Licensed vs. Unlicensed Facility

Feature

Licensed

Unlicensed

Regulatory oversight

Subject to state licensing board/regulator, inspections, required standards (building codes, fire safety, staffing, medical/psychiatric oversight)

Little or no formal state regulatory oversight for the type of treatment they claim; may operate outside required licensing scheme.

Staffing and qualifications

Staff often required to have specific credentials (e.g., licensed counselor, psychiatrist, nurse) and supervision; policies in place for medical/psychiatric care, medication, detox (if applicable)

May rely on peer-support, non-licensed staff, or minimal credential requirements; fewer guarantees of professional oversight.

Scope of treatment/services offered

Can provide full levels of care: assessment, detox/medically supervised care, inpatient/residential SUD treatment, co-occurring disorders, psychiatric interventions.

May provide more limited services: e.g., supportive housing, “sober living,” life-skills rehabilitation without full clinical treatment; may not be equipped for severe cases or acute crises.

Client protections and rights

More robust protections around safety, individualized treatment planning, review of progress, discharge planning, emergency procedures, infection control, etc.

Fewer formal guarantees around client rights, review processes, or standardized treatment planning; higher risk of gaps in care or safety.

Insurance/Medicaid/Third-party billing

Licensed facilities are more likely to have reimbursement eligibility (Medicaid, insurance) because they meet regulatory/licensing requirements.

Unlicensed may not qualify for certain reimbursements; clients may be paying out-of-pocket or via private arrangements; harder to ensure continuity of funding or care.

Risk and credibility

Lower risk of regulatory violations, higher credibility, and typically better suited for complex cases (e.g., co-occurring substance use + severe mental illness)

Higher risk of hidden issues: understaffing, lack of adequate medical/psychiatric supervision, unclear accountability, potentially less able to manage severe crises or co-occurring disorders.

Specialization and ability to handle severe mental illness/co-occurring conditions

Licensed mental health/SUD facilities are designed for severe mental illness (SMI) + co-occurring substance use, often with integrated care teams and the capacity for medication, psychiatric diagnosis, and acute stabilization.

Unlicensed settings may not have the clinical infrastructure (psychiatrists, medications, 24-hour supervision) to safely manage severe mental illness or acute crises; may be inadequate for high-risk clients.