Employers Becoming ‘Allergic’ to Per Member Per Month Contracting with Behavioral Health Companies

Over the last few years, an increasing number of digital mental health point solutions have been knocking on the doors of employers and employee assistance programs (EAPs), searching for potentially lucrative contracts.

But as employers become more sophisticated and their use of behavioral health point solutions more commonplace, the contracting game appears to have changed. Now, the pressure is on for digital behavioral health providers to show that users are actually engaging with their tools – and that there’s a clear return on investment.

Additionally, industry insiders told Behavioral Health Business, employers are more often looking for one-stop-shop point solutions for their teams.

“Employers have become much more interested in this space and want to provide solutions that bring value,” Jason Richmond, vice president of sales solutions at Headspace Health, told BHB. “It’s no longer good enough to just have a benefit that people want to access or that you can see the utilization of, and you can even say that people are satisfied with.”

Headspace Health is a virtual behavioral health platform that offers a continuum of services. It was formed in 2021 after telebehavioral health company Ginger and mental wellbeing startup Headspace merged. At the time, the combined company was valued at more than $3 billion.

“Satisfaction isn’t always the final thing, either,” Richmond continued. “It’s [the question of] are people getting better from the participation they see? There’s a higher expectation from the purchaser than I think I’ve ever seen.”

The higher expectations aren’t surprising, considering the growing focus on mental health. Employers ranked mental health as the top area of focus for their health care vendor strategy in 2024, according to a recent survey from WTW.

Additionally, 78% of survey participants said they need to see a clear return on investment from their point solution partners. The WTW survey included responses from 232 U.S. employers, which collectively employed over 3 million workers across a variety of fields.

“”I’m seeing a much higher bar for a two-year ROI,” Candace Richardson, a principal at General Catalyst, told BHB.

General Catalyst is a venture capital firm with several behavioral health investments, including Eleanor Health, Elemy, Rippl and SonderMind, among others.

If point solutions don’t deliver, or if employees aren’t utilizing services, employers and EAPs are quickly moving on. In the WTW survey, 61% of employers said they made or planned to make a change in their mental health solutions.

Current labor-market dynamics have, at least in part, contributed to the higher expectations.

“With the labor market being so tight [the last few years], there was a lot of emphasis on bringing in benefits that made employers competitive,” Richardson said. “There are a lot of nice nice-to-have retention-focused benefits. But as companies are reviewing their budgets and making really challenging decisions around reducing headcount, part of that process that CFOs are going through is figuring out how we are spending on benefits. And are we getting an ROI that we need to see?”

Moving beyond per member per month contracting

Member engagement has historically been a hurdle for point solutions. In fact, 56% of employers in WTW’s vendor strategy survey reported that low member engagement was a key challenge.

As a result, employers and EAPs are shying away from per member per month (PMPM) contracting, a model where the employer pays for the service based on its membership headcount – regardless of the number of members using the solution.

“I’ve seen a tremendous, almost allergic reaction to … charging a set amount irrespective of engagement or outcomes,” Dr. Yusuf Sherwani, CEO of Quit Genius, told BHB. “And [the] utilization model, where we charge when a member enrolled in the program in the first place, is pretty popular. But even that, on its own, isn’t really cutting the mustard. So simply charging when somebody enrolls into the program isn’t good enough.”

New York-based Quit Genius is a digital substance use disorder provider. In 2021, the company raised $64 million in Series B funding, bringing its total raise to $78.6 million.

Data is king when it comes to proving value. But this is a challenge in the behavioral health space, where there is no one set of measurement-based outcomes.

“I think we’re early in those stages, right now, to try to figure out what are the right metrics to be able to show value in our space, and behavioral health is a little bit less measurable at times than, say, musculoskeletal, or diabetes, so to speak,” Richmond said. “I think we’re coming to terms around how we can demonstrate the improvement that we’re seeing in members. At Headspace Health, we utilize the PHQ and the GAD as measurement tools.”

But even these clinical outcomes need to translate to ROI for many employers. In some ways, digital behavioral health companies have an advantage because they are often equipped with data-tracking capabilities.

Still, compiling the right data to make a compelling case might take outside help.

“It is often bringing on people, whether it’s hiring or partnering with organizations, that can help them do that more actuarial, medical-economics data,” Richardson said. “Most of them are collecting that data anyways, but taking that dataset and saying, ‘OK, this is how it impacts cost,’ is kind of on another level.'”

Showing outcomes data can also lead to more companies offering value-based care contracts.

“We actually report … progress to our customers on a quarterly basis,” Headspace’s Richmond said. “So, again, it’s wanting to stand behind your program and results. I think that it’s those types of things that we’ll start seeing value-based contracts.”

Richmond didn’t discuss exactly what goes into Headspace’s contracting because “every contract is different.”

On its end, Quit Genius made a full-risk payment model standard over the summer for its B2B addiction treatment services. Previously, the company tied 50% of its revenue in B2B contracts to performance goals.

In its relationships with employers, Quit Genius sets specific goals for it to hit. That means goals focused on clinical, engagement, operational, satisfaction and performance metrics, Sherwani told BHB.

As of July, Quit Genius partnered with over 100 employers, covering 2.5 million people.

Making the process seamless

Many employers have relied on navigation platforms like Accolade and Quantum to help consolidate solutions to avoid navigating many of these contracting complexities.

Partnerships with care navigation companies can also be a ripe opportunity for point solution providers.

“Otherwise, [employers] have to procure an exponentially higher number of solutions,” Sherwani said. “It just sort of saves on the traditional legal and financial review, and procurement process.”

But even more recently, employers have returned to relying on their health plans to provide point solutions.

“I think we’re seeing a swing back … , especially in behavioral health, to employers saying, ‘Gosh, my health plans have actually now gotten more innovative,'” Naomi Allen, CEO of Brightline, told BHB. “They’re partnering with the Brightline’s of the world. They’re partnering with other solutions. And so I actually can put together a really robust behavioral health stack in partnership with my plan.”

Founded in 2019, Brightline is a virtual pediatric behavioral provider. It has raised just under $220 million in capital. Employers are looking to contract with pediatric partners like Brightline to care for the children of their employees, which Allen noted, can in turn help boost the overall wellbeing of the employer.

For example, Allen said Brightline was in a competitive bid with a Fortune 500 employer. One of the critical criteria was that they could tack Brightline on top of its EAP because most EAPs do not have a pediatric solution. 

“One of the key criteria for them was their EAP needed to be able to partner with others with other solutions because they were looking to that to be the hub, and so I think its employers are really wanting to have specialty solutions,” Allen said. “But they don’t want those specialty solutions to all be selling directly to the employers. They really want it to be going through the health plans, which is very interesting. So I think we’re seeing a pretty fundamental shift back right now.”

A one-stop shop

What’s more, employers also want services to be easy to access in a one-stop-shop format for members.

“The ability to have a comprehensive solution will bring you to the top,” Richmond said. “Then I also think it’s about your outcomes. It’s about the ability to show that your solutions are actually delivering people better [care], and there’s value to the investment that the employer is making.”

For example, when Headspace and Ginger merged to form Headspace Health, the goal was to offer clients access to a more extensive range of services that spanned the behavioral health acuity spectrum.

“I think it’s be[ing] really sensitive to give people many ways to engage with the system,” A.J. Rice, managing director of equity research at Credit Suisse, previously told BHB. “And being mindful that – to the extent they progress and they have more significant issues – you’re getting them engaged deeper and deeper into the … continuum of care.”

Even if one point solution can’t meet the behavioral health needs of all members, there needs to be a few conditions addressed.

“We’re increasingly seeing the need for the programs that they procure to be addressing more than just a single condition,” Sherwani said.