Mental health startup IPOs boom as insurers add benefits

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Shares for mental health company LifeStance Health soared during its public debut Thursday, with the Scottsdale, Ariz.-based startup reaching a nearly $8 billion valuation after raising $720 million in its initial public offering.

LifeStance, which is owned by private equity firm TPG, claims to be one of the largest mental health platforms in the nation, employing more than 3,300 licensed mental health professionals across 27 states and 370 centers. The company offers a mix of in-person and virtual care for its 357,000 patients, who can suffer from schizophrenia, bipolar disorder, depression and more. In 2020, the startup conducted 2.3 million patient visits on the platform, according to its S-1 filed in May with the Securities and Exchange Commission.

LifeStance patients generally suffer from acute conditions compared with individuals who use direct-to-consumer competitors like TalkSpace, and both its clinicians and patients have reported preferring an integrated care model as opposed to treatment through a single platform, said CEO Mike Lester.

The company employs its clinicians full-time, in exclusive contracts, and pays them on a per-patient basis. It boasts a retention rate of 87%, compared to an industry average of 77%, with Lester crediting clinician stickiness to the collegial environment at LifeStance centers.

“Culturally, we’ve created this model where each office has a psychiatrist and nurse practitioner, multiple psychologists, multiple therapists, and that’s a multidisciplinary team,” Lester said.

Unlike the majority of the cash-pay industry, LifeStance accepts most forms of commercial insurance, with its more than 200 payer relationships including UnitedHealthcare, Cigna and Humana. At the end of 2020, the company generated 89% of its revenue from commercial payers, 5% from government payers and the rest from cash or non-patient services. For the three months ended March 31, the company reported a net loss of $8.7 million on revenues of $143 million.

Now, with an additional $720 million in its pocket, LifeStance will spend the cash to launch a not-for-profit, continue to acquire physician groups and build new centers. Since its founding in 2017, LifeStance has completed 53 acquisitions and opened up 120 clinics. Lester said the startup opens a new, 12-person clinic every four-and-a-half days. Their clinics generally operate at a loss for a few months as they build up their patient network, and then achieve profitability during their second-quarter, where they earn margins of up to 40%.

In addition to these behavioral health facilities, Lester said LifeStance is also piloting two integrated care centers, where it will join behavioral health and primary care services. Long-term analyses show that every $1 spent on collaborative mental healthcare saves $6.50 in total medical costs, but these studies have never been proven in the real world, he said.

“The reason it hasn’t been done as a for-profit product before was, nobody’s been able to figure out how to measure it, to be able to do it in partnership with a payer who gets to see all claims paid,” Lester said.

Its IPO comes after investors poured a record $2.4 billion into behavioral health startups in 2020, and as insurers are increasingly looking to scale their mental health offerings for their employer members.

In December, Blue Cross and Blue Shield of Massachusetts announced it was partnering with AWARE Recovery Care to offer in-home addiction treatment, as well as adding recovery coaches to its hospital incentive program to encourage mental health and addiction facilities to provide this service. CVS, meanwhile, has followed a similar integrated care plan, launching a teletherapy services along with stationing in-person therapists in some of its retail stores. And Healthfirst has launched a partnership with NeuroFlow, a Philadelphia, Penn.-based company that automates behavioral health risk identification, patient intake and enrollee outreach for Healthfirst’s 1.6 million members, allowing the New York-based not-for-profit payer to embrace a collaborative care model.

“The real limiting factor for us in trying to put a program like this in place in a busy primary care office was not disrupting the workflow in that office,” said John Eiler, system vice president of behavioral services for Healthfirst. “Everyone knows how busy primary care offices are, you got 10 to 15 minutes to see each patient and, once you come off that timeline, you’ve got a problem.”

The platform has helped Healthfirst implement licensed clinical therapists at four of its seven primary care clinics, enabling a warm hand-off between primary care and behavioral health provider. For clinics where a licensed clinical care worker is not present, he said NeuroFlow offers a platform clinicians can use to offer telehealth services. In the eight weeks since NeuroFlow’s launch, Healthfirst has referred 319 patients to behavioral health providers through the platform, Eiler said. In its first year, he estimated that 1,800 patients would be referred through NeuroFlow.

The platform will help the insurer cut costs by helping patients better manage chronic conditions, as well as ensure physicians are accurately code for behavioral health conditions, Eiler said. At Healthfirst, 44% of the company’s Medicare enrollees have been diagnosed with depression, but only 7% include that diagnosis in their risk score submitted to the CMS. In the first year, Eiler hopes to get the disease included among 15% of patients who suffer from the disease, which he said will result in a $1.5 million pay increase from CMS.

“That’s not just savings in healthcare, that’s actually money from Medicare that more than funds the project,” Eiler said. “That allows us to do some other things in behavioral health and behavioral wellness.”

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