Mental health startups are opting for a business model that starts in school. Elementary school.
A growing number of mental telehealth companies are offering their services to school-age children by working with local schools. Many received federal COVID-19 pandemic relief funds, but with usage of this money set to expire, companies are looking to prove their value to cash-strapped school districts.
The U.S. Department of Education allocated $189.5 billion to state educational agencies through the Elementary and Secondary School Emergency Relief Funds program, or ESSER, which was included in three separate laws: the March 2020 Coronavirus Aid Relief and Economic Security Act, the December 2020 Coronavirus Response and Relief Supplemental Appropriations Act, and the March 2021 American Rescue Plan Act. Through ESSER, state agencies have provided funding to local educational agencies and school districts with the goal of mitigating COVID-19’s effect on elementary and secondary school-age children.
School districts are using both federal and state funds to provide telehealth mental health services to children. According to a survey from the Department of Education, 17% of public schools offered telehealth services throughout the 2021-2022 school year. Overall, 67% of schools increased mental health services and about 52% of schools used federal funds to launch mental health programs during this time.
“This massive unlock happened,” said Alex Alvarado, CEO at Daybreak Health, a youth-focused digital mental health company backed with funding from well-known venture capital firms Y Combinator, Lux and Maven Ventures. “That really is what unlocked Daybreak moving into this world of having the school sponsor a bulk of the services.”
This trend comes amid a rising youth mental health crisis. The Department of Education survey found that 76% of schools have seen an increase in staff members expressing concerns over kids' mental health. In April, U.S. Surgeon General Dr. Vivek Murthy called the declining mental health of children the "defining public health crisis of our time."
Is school-based telehealth sustainable?
Daybreak and other telehealth companies receive referrals from schools for students who might need services it provides. The company then matches students with clinicians in its therapy program, which can range from 12 to 18 weeks.
For payment, Daybreak bills through a student's insurance plan or the school district will sponsor the care in some cases. Daybreak is in the process of rolling out Medicaid coverage in all states. Less than 10% of its school partners over the past year have solely used ESSER funds to pay for its program, a company spokesperson said.
Federal funds have allowed mental telehealth programs to launch in school districts that may otherwise lack resources. Jefferson County Public Schools in Colorado spent around $1.5 million from the district's federal ESSER funds to partner with telehealth company Hazel Heath. Nearly half of public schools say inadequate funding prevents them from offering more mental health services to students.
With ESSER funds set to expire after September 2024, school districts are weighing the long-term viability of these telehealth programs. Elissa Dornan, director of elementary teaching and learning at the Bethel School District in Washington state, said federal dollars helped allowed the district to offer telehealth company Hazel Health's services to students. The district found a shortage of providers existed and many students requiring mental health services were having to wait.
Dornan said the district of roughly 20,000 students received 800 referrals to Hazel Health’s service last year and 562 students completed appointments. Nearly 70% of the students had been successfully discharged when the data was captured but Dornan said the number is likely higher. But even with these numbers, Bethel School District may not have the funds to continue the service when the ESSER dollars run out.
“It's hard to provide a great service,” Dornan said. “We are in that predicament of how do we continue it? Where do we even begin to start justifying the dollar amount for mental wellness for our students?”
The district is projecting 960 referrals for the current school year. Last year students were primarily referred due to family concerns, anxiety and sadness.
Hazel Health, founded in 2015, offers mental health services along with consultations for certain medical conditions like asthma, acne and sleeping problems. Hazel bills a student's commercial insurance when available. School districts will pay a portion of the fee to Hazel to offset any out-of-pocket expenses not covered by insurance.
“We are a healthcare company. Full stop,” said Andrew Post, chief innovation officer at Hazel Health. "But we are one that is designed around schools being an access point, a referral source [and] a partner."
Hazel is in the process of working with schools to keep these programs operating beyond temporary funding programs, while Daybreak is working to show a return on investment for school districts.
“We've actually been able to show that students’ success is kind of inextricably linked to mental health. So, for the students that we're working with, they're seeing improvements in behavior, they're seeing improvements in attendance, [and] ultimately, they're seeing improvements in their grades,” Alvarado said. “They're able to themselves find longer-term funding sources, because the intervention that Daybreak is providing actually drives up those metrics for them and brings more funding into the district.”
Cartwheel, a school-based telehealth company that was founded in 2022, operates under a similar model to Hazel and Daybreak. It bills private insurance and Medicaid for services and charges schools for non-billable services like case management.
Joe English, co-founder and CEO at Cartwheel, said they work with insurers and the school district to ensure the program is financially viable. He said as ESSER winds down, districts are setting a higher bar for financial sustainability of these programs.
Dornan said the programs that will stick around after federal dollars dry up must serve the needs of students effectively.
“As district leaders, we have to really be in tune with what's happening in the community,” Dornan said. “Really looking at the bottom line, the dollar amount, and if this truly is an area of need.”