Earlier this month, Modern Health marked a milestone few companies ever reach: unicorn status.
With the help of its latest $74 million funding round, the startup, which serves as a mental health benefits platform for employers, topped a $1 billion valuation. It has raised a total of $170 million and counts companies like Pixar, Zendesk and Clif Bar as customers.
And while Modern Health was already attracting plenty of interest before the pandemic, CEO Alyson Watson said her company is among those in the behavioral health space that have seen what can only be described as a seismic shift across the industry in the wake of COVID-19. In the first half of 2020 alone, digital behavioral health startups scored $588 million, roughly the annual funding for this segment in any previous year, Rock Health wrote in a report last year.
"Bigger than just the growth is the mindset change that has happened in society. There’s a visceral reaction now to mental health," Watson told Fierce Healthcare about her company's experience in the marketplace. "This pandemic, and everything else that's been going on in the world, has created a level playing field to the extent that—while not everyone deals with the same thing—there's that ability to empathize that everyone struggles or is struggling in some capacity. Pre-pandemic it wasn't like that."
That's translating to some real changes in the industry, including an uptick in investment, that will be felt for years to come. Here's a look at four of those changes.
1. Stigma has decreased in a big way
In the past year, there has been increasing alarm among providers who have seen a rise in what are often referred to as "diseases of despair" such as anxiety or depression.
"We have, for some time, been very concerned the behavioral health impact really represents a third wave of the pandemic," said Matthew Hurford, M.D., who is president and CEO of UPMC's Community Care Behavioral Health Organization and a behavioral health expert.
"The first wave was obviously the enormous toll the virus itself took. And then with the shutdown and with the profound impact on the economy, the economic impact that came with that through unemployment and all of the financial adversity it's presented," Hurford told Fierce Healthcare. "Now, we’re starting to see what we were concerned about even as early as the summer of last year: the behavioral health impact of all of those forces combined."
The pandemic was a perfect storm as it was stressful for individuals at the same time it deprived them of many of their coping mechanisms, such as social supports, Hurford said.
But there has been a silver lining.
"One of the themes that is emerging is, with greater awareness of behavioral health and the impact of things like a global pandemic on behavioral health, comes greater detection, greater referrals, reduction in stigma," Hurford said. "We need to recognize that is actually a healthy tension that over time is going to drive greater investments in the behavioral health care delivery system; it’s going to drive innovation to find ways to scale."
Vin Phan, who is a partner and national practice leader of healthcare transaction advisory services at consulting firm BDO, has seen that play out from a financial perspective. Even prior to the pandemic, the behavioral health space was a pretty hot sector with private equity investments, Phan told Fierce Healthcare.
"As a result of the pandemic, I think the behavioral health sector has benefited just given the increased demand with Americans working from home, lacking the social interaction that they’re used to, children are being forced to learn remotely," said Phan, who published a report in January on the opportunities and challenges of investing in the sector. "That adds a lot of demand for behavioral health services."
Over the course of the last 12 to 18 months, Phan said his team was involved in more than 25 transactions in the behavioral health space, primarily within autism and addiction treatment. Behavioral health companies are attracting healthy returns in merger and acquisition deals.
"Private equity is paying a pretty healthy multiple to a lot of these businesses they are buying," Phan said. "We’ve worked with private equity firms that are paying 10 times the earnings of these smaller businesses, but their goal is to roll these things up and create a large-scale player that can take out overall costs to provide these things and increase profitability. They can take that 10 times earnings and do an IPO or sell it or do an exit at 20 times the earnings of what they bought it for."
2. The industry is getting better about data
When Corbin Petro speaks about following evidence-based care, it is because it is still a key differentiator in her segment of the industry. The CEO of Eleanor, an addiction treatment startup, said the company takes a harm-reduction approach to substance use disorder rather than requiring abstinence from patients.
"The mental health, behavioral health, substance use disorder treatment landscape has not been very evidence-based. It has not been very data-driven," Petro said. "We’re not abstinence-based because the evidence tells us we shouldn’t be. We drive our outcomes on what really matters to people."
There is growing interest from payers and employers for seeking data about clinical outcomes and cost savings rather than anecdotal evidence. In other words, they want to know the return on investment in behavioral health.
Eleanor has worked to provide this evidence of value through value-based care partnerships with payers. To track outcomes, Eleanor uses clinically validated questionnaires that measure levels of anxiety and depression, as well as HEDIS measures and social determinants of health. The company also tracks patient engagement and retention, as well as reductions in the total cost of care using emergency department and inpatient utilization as leading indicators.
"Tracking to those outcomes and holding ourselves accountable is what we’re doing that’s new in this segment of healthcare," Petro said.
Modern Health, which calls itself a singular platform for employees to go to at any time for mental health needs, has used clinically validated questionnaires as well as patient engagement scores.
But there is a growing recognition within the industry that it needs better ways to track outcomes, Watson said. There is no X-ray or blood test to serve as a definitive diagnostic—specialists in behavioral health still largely rely on self-reported information for tracking purposes.
Emerging research shows that technology, such as looking at text messages, social media use and the times people are logging on, can serve as indicators of a person's mental health status. But, that still has major limitations, Watson said. For instance, she said, "while some are comfortable with technology that tracks everything we do on our phones and tell us what we’re doing, others are still uncomfortable with it."
3. Regulations have made it easier
Almost overnight, healthcare leaped forward almost a decade in terms of its use of telehealth platforms.
That was driven not only by the need caused by stay-at-home orders but also Centers for Medicare & Medicaid Services changes that allowed providers improved reimbursement for telehealth services. "Many of our clients and targets were able to pivot using those telehealth platforms to provide care for their patients. Their volumes were continuing to increase because of this," Phan said.
Another of the biggest shifts was the pullback of the Ryan Haight Act, which allowed mental health providers to prescribe medication virtually during an initial visit when previously they would have had to be seen in person, Petro said. The system is "taking a hard look at some of the regulations that have existed: the waivers, the Ryan Haight act and other things are really rooted in stigma," Petro said.
Phan said there is also optimism around the new presidential administration when it comes to reimbursement and access in the sector. President Joe Biden, as well as officials he's brought on who were previously part of the Obama administration, have pushed for expansions in care in the past, and mental health care could benefit, Phan said.
4. Employers are getting serious about it
In Watson's experience, companies selling behavioral health products used to find more success getting employer buy-in if they framed their products as "wellness offerings" as many companies shied away from a mental health benefit even a few years ago.
Now, she said, they are specifically asking for more robust mental health products.
The shift in the conversation around mental health really started in 2018 with the high-profile deaths of celebrity chef Anthony Bourdain and famed fashion designer Kate Spade from suicide, Watson said.
"A lot of people started speaking up about how these people who in the eyes of society were very successful and frankly, no one really knew they were struggling, saying ‘How could this happen?'" Watson said. "Now, you have famous athletes starting to speak out, saying, ‘I’m a successful athlete but I struggle with depression,' right? Michael Phelps. Kevin Love. The NFL. NHL. ... That almost created this mental health movement where people said ‘Wait a second. Mental health impacts everyone.'"
But traditional health benefits through traditional carriers often don't come with robust networks of therapists because their reimbursement rates are often low, while plenty of individuals are willing to pay much more out-of-pocket for care. Many providers opt out of participating in insurer networks, which makes it difficult for those who rely on their medical coverage to access care in a timely way, Watson said. Meanwhile, traditional employee assistance programs, or EAPs, often come with a 1-800 number and a terrible user experience that can reroute an individual back to trying to use their medical coverage to access care, she said.
With the decreasing stigma that was already happening, coupled with the stress of the pandemic, more employees are feeling comfortable enough to ask for better mental health options, Watson said.
"Even going into 2020 with mental health, we were seeing growth and mental health had surely become a priority for all employers," Watson said. "But I think if there is anything we’ve seen out of this year, it’s really become that fourth pillar of benefits for every employer out there. Everyone has medical, dental and vision. Mental health has now really become that fourth pillar of benefits for all employers."