Foresight Mental Health Nearly Ran Out of Cash; New CEO Plots a Path Forward

Venture capital-backed Foresight Mental Health nearly ran out of cash, forcing it to cut roughly 20% of its workforce and hire a new CEO to turn the company around.

The Berkeley, California-based outpatient mental health provider will have laid off 200 employees in two rounds by Sept. 9. The company, which once made big promises for the future of outpatient services, has also replaced its founding CEOs as it attempts to survive.

At the end of 2021, the company had nearly as many administrative staff as it had mental health providers. Of the roughly 1,000 people that worked for Foresight before the layoffs, about 520 were practitioners and about 480 were administrative team members.

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Matt Milford and Douglas Hapeman founded Foresight Mental Health’s predecessor, a personalized medicine company called Genetic Foresight, in 2016. That company intended to use genetics to match people to the most effective mental health medication for their genetic profile.

It then pivoted to mental health electronic health records (EHRs) before dipping into care.

The company is retooling in other ways as well. On top of the layoffs, Foresight has reduced its state footprint from 24 to nine.

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In February, former co-CEOs Milford and Hapeman told Behavioral Health Business that the startup would have 1,000 mental health practitioners in just a few months and would soon start caring for Medicare and Medicaid patients.

Why the layoffs happened

Foresight Mental Health had big plans for a national expansion, recruiting additional providers and more.

However, by the end of 2021, expenses growth had outpaced revenue to such a degree that Foresight would have run out of capital by this summer, were it not for some dramatic action over the last few months.

“The systems they were using to run the business and the point of ‘growth at all cost’ and just throwing bodies at problems led them to be in this position, where literally they were going to run out of capital,” Greg Serrao, Foresight’s new CEO, told Behavioral Health Business.

Foresight was “probably 10 weeks away from no cash” when he joined in April, he noted.

The company brought in just north of $40 million in 2021, Serrao said, but he declined to discuss the company’s operating losses.

In part, the layoffs were to correct certain workforce investments. Foresight Mental Health overstaffed on the administrative side, for example, in an attempt to boost its growth, Milford said in an email obtained by BHB announcing the first round of layoffs in April.

“The speed of growth came at the expense of optimizing the overall business operations,” Milford said in the email. “This model is unsustainable, and we had to make a hard change.”

On April 20, Foresight laid off 120 people among its administrative team, effective immediately. Then, on July 11, the company announced layoffs affecting 80 positions; these, too, were administrative positions.

Those affected by the July layoffs were given 60-days notice.

Foresight Mental Health was also hamstrung by a hodgepodge of internal systems and applications, sources, including Serrao, told BHB. This led to billing and reimbursement headaches for the company and patients alike. It also operated a labor-intensive, homegrown EHR that Serrao told BHB was a “disaster.”

The EHR required 18 employees, including 11 engineers, to run, according to Serrao. By the end of July, Foresight will complete a rollout of a new all-in-one EHR, practice management and revenue cycle management system from athenahealth, the CEO said. In turn, those 18 jobs will be eliminated.

Replacing the EMR and billing systems — which didn’t talk to each other, Serrao said — has an impact on the number of needed operations employees. Each relied heavily on manual input and was severely prone to error.

Additionally, this led to a high health insurance claims denial rate, Serrao said.

“It’s very easy to grow a health care services business and it’s very easy to provide the services,” Serrao said. “While it’s easy to bill for them, it’s hard to collect.”

Also among the layoffs, Foresight shuttered its neuropsychology business and is cutting its marketing department.

The new CEO

In order to stay afloat, Foresight Mental Health privately secured a Series C round of investment, though Serrao remains tight-lipped on the amount. He did say that Sequoia Heritage led the round.

There was a catch to the funding investment: Serrao had to step in as CEO. He originally joined the company in April as executive chairman to be a mentor to Milford and Hapeman. Milford and Hapeman have been demoted to other executive roles that now report to Serrao, who took over in May. 

Serrao has more than 35 years of experience in health care management and entrepreneurialism.

Serrao was the CEO of Wakefield, Massachusetts-based American Dental Partners for 20 years. When he retired, it operated 300 dental practices in 24 states. After retiring, he continued to work as a consultant.

He gained his interest in behavioral health after consulting for TaraVista Behavioral Health Center. He then acquired Colony Care Behavioral Health.

Foresight’s path forward

At some point, Foresight Mental Health will grow again. However, it will exclusively be through de novo growth and likely won’t include heavy marketing.

“There’s no reason for M&A in this business,” Serrao said, adding that the rash of aggregators in the market such as Lifestance Health Group Inc. (Nasdaq: LFST) and Refresh Mental Health drove up multiples.

Foresight Mental Health typically gets 8,000 new appointment requests a month and can fill about 3,000 of those, Serrao said. Simply hiring quality clinicians in target markets will likely give the company the boost it needs to ensure sustainable growth.

On July 5, Serrao held a company town hall meeting where he laid out the true financial position of Foresight Mental Health with the company.

“It was the first time anybody in the company ever saw anything like that,” Serrao said. “I know they appreciated it because I think they thought that they were at a company that was like Google — growing like crazy and very profitable. But that wasn’t the case.”

As the company tightens its belt, Foresight is hoping to break even by the end of 2022.

“As I laid out at the town hall meeting, there are three big steps for me,” Serrao said. “Step 1 was to save the company, which we did. … Second, is now to get to sustainability, meaning where we can operate profitably without any more capital and we’ll be there by year-end. And then the next step after that will be to grow, nourish and flourish.”

Serrao and other sources said the company lacked transparency. Transparency going forward will be key to establishing a beneficial culture and rebuilding goodwill within the company, Serrao said.

“We have a lot of trust reparations to do,” Serrao said.

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