Lifestance CEO Holds Fast on Hybrid Mental Health Play

Lifestance Health Group Inc. (Nasdaq: LFST) won’t deviate from or add new services alongside its in-network, hybrid mental health model.

CEO Micheal Lester publicly took new service plans off the table as the company runs its long-range planning process during a panel discussion at the Goldman Sachs 43rd Annual Global Healthcare Conference on Wednesday.

“We’re not concerned about all the volatility and the nonsense that’s going on in the market these days; we’re just heads down, continuing to operate,” Lester said. “We’re not looking for a new revenue line; We’re not looking for a new service line. We just need to keep doing exactly what we’re doing because of the supply-demand issue and the patient volume that’s out there.”

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The Scottsdale, Arizona-based in-office and telehealth (hybrid) outpatient mental health company’s current focus is expanding the number of clinicians that it employs as quickly as possible and, thus, consolidating the very fragmented outpatient mental health segment. 

“There are 650,000 clinicians in the country” that Lifestance would hire, Chief Operating Officer Danish Qureshi said during the session. “We today represent, ballpark, 5,000 of those. So there is a lot of white space in conversations for us to have with clinicians that are not yet part of Lifestance.”

Monica Prokocki, vice president of investor relations, said the company could disclose details from the long-range planning after 2022 starts but declined to offer additional details during the panel chat.

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In previous settings, Lester mentioned that Lifestance was doing other things similar to its current model. In March, Lester detailed during the 2021 annual earnings call that Lifestance has ​​10 integrated care partnership programs which seek to combine or closely coordinate behavioral health care with physical primary care. 

During the Goldman Sachs sessions, Lester said that some commercial payers “believe fully integrated mental health care into primary care will lower their overall medical care cost” while detailing the good relationships that the company has with payers.

“I would reinforce the very original premise when we started the company,” Lester said.

That premise is based on three broad fundamentals: Lifestance’s drive to increase access to affordable in-network mental health care, historically high levels of demand for mental health, and building a hybrid care model that’s agnostic to how care is delivered. 

In part, Lifestance is able to sustain its hybrid model because it has negotiated parity reimbursement between the two care settings with payers.

Apart from rate parity, Lester said “it’s the right thing to do from a patient care standpoint” and has been in place since the company launched in 2017.

The telehealth business 

Lifestance, like all other behavioral health providers, has seen telehealth utilization inflate during and after the onset of the COVID-19 pandemic, but utilization rates have started to tick down.

Lifestance conducts about 79% of its visit via telehealth. That rate drops about a percentage point each month, according to Lester.

He expects that eventually telehealth utilization will drop to about 50% and cites survey data that shows a strong preference for in-person mental health services.

A survey by the Blue Cross Blue Shield of Massachusetts Foundation finds most patients (78%) received behavioral health services in person in the last year. 

The survey also found that 68% of respondents received care through an audio-only telehealth visit; 68% reported using an audio-video visit; 41% received care through email, text or chat functions.

Similarly, a survey by Rock Health finds that 75% of people prefer in-person (of which 62% prefer in-office) care for mental health services. The remainder preferred telehealth. 

Lifestance confident with payer rates

Lifestance is insulated now and in the future from payers lowering reimbursement rates over high telehealth utilization because rate parity is baked into payer contracts and because of market dynamics.

“Payers have their customers — the Microsofts, Coca-Cola and Delta Airlines of the world — screaming at them on a daily basis over not having an adequate provider network for mental health clinicians for their employee base,” Lester said.

Lester posited that 50% of all therapists in the U.S. do not accept insurance. A 2017 report from Milliman finds that mental health services were about five times more likely and that addiction treatment services were more than nine times more likely to be out of network than physical health services. 

Lifestance is also likely to see its strategy of slowing new office openings in the second half of 2022 extend into 2023. This is an attempt to improve profitability and slow office openings to match telehealth utilization, Lester said.

It’s also slated to reduce its M&A spending to between about $50 million and $70 million in 2022 and focus more on organic growth. In 2021, the company spent about $105 million on acquisitions and about $182 million in 2020, according to its annual financial report with the Securities and Exchange Commission.  

Lifestance originally grew its footprint and clinician workforce through acquisitions. But now, most of the company’s new clinicians — its favored growth metric — come to the company through new hires.

But the apparent buying spree that Lifestance launched when it partnered with the private equity firms Summit Partners and Silversmith Capital Partners in 2015. Before going public in June 2021, the company landed a major investment from TPG Capital. And that spurt of acquisitions may have closed the door on other companies seeking a roll-up play.

“We sort of operated in a stealth mode the first three years that we started the company and we acquired almost everything of any size out there,” Lester said. “So that created a little bit of a barrier to entry to all these other private equity guys.

“They’re trying to get into the space and there’s nothing large to buy, so it’s hard to get started. There are still a large number of 20-, 30-person groups, but there are very few 150- to 25o-person groups today.”

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