An in-depth look at the market forces shaping the development and adoption (or lack thereof) of behavioral health technology.
In a category-defining piece written more than two years ago, Matthew Schuster and Dan Gebremedhin surveyed market drivers and companies innovating in Behavioral Health technology. In this article, we will revisit the macro issues identified in 2016, evaluate how the market has changed, and contemplate how promising BH tech companies can pursue opportunities that not only create impact, but also achieve elusive product market fit.
In 2016, the potential for adoption of BH tech seemed full of promise. The ACA was fully implemented, there were signs of early enterprise adoption, and the public awareness of the gaps in US mental healthcare was increasing. But time has shown that inertia in healthcare is strong. A recent NEJM Catalyst survey of over 500 healthcare executives and clinicians found that over half of all organizations still did not have adequate BH services and technology. Two years later, we are not alone in pointing to the persistent unmet need for BH technology, as the last 24 months have shown mixed signals in key drivers that we believe will hasten BH tech adoption.
In this article, we will address three key drivers of BH tech adoption – the payment/reimbursement system, access to care, and the unmet need of certain BH conditions – our interpretation of their interim activity, and predictions going forward.
Payment system: Providers stall, employers step in
As we’ve seen broadly, near-term reimbursement defines incentives and predicts behavior in the healthcare system. In 2016, we believed that by early 2019, we’d be well on our way to mainstream adoption of value-based care, and that most populations would be actively managed by ACOs or would be covered by risk-bearing health plan – provider contracts. As value-based care has slowed to take hold, providers, who are arguably the most important and effective adoption and deployment platform, have dragged their feet in adopting broad BH tech platforms.
Provider systems with limited budgets rooted in fee-for-service-driven reimbursement tend to only invest in solutions that have budget-neutral or near-term ROI impact. While we strongly believe investment in BH tech and care provides an ROI, it is not immediate. BH services, as we described in our original article, are generally sources of neutral or negative contribution margin for provider systems in a FFS payment system. To invest in BH tech adoption then, requires providers to shift to a longer-term, population-driven, global payment focus. For reasons documented elsewhere, we see full stack VBC only realized in a few pockets of true payer and provider integration. As a consequence, provider adoption of BH tech has been muted outside of a few areas, such as telepsychiatry, as we will discuss later. We’d encourage BH tech entrants to target provider customers who have a history of taking downside financial risk on the populations they serve.
A variety of factors have created a situation where self-insured employers are playing a more prominent role in BH tech adoption. Due to the limited provider adoption of BH tech, increasing BH public mindshare, and purity of holding financial risk, self-insured employers are stepping in to fill the gap providers are leaving behind. By focusing on maintaining employer productivity and improved overall health care costs, employers are improving EAP (employee assistance programs) offerings and investing in a variety of products focused on resilience, mindfulness, and digital mental health solutions.
The market has seen early stage companies targeting the employer market and gaining early traction in the quest to remake BH tech. As a market segment, self-insured employers promise low levels of distribution, with most employers representing tens of thousands of potential users, as opposed to hundreds of thousands to millions of members for a health insurance plan. The shrewd channel distribution strategy targeting this segment is usually twofold, ultimately aiming to influence large insurance carrier adoption, as carriers closely track their customers’ (i.e. employers) benefit needs and purchasing behavior.
Payment system: Payers/MBHO adoption rests on two key issues
A discussion of payer adoption of behavioral health care technology can be complex and must be rooted in understanding the role of the Managed Behavioral Health Organization. An MBHO is an externally delegated care management vendor that will manage behavioral health contracting and utilization on behalf of payer clients. The three dominant players in this market are Magellan, Beacon Health, and Optum Behavioral Health.
The historical MBHO business model has come under criticism as their historical client-vendor contracts are focused on managing cost and utilization, instead of improving clinical outcomes and integration with medical health benefits. A survey that tracked MBHO contract penetration found that in 2003 over 70 percent of all health plan lives had BH services managed by an external MBHO, with this number falling dramatically to 15 percent by 2010, with a growing number of hybrid management structures accounting for the difference. We believe this trend of insourcing management of BH services into health plans will likely increase, which should drive more regional innovation around adoption of BH technology and integration of medical and behavioral health benefits.
We believe network adequacy and clinical utility are the two key factors in determining payer/MBHO adoption/reimbursement. “Network adequacy” defines the concept that all health plan members must have reasonable access to the standard of care – for both clinician specialty and therapeutic/diagnostic technology. As new technology and specialty practice becomes standard of care, regulatory bodies such as state divisions of insurance mandate payers to provide reimbursement for these services and technologies. Another important lens payers use in determining reimbursement is the concept of “clinical utility,” or demonstrated value or impact on the outcomes for a population. This can be a high bar to surpass, as new entrants must prove to payers that a new technology, although not yet standard of care, will create value by improving clinical outcomes and near-term savings to the health plan to offset the cost of the new technology. We’d encourage BH tech entrants to use both of these lenses when evaluating coverage of their technology/service.
Access to care: Real versus “perceived” shortages and the rise of telepsychiatry
Although insurance coverage has expanded greatly, statistics suggest a persistent lack of access to quality mental healthcare. A 2017 report noted that 57 percent of adults with a mental health condition did not receive mental health treatment in the last year. Further, 20 percent of adults with a mental health condition who were actively seeking care could not obtain it. This discordance between insurance coverage and access suggests there is a difference between “real” and “perceived” shortages in access to care. We believe that more longitudinal and integrated forms of telepsychiatry can bridge these gaps in access.
We define a “real” lack of access to mental health care as being caused by a shortage of trained BH clinicians. We highlighted this well-documented phenomenon in our article two years ago, and suggested that a major factor in this BH clinician shortage was due to underinvestment in mental health services by provider organizations due to low fee for service reimbursement rates for BH services. Additionally, this shortage is felt acutely in rural areas of the country where the suicide rate has continued to significantly surpass that of urban areas.
We believe a “perceived” lack of access to mental healthcare is related to variable insurance acceptance practices by BH clinicians, further narrowing options for patient referral. In comparison to other medical specialties, psychiatry remains a specialty with surprisingly low levels of acceptance of insurance reimbursement. This trend of paying out of pocket is particularly problematic in government programs (Medicare/Medicaid) where unmet need is the greatest. A 2014 study showed that Medicare acceptance rates by psychiatrists dropped by 20 percent over a five-year period ending in 2010, while only 43 percent of psychiatrists accepted Medicaid that same year.
In response to both real and perceived lack of access to care, we have seen continued adoption of telepsychiatry. A 2017 URAC study showed that telepsychiatry is the highest frequency use case for telemedicine for physician practices, and second-highest telemedicine modality for hospitals. A 2017 HIMSS study found that psychiatry was the number one specialty utilizing telemedicine, accounting for 21 percent of all telemedicine use. A 2016 review article found that the most common published users of telepsychiatry were the VA/Military and mental health facilities, followed by community health centers and primary care settings. Further, suggesting a transactional use case, telepsychiatry utilization was closely tied to available fee for service reimbursement.
While this data suggests telepsychiatry adoption continues to expand, the use cases appear narrow, transactional, and highly dependent upon fee-for-service reimbursement. Some critics deem that the current use of telepsychiatry is not driving long-term management of patients and more can be done to integrate mental and medical care. On this thread, we believe there is a significant opportunity for early stage companies to lower total cost of care by solving for a lack of mental health care access by integrating telepsychiatry into expanding and longitudinal medical and digital health workflows.
Access to care: Collaborative care is promising but traction has been slow
A bright spot in the attempt to solve for access is the embrace of “collaborative care” models by risk bearing providers. “Collaborative care” is a care model developed at the University of Washington, that focuses on the physical or virtual colocation of BH services in PCP offices/practices. The original IMPACT Study published in 2002 in JAMA found patients receiving a collaborative care intervention had less depressive symptoms than those receiving treatment as usual. This same study also suggested a 6:1 ROI in medical cost savings for each dollar spent on BH care.
Although significant studies have shown the clinical and economic value of CC models, there have been low levels of clinical adoption. Surveys suggest reimbursement models heavily affect rates of CC implementation and financial viability. In one bright spot, the NYC Health + Hospitals safety net healthcare system implemented CC at 11 hospitals and six community health centers dramatically increasing screening and clinical improvement rate.
The opportunity to provide a tech-enabled, virtual form of CC is significant. Sensing this opportunity, a handful of venture-backed BH tech companies are looking to screen primary care populations in need of BH interventions, then virtually co-locate BH services in primary care settings. The success of new entrants into this space will be largely dependent upon the willingness to pay for these valuable services by primary care groups, who are the end user, and often the customer of the product. We anticipate successful entrants in this space will find ways to involve payers as a subsidizing entity to fund this valuable work.
The opportunity in serious mental illness
A subpopulation often unmentioned and grossly underserved are those suffering with serious mental illness (SMI). SMI is loosely defined as a mental health condition that critically impairs activities of daily living (ADLs). This moniker refers to patients with a high burden of illness usually suffering with severe major depression, schizophrenia spectrum disorders, or bipolar spectrum disorders. In 2016, the SMI population was greater than 10 million in the US, or just under 5 percent of the US population.
SMI is often comorbid with poverty, homelessness and difficulty navigating the healthcare system, which creates barriers in treating this population. These system-based barriers to care of the SMI population lead to high healthcare costs, poor health outcomes, and low patient and family satisfaction. The growing number of patients dealing with severe depression and the national growth in suicide rate are a reminder of the great need.
Two key systemic reasons for the inability to care for SMI is a shortage of dedicated inpatient psychiatric beds and a dearth of comprehensive outpatient programs to manage SMI. Inpatient psychiatric units manage patients with decompensated SMI who pose potential harm to themselves or others if left in outpatient care, thus requiring 24-hour care. Although there has been some activity in the private equity sector, there remains a shortage of these beds.
Perhaps more significant than the shortage of inpatient resources is the lack of long term outpatient management programs for both “medical” and “psychiatric” health for patients with SMI. Additionally, the SMI population requires substantially more services than the general population, yet they are often underinsured or undomiciled, and thus disconnected from the healthcare system. Further, under traditional FFS reimbursement structures described above, safety net provider systems are not incentivized to provide this higher level of comprehensive care for these populations.
We believe the immense unmet need and lack of existing available physical infrastructure for the SMI population represents a huge opportunity for BH tech entrants and the digital health community broadly. With few exceptions, we’ve observed a dearth of health tech entrepreneurs focusing on developing solutions for this population. The reasons for the scarcity of tech penetration in SMI is open to interpretation. Notwithstanding existing traction, there is a large opportunity for new entrants to work on behalf of risk-bearing entities (Managed Medicaid plans, delegated MBHO’s, and risk bearing provider groups) to provide tech and services to manage these populations and reduce utilization of high cost services such as ER and inpatient admissions. Any tech driven solution designed for the SMI population will also require significant attention paid to the impact of social determinants on overall healthcare outcomes.
Substance use disorder and the opiate epidemic
Unfortunately, since our writing in 2016, the opiate epidemic has persisted as a public health crisis. Many municipalities have appropriately moved to emergency measures to prevent overdose deaths by widely adopting naloxone EMS awareness and coverage programs. Additionally, the demand for medication assisted treatment services has surged, while regulatory bodies are pushing to ensure payers provide coverage for medication assisted therapy. As a result, there has been a growing number of VC/PE backed opiate use disorder treatment clinics looking to provide these services.
A full analysis of the substance use disorder treatment market is duly warranted, but out of the scope of this article. Briefly, there is wide variability in quality and outcomes in this market, and payers and self-pay populations would derive great value from payment mechanisms that rewarded evidence-based practice and improved outcomes. Unfortunately, many treatment clinic operators in this space compete on low value factors such as customer acquisition channels and aesthetics. Many of these operators manage several high throughput clinics and bake expected recidivism rates into their business models. These low value actors prey on vulnerable populations and families who are desperate for support, and frankly deserve better.
Despite a market dominated by misaligned incentives, entrepreneurs are entering this market to create technology to better manage these populations, hoping to undo the perverse incentives described above. As payers and providers look to comply with regulatory guidelines to solve for access to MAT, and many treatment centers are competing on volume and not quality, it is an open question what the rate of adoption of value-driven BH tech will be in this vertical. As noted earlier, dual diagnosis patients with coincident diagnosed mental health conditions and substance use disorder still struggle to receive coordinated, evidence-based care. Although targeted interventions for substance use disorder are critically important, we would also caution existing providers and new entrants against overlooking upstream and co-occurring mental health conditions.
The opiate crisis and the rising rate of suicide splash national headlines daily. With public consciousness paying close attention to mental health and regulators pushing payers and providers to gain mental health parity, entrepreneurs have a unique opportunity to create solutions to meet unmet BH need. To move from momentary buzz to lasting impact, we believe market entrants must understand key market drivers to achieve elusive product market fit. Additionally, we believe BH tech entrants who optimize their solutions around key issues related to reimbursement, access to care, and more serious forms of mental illness will stand out from the pack in developing enduring solutions for the BH tech market. We urge all stakeholders to become powerful advocates for structural change to improve the BH care all patients receive.
Date: January 9, 2019