in behavioral health represent a broad category of payment structures designed to shift focus from volume to value. Instead of reimbursing purely for service delivery, APMs link payments to quality, outcomes, efficiency, and cost-effectiveness. Common types include:
- Risk-bearing contracts: Providers assume financial risk for patient outcomes, with potential bonuses or penalties based on performance.
- Bundled payments: Providers receive a lump sum for a defined episode of care, encouraging coordination and cost containment.
- Shared savings: Providers share in any cost savings achieved while maintaining or improving care quality.
These models incentivize providers to invest in evidence-based practices, coordinate care across providers and settings, and focus on patient-centered outcomes, making alternative payment models in behavioral health a promising direction for the industry.
Recovery Centers of America: Leading the Shift
One prominent player pushing the industry forward is Recovery Centers of America (RCA). With 10 inpatient facilities and backed by Deerfield Management Company, RCA specializes in treating SUD as well as co-occurring mental health conditions.
Peter Barbuto, Vice President of Business Development at RCA, shared in a recent Behavioral Health Business webinar that the company plans to transition at least 30% of its payer contracts to alternative payment models in behavioral health by the end of 2024 — with hopes to surpass that goal.
“We need to take on risk. We need to put our money where our mouth is and allow our outcomes to tell the story,” Barbuto emphasized.
For RCA, these new payment structures aren’t just financial adjustments — they represent an opportunity to deepen payer relationships and innovate treatment delivery in a sustainable, patient-focused way, through alternative payment models in behavioral health.
Not All Models Are Created Equal: The Distinction Between Bundled Payments and Value-Based Care
While bundled payments are gaining traction as an alternative to fee-for-service, they don’t always equate to full value-based care. Joe Bond, Founder and CEO of Cedar Recovery, a Tennessee-based outpatient SUD provider with nine locations, highlights this nuance.
“There is not a value to that,” Bond says of bundled payments. “The payers may have an underlying value to it, but it’s not a reward or risk-based contract.”
Cedar Recovery offers individualized recovery plans that combine medication-assisted treatment (MAT) with behavioral therapy, and they also operate Studio Health, a telemedicine branch for online mental health treatment.
Bond notes that Cedar Recovery’s outpatient-only model influences how they approach alternative payment models in behavioral health, which differ from inpatient providers like RCA. For outpatient providers, negotiating gradual goalposts based on measurable performance is critical, though not without challenges.
The CMS Innovation in Behavioral Health (IBH) Model: A Catalyst for Change
Federal initiatives are accelerating the move toward value-based care in behavioral health. In 2024, the Centers for Medicare & Medicaid Services (CMS) introduced the Innovation in Behavioral Health (IBH) Model, aiming to bridge behavioral health with primary care through “reverse integration.”
Unlike traditional integration efforts that embed behavioral health in medical settings, reverse integration brings primary care into behavioral health practices, fostering holistic, patient-centered care.
The IBH Model creates a structured pathway for behavioral health providers to transition from fee-for-service to value-based payments, combining predictable investments and learning supports.
CMS describes this approach as a “glide path” to support community-based providers in adopting and succeeding under alternative payment models in behavioral health — a promising development that could reshape care delivery across the country.
Challenges in Implementing Alternative Payment Models in Behavioral Health
Despite enthusiasm, shifting to alternative payment models in behavioral health is not without obstacles. Providers and payers face several key challenges:
Legacy Fee-for-Service Infrastructure
Many behavioral health organizations have built their operations around fee-for-service billing, creating entrenched workflows, staffing models, and financial expectations that are difficult to overhaul.
Lack of Standardized Outcome Measures
A major barrier is the absence of a universal “language” or consensus on which clinical and operational metrics best reflect high-quality, value-based behavioral health care. Without standardized outcome measures, negotiating contracts and evaluating success become complicated.
Technological Limitations
Tracking outcomes and coordinating care across providers requires robust technology platforms. Many behavioral health providers lag behind in adopting electronic health records (EHRs) or integrated data systems necessary for alternative payment models in behavioral health.
Payer Incentive Misalignment
High patient churn among health plans poses a challenge for payers, who may be reluctant to invest heavily in value-based arrangements if patients frequently switch insurers, undermining long-term ROI on improved outcomes.
Negotiation and Staffing Pressures
Joe Bond notes how shifting goalposts and changing performance expectations can strain providers operationally and financially, sometimes forcing staff reductions to maintain business viability.
Payer Dynamics: Commercial vs. Government
Adoption of alternative payment models in behavioral health varies across payer types. RCA has found more opportunity among government payers such as Medicaid and Medicare, which have been more proactive in launching value-based programs.
In contrast, commercial insurers tend to move more cautiously, though larger commercial payers are increasingly engaging in value-based contracts. Cedar Recovery’s experience shows much of their value-based contracting activity centers around commercial insurers, but boutique managed behavioral health organizations are often more laser-focused and nimble in pursuing alternative payment models in behavioral health.
The Road Forward: Collaboration, Innovation, and Commitment
The transition to alternative payment models in behavioral health represents an essential step in modernizing behavioral health care, especially for substance use disorder treatment. By embracing risk and demonstrating outcomes, providers can break free from the limitations of fee-for-service and forge stronger, more innovative partnerships with payers.
As RCA’s Peter Barbuto succinctly put it: “We want to move and innovate with our payer partners — they are ultimately our number one customers.”
Success will require:
- Open communication and strategic negotiation with all payer types
- Investment in technology and data systems to track outcomes accurately
- Development of standardized, meaningful outcome measures
- Flexibility to adapt to evolving contractual expectations
- Commitment to patient-centered, coordinated care models
The future of behavioral health reimbursement is bright but demands courage and collaboration from providers and payers alike. The efforts underway in 2024 will likely set the stage for a more integrated, effective, and sustainable system that better serves those battling substance use disorders and co-occurring conditions through payment models in behavioral health.
