The push by mental health companies to solve the access problem in behavioral health has reached a fever pitch.
Venture capital and private equity are fueling a race between startups and existing companies to implement new technology and develop innovative business models. Last year, investment in the behavioral health space, especially digital mental health companies, totaled $5 billion.
A recent flashpoint in the debate came as Cerebral changed the pay structure of its W-2 clinicians from salaried to hourly pay. For those workers, the change also meant losing guaranteed health benefits. To get health benefits, clinicians must log 30 hours of work a week for a period of 90-days, according to the Forbes article which broke the news in December.
Cerebral, a virtual mental health and medication provider, commanded an eye-popping $4.8 billion valuation for its $300 million Series C round and has expanded to provide care in all fifty states after its founding in 2019 by Kyle Robertson and Ho Ahn. The company launched in January 2020.
The handling of the reclassification and the fact that it came out just weeks after landing $300 million brought widespread criticism down on the company.
Generally, how employees are classified has huge significance to the behavioral health companies, several executives in behavioral health, human resources and legal communities told Behavioral Health Business (BHB).
And, many of these experts were critical of the approach of banking on scores of 1099 contractors, an approach that Cerebral and other mental health startups have taken.
One core argument from these leaders and experts is that W-2 employees — who receive all the benefits dictated by local and federal law — generate better care outcomes. Many also believe it’s simply in companies’ best interests to deeply invest in their employees, whose work impacts the mental health of scores of patients.
However, contractors allow a company to get scaled up quickly, improving access to mental health care. It also allows a company to offer clinicians a chance to find employment on their terms. But more than that, Cerebral says its approach is key to fixing the massive access problem in behavioral health caused by the behavioral health persistent workforce shortage.
Taking a bold approach to the broken system
Cerebral has had a meteoric rise and secured roughly $462 million in funding according to Crunchbase and seen its workforce grow to 2,300 clinicians.
And the rapid growth isn’t over yet.
David Mou, chief medical officer for Cerebral, told BHB that the company intends to grow its clinician workforce to 10,000, a 4.3 times increase from where its clinician ranks stand now.
Mou said the ambition behind its growth goal is necessary to meet the monumental task of making measurable improvements to the poor mental health of Americans and others.
During the peak of the pandemic, rates of anxiety tripled and rates of depression quadrupled in the U.S., according to a study by the Centers for Disease Control and Prevention.
This expanded workforce will be a mix of W-2 employees and 1099 contractors. Mou declined to answer questions about the precise mix of how many of its clinicians are contractors or full-time employees – now or for its future workforce.
Mou contends that those agonizing over whether clinicians are employees or contractors are asking the wrong questions.
“From a philosophical perspective, I think there’s been historically this idea that somehow W-2s are correlated with higher quality than 1099 because, theoretically, you can quote-unquote ‘control them.’ I find that philosophy to be very outdated,” Mou said. “If you think this is about [care] quality, let’s just measure quality.”
While the company has W-2 clinicians, Mou said Cerebral’s large number of contractor clinicians is needed to make sure it can meet demand as it expands and contracts within its cash-pay direct-to-consumer (d2c) line of business. This flexible workforce allows the company to connect a patient to clinicians within five days.
“This is close to impossible to accomplish if we only hired W-2s,” Mou said. “I actually think the most nimble organizations from a telehealth perspective would have a combination of both.”
But for patients that seek mental health under the benefits of a health plan, Mou said Cerebral leans more on employed clinicians. He pointed to how long it takes to get these clinicians in-network with payers. That investment would justify that clinician becoming an employee. He also said providers who work a lot of hours with Cerebral could become employees. Cerebral’s W-2 clinicians are at capacity, Mou said.
He declined to specifically say how many of Cerebral’s patients are cash-pay d2c or get access through a commercial payer. However, he said an increasingly “large minority” of patients get care in-network. Cerebral is also working on getting into the Medicaid space in an attempt to serve “historically disenfranchised patient populations.”
Measuring quality
Because of Cerebral’s tech-first approach, the company built out a platform that heavily focuses on collecting and distributing data. Population-level data reports are given to all Cerebral clinicians, contractors and employees alike.
“If you give them the data, they want to get better; clinicians chose this job so they can take care of patients better,” Mou said. “It’s the frustration that they have in the current status quo — they are not given that data.”
The behavioral health space often lacks the critical technology that much of the rest of the health care sector has adopted. This includes electronic health records, according to previous BHB reporting.
Mou adds that the classification debate has legs because the industry doesn’t have a tradition of robust and regular use of technology and data. Instead, the industry uses arbitrary measures like employment status or where a clinician went to school to assess quality.
“The differences between 1099s and W-2s in terms of quality, I think, are actually way overblown,” Mou said. “And if you actually measure clinical outcomes, that should be your North Star, not their employment status.”
Each month, the company distributes process measures such as prescriptions being ordered within 24 hours of a visit and clinical outcomes data.
Mou said 82% of Cerebral’s patients achieve meaningful reductions in anxiety and an average five-point reduction in depression as measured by the PHQ-9 clinical measurement. Some Cerebral patients are on medication that requires frequent lab monitoring to ensure safe and effective dosages. The company apparently has a 100% compliance rate with patient labs.
He further contends that much of the criticism of how the company handles its worker classification ought to be redirected to the status quo of the mental health industry for its role in limited access to services.
Other new companies go all-in on W-2 clinicians
Another fast-growing hybrid outpatient mental health provider, Lifestance Health Group Inc. (Nasdaq: LFST), hires all its clinicians as employees. The company sees its employee clinician workforce as a competitive advantage.
Its employee-focused approach also includes the flexibility for workers to have as many clients as they are comfortable with, co-opting the flexibility element of contract work.
Lifestance provides care through a hybrid of telehealth and a national network of in-person clinics. The company operates in 31 states and employs about 4,400 clinicians. In total, the company employs about 6,000 people.
Lifestance also offers sign-on bonuses and recently launched an equity incentive program for clinicians. Job descriptions from the company state that the incentive program includes $15,000 annual stock awards for eligible therapists and $75,000 a year for eligible psychiatrists.
At a session of the 2022 J.P. Morgan Healthcare Conference, executives of Lifestance said that the company doesn’t compete in the same space as telehealth-only or digital mental health companies — and that it has a more attractive workforce model as companies compete for behavioral health employees in a national staffing shortage.
For Marc Goldberg, co-founder and CEO of New York City-based Resilience Lab, a self-described therapist-focused mental health provider, the question of how companies classify employees gets at deeper moral questions of right and wrong on top of questions about the viability of a business.
He founded the company in 2019 with Christine Carville, a practicing psychotherapist and the company’s chief clinical officer. Goldberg’s almost 40-year career has largely been in the software and investment industries where he invested in and led several companies.
“I believe that you cannot have things both ways,” Goldberg said. “You need to decide if you want to reduce your tax and pay your people as little as possible … Or do you want to create a company and do you want to guarantee a quality of service and quality of care?”
Goldberg raised the question of whether relying on large groups of contractors would run afoul of regulators or open a company up to litigation, a point that attorney Leiza Dolghih, partner at the law firm Lewis Brisbois Bisgaard & Smith LLP said is at least a dangerous gray area for employers.
Workers are determined to be an employee according to standards set by the state and by the federal government, not according to perceived industry norms.
“A lot of businesses, when they set up their arrangements, they kind of look at what the competitors are doing,” Dolghih said. “But they may be copying the wrong classification. I see it time and again, especially in health care.
“A lot of employers are also very surprised when I tell them that just because the employee agrees to an independent contractor agreement doesn’t mean that this is good — they can change their mind and that employer could be in trouble too.”
And employers must also be attuned to changing laws and regulations.
Bloomberg Law reports that a raft of political challenges, lawsuits and potentially less favorable regulatory moves on the part of the administration of Democratic Pres. Joe Biden could spell a challenging 2022 for the gig economy, which is built around contractors providing much of the labor for app-based services companies.
These challenges include a ballot initiative in Massachusetts for gig economy companies to reclassify drivers as employees, and litigation in California over whether a ballot proposition favorable to companies like Uber and Lyft was constitutional or not. That suit is in California’s appeals court.
There are cautionary examples from other parts of the health care sector, as well. Home care startup HomeHero launched in 2013 and quickly raised $23 million, while onboarding about 1,200 caregivers on a 1099 basis. But regulatory changes in California forced the company to switch over nearly its entire workforce to W-2 status.
The change increased HomeHero’s labor costs and forced it to raise prices; one of the key premises of the business had been that it could charge lower rates by leveraging technology better than traditional providers. The startup ceased its home care operations in 2017.
Investors may push behavioral health businesses toward contractors
Resilience Lab started off as a practice of one provider with Carville seeing patients. Since then, it’s grown to have 117 therapists — all but about five of them are W-2 employees. The company aims to have 1,000 and soon expand into the nine Northeastern states.
In his career as a software entrepreneur and investor — and in his work at Resilience Lab — Goldberg has seen investors take a dim view of employees.
“My experience in talking to the venture capital and private equity community — and I used to be one of them — is that they hate employees. They hate human resources. They love software and love gross margin,” Goldberg said.
He contends that a company could reduce its workforce costs by 20% by relying more on contractors.
Goldberg is willing to test the impact of his organization by participating in an 18-month outcomes study with insurance titan UnitedHealth Group (NYSE: UNH). The company should have data in about a year. He also said consumer reviews of Resilience Lab and increasingly long patient relationships with the company validate its approach.
Also founded in 2019, New York City-based Talkiatry Management Services has raised $37 million and established a telepsychiatry practice that also tries to solve the access problem by connecting patients with physician-level mental health services. The company focuses on getting its providers in-network with payers, bucking the trend of requiring subscriptions or cash pay to get access to providers on an out-of-network basis.
CEO Robert Krayn said that many of the startups or other companies seeking to make innovative moves are almost exclusively focused on the therapy side of mental health or lower down the spectrum. He started the company with five psychiatrists and has grown the company’s psychiatrist team to over 200 — all of whom are W-2 employees.
A key reason many of the startups seek clinicians at the lowest level of the care spectrum as possible is that psychiatrists are the most trained and most sought-after professionals in the behavioral health space.
“The reality is that there’s a lot of great people doing great work on the therapy side, but there’s a lot of reasons there’s really nobody doing it successfully on the psychiatry side,” Krayn said. “Psychiatrists are the highest level of mental health provider. If you want to make sure that your platform has the highest quality of care possible it should really be centered around how physicians view the practice of medicine.”
He points out that many mental health companies with app-based approaches don’t actually provide mental health care in a way that is recognized as being of sufficient quality to get payers to pay for it outright. Krayn also questions what kind of direction is set by a health care company without strong physician leadership.
To make up for it, companies apply tools of corporate innovation to do things like cut the length of therapist sessions, push text and phone sessions, charging patients out-of-pocket.
Headspace Health, another digital mental health company that’s commanded attention for its dealmaking, leans toward employing as many of its clinicians and non-clinical coaches as possible.
Headspace Health was born out of a merger of wellness and mindfulness app Headspace and the telemental health provider Ginger.io. The deal valued the combined company at $3 billion in a deal that closed in October. In March 2021, the company announced a $100 million funding round.
Wayne Li, vice president of care operations at Headspace Health, said in a statement 93% of the company’s clinicians are employees while the remaining 7% are all contract psychiatrists. All the company’s therapists are employees.
Earlier in the company’s development, it relied on contract therapists but changed to employed therapists to ensure consistent availability and protocol adherence. The company contracts out psychiatrists because it’s more cost-effective at present.
Li believes that there is an issue with early-stage companies banking on contractors in their clinician workforce, saying that these contract clinicians tend to work for several companies, at least in Headspace Health’s experience.
“Part of [scaling up] is ensuring that clinicians are fully dedicated to our culture, mission, and values, and on the company side, as full-time employees, we are able to take care of clinicians through benefits and participation in company initiatives,” Li said.
BHB reached out to other high-profile behavioral health startups. Spring Health, Lyra Health and Meru Health declined to answer questions about how they classify clinicians.
All of these tech-heavy mental health startups have the noble aim of improving access to mental health. But Mou maintains that addressing the access problem requires a fundamentally different approach to have enough scale to move the needle; anything that doesn’t improve access or quality is extraneous.
“We’re trying to reimagine this ecosystem of behavioral health: It’s so broken,” Mou said. “At the end of the day, there are all these metrics — clinical outcomes and clinical safety, to me, should be the No. 1 thing.
“That should be the story,” Mou said.
Editor’s note: A prior version of this article stated that Lifestance Health was rolling out an equity incentive plan in early 2022. The plan has started.
Companies featured in this article:
Cerebral, Headspace Health, LifeStance Health, Resilience Lab, Talkiatry
