Health systems' innovation funds eye behavioral health

Mass General Brigham is exploring the idea of building a neurological behavioral health incubator at its McLean Hospital in the western suburbs of Boston.

The incubator would pair growing startups with faculty at the psychiatric hospital, ideally creating a long-term pathway to boost behavioral health capacity and expertise, executives from the Boston-based health system said. The project represents the latest health system-led venture to extend its reach and diversify revenue amid a national surge in behavioral health cases that has exacerbated a long-standing provider shortage and chronic inequities.

“There are significant and demonstrable unmet needs here and the industry is moving in that direction,” said Chris Coburn, chief innovation officer of the largest health system in Massachusetts. “There is an ever-increasing amount of collaboration occurring, whether it’s with another nonprofit, a long-established company or new company, to meet those needs.”

Digital behavioral health funding has skyrocketed over the past decade. Investors plunged $5.1 billion in digital behavioral health companies in 2021, accounting for about 18% of all the investment in digital health, according to Rock Health data. That was up from $35.2 million and a 3% share in 2011, and almost double 2020’s $2.7 billion tally.

Much of that investment stems from innovation arms of health systems, which are used as testing grounds for new technology. Health systems see expanding behavioral health capacity as a high priority, but they must balance that need with the risk of scaling up too quickly.

Some industry observers question whether safely expanding behavioral health startups is feasible amid a national shortage of psychologists and psychiatrists and relatively low reimbursement levels.

“Startups have the inherent adoption problem and there is not necessarily a built-in user base,” said Peter Manoogian, a principal at the consultancy ZS. “We have of course seen many mental health startups grow from a direct-to-consumer perspective, and those have run into some challenges very recently.”

Primary-care providers deliver more than half of mental health treatment in the U.S., but less than a third of patients with depression receive appropriate care due to a lack of provider education and limited access to behavioral health resources, according to Renton, Washington-based health system Providence. The U.S. would need more than 7,500 additional mental health practitioners to meet current demand. Less than 30% of Americans are getting the mental healthcare they need, according to the Health Resources and Services Administration.

The supply-demand mismatch paints a stark picture of the long-term consequences of unaddressed cognitive issues, driving the urgency behind scaling up new technology.

“Behavioral healthcare has been relatively slow to innovate compared to other specialties. But now is the time with the demand and need higher than ever, particularly in the teen population,” said Roger Dowdy, vice president of mental health strategy at Providence. “We know that the marginalized population has terribly inadequate access to appropriate resources. The field is ripe for innovation.”

Growth at what cost?

Health systems and venture capitalists are investing more money in behavioral health startups. But that investment has pushed some startups to expand quickly, driving some health systems to reinforce their vetting policies.

Cerebral, a San Francisco-based mental health company, is under investigation for possible violations of the Controlled Substance Act. Several lawsuits allege that the company, which connects patients with a care counselor and coordinates prescription deliveries, failed to identify patients who set up multiple accounts to get more medication.

The company said in a statement that it has artificial intelligence-enabled and manual safety protocols that remove duplicate accounts.

Federal regulators eased restrictions during the COVID-19 pandemic to allow providers to prescribe controlled substances via telehealth. Some “small, private competitors recently well-funded with a rash of venture capital money” have exploited that development and made “economically irrational decisions,” Teladoc CEO Jason Gorevic said during its first-quarter earnings call in April.

“We know that some companies are exploiting the temporary suspension of the regulations that prohibit the prescription of controlled substances during the national health emergency. For better or for worse, that puts us at a bit of a competitive disadvantage relative to those who do. We don’t think either of those practices, either bidding up the search auctions or prescribing controlled substances, is a sustainable practice,” he said.

Digital health companies focused on staff delivering healthcare are more susceptible to the potential conflict between scale and quality, said Adam Pardes, chief operating officer at NeuroFlow, a behavioral health screening software.

“Growth at all costs is not a strategy that benefits patients suffering from underlying mental health conditions,” he said. “From a financial perspective, it doesn’t really matter how much money you raise if you don’t have a strong foundation of research, data and clinical buy-in to back up what you are doing.”

It’s a red flag if a clinician recognizes language in the terms or something in the app that was stigmatizing, said Peter Nixon, executive director for national mental health and wellness at Kaiser Permanente, which has about 12 behavioral health apps in the micro-pilot stage that are designed for adolescents. Data security, peer-reviewed results and engagement levels are also very important, he said.

“People are coming at us every week with new stuff, corralling executives at the golf course,” Nixon said. “Is it something new, or duplicative? Is there published evidence validating the tool? Is it easy for patients and clinicians to use? Is the data secure?”

Some health systems are pursuing joint ventures with established behavioral health providers to fill short-term demand and avoid some of the startup pitfalls. Orlando Health, a not-for-profit health system in Florida, recently partnered with Acadia Healthcare, a publicly traded company and the country’s largest stand-alone behavioral health provider.

“This makes sense, especially because health systems are trying to create instant capacity to solve their woes in delivering against the surge in demand,” Manoogian said.

Starting small

Many health systems are trying to build out capacity by developing screening tools, telehealth infrastructure to extend clinicians’ reach or technology that leverages behavioral health technicians and social workers in team-based models.

Sioux Falls, South Dakota-based Sanford Health is using a team-based approach to work around staffing shortages.

The system plans to invest $150 million in primary care over a five-year period with the goal that it can use technology to better risk-stratify patients and coordinate behavioral healthcare, said Erica DeBoer, Sanford’s chief nursing officer.

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“We will never be able to produce the number of psychologists and psychiatrist that we need,” she said.

Some health systems are investing in behavioral health vendors after they test the technology.

CommonSpirit Health, a 142-hospital system, and Altamonte Springs, Florida-based AdventHealth recently participated in a $42 million funding round for Concert Health, a virtual behavioral health group.

CommonSpirit’s goal is to integrate primary and behavioral care by connecting patients with a remotely located behavioral health therapist. Then, individuals can be treated holistically rather than in silos, said Rich Roth, the health system’s chief strategic innovation officer.

“If you can integrate behavioral healthcare with primary care, you can have almost immediate referrals to social workers, community organizations and those on the ground,” he said. “Social workers can be leveraged with the help of psychologists and others, which extends our reach.”

Providence physicians, administrators, behavioral health experts and patients vetted more than 40 vendors before the system chose a self-guided behavioral health therapy software.

Ideally, the self-help software would identify early signs of depression before it becomes a full-blown crisis as well as circumvent staffing shortages, said Sara Vaezy, chief digital officer at Providence, a 52-hospital health system spread out across the West Coast.

“I know there is a lot of consternation in the market right now around clinical appropriateness and the process some companies are using for prescribing medication. That’s basic table stakes for us,” she said. “We are not going to mess around with something that is not vetted and validated thousands of different ways from a clinical perspective.”

In some cases, that may impact Providence’s ability to scale the products, Vaezy said.

Barriers to entry

More rigorous evaluation protocols, provider shortages, low reimbursement levels and varied state laws stand in the way of providers’ behavioral health expansion plans.

Each state has different laws when it comes to scope of practice, so providers need to be careful about using unlicensed counselors or technicians, said Sarah Swank, a healthcare attorney at Nixon Peabody.

“State laws are a patchwork that has changed along with the public health emergency. As programs go across state lines, more vetting needs to be done to make sure a mental health startup is in compliance with state laws,” she said. “Health systems could potentially have legal exposure related to the ownership or partnership with a startup.”

Outside of finding the right level of workers and maintaining compliance, reimbursement is a hurdle, health system executives said.

Payers often reap the economic benefit of these technologies, Providence’s Vaezy said. If a behavioral health app can identify the early signs of depression and prevent a hospital visit, most of the savings accrue to the health insurer, she said.

Meanwhile, payment for behavioral healthcare lags other sectors, widening access gaps.

The disparity between reimbursement for primary care and behavioral health services grew between 2015 and 2017, according to a Milliman analysis of commercial claims data. Payment for primary care services was 23.8% higher than payment for behavioral healthcare in 2017, compared with 20.8% in 2015.

Patients with a behavioral health condition cost 2.8 to 6.2 times more to treat in than those without a behavioral health condition in 2017, according to a 2020 Milliman report. While annual expenses for the highest-cost behavioral health patients averaged $45,782, half of that group spent less than $95 per year on behavioral healthcare.

“Payers could come to the table to work more closely with providers and pay for some of these technologies because they are getting the economic value,” Vaezy said. “We haven’t figured out a model that works because there isn’t enough cross-sector trust here—it’s the single biggest hurdle.”

Startups need to be payer-agnostic if the goal is to scale up, Providence’s Dowdy said.

“From a primary-care provider’s perspective, they can’t be thinking about insurance coverage,” he said.

If a mental health startup loses money on each encounter, it is not sustainable, said Jeff Goldsmith, president and founder of the healthcare consultancy Health Futures.

“Billions are going to be squandered. It is not clear that you are buying a sustainable market advantage,” he said. “There is not going to be an ‘Amazon’ in this space.”

Even amid these challenges, health systems continue to ramp up investment in their innovation divisions with a renewed focus on behavioral health.

Winston-Salem, North Carolina-based Novant Health recently launched an incubator that aims to grow new devices and emerging digital technologies. Novant Health Enterprises, which will operate as an independent entity within the 15-hospital system, looks to partner with other healthcare organizations and diversify its revenue, executives said.

Mass General Brigham created a $30 million venture fund in 2019 to invest in digital health and artificial intelligence-based solutions.

Bon Secours Mercy Health, a 50-hospital system spread out across the Midwest and East Coast, spun off a subsidiary that will develop and invest in digital health products, services and technologies. Accrete Health Partners is one of four private equity-backed companies at Bon Secours Mercy, which aims to create a “world-leading digital health ecosystem.”

Providence is starting a mental health innovation accelerator program, where it hopes to incubate ideas from its front-line caregivers about how to address the growing need for behavioral health services.

“They are best positioned to understand these challenges and we need to find ways in which we can support them,” said Dr. Arpan Waghray, chief medical officer of behavioral medicine at Providence.