FTC investigating mental health startup Cerebral's business practices: media report

Mental health startup Cerebral's problems continue to mount as the Federal Trade Commission is now investigating the company's business practices, the Wall Street Journal reported Tuesday.

According to a letter the FTC sent the company that was reviewed by the publication, the agency said it was investigating whether Cerebral engaged in deceptive or unfair practices related to advertising or marketing of mental health services. The letter also directed the company to preserve documents, the WSJ reported.

The FTC is seeking information related to any programs where Cerebral continues to bill customers a subscription fee until the customer cancels, also called “negative option programs," according to the WSJ article.

In a statement provided to Fierce Healthcare, a Cerebral spokesperson said the company is cooperating with the FTC and has no additional comment.

Cerebral, which has a valuation of $4.8 billion, launched in January 2020 and grew rapidly, propelled by increased demand for behavioral health care services during the pandemic. The startup banked $300 million in a series C round in December, boosting its valuation to $4.8 billion.

The FTC’s Civil Investigative Demand comes as Cerebral also is mired in a DOJ investigation into its prescribing practices and "possible violations" of the Controlled Substances Act. Last month, Cerebral Medical Group received a grand jury subpoena from the U.S. Attorney’s Office for the Eastern District of New York. The Controlled Substances Act regulates the distribution of potentially addictive medicines like Adderall and Xanax.

"To be clear, at this time, no regulatory or law enforcement authority has accused Cerebral of violating any law," the company said in a statement regarding the subpoenas.

The company is under increased scrutiny from regulators and legislators. Congressional investigators want the U.S. Drug Enforcement Administration (DEA) to probe startups that offer prescription medications online, Bloomberg reported last week.

In a letter to the DEA, the chairman of the House Committee on Oversight and Government Reform asked the DEA about mental health startups such as Cerebral, calling the company’s business and prescribing practices “manipulative” and “aggressive,” according to a copy of a letter seen by Bloomberg. 

"The Committee respectfully requests information from the Drug Enforcement Administration to ensure you are focused on catching bad actors who take advantage of the current permissive regulatory structure,” committee Chairman Gerald Connolly said in the June 6 letter, Bloomberg reported.

The embattled startup Cerebral is now cutting back staff as part of an effort to restructure its operations. In an emailed statement earlier this month, a Cerebral spokesperson said the company's leadership team is launching an organizational review aiming to simplify Cerebral's structure, reinvest in its core business and "double down on quality" to make the company more efficient.

"This process will necessitate difficult decisions to restructure our operations, most notably the closure of a certain number of roles within the Cerebral team. Our top priority is to approach this process with empathy, fairness, and transparency, ensuring we treat our team members with the dignity and benefits they deserve," the spokesperson said in the statement.

Cerebral provides comprehensive, online mental health services for depression, anxiety, PTSD, attention-deficit/hyperactivity disorder (ADHD), bipolar disorder and a range of other conditions.

Along with the controversy and investigations, many pharmacies have stopped filling prescriptions for controlled drugs ordered by providers who work for Cerebral and Done Health, another telehealth company, and some insurance companies have kicked Cerebral out of network.

Insider's Rebecca Torrence reported that UnitedHealth Group's Optum behavioral health network notified Cerebral providers that they are being removed from the network in August, citing an Optum spokesperson. The network provides services for Optum and UnitedHealthcare members.

Aetna, the health insurer owned by CVS Health, is taking Cerebral providers out of its networks as of August 21, Torrence reported.

These are all hefty challenges for the company's new CEO, Dr. David Mou, who was previously the startup's chief medical officer and replaced previous CEO Kyle Robertson.

In May, the company's board voted to replace Robertson, a co-founder of the startup. 

Problems started for the well-funded startup after a former executive filed a labor lawsuit alleging that Cerebral fired him after he complained about the company's prescribing practices. Matthew Truebe, former vice president of product and engineering at Cerebral, claims that the company "egregiously put profits and growth before patient safety," including overprescribing medications for ADHD.

Prior to that, Cerebral faced increased scrutiny from the media about its prescribing practices, particularly for controlled drugs used for the treatment of ADHD.

In an effort to right the ship, the company announced last month a number of initiatives to "drive more sustainable growth and sustainable." Among the initiatives, the company plans to review internal practices and policies to enhance clinical safety and quality of care and reinforce responsible marketing, executives said in a press release.