Outpatient mental health finds itself in a tricky position.
On the one hand, society holds these providers up as essential to facing the mental health crisis, and investors have poured billions into the space. On the other, it is increasingly encroached upon by newcomers, which have potent business advantages.
To make matters worse, outpatient mental health providers are powerless to respond. Upstarts and newcomers fold mental health into broader service offerings. This, in turn, allows them to offer even more comprehensive services, personalized experiences and specialized care.
In some cases, these offerings have nothing to do with health care, creating a hedge against the challenges of the mental health industry. In others, health companies put a fence around their patients by integrating services.
Take CVS Health Corp. (NYSE: CVS) and Walmart Inc. (NYSE: WMT) as examples that represent both cases.
Each already has millions of customers and offers a vast range of goods and services. This gives them incredible leverage in procuring customers for new services. They are also a near-daily part of many patients’ lives in a way that most providers are not. Walmart and CVS Health operate 14,300 locations in the U.S. combined, according to recent data.
Walmart Health launched in 2019 and plans to have over 75 clinics across the U.S. by the end of 2024. It operates 48 locations in Arkansas, Florida, Georgia, Illinois, and Texas today. The integrated clinics offer in-person and telehealth services. These include primary care, dental care, behavioral health, labs and X-ray and audiology.
CVS Health operates over 1,000 walk-in clinics and 192 primary care clinics that include mental health services. Each also operates retail pharmacies.
CVS Health’s and Walmart’s various services protect them from challenges within any one of them.
Outpatient mental health is a challenging space to do business in. And a singular focus on one service means these providers only meet one patient need. Further, this leaves the segment at the whims of its headwinds.
Outpatient mental health is not a high-margin business. Payer rates lack parity with comparable physical health services. Mental health clinicians tend to turn over at a high rate.
“The reality is that outpatient mental health is a grinding business,” Brian Wheelan, CEO of Transformations Care Network, said at Behavioral Health Business’ INVEST conference. “I think the opportunity is about being tight on operations, understanding what it means to be a platform and being attentive to what it means to drive site margins.”
CVS Health and Walmart seek to provide increased access to generalized mental health care. Others seek to improve personalized options in one place.
Providing personalized service
Hims & Hers Health Inc. (NYSE: HIMS), a direct-to-consumer digital health company, has seen triple-digit growth in its virtual mental health and psychiatric service line. The company’s leadership held up the mental health services line as a key growth driver.
The gender-specific virtual health company had 125,000 mental health subscribers at the end of the third quarter.
The mental health business and the women’s hair and dermatology business drove a 57% year-over-year revenue increase. Revenue was up $226.7 million in the third quarter, according to public financial disclosures. It narrowed its net loss by 60% to $7.6 million.
“Momentum in the third quarter remained incredibly strong as we continued to successfully execute across our strategy of enabling access to unique and personalized solutions through a world-class technology platform backed by a trusted brand,” Hims & Hers CFO Yemi Okupe said during the company’s third-quarter earnings call. “Performance remains robust across our longest-tenured offerings, such as Hims & Hers and sexual health, and we are excited to see newer offerings such as mental health, cardiovascular health and personalized solutions across Hers Hair and dermatology continue to rapidly scale.”
Outpatient mental health enhances specialized care
Mental health services often require a degree of specialization to meet the needs of populations. Organizations designed to meet the needs of a specific population already have a chassis to build new mental health offerings.
Tia Health, a hybrid in-person and virtual women’s health company, combines primary care gynecology, wellness, and, as of May 2023, mental health into one platform. The company offers psychiatry, group therapy and coaching services.
Tia Health began adding mental health about two years ago, according to a news release.
Adding the service allows Tia Health to fill a gap in most women’s health. The company’s internal data show that 91% of its patients are screened for depression, compared to 49% of the general population. In comparison, 73% of Tia patients are engaged in mental health care, compared to the national average of 66%.
A women’s health-focused company would be incomplete without a mental health service line. Women report experiencing depression at a rate twice that of men and report using medication for depression at much higher rates than men, depending on race, according to data from the Centers for Disease Control and Prevention.
“Now, with a triple threat facing women’s health — a primary care shortage, mental health epidemic, and reproductive access crisis — there’s never been a greater moral or economic imperative to invest in building comprehensive care for women,” Tia Health CEO and co-founder Carolyn Witte said at the time of the announcement of the new mental health service.
Outpatient mental health as a value-add versus a standalone business
For the companies mentioned above, expanding mental health services allows them to unite fragmented patient experiences into a larger whole. That larger whole can address multiple or specialized needs. Outpatient mental health providers often meet only one need.
But that is something of an advantage for outpatient mental health providers.
Many of these new entrants into outpatient mental health are ultimately unproven. That reveals the core, and potentially only, a differentiator that outpatient mental health providers have: expertise in and a track record of caring for patients’ mental health needs. Further, the largely sclerotic payer, which has historically been allergic to rapid change, has cemented these traditional models in place.
Still, mental health alone isn’t a great business, and its advantage as an incumbent backed up by payers may be showing signs or erosion.
Outpatient mental health providers are completely exposed to these challenges. Companies that fold mental health into larger product offerings are somewhat insulated from those hurdles because they aren’t solely dependent on mental health. At the same time, they get the benefit and value of offering mental health services.
And payers are taking note of the access that nontraditional providers, especially retailers, can provide their members.
Ambetter from Sunshine State, an AMA exchange health plan funded by Centene Corp. (NYSE: CNC), announced last week that it partnered with Walmart Health. The deal makes Walmart Health Centers preferred providers in select Florida counties. It also focuses on care coordination and referral management.
The overriding purpose of the Ambetter-Walmart deal is to increase access to affordable care. This is one of the core challenges and opportunities in outpatient mental health. And it’s one that’s so compelling that it will continue to attract more and more competitors, leaving traditional providers to continue to refine their value proposition for patients who have more and more options for services.
