Beyond the Byline: Behavioral health startups draw record level of investment

Alex Kacik, senior operations reporter, is joined by Gabe Perna, deputy editor editor of Digital Health Business & Technology, to talk about the wave of digital health funding aimed at behavioral health and whether startups can scale safely.

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Alex Kacik: More people need mental health treatment than ever before. The COVID 19 pandemic widen the gap between the demand for these services and the available supply. Health systems are investing in mental health solutions and startups at a record pace. Can they safely scale this new technology? Welcome to Modern Healthcare's Beyond the Byline, which offers a behind the scenes look into our reporting. My name is Alex Kacik, senior operations reporter, and I'm joined by Gabe Perna deputy editor of Digital Health Business & Technology. Thanks for coming on Gabe.

Gabriel Perna:  Yeah, I'm psyched to be here. Thanks for having me.

Alex Kacik: All right, Gabe, you and I had stories that just came out about mental health startup funding. You took a look at the venture capital side and I focused on health systems innovation arms. At what rate are VC funds investing in mental health startups? And what types of technology are they targeting?

Gabriel Perna: In 2021, the amount invested in digital mental health was somewhere in the neighborhood of $5 billion, give or take a few $100,000 depending on which research outfit you ask. And in total, there was about $30 billion invested in digital health in 2021, according to our Digital Health Business & Technology funding database. So that means every fifth dollar in a record breaking year was spent on mental health investments.Now 2022 in general, we'll see a decrease in investments across the board, thanks to broader economic conditions. But it's still receiving a healthy amount of funding. And certainly that's the case for mental health apps. I compile a list of every digital health funding deal weekly, and mental health focused companies are still going strong.

In terms of what technology they're interested in. It really runs the gamut in every possible imaginable area. As Hemant Taneja, managing partner of mega digital health venture capital firm General Catalyst, said to me, there are probably about 1,000 or so mental health apps out there. Now, some of them like Calm and Headspace are focused on meditation, marketed directly to consumers via apps. Others offer more direct therapy through apps and platforms like BetterHelp. Some offer therapy and medication management such as Talkspace. A few companies like Cerebral have actually prescribed control medications, such as Ritalin or Adderall. But that's actually quite controversial, and is only allowed for the duration of the public health emergency.

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Beyond the apps, there are companies that are exploring the use of digital biomarkers, chatbots, virtual reality, gamification, and machine learning and AI, all to address mental health. So really, there's quite a few. And then there are companies who are direct to consumer versus those who work with employers, health systems and insurance companies. And of course, there are generalist telehealth companies like a teledoc who offer behavioral health services. So needless to say, it's a crazy market, I would say the lion's share money goes to app base and companies who offer therapy though.

Now, Alex, like you said, off the top, the mental health space has long suffered from access shortfalls. How has that dynamic evolved over the pandemic?

Alex Kacik: So nearly every health system I talk with, you know, they say expanding mental health capacity is among their top priorities. At the moment, you know, more people have gone to their emergency rooms, seeking mental healthcare, you know, many are in crisis. They have few places to otherwise to turn this around, you know. Half the counties in the U.S. or so do not have a licensed psychiatrist. So health systems and the employers they serve, you know, are looking to, like you said, these self guided apps and like cognitive behavioral therapy solutions that can identify, you know, mental health issues sooner. And then, like you said, you know, they're also ones that extend their reach via telehealth, you know, they're using behavioral health technicians, unlicensed therapists, and more readily available caregivers in a team based approach. So in that way, they're trying to extend access, given the some of the shortfalls in the number of available therapists and depending on where you're at. So, but still, that's only expected to partially solve the problem. Currently, the U.S. would need more than 7,500 additional mental health practitioners to meet current demand, while less than 30% of Americans are getting the mental healthcare they need, that's according to the Health Resources and Services Administration.

So Gabe, you know, there's some cultural differences, you know, in the startup, obviously, community and healthcare community. We hear in startup culture, the slogan, you know, "move fast and break things." Is that mentality prudent in this industry?

Gabriel Perna: No, definitely not. And I've heard this from others. Yeah, you know, "move fast and break things." That's kind of a dangerous and potentially illegal mentality to have, when you're talking about human lives, you know. Hemant Taneja, he emphasized this a lot to me. But that too often VCs are just focused on growth at all costs. And I actually asked a bunch of people for my article, kind of this basic question: Can that growth mindset mentality of the VC world coexist with the patient safety needs of mental health, or really any kind of clinical health? And one of the answers I liked was from Nicole Martinez-Martin. She's an associate professor of Biomedical Ethics at Stanford Medicine. And she's really dug into the ethics of the mental startup world as part of her research. She said that in having a startup, you have to generate revenue. I mean, that's a fact. But sometimes that can raise concerns, whether or not a business model will align with what's in a patient's best interest. And she said that, you know, she's met a lot of app developers who are sincerely trying to help people. But as you said, the cultures just don't often align. And it actually jives with something I heard recently at our Modern Healthcare Transformation Summit about kind of the cultures and just the word disruption. And in Silicon Valley, the word disruption is exciting and provocative. In medicine, not so much. So I think, you know, they have a long way to go.

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But what I'm curious is, you know, from the health system side. What are some of the red flags that health systems are keeping an eye out for as they direct their investments?

Alex Kacik: So this is an issue is definitely top of mind. And it gets into the normal rigor associated with their decision making processes, you know, you have to go through a lot of different levels to clear, especially, you know, these types of investments or changes to operations. So, you know, the chief digital health officer of Providence, a really big cyst. I think 50-52 hospitals in the West Coast told me that, you know, 'I know, there's a lot of consternation in the market right now around clinical appropriateness and the process of, you know, some companies using for prescribing medication, that's basic table stakes for us, you know, we're not going to mess around with something that hasn't been validated, you know, 1,000 different ways.'

The CEO of Teladoc in their latest earnings call, so that, you know, some of these companies are eating into their revenue. And so like, yeah, it just goes to show like, how much movement there is, in this space, it's having impacts on multiple sectors of the healthcare industry. But, you know, in trying to make sure that their investments are prudent, and that they're not, you know, investing in technologies that aren't on, you know, aren't safe. Ultimately, some Kaiser exec said that, you know, if one of their clinicians raises some concern about the terms of use of an app, you know, that's a major issue. Kaiser at the moment has like 12 behavioral health apps and the pilot stage for adolescents. If there are any issues, you know, with data security, which is such an issue with, you know, mental health, I mean, across all types of healthcare, but particularly mental health. If there aren't any peer reviewed results and if engagement levels are low, those are all non starters.

So, Gabe, let's get into some of the potential, you know, ethical and regulatory dilemmas here. You already touched on a few of them. You have the healthcare industry, which is for the most part very deliberate and controlled. Then you raised an interesting point, though, and that trying to mesh with this relatively untested technology. The FDA has minimal regulation over this space, and it's largely left to state licensures to police. So what do you make of that regulatory oversight? And how does that set the stage going forward?

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Gabriel Perna: This was an interesting part of my reporting, because not surprisingly, when you ask people if there needs to be more oversight and regulation, you got a mixed answer. Most venture capitalists and entrepreneurs don't want to see regulation. Obviously, they believe that regulation tends to encumber innovation, while medical ethicists like Nicole Martinez-Martin, and Craig Klugman of DePaul University. They're in favor more guardrails to oversee this increasing adoption of digital mental health services. And Klugman. He said to me that the worst thing that we could do is harm someone. And with mental health, it's really not that hard to harm a person if you send them in the wrong direction, thanks to an app or a chatbot or something like that. So, you know, there's a lot of potential for misuse. But while there was a mix of responses there, everyone agreed that enacting some kind of regulation would be impossible, unless there was a congressional law passed and we know how hard that is nowadays. The oversight, like you said, it's usually left up to states while the FDA, you know, they've really been playing catch up. They issued something in 2020 about this. But, you know, I would say, of the 1,000s of apps out there that they've only over, they've only approved a handful of them. And then what makes it even more confusing is that most of these companies serve as people across state lines. So part of this is a product of the pandemic. And it'll be interesting to see when some of the flexibilities around telehealth coverage ends. And yeah, it's just it's a money situation. And without any kind of law, it's probably not gonna get any more transparent in the near future.

Alex Kacik: It reminds me to somewhat of the private equity, and we see, you know, more investment from private equity going into physician practices, hospitals, you know, other types on the provision of care, other types, other parts of the care continuum, too. And, you know, that's relatively black box in terms of their disclosure and how they operate. So I know there's more studies going on trying to figure out quality impacts of these ownership changes. So yeah, I see similar efforts in different sectors where they're trying to glean more and facilitate more transparency here. So they get a full picture of what's going on how these companies are being run, what changes are being made. But like you said, if this hinges on congressional action, I mean, that's such an uncertain outcome there. So we'll see. We'll see.

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Gabriel Perna: You know, and obviously, there's two lines, as I've said, direct to consumer, and then there's the ones that go through health systems. From your reporting. what are some of the evaluation protocols that you're seeing from health systems and potential barriers there to adoption?

Alex Kacik: There are a shortages of licensed mental health caregivers. So a lot of these apps are geared at trying to extend, you know, lower level caregivers, like some more on licensed therapists or social workers or what have you. But the tricky part of that is that, you know, outside of certain compact regulations involving licensure with nurses and physicians, states vary on their scope of practice laws. The lawyers I talked with said that they have to be especially these cross state systems, very cognizant of their respective scope of practice laws because potentially they could run into some compliance issues. If they are leveraging some of these unlicensed caregivers, and depending on which state they operate. So on the other end of this, too, you have insurers traditionally, doesn't matter of really what type of mental healthcare you're talking about, they haven't reimbursed any of these services at higher rates. A lot of the, you know, hospitals or other types of caregivers I talked with, say that they don't cover their costs. So they have to eat, you know, some of the overhead associated with delivering these services. But you know, you have the public health need that I don't think has been ever more evident at this point, given how many people are struggling with anxiety and depression.

On the reimbursement end, just comparing reimbursement for primary care and behavioral health services. Even primary care, which isn't a cash cow and usually doesn't garner huge reimbursement rates, there's still disparity of you get from the only commercial insurance side was higher, you know, for primary care and behavioral health services, and that gap increased from 2015 to 2017. So it wasn't trending in the right direction. At that point, you know, there's been more attention on this space. And there's, I think President Biden and others have talked about enforcing some of these payment parity laws, because those haven't been followed to the tee. So we may see some of that change. But in the meantime, you know, if the reimbursement isn't there, it's going to be hard to scale some of these, this isn't going to be a "Amazon solution" in this space, you know, one consultant told me.

That being said, you know, you do see some interesting developments. Mass General Brigham, Providence - they're all either considering or have started these accelerators and incubators that are specifically geared toward growing mental health startups or other devices and technology. So that will have some impact here. It'll take some time for that to catch on. So none of these a lot of these aren't short-term solutions, but ideally, you know, over a longer period, you'll see that gap between demand and supply of services weighing.

So Gabe, ultimately, what's your outlook here? Will we continue to see more money poured into the mental health startup space? And while some of these in seemingly inherent clashes be reconciled?

Gabriel Perna: I think so. And I agree, I mean, without the reimbursement piece, it's kind of this puzzle that no one's going to be able to solve. So that really is kind of the big factor here. But I think that, you know, there's a huge market for this, obviously, the market has had a bit of a downturn, and I don't think we'll see some of the crazy numbers and investment that we saw in 2021. However, as you've said, there's so much need for increased access to mental health services coming out of the pandemic. And there's just such a shortage. I think I read that 70% of rural counties in this country don't have a single mental health provider. So people can get therapy from their phones, they're going to do it. You know, it's just like anything else in their life, they're going to end up doing it.

Over time, I think we're gonna see a lot of M&A activity in the mental health startup space. This was one of the predictions I got from Hemant Taneja, you know, who was a guy who had know that kind of trend. So I think as those companies merge and get bigger, the need for guardrails and oversight is just going to become more pronounced. And if we've seen, you know, we've seen some of the negative news around these companies lately. It may force people's hands to act. But as you know, we both said Congress does not exactly move fast these days. So it'll be interesting. But I think we'll see some reconciliation between the tech side and the medical side. How much I'm not sure, but some will be absolutely necessary.

Alex Kacik: All right, Gabe. Hey, this was great. Thank you so much for coming on. Appreciate you sharing your expertise with us.

Gabriel Perna: Absolutely. Great to be on.

Alex Kacik: All right, and thank you all for listening. You can subscribe to Beyond the Byline on Spotify, Apple podcasts or wherever you choose to listen. You can support the reporting of Gabe, myself and our team of reporters by subscribing to Modern Healthcare and giving us a follow on Twitter and LinkedIn. Thank you for your support and appreciate it.