Innovation in Behavioral Health (IBH) Model: Executive Strategic Analysis

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1. Executive Summary and Strategic Context

What Is This Model and What Problem Does It Solve?

The Innovation in Behavioral Health (IBH) Model is a seven-to-eight-year, state-based, voluntary payment and service delivery model authorized under Section 1115A of the Social Security Act. It is administered by the CMS Center for Medicare and Medicaid Innovation (CMMI) and operates through cooperative agreements with state Medicaid agencies (SMAs). The model's central premise inverts the conventional primary-care-centric integration architecture: rather than embedding behavioral health into primary care settings, IBH places the specialty behavioral health (BH) practice at the center of integrated care delivery, making it the entry point for addressing behavioral, physical, and social health needs simultaneously.

The problem the model addresses is both clinical and financial. According to CMS data cited in the NOFO, a quarter of Medicaid beneficiaries carry behavioral health diagnoses, yet account for nearly half of total Medicaid expenditures. The epidemiological scale is substantial: as of 2022, 23.1% of adults age 18 or older (59.3 million people) had a mental illness in the prior year, and 17.3% of people age 12 and older (48.7 million people) had a substance use disorder. Adults with co-occurring behavioral and physical health conditions overutilize emergency departments and inpatient settings while underutilizing primary care, and people with severe mental illness and moderate-to-severe SUDs face a reduced lifespan of 10–20 years compared to the general population.

Five systemic barriers drive these outcomes: poor clinical outcomes and premature mortality; increased expenditures from fragmented, uncoordinated care; a siloed delivery system with persistent disparities; health IT infrastructure deficits among specialty BH providers; and the near-complete exclusion of specialty BH practices from value-based payment (VBP) innovation. On the last point, specialty BH providers were not eligible for HITECH Act EHR adoption incentives that benefited other provider categories, creating a compounding disadvantage in data infrastructure, interoperability, and readiness for value-based contracting.

Strategic Significance for the Value-Based Care Market

IBH is structurally distinct from prior CMMI behavioral health initiatives in several respects that carry strategic weight for market participants. First, it creates a dedicated Medicare and Medicaid value-based payment pathway for specialty BH providers—a category that has historically been excluded from ACO, bundled payment, and primary care transformation models. This creates a new class of value-based care participants—community mental health centers, opioid treatment programs, certified community behavioral health clinics (CCBHCs), rural health clinics, FQHCs dually certified as BH providers, and private specialty clinics—with direct financial incentives aligned to integration outcomes.

Second, the model's multi-payer alignment architecture is operationally significant. CMS requires that state Medicaid payment approaches align directionally with the IBH Medicare payment structure, including on quality measures, attribution methodology, and payment progression. This creates pressure on Medicaid managed care organizations (MCOs), prepaid inpatient health plans (PIHPs), and prepaid ambulatory health plans (PAHPs) to develop parallel payment arrangements. Commercial payers are encouraged, though not required, to voluntarily align. For health system strategists and MCO plan designers, IBH represents a forcing function toward multi-payer BH integration contracts that could reshape how specialty BH networks are structured and paid.

Third, the model's glide path from fee-for-service to value-based payment follows the Health Care Payment Learning and Action Network (LAN) framework—a concrete, staged progression from Category 2A (FFS with infrastructure ties) through Category 2B (pay-for-reporting) to Category 2C and above (pay-for-performance on specific quality measures). This trajectory is codified in participation requirements and creates a predictable structural shift in how BH practices generate revenue over a four-to-five-year window.

Political Context and Administrative Alignment

IBH Cohort 1 cooperative agreement awards were issued on January 1, 2025, in the final days of the Biden administration, with Michigan, New York, and South Carolina as the three selected states. The model then transitioned into execution under the Trump administration, with Dr. Mehmet Oz as CMS Administrator and Abe Sutton as CMMI Director. The Cohort 2 NOFO was posted on October 16, 2025, under the current administration, signaling continued programmatic investment despite broader DOGE-influenced pressures on federal spending and the CMMI portfolio.

The current administration's continuation of IBH is notable given CMMI's broader posture under Sutton's leadership, which has emphasized model consolidation and evidence-based prioritization. IBH's survival and expansion into Cohort 2 suggests it aligns with current HHS priorities around behavioral health access—consistent with RFK Jr.'s public health messaging on mental health and substance use—while also presenting a credible federal spending reduction narrative through the prevention of avoidable ED visits and inpatient hospitalizations.

The Cohort 2 NOFO (Number CMS-2Q2-26-001) makes available up to $37.5 million in total anticipated funding across up to five additional state recipients, at a maximum of $7.5 million per recipient over a seven-year performance period (January 1, 2027 – December 31, 2033). The application due date is June 3, 2026, with anticipated award notices on September 15, 2026.

Market Transformation Implications

For behavioral health practice executives and health system CFOs with BH service lines, IBH creates a specific and time-limited window to position organizations as IBH Practice Participants. States that are selected as Cohort 1 or Cohort 2 recipients will actively recruit eligible BH practices during pre-implementation periods, and practices that engage early in state convening structures will have greater influence over the design of local Medicaid payment approaches. Practices participating in both Medicaid and Medicare arms of the model access two distinct CMS revenue streams—up to $200,000 in infrastructure funding directly from CMS plus the Integration Support Payment (ISP) of approximately $200–$220 per-member-per-month—representing a material new revenue layer atop existing FFS BH billing.

For Medicaid MCO strategists, IBH creates a requirement to engage. States are required to secure letters of intent from at least one MCO, PIHP, or PAHP as part of Cohort 2 applications, meaning managed care entities will be embedded in the model's governance and payment design from the outset. MCOs that proactively develop IBH-aligned payment contracts with specialty BH practices will be better positioned than those that wait for state mandates.

For Medicare Advantage plan strategists, IBH explicitly excludes Medicare Advantage enrollees from the Medicare payment approach, which applies only to Medicare fee-for-service beneficiaries. This creates an asymmetry: FFS beneficiaries at participating practices receive IBH-funded integrated care, while MA enrollees at the same practice do not receive equivalent model payments. MA plans should monitor whether this creates access or quality disparities and consider voluntary alignment with IBH design elements as a competitive differentiator.

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2. Model Architecture and Payment Structure

Participation Structure

The IBH Model operates through a two-tier participation architecture: State Medicaid Agencies (SMAs) as Recipients, and specialty BH practices as Practice Participants. Only SMAs—from U.S. states, the District of Columbia, or territories—are eligible to apply directly to CMS. Individual practices apply through their states, and subsequently apply to CMS separately for participation in the Medicare arm via a competitive Request for Applications (RFA) process.

Eligible Practice Participants must meet all of the following criteria at the time of state recruitment:

• Have at least one BH provider (employee, leased employee, or independent contractor) who is licensed by the state to deliver BH treatment services and meets state-specific Medicaid provider enrollment requirements
• Meet all state-specific requirements to deliver BH services
• Serve adult Medicaid beneficiaries (age 18 or older) with moderate-to-severe BH conditions
• Provide mental health and/or SUD treatment services at the outpatient level of care (explicitly excluding intensive outpatient [IOP])
• Serve at least 25 Medicaid MSBH beneficiaries on average per month

Inpatient and post-acute care settings are explicitly ineligible. Practices providing only case management or only recovery services, without direct diagnostic or treatment services, are also ineligible.

Eligible practice types include: Community Mental Health Centers (CMHCs), Rural Health Clinics (RHCs) providing specialty BH care, FQHCs dually certified as BH providers, Critical Access Hospital outpatient BH clinics, CCBHCs, Opioid Treatment Programs (OTPs), private specialty clinics, specialty SUD provider organizations, tribal health organizations, and local/territorial health departments functioning as BH authorities.

Practices are identified via TIN and NPI cross-referenced with Medicaid provider identification numbers. CMS anticipates each state will include approximately 10,000 Medicaid beneficiaries with MSBH conditions throughout the model's duration.

Eligible beneficiaries are all adult Medicare and/or Medicaid beneficiaries (including dually eligible) receiving care from eligible Practice Participants where services are deemed reasonable and medically necessary, regardless of specific BH diagnosis. Medicare Advantage enrollees are not eligible for Medicare payment approach payments.

Payment Methodology

The IBH payment structure comprises three distinct streams for practices participating in both Medicare and Medicaid arms, and a reduced structure for Medicaid-only participants.

Medicare Payment Streams

Payment Component	Description	Amount / Rate	Timing
Infrastructure Funding (Medicare)	Direct CMS-to-practice payments for health IT, EHR adoption, interoperability tools, practice transformation, workflow redesign, staffing	Up to $200,000 per practice (determined by standardized needs assessment; distributed annually through approximately Model Year 5)	Pre-Implementation Period through Implementation Period
Integration Support Payment (ISP)	Prospective, risk-adjusted Medicare per-member-per-month (PMPM) payment covering care integration, care management, and health equity services for attributed Medicare and dually eligible beneficiaries	Approximately $200–$220 PMPM	Implementation Period (Model Years 4–8; Cohort 1: 2028–2032; Cohort 2: 2029–2033)
Performance-Based Payment (PBP)	Pay-for-reporting and pay-for-performance bonuses expressed as a percentage of the ISP, increasing over time as model progresses from reporting to performance orientation	Percentage of ISP (specific rates not specified in source documents)	Implementation Period, escalating over time

The ISP is explicitly additive—it is paid on top of existing FFS Medicare billing for BH services. Practices continue to bill for underlying BH services under standard Medicare payment rules; prohibited billing codes (listed in Appendix XI of the NOFO) apply to avoid duplication with the ISP.

Medicaid Payment Structure

The Medicaid payment approach is designed and implemented by each state SMA, with CMS requiring directional alignment with the ISP on key elements. States must move practices away from traditional Medicaid FFS, following a staged LAN progression:

LAN Category	Payment Type	Required By
Category 2A	FFS with infrastructure ties (e.g., health IT investment requirements)	Model launch (Cohort 2: MY1/BP1, beginning January 2027)
Category 2B	FFS with pay-for-reporting quality incentives	No later than MY3 (BP3) (Cohort 2: January 2029)
Category 2C or above	FFS with pay-for-performance on select measures	MY4 (BP4) (Cohort 2: January 2030) for select measures

States must include a Medicaid performance-based payment (PBP) component incorporating all practice-based quality measures. Medicaid payments are funded through existing state Medicaid funds—federal cooperative agreement funds cannot cover clinical services or administrative expenses for which the state is claiming federal financial participation (FFP).

For Medicaid-only Practice Participants, infrastructure funding flows from the state's cooperative agreement rather than directly from CMS. States are asked to budget approximately $100,000 per Medicaid-only practice participant for infrastructure funding, distributed based on a standardized practice needs assessment.

State Cooperative Agreement Funding

Each state SMA recipient receives up to $7.5 million over the full performance period (eight years for Cohort 1; seven years for Cohort 2). Cohort 2 total anticipated funding is $37.5 million across up to five recipients. These funds support SMA activities including Medicaid payment approach development, health IT infrastructure for the state and practices, practice recruitment and technical assistance, data collection and sharing, and convening structure operations. Cooperative agreement funds cannot be claimed for FFP.

Quality Measures and Performance Requirements

IBH employs two tiers of quality measurement: state-based measures (nine measures, reported quarterly and annually by SMAs) and practice-based measures (tied to performance-based payments).

Priority Physical Health Conditions (mandatory screening by all Practice Participants):

• Diabetes
• Hypertension
• Tobacco use

These three conditions were selected based on prevalence in the BH population, CMS spending levels, clinical treatability in BH settings, and associated morbidity/mortality risk.

State-Based Quality Measures (9 measures):

Measure
Follow-up after emergency department visit for substance use
Follow-up after emergency department visit for mental illness
Plan all-cause readmissions
Follow-up after hospitalization for mental illness
Hemoglobin A1c control for patients with diabetes
Diabetes screening for people using antipsychotic medications
Emergency department utilization
Colorectal cancer screening
Breast cancer screening

Practice-Based Measures (tied to PBP):

Measure
Tobacco use screening and cessation intervention
Emergency department utilization
Controlling high blood pressure
Screening for social drivers of health
Patient-reported outcomes measure (PROM)

States must agree to a parsimonious set of IBH Model quality measures tied to both payment and reporting. CMS will provide lists of validated, health IT-encoded HRSN screening instruments from sources including the Gravity Project's National Library of Medicine Value Set Authority Center and the Accountable Health Communities (AHC) screening tool.

Timeline: Cohort Comparison

Milestone	Cohort 1	Cohort 2
NOFO Posted	Q3 2024	October 16, 2025
Application Due	September 9, 2024	June 3, 2026
Optional Letter of Intent	—	April 1, 2026
Anticipated Award Notice	December 2024	September 15, 2026
Performance Period Start	January 1, 2025	January 1, 2027
Pre-Implementation Period	Q1 2025 – Q4 2027 (3 years)	January 1, 2027 – December 31, 2028 (2 years)
Implementation Period	Q1 2028 – Q4 2032 (5 years)	January 1, 2029 – December 31, 2033 (5 years)
Performance Period End	December 31, 2032	December 31, 2033
Total Performance Period	8 years	7 years
Maximum Award Per State	$7.5 million	$7.5 million
Maximum Number of Recipients	Up to 8 total (Cohorts 1+2)	Up to 5 additional
Current State Participants	Michigan, New York, South Carolina	TBD (applications due June 2026)
ISP Payment Start	Model Year 4 (January 2028)	Model Year 3/Implementation Period (January 2029)
Practice Participant Recruitment Window	MY1–MY4 (2025–2028)	MY1 (BP1) through MY3 (BP3)

Key Cohort 2 Pre-Implementation Requirements by Model Year:

Requirement	Deadline
Practice Participants enrolled by state	Start of MY2 (BP2) (January 2028)
Continue recruiting Practice Participants	Through end of MY3 (BP3) (December 2029)
LOI from at least one MCO/PIHP/PAHP	At time of application (June 2026)
LOI from State Mental Health Authority and/or Single State Agency for SUDs	At time of application (June 2026)
IBH care delivery framework ready for Practice Participants	Start of MY3 (BP3) (January 2029)
Medicaid Payment Approach established	End of MY2 (BP2) (December 2028)
Medicaid Payment Approach implemented	Start of MY3 (BP3) (January 2029)

Care Delivery Framework Requirements

The care delivery framework comprises three mandatory core elements that Practice Participants must implement:

1. Care Integration: Evidence-based screening, assessment, treatment, and referral for both BH and physical health conditions (including mandatory screening for diabetes, hypertension, and tobacco use); building comprehensive care plans with PH consultant input; tracking beneficiary outcomes using a standardized patient-reported outcome measure.

2. Care Management: Interprofessional care team-based management addressing BH, physical health, and HRSN needs; care pathways for hospitalization and ED transitions; person-centered planning; beneficiary self-management support; utilization management.

3. Preventive Care and Health Promotion: Annual HRSN screening using validated tools (AHC tool, Gravity Project instruments, or CMS-approved list); development and implementation of protocols for screening, referral, and closed-loop follow-up; population health needs assessment (updated at least every five years, minimum five years old at implementation); health equity plan addressing population-specific disparities.

Physical Health (PH) Consultant role: A prescribing-eligible PH provider (physician, NP, etc.) who participates in regular clinical review of IBH beneficiaries, advises the care team on PH screening and treatment initiation, manages PH-BH treatment interactions, and facilitates referrals to primary or specialty care. The PH Consultant may be in-house or contracted. Practice Participants unable to provide certain evaluation and management (E&M) services within scope of practice must develop an annual care agreement with PH providers and submit a roster of partnering PH providers.

Closed-loop referrals to primary care providers, specialists, and community-based social service organizations are required. States must facilitate warm hand-offs between Practice Participants and social service agencies through the model's convening structure.