From Parity Crackdowns to Telehealth Wins: The Biggest Behavioral Health Policy Shifts of Late 2025
- Nicholas Burt, LMFT
- 1 day ago
- 5 min read
What Providers Need to Know Going Into 2026
The final months of 2025 have delivered some of the most meaningful shifts in behavioral health reimbursement we’ve seen in years. New laws, regulatory crackdowns, court settlements, privacy rules, and federal proposals are reshaping how insurers must evaluate medical necessity and how providers must document care. For RTCs, PHPs, and IOPs, these aren’t abstract policy changes. They affect day-to-day authorization outcomes, appeal strategies, timelines, and ultimately, the financial stability of programs serving vulnerable families.
Below is a overview of the ten most important developments, and what they mean for your clinical, billing, and administrative operations as you prepare for 2026.
Colorado Sets the Tone With Major Utilization Review Reform
One of the most consequential moves came out of Colorado, where lawmakers passed a comprehensive behavioral health utilization review reform bill. This new law requires insurers to use nationally accepted criteria for authorization and concurrent review and prohibits limiting care to “short-term symptom reduction.” It’s a direct challenge to the long-standing pattern of payers approving care only until acute crises subside.
For RTCs, PHPs, and IOPs, this is a blueprint for what provider-friendly oversight can look like, and likely a signal of similar action in other states.
Stronger Enforcement of SUD Privacy Rules Is Coming
HHS also confirmed that updated 42 CFR Part 2 regulations (governing confidentiality of substance-use disorder records) will enter full enforcement in February 2026. These changes bring Part 2 closer to HIPAA, including stricter breach-notification requirements, OCR enforcement, and the potential for civil penalties.
Providers treating co-occurring disorders must ensure their documentation, releases, and billing workflows handle SUD information correctly. Appeals and UR processes often involve sensitive details, and mishandling them now carries higher risk.
State Regulators Demand Real Parity Compliance
In another major development, Washington state issued a substantial fine against a major insurer for failing to demonstrate parity in network adequacy, reimbursement structures, and documentation transparency. The insurer wasn’t able to produce required analyses showing that its mental health policies aligned with its medical/surgical equivalents.
This is a warning shot to payers nationwide: surface-level parity language is no longer enough. Regulators want proof, and they are willing to impose penalties when insurers cannot deliver it.
Courts Challenge Overly Restrictive Medical Necessity Criteria
December also brought a significant court development involving a major national insurer accused of using overly restrictive internal criteria to deny residential and SUD treatment. A multimillion-dollar settlement is now moving forward, highlighting a powerful trend: judges are increasingly skeptical of proprietary medical-necessity standards that deviate from generally accepted clinical guidelines.
For providers, this strengthens appeal arguments and creates a clearer legal foundation for challenging denials that rest on narrow or outdated criteria.
Telehealth Flexibilities for Behavioral Health Remain Stable
Despite many pandemic-era telehealth flexibilities expiring in 2026, CMS confirmed that behavioral health will retain special protections. These include the ability for patients to receive services from home regardless of geography, as well as ongoing allowances for audio-only services when video is not feasible.
This is essential for continuity of care, especially after RTC or PHP discharge, and helps maintain engagement during step-down transitions.
Federal Scrutiny on Prior Authorization Tightens
Momentum also continued to build in Congress toward reducing prior authorization barriers, particularly within Medicare Advantage. Proposed reforms would require better transparency, faster turnaround times, clearer reporting, and more standardized criteria.
Commercial insurers often mirror Medicare policy changes, meaning providers may see improvements spill over into private plans as well.
New State Mandates Expand Behavioral Health Coverage
Connecticut passed legislation extending coverage for autism-related behavioral health treatment from age 21 to 26. This signals a broader movement toward expanding coverage for young adults and reducing gaps that commonly appear during transitions out of pediatric benefits.
For programs treating neurodiverse clients or co-occurring behavioral challenges, this widens access and extends the clinical window for reimbursable care.
Colorado Clarifies That “Short-Term Improvement” Is Not a Basis for Step-Down
Another section of Colorado’s reform law deserves separate attention: insurers are specifically prohibited from using clinical improvement in the short term as justification for ending coverage. Many residential and partial programs face recurring pressure during concurrent review when clients temporarily stabilize.
This statute pushes back directly, requiring a more sophisticated review of long-term treatment needs, chronicity, functional impairment, and relapse vulnerability.
States Move Toward Increasing Behavioral Health Reimbursement Through Medicaid and Legislative Action
In the last several weeks, multiple states have advanced legislation aimed at raising or stabilizing behavioral health reimbursement, particularly within Medicaid programs.
Oregon introduced HB 3494 (2025 Regular Session), a bill directing the Oregon Health Authority to establish minimum reimbursement rates for behavioral health services delivered to Medicaid members. The measure is intended to address chronic underpayment and improve provider participation in the behavioral health system.
Illinois lawmakers also moved forward on HB 1085, a bill designed to increase payment rates for mental health services as part of a broader initiative to improve behavioral health access statewide.
These legislative actions reflect a documented pattern highlighted in a recent analysis by the Medicaid and CHIP Payment and Access Commission (MACPAC). The report notes that several states (including Oregon, Massachusetts, and New Jersey) have implemented minimum payment requirements for certain behavioral health services within Section 1115 demonstration waivers, tying reimbursement to percentages of Medicare rates to strengthen provider participation and access.
A Major SUD Provider Reaches a Multi-Million Dollar Privacy Settlement
Finally, American Addiction Centers reached a notable settlement following a data breach affecting hundreds of thousands of SUD patients. This comes at a time when privacy enforcement is escalating nationwide.
For providers, it reinforces the growing importance of secure documentation systems, especially when submitting clinical materials to insurers or external reviewers.
What This Means for Behavioral Health Providers
Taken together, the developments of the last 60 days paint a clear picture: the behavioral health reimbursement environment is shifting in ways that directly affect how treatment programs operate, document care, advocate for authorization, and negotiate with payers.
Colorado’s reform efforts, stronger SUD privacy enforcement, and increased state-level parity scrutiny all signal that insurers will be expected to justify their decisions more transparently; especially when limiting or ending care. The recent federal settlement involving restrictive medical-necessity criteria further reinforces that payers face real consequences when their internal rules deviate from generally accepted clinical standards.
On the access side, CMS’s confirmation of continued telehealth flexibility for behavioral health ensures that programs can maintain continuity of care during step-downs and aftercare without geographic limitations. And ongoing federal pressure to modernize and simplify prior authorization suggests that review processes may gradually become more predictable and transparent.
Most importantly, state legislative action aimed at raising or stabilizing behavioral health reimbursement (such as Oregon’s HB 3494 and Illinois’s HB 1085) adds a new dimension to the evolving landscape. These bills, along with the reimbursement minimums highlighted in MACPAC’s analysis of Medicaid demonstration projects, show that states are increasingly willing to intervene on payment adequacy itself. For providers who have long faced below-market rates and widening workforce shortages, this represents meaningful momentum toward more sustainable reimbursement models.
For RTCs, PHPs, and IOPs, the takeaway is straightforward: Reimbursement expectations, documentation requirements, and payer accountability standards are becoming more structured and more enforceable. Programs that adapt quickly (by strengthening clinical documentation, improving UR strategy, refining appeals, and staying aligned with state requirements) will be better positioned to secure consistent, defensible reimbursement.
This is exactly where Bridgeway Billing supports providers. Our team tracks these policy changes in real time, converts them into actionable billing and documentation strategies, and helps programs navigate the complex intersection of utilization review, appeals, compliance, and payer behavior.
If your organization wants to enter 2026 prepared rather than reactive, we’re here to help you get there. info@bridgewaybilling.net