Digital mental health company Headspace secured $105 million in new debt financing as it eyes opportunities to expand its business with employers and health plans.
Oxford Finance, a specialty finance firm, provided the senior debt facility to fuel continued expansion of Headspace's mental health platform and potential M&A deals, Headspace CEO Russell Glass told Fierce Healthcare in an exclusive interview about the financing, the company's recent restructuring and layoffs and future plans for the mental health company.
Rohit Gandhi, senior director at Oxford, said Headspace's commitment to leveraging technology to scale mindfulness and mental health support "aligns perfectly with Oxford’s mission of supporting innovative and impactful businesses working to improve healthcare."
The company, formed after the merger of meditation app Headspace and mental health company Ginger two years ago, sees growing opportunities to work with employers and health plans to provide mental health services as the direct-to-consumer market constricts in a challenging economic environment.
"This ultimately provides us flexibility as we're investing in the biggest areas of opportunity for us," Glass said. "It allows us to reduce risk, given the current turbulence that we're seeing in the economic environment, and basically just allows us to be opportunistic to invest in areas where we see market need. We're hearing increasing demand in the market for continued investment in our enhanced enterprise offerings like our in-person clinical care capabilities, like more robust substance use disorder support, like our next-generation EAP offering."
Headspace, which merged with Ginger in a $3 billion deal in the fall of 2021, offers meditation and mindfulness services along with on-demand coaching, therapy and psychiatry services. The company now works with more than 4,000 employers across 200 countries and also works with an ecosystem of health plans and partners, ranging from small regional plans to large plans like Cigna, as well as organizations like Accolade, Virgin Pulse and Sequoia.
Glass signaled more M&A could be in the company's future as it looks to build out its capabilities and offerings.
Last year, Headspace acquired the Shine app, a platform designed with the unique challenges of the BIPOC community in mind. It also bought Sayana, an AI-driven mental health and wellness company, to build out AI-based mental health tools.
"We'll continue to look at acquisitions like [Shine] that can accelerate our roadmap, things that can bring additional parts of our population into the fold and things that our customers are telling us they want and need," he said.
Restructuring plan to double down on commercial business
Earlier this month, Headspace laid off 181 workers or about 15% of its workforce. The cuts marked the second round of layoffs for the company in the past year. In December, it laid off about 4% of its workforce, or approximately 50 workers.
The workforce reduction was part of an overall business restructuring as Headspace plots a path to profitability.
When Headspace and Ginger finalized their merger in October 2021, the company had a combined workforce of 800-plus employees and a $3 billion valuation.
"When we initially did the merger, we didn't make any headcount reductions. We said let's use this next period of time to understand what assets we have, where we're going to focus our energy and where we're going to think about market need," Glass said in an interview.
With the current macroeconomic environment and rising inflation, the digital health consumer market has become more challenging.
"We then reduced our team in December by about 4%. Frankly, we were just too optimistic," he said. "Since then, the consumer market has continued to be weaker than expected. I think the consumer cost-cutting that's happening broadly in subscription businesses, inflationary pressures have led to headwinds there and we've seen some slowing sales cycles in our small business segments. Historically, that's been a consistent engine of growth for us. That slowing really feels like it's economy-related as companies are being a little more careful about their purchasing right now."
Headspace is now banking on growth in its commercial business with a keen focus on its EAP offering and expanding partnerships with health plans.
A year ago, Headspace rolled out a new, unified product experience that brings together meditation and mindfulness services with Ginger's on-demand coaching, therapy and psychiatry services. That also included an expanded EAP (employee assistance program) offering.
Headspace restructured its operations "to be more efficient, to clarify roles, to simplify decision making and to really focus on these specific markets," Glass said.
He added, "Ultimately with the goal to get to cashflow positive and this was a necessary step towards that path. These are always hard decisions, but we think this best sets us up for continued growth, focus and success going into the future. We made all of these decisions with members first, prioritizing ethics and values, with members' privacy and safety at the forefront of those decisions."
The L.A. Times reported that the Headspace layoffs included a number of therapists and several mental health professionals who were let go told the publication that they were cut off from the Headspace platform without warning, potentially harming patients.
"That was a very disappointing article to read," Glass said. "You don't want to have to disrupt care. It's not something you set out to do. But it happens. And when it happens, the key is that you are doing it the right way. As a licensed medical provider, the first priority for us, has to be, must be, protecting member safety, protecting member data, protecting member privacy."
In a statement to the L.A. Times, Headspace said it “promptly notified” members whose providers were affected and provided details on how to switch to a new therapist, prioritizing patients with greater need. The company said most of the individuals scheduled appointments with new providers within 10 days of the notification.
Headspace said it used a “team-based model” that includes psychiatry and behavioral health coaching to ensure continuity of care beyond individual therapists.
"We had a plan in place to make sure we contacted 100% of active members who lost their clinicians. We prioritized based on clinical need. We approached it with values-first and ethics-first," he noted.
Health plans, employers grappling with mental health needs
As part of the operational restructuring, Headspace also reorganized its leadership team and made a number of executive changes.
The company moved its people team under co-founder Karan Singh who will now serve as chief operating officer and chief people officer.
Headspace also tapped executive Christine Hsu Evans as its new president. Evans, previously the chief marketing and strategy officer and chief marketing officer at Ginger, will oversee all commercial partnerships and go-to-market strategy.
Evans' resume also includes strategic marketing experience at Fitbit and Castlight Health.
"Our goal is externally to create a seamless experience for members no matter who's paying, whether it's an enterprise paying or a health insurer or a consumer paying directly," Glass said.
With a consumer-facing business along with a commercial business focused on employers, health plans and other organizations, Headspace can reach a broad swath of the population.
"But, we're also supporting multiple go-to-market motions. Putting Christine in this role helps to bring that together into a seamless approach," he noted.
"This next year for us is really going to be about two primary things commercially. We're going to continue this momentum that we have in delivering our full care model, including Headspace EAP, to as many people as we can, through employers and health plans. We'll also focus on delivering against the promise of our merger by simplifying that member and customer experience under a single brand and app," Evans said in an interview.
Companies are grappling with a surge in mental health issues among their employees and supporting workers' well-being has become a top strategic priority. Two-thirds of U.S. employers plan to make employee mental health and emotional wellbeing programs and solutions one of their top three health priorities over the next three years, according to an October 2022 survey by Willis Towers Watson.
"We've had the busiest season we've ever had from an RFP perspective, particularly with larger employers, so they are out there looking for solutions," Glass noted.
Headspace's EAP offering was in response to feedback from employers, Evans noted. "We heard time and time again, employers said that they really need employees to have timely, reliable access to mental health support and they don't always have that with the solution that they have in place today. Employers are beginning to demand more from the EAPs on behalf of their employees," she said.
The EAP offering provides Headspace Health’s unified mental health and well-being experience, together with work-life services, critical incident support, workplace training and manager consultations.
"Uniquely for us, we can supercharge that with what we're known for, which is in-the-moment access to text-based coaching and our meditation and mindfulness content," she added.
Employers and health plans are looking for a range of mental health offerings to expand access to care but are also keenly focused on return on investment.
The company is currently testing its unified offering with insurer Blue Shield of California with the aim to get members to the appropriate level of care, which doesn't always mean a therapist appointment.
"Of the 40,000 or so members that have come through the platform, we have assessed them and navigated 80% to Headspace self-care and content, and 20% to live care providers," Evans said. "Of those 20%, the majority were able to receive adequate support by behavioral health coaches, and only a small minority needed escalation to therapy or psychiatry."
"Everyone's needs are quite different," she added. "When we get people to the right place at the right time, that not only helps them but it helps us reserve those resources in the industry for those who need it most."
That approach has been a "game changer" for Blue Shield of California members, Glass noted. "It's a model that we're looking to replicate across many health plans, including partners that we already work with," he said.
The unified app that combines Headspace and Ginger's meditation and therapy offerings also fits with the company's consumer strategy.
"I think that consumers, ultimately, are still going to spend money on mental health. But I think that they're going to be looking for more robust solutions over time," Glass said.