How to Start a Rehab Center Successfully: 9 Steps

It’s no secret that opening a rehab center is fulfilling work. In fact, many behavioral healthcare providers are eager to learn how to start a rehab center that will grow into a successful addiction and mental health treatment center down the line.

Here’s the truth: You cannot go into this industry unprepared! There are A LOT of moving parts that go into planning and opening a successful rehab center. Unfortunately, it’s easy to overlook or miss some of these steps if you don’t know what to look out for. This can lead to big challenges down the line.

Luckily, our team of behavioral health consultants developed this guide to highlight the 9 fundamental steps for you, so you can make the best decisions possible when opening a behavioral health treatment facility. In this comprehensive guide, you’re going to learn:

  1. How to Define Your ‘why.’ How to define your passion and purpose behind your idea
  2. What’s Needed? The who, what, where and when behind your idea
  3. The ‘How.’ How in the world do you take the first steps towards success?
  4. How Much Does it Cost to Open a Rehab Center? Financial implications of starting a treatment center
  5. The Legal. Let’s ensure you’ve got all your ducks in a row
  6. The Regulations. We’ll walk you through the critical regulatory and accreditation requirements
  7. Who Runs The Program? How to recruit your C-Suite
  8. Who pays for the services? A journey into payor contracting
  9. Kick Your Operations into Gear. An overview of milieu management

By the end of this guide, not only will you know HOW to start a rehab center, but you’ll also have enough tools to develop the foundational elements of your organization. Let’s get started!

1. Your ‘Why.’ Identify Your Passion & Purpose

How to start a rehab center

If you want to know how to start a rehab center, the first thing you need to define is the passion and purpose behind your idea. In other words, WHY should you start a rehab center?

Do You Have a Passion to Help Those in Need?

First and foremost, when you choose to go into this industry, you MUST have a passion to help people find long-term health and wellness. When other peoples’ lives are in your hands, it’s absolutely essential for you to know if you’re going into this industry for the right reasons. 

Like all business ventures, profits are to be made. But, profit is just one part of the equation. 

Unfortunately, a profit-only approach is often not in the best interest of your patients, your employees, and your brand identity as a whole. This, in turn, will tarnish your organization’s mission and reputation to serve those in need. 

Instead, you should seek to put the needs of your patients and team members first. For this very reason, if you want to open a successful rehab center, you have to have passion for your clients and their health journeys.

How to Get to Know Your ‘Why’

To reflect on WHY you want to open it in the first place, here are some questions you should ask yourself right out of the gate:

  • What is your passion and why do you have this passion? 
  • How does your passion directly relate to the behavioral health industry?
  • Can you use this passion to help people in need of a rehabilitation facility?
  • What is the purpose of your particular rehab center? 
  • How do you envision this organization impacting the lives of clients and employees alike? 
  • What types of programs are you going to offer to improve the health of your clients? 
  • And most importantly, what are your core values?

The “why” should be the foundation of your facility. It will help you establish your main objectives and allow you to focus on your target audience (a.k.a. your ideal patients) down the line.

2. What’s Needed? Develop a Thesis and Feasibility Study

You want to build a successful rehab facility that maximizes profit, creates an enhanced customer journey, and drives exceptional client outcomes. But, how viable is this venture?

This is where a feasibility study comes into play.

What is the Purpose of a Feasibility Study for a Rehab Center?

In essence, a feasibility study is an assessment of how practical a proposed business plan is. In the context of behavioral healthcare, it seeks to:

  1. Assess the practicality of starting a rehab center in your area
  2. Determine whether the proposed project is realistic, achievable, and sustainable within your given resources and constraints
  3. Help you make informed decisions about particular behavioral health services
  4. Uncover the strengths and weaknesses of your business plan

Key components of a feasibility study include in-depth marketing analyses as well as important technical, financial, operational, legal, and regulatory feasibility considerations. 

How a Feasibility Study Will Prepare You 

For a startup rehabilitation center, a feasibility study will seek to answer the following questions as rationally as possible:

  • Should you actually go into this industry?
  • What does it take to successfully enter this market?
  • Is now the right time to proceed? 
  • Who should you work with? 
  • What do you need to continue operations in the long run? 
  • How are you going to achieve this?

At the end of the day, you should ALWAYS enact the help of a feasibility study before you continue with business development. It is absolutely essential if you want to proceed with as few roadblocks as possible.

After you conduct the study, you can use the information and data gathered from it to develop a thesis for your rehab center. 

How to Use a Feasibility Study to Develop Your Thesis

How to open a rehab center

So, what exactly is a thesis for a rehab center startup? 

In short, a thesis for a behavioral health business is a plan of action that is driven towards an investment into a particular sector. Oftentimes, your thesis is a unique and revolutionary idea that propels your business forward and optimizes patient outcomes

Furthermore, your thesis will outline how you can gain a competitive edge or advantage if you invest in a certain strategy. Here’s a quick example.

Example of a Thesis for the Behavioral Health Industry

You may notice that treating trauma as the underlying condition of a substance use disorder is key to better patient outcomes. Therefore, you create a thesis that explores, researches, and weighs the pros and cons of this proposed solution.

During the investigation phase, your thesis might stumble across a way to build a competitive advantage to achieve your desired solution. In this instance, you might find that a valuable advantage to treat trauma is through the partnership with a team of experts. Your thesis will then outline a plan of action to invest into a partnership strategy with these experts.

What to Include in a Thesis

With that being said, your thesis can focus on many aspects of your business, including but not limited to:

  • Viability of specific treatment programs
  • Optimization of the patient journey
  • Employee satisfaction and retention rate
  • Milieu management and rehab center atmosphere
  • Strategic partnerships and sponsorships

Next, consider the different parts of your thesis, including:

  1. Business Ideation: Thorough description of the main ideas that support your behavioral health center 
  2. Problem-Solution Model: Explain the core problem (pain point) your rehab center will solve for your customers
  3. Value proposition: Clear statement of the value your business will bring to your community 
  4. Competitor analysis: Describe what sets you apart from similar businesses in your area
  5. Target Market Identification: Define your ideal customer and their demographics
  6. Market opportunity: Explore the size and potential of your target market
  7. Execution Strategy: Step-by-step process of how you plan to execute your strategy
  8. Long-Term Plan: Discuss ways you will ensure the longevity of your business operations 
  9. Financial & Investment Viability: Outline the costs and perceived profits of your rehab center
  10. Risk Assessment: Identify possible risks and set up a strategy to navigate common behavioral health industry roadblocks

As you start building your rehab center, your thesis will help you strategize, organize, and plan for upcoming projects that you want to invest in.

3. The ‘How.” Plan Your First Steps

If you haven’t guessed by now, proper preparation is essential before you take your first steps into this industry! In the next few sections, we’re going to talk about the bare necessities you need to build a rehab center. First, you need a business strategy.

Build a Business Strategy

Think of your strategy as your master plan. Not only does it need to look at your present-day goals, but it also needs to define milestones that reach far into the future.

A strong business strategy is the key to success for your organization. Your strategy should ask this very important question: “How should I invest in my behavioral health center to see success?”

Here are some core business sectors that you definitely need to invest in to see success: 

  • Financial oversight: Estimate the costs associated with your building costs, programs, employees, etc. Compare the costs with the potential revenue, funding sources, and reimbursement mechanisms. 
  • Technical infrastructure: Evaluate whether the necessary infrastructure, technology, and resources are available to support your center. 
  • Marketing strategy: Establish your brand identity as the solution to the needs and pain points of your target market.
  • Operational protocol: Create an operational plan that aligns day-to-day workflow with your organization’s core values and mission to properly manage your rehab center

Another section you might want to add is a patient feedback and data strategy. Once you open your organization, you will want to perform the best quality care and medical practices possible. You can learn how to improve your center through patient feedback and data. Definitely include this into your overall business plan for long-term success!

4. How Much Does it Cost to Open a Rehab Center? Pro Forma & Financial Budget

How to open a rehab center

You’re probably wondering, “how much does it cost to start a rehab center?”

Like all startups, there are big upfront costs that you have to account for in the beginning. You also have to think long-term… how much is it going to cost to run your organization day-to-day, month-to-month, and year-to-year? 

Average Cost of a Rehab Center

On average, the startup costs for an outpatient rehab center ranges between $300,000 to $1MM. 

For an outpatient facility, key expense include:

  • Lease or purchase of office space
  • Licensing fees
  • Staff salaries
  • Treatment materials
  • Marketing costs
  • Technical infrastructure

Generally, an inpatient rehab center will cost much more, easily reaching startup costs of over $1MM. Expenses may include:

  • Facility acquisition or construction
  • Licensing fees
  • Staffing (therapists, medical professionals, support staff)
  • Medical equipment
  • Treatment programs
  • Administrative costs
  • Technical infrastructure

Keep in mind, startup costs can vary greatly and depend on your location, the scale of your facility, and your intended treatment programs. But in general, it costs $300k to bootstrap the business and $1MM to really dial everything in.

Outline a Pro Forma Financial Statement

How to start a rehab center

You should make sure your financial goals are feasible to take on the size of an investment that goes into starting a rehab facility. You can accomplish this by laying out a detailed pro forma document that focuses on your business’s financial structure and long-term goals. 

A pro forma financial statement will include the following:

  • Income statement: A projection of your center’s future revenues, expenses, and profits under certain pretenses
  • Balance sheet: An estimate of assets, liabilities, and equity based on anticipated changes in operations
  • Cash flow statement: A forecast of inflows and outflows of cash based on projected activities and transactions
  • Pro forma budget: An outline of expected revenues, expenses, and investments based on business strategies and goals

As a startup, you can market your pro forma financial statement to potential investors. Since they highlight your projected financial performance, investors can use your pro forma as a guide to assess your rehab center’s proposed financial health.

Upfront Budget Expectations

In the business world, budgeting is everything! And the same goes for the behavioral health industry – you will need a well-advised budget and financial management goals to get started. 

In the beginning, you can expect the majority of your starting finances to go towards your property, technical and operational infrastructure, and staff. You’ll also have to invest in all of the proper equipment for your facility. 

We highly recommend talking to a financial consultant that is experienced with the behavioral healthcare industry to assist you in your financial plan. After all, a sound financial plan will lead to the long-term success of your facility. 

Raising Capital 

For the next key step, you’ll need to translate your pro forma document into investor materials

Depending on the amount of initial investment you need, you might have to take several preparatory steps before you reach out to investors. This includes:

  • Pitch decks
  • Cap raise strategy
  • Investor relations frameworks

Additionally, prepare and organize all of your financial research and documentation as soon as possible if you plan to lend capital from banks and other financial institutions. The earlier you can complete your documents, the faster you can get approval.

5. The Legal. Look Into Legal Entity Formation

How to start a rehab center

Now that you know the first few steps on how to start a rehab center, let’s talk about location. This is where you’ll have to get smart. 

First, the entity needs to be legal. For instance, you must carry all of the proper licensing and fill out the correct paperwork before you open your doors to the public. You also need to consider local municipality registrations and zoning requirements. Since this step is so important, we’ll explain it in fuller detail later on.

Important Considerations for Your Location

Next, you’ll want to consider WHERE you’re going to start your business. 

For starters, you don’t want to open a center that is in close proximity to other behavioral health treatment facilities… especially ones that offer the same specialty services as you. This will help you avoid the challenges of direct competition.

Furthermore, you’ll need to do some research on the type of center that is needed in your area. Is there a demand for drug and alcohol rehabilitation where you live? If not, you might want to consider a location that does have a need for your services. 

6. The Regulations. Get Licensure

Next, let’s go into further detail about rehab center licensing. If you are eager to know how to start a rehab facility, then this is by far the most crucial step! 

First, it’s important to know that a rehab center is considered a medical institution in the United States. Because of this, behavioral health treatment facilities require a lot of paperwork and regulation to ensure each center is legal to operate. 

Zoning Requirements

Similar to opening a private medical practice, you’ll need to look into zoning. For example, a residential rehab center could require commercial medical zoning

Zoning and licensing requirements vary from state to state. Contact your local officials and zoning authorities to learn what you need to legally open your center.

Strengthen Your Policy & Procedure Manual 

How to start a rehab center

Next, a big part of your license lies in your Policy & Procedures Manual, also known as P&P. This manual will contain all of the steps you plan to take to implement specific policies in your treatment facility. It may also outline your program structure.

Here’s why this is important: To obtain licensure, your P&P will be reviewed by a licensing board. If your manual has any faulty documentation or missing steps, then the board will reject it. 

Don’t worry, you can reapply for licensing! But, you will have to get back in line and wait for approval before you can start a rehab center. That’s why you want to get it right the first time around.

Get Accreditation

Similar to rehab licensing, you’ll want to look into healthcare insurance accreditation. Although it might not be required in your state, it’s a great asset to have. Here’s why.

In simple terms, accreditation allows your rehab center to receive payment from federally funded Medicare and Medicaid programs. Furthermore, accreditation offers many benefits to behavioral health treatment facilities, including:

  • Improved risk management practices 
  • Bolstered position in the local community
  • Decreased insurance costs
  • Notable quality care standards

To get accreditation, look into The Joint Commission, which is the leading organization that accredits more than 20,000 health care programs in the US. 

7. Who Runs Your Programs? Recruit Your C-Suite

How to start a rehab center

Your staff are the most important asset of your business! If you want to know how to start a rehab center with success from the very beginning, you’ll want to form a strong team right from the get-go. With that being said, you will need to recruit the right C-Suite for your rehab center. 

Your C-Suite will most likely consist of a:

  • Chief Executive Officer (CEO)
  • Chief Operating Officer (COO)
  • Chief Financial Officer (CFO)

Other positions you may want to fill include Chief Marketing Officer (CMO), Chief Technology Officer (CTO), and General Counsel (GC).  

A C-Suite member that is unique to the behavioral health industry is a Medical Director (MD) and/or a lead doctor, such as a psychiatrist, a psychologist, and a head nurse. 

Under the C-Suite’s leadership, you will likely also have several line staff nurses, human resource personnel, and case managers to consult with the families and the patients. Our clinical program consultants can help your C-suite in their program development.

Must-Have Attributes of Your C-Suite Team

How to start a rehab center

Ideally, your C-Suite will have experience working in the behavioral health sector. They should already have a thorough understanding of the ins-and-outs of this industry and how to overcome common pitfalls. 

Furthermore, your C-Suite team should:

  • Align themselves with your organization’s core values
  • Express the same passion and purpose for your patients as you do
  • Go above and beyond to enhance the customer journey
  • Maintain professionalism in all situations
  • Demonstrate superb leadership skills
  • Recognize risks and foreseeable problems
  • Alleviate customer pain points with ease and precision 
  • Fulfill your brand identity
  • Strive for excellence

Here’s a fact: You want to build a successful rehab facility that drives exceptional client outcomes, enhances the customer journey, and maximizes profit. Therefore, it is absolutely CRUCIAL for your C-Suite to have the same drive, passion, and desire to succeed as you!

8. Who Pays for Your Services? Payor Contracting

It’s no secret that the proper management of payor contracts is absolutely essential if you want to successfully run your business. Payor contracts can be a challenge to manage if you don’t have the right tools in place to oversee them from the very start. 

Instead of diving into payor contract management blindly, we highly suggest you do your research on the ins-and-outs of how payor contracting works. 

For starters, look into the varying reimbursement schedules, contract clauses, network participation, and contract language that your industry will have to face in the coming years. 

Familiarize Yourself with Finicky Clauses

When it comes to learning how to open a rehab center with ease, you’ll really want to get acquainted with the variety of clauses that are notoriously finicky in payor contracts. These include:

  • Unilateral Amendment: A type of clause that allows payors to change contract terms such as payment rates, requirements, network participation, and contract language.  
  • Reimbursement Policy: A policy that promotes transparency, consistency, and fairness in the reimbursement of expenses. Unfortunately, not all contracts will show a reimbursement policy. If not, you must ALWAYS contact the payor and request a review of the process.
  • Network Requirements: A type of clause that outlines the eligible requirements for a provider to join a network. Payors often change these requirements, which causes problems for providers in the network. To avoid these obstacles, you must make sure you have a thorough overview of the requirements and routinely check them. 

As we mentioned before, a behavioral health consultant is extremely handy if you need help mapping out your payor contracting. They will help you develop and implement a strong management system, so your organization will be able to grow without hitting any contracting roadblocks. 

Invest in a Contract Management System

This next step is an absolute MUST if you want to know how to start a rehab center successfully: Adopt a contract management system! 

This type of system will automatically store and track each contract for you. It will also alert you if changes are made or if issues are found within the contracts.

Here’s the good news: there are many systems out there that will help you manage your payor contracts. You can find one that fits your particular rehab center and its programs. Our only recommendation is that you opt for a contract management system that evaluates every aspect of your payor contracts so you don’t have to spend so much time working on each contract yourself. 

9. Kick Your Operations into Gear: Milieu Management

How to start a rehab center

At this stage in the game, you’ll start to see your business plan really come to life! But, there’s still some work you need to do to get the ball rolling.

In this phase, you’ll want to really hone in on your operational, clinical, financial, and medical integrations. In other words, it’s time to pull all of the moving pieces to one place and organize them to work together. 

Put all of your processes, systems, and management tools into action to see how they work as a collective. Ask your core leadership team to monitor the quality of work each system produces and keep records of all your operations. 

This leads us to our final step…

An Overview of Milieu Management

Your organization’s atmosphere is really important to the success of your patients’ outcomes and recovery rates. So, when it comes to the topic of how to start a rehab center, you definitely don’t want to skip over milieu management!

It’s no secret that you should have a management strategy in place that ensures your rehab center is always providing a consistent, empathetic, and loving environment. This is where milieu management comes into play.

What is Milieu Management for Rehab Centers?

How to start a rehab center

In French, milieu translates to “surroundings.” It refers to the physical, social, and emotional atmosphere of your facility. When it comes to your behavioral health center, you want an environment that facilitates positive outcomes for your patients. 

When you adopt a milieu management strategy, you will dedicate time and effort in the following areas:

  • Structure and Routine: Establish easy-to-follow daily routines for staff and patients alike
  • Safety and Security: Prioritize the well-being of patients in treatment and create emergency protocol for on-duty staff
  • Therapeutic Environment: Promote recovery by creating an environment rich with therapeutic activities
  • Social Interaction: Encourage positive interactions between all parties involved at your treatment center
  • Effective Communication: Clear, concise, and consistent communication is continually reinforced. Praise and positive affirmations are also encouraged daily 
  • Emotional Support: Thoughts and feelings are heard, validated, and empathized by both staff and peers
  • Individualized Care: Unique milestones are set up to help each patient reach their wellness goals
  • Conflict Resolution: Conflicts are resolved in a healthy and constructive manner
  • Behavioral Expectations: Clear conduct expectations are established right from the beginning to help patients manage their emotions in an appropriate manner

Keep in mind that proper milieu management is encouraged to create a safe, comfortable space for BOTH your patients and your staff. Everyone involved in your organization will benefit from an honest, interactive, and supportive environment!

Need Guidance for Starting a Rehab Center? Speak With a Consultant

As you can see, whether you are starting a mental health or addiction treatment center, there are a lot of moving parts that go into opening a rehab center. If you want to learn how to open a rehab center, the first step is to get all of your ducks in a row so you don’t miss any important steps along the way. 

Need some help with this process? Consider talking to an experienced behavioral healthcare consultant

At C4 Consulting, we understand the importance of the work you strive to do through your rehab center. We’re here to support your goals and help you see success. Our expert consultants have years of experience in the behavioral health industry and know how to navigate all of the challenges that go with it. Contact us to schedule a consultation.