$265 Billion of Medicare Spending is Moving to the Home — Why Behavioral Health is Poised to Benefit

There is an estimated $265 billion of Medicare spending that could shift from being spent in facilities to being spent in home health care by 2025 and behavioral health will see an impact according to a new report.

New York City-based consulting and services giant McKinsey & Co. released a report detailing that between 3x and 4x more Medicare fee-for-service spending will be for care provided in a patient’s home. That equates to between $180 billion and $265 billion of Medicare fee-for-service.

At most, that potentially $265 billion shift would include $5 billion for behavioral health moving out of facilities into the home, the smallest of the specialties considered. The largest segment of potentially shifted spending is acute care in the home.


However, the McKinsey report’s estimate for the Medicare spending shift in behavioral health doesn’t reflect its relative importance. Rather, it’s a reflection of behavioral health’s swift and deep adoption of telehealth as a form of care delivery.

“The point there is that it’s not that the potential is small — it is that the majority of the potential has already been realized by push into telebehavioral health,” Oleg Bestsennyy, expert associate partner with McKinsey and author of the report, told Behavioral Health Business in an interview.

Telehealth in behavioral health saw nearly overnight adoption as a coronavirus mitigation strategy in 2020, building off behavioral health’s tendency to adopt telehealth more than other specialties. A study released in January found that behavioral health saw the largest share of providers that were deemed innovators in telehealth.


In December, the federal government said that telebehavioral health visits increased by 3,090% in 2020 compared to 2019. Key regulators want to see the COVID-era rules that enabled the growth of telehealth to become permanent at the federal and the state level.

Telebehavioral health will see the additional shift of Medicare spending to the home as the existing capabilities in the industry continue to scale. The report states that between 30% and 40% of behavioral health care performed in provider locations could shift to the home.

The behavioral health industry still needs to see additional innovation in business models and for internet access barriers to be addressed if telebehavioral health is to continue its move into home care, Bestsennyy said.

McKinsey’s report did not account for digital therapeutics, a form of treatment where the exclusive interaction with treatment is done with some kind of digital application, Bestsennyy said. These kinds of treatments were not considered in the report because they are such a new and space part of behavioral health.

For example, San Francisco-based Woebot Health uses AI to create a human-level therapeutic bond with users to deliver responsive, engaging behavioral health treatment. BHB previously reported the company landed a $90 million Series B funding round in July 2021.

“We see promising companies evolving in the substance use disorder space and in the ADHD space — we’re hoping that more of that will be coming forward,” Bestsennyy said.

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