The Next Chapter for Mental Health Coverage and Business Models

All was relatively quiet on the behavioral health front for publicly traded companies in Q1, reflecting the typically sleepy nature of the first quarter for those seeking to wrap up old initiatives and start new ones.

Don’t get me wrong: It’s not like nothing happened or there isn’t anything worth pondering. Quite the opposite, in fact.

The year’s first quarter highlighted the pressure various behavioral health business models face. Some are beginning to show cracks, suggesting that some models don’t appear long for this world. Others are gaining traction, especially models that offer several different services and/or services that meet various levels of care acuity. Each highlights apparent do’s and don’ts for the industry.


We see that providers zeroing in on in-person services are balancing a handful of initiatives to make the most of the constrained payer reimbursement environment and doing so when workforce challenges appear to be receding from crisis-inducing levels.

Telehealth providers are facing a mixed bag. On the one hand, some providers are touting their success in working closely with employers, payers and government entities. On the other hand, direct-to-consumer service continues to look something like the Bering Sea — a treacherous environment wherein lies a potential boon if navigated well.

Across both telehealth and in-person-focused businesses, interesting questions about each company’s plans for revenue generation come to the forefront. Some instances suggest that some models simply aren’t as prone to success as others.


I recap a handful of first-quarter earnings trends as part of this week’s BHB+ Update.

Behavioral health takes what payers give

Behavioral health providers that operate facilities are seeing varied rate increases from their payer partners, none of which was eye-popping, especially compared to inflation. The inflation rate for March was up 3.5% compared to the year before. Data from the federal government shows that inflation has steadily been twice as high — at peaks, four times as high — as it was during the pre-pandemic era. That translates to rates covering even less now than they did in the past. The impact of rate changes can be illustrated through various revenue per day or patient metrics: the higher the number, the more a provider is being paid to care for that patient. An interesting dynamic is seen with providers that have more intensive and facility-based care instead of just outpatient care.

Universal Health Services (NYSE: UHS), the acute and behavioral health facility operator, recorded an 8.2% increase in revenue per adjusted day in the first quarter. This, paired with modest volume growth (2%), led to a 10.4% increase in revenue for the behavioral health division. At Acadia Healthcare (NASDAQ: ACHC), the largest pure-play behavioral health operator in the U.S., revenue per patient day increased 6.9% while overall revenue increased 9.1%.

But for the largest outpatient mental health provider in the U.S., LifeStance Health Group Inc. (Nasdaq: LFST), revenue per visit increased 4% in the first quarter.

“This was driven by the positive outcomes of several contract negotiations in late 2023 and early 2024,” LifeStance Health CEO Ken Burdick said during the company’s first-quarter earnings conference call on May 9. “However, we had a single outlier with historically above-market rates for negotiated reimbursement that will now bring them in line with our overall book of business.

“This will create short-term downward pressure on total revenue per visit for the back half of 2024 and the first part of 2025.”

Burdick didn’t name the payer. But just like that, one payer made one decision, and now the nation’s largest mental health providers are impacted to such a degree they feel they need to disclose to investors, which is notable on its own, that the ramifications will be felt for about a year.

Burdick did elaborate that the company had had this contract for several years and that the rate cut was severe.

“We always knew that there was a possibility that through negotiations, it would come back to where the overall market is for us,” he said. “We will continue to look for upgrades because it’s not identical.”

In the same call, Burdick claimed that both employers and payers pressured LifeStance Health to increase access to care while also accepting rate cuts and rate increases that were not enough to keep up with inflation.

It’s notable that UHS and Acadia Healthcare alike operate several facility-based lines of business all across the country and hold large portions of local markets. While large, LifeStance Health doesn’t have a comparable market share to use as leverage with payers. UHS, especially, is not shy about flexing its relative power to cut off certain payer contracts. Similarly, UHS and Acadia each already offer some level of a spectrum of services that allow them to meet several needs of any one patient, allowing for them to bring holistic approaches, or something like it, to the negotiating table.

What we’re seeing is that payers appear to take behavioral health providers more seriously under two circumstances — when that provider can do more for a payer’s plan member or when an organization can establish some elevated level of gravitas. While it’s not clear this is a consideration for payers, Acadia Healthcare and UHS enjoy the benefits of incumbency.

UHS was founded in 1979. Acadia Healthcare was founded in 2005. These organizations are known quantities nationally and in their individual markets. Further, they have been able to refine their respective models over the course of decades.

LifeStance Health, on the other hand, is the product of a blitzkrieg rollup play of independent mental health providers that started in 2017. The founding team of LifeStance Health partnered with the private equity firms Summit Partners and Silversmith Capital Partners in 2015. In short, it’s still figuring things out.

Plus, while I’ve put LifeStance Health in the same category as UHS and Acadia Healthcare, it may be more reasonable to treat them more like one of the digital mental health companies below. As much as 70% of LifeStance Health’s visits are conducted via telehealth. The company’s reliance on telehealth has helped it execute a real estate portfolio rationalization effort as it pushes for profitability.

The bottom line is that if behavioral health providers want to get more out of payers, they need to prove that they can do more than the next guy, and it helps if there is an “or else” on the negotiating table.

Where does virtual mental health go from here?

In the digital health space, it’s a tale of two cities: Talkspace Inc. (Nasdaq: TALK) has pivoted towards a business-to-business (B2B) approach, and Teladoc Health Inc. (NYSE: TDOC) has held fast to its direct-to-consumer (D2C) approach.

Talkspace’s B2B strategy has paid off, and it has finally achieved profitability, even if it is on an adjusted basis. On an adjusted basis, earnings in the first quarter totaled about $774,000 for Talkspace in the first quarter. The once direct-to-consumer, texting-based digital therapy company continues to succeed in working with health plans, employers and government entities.

It has since made the long-held goal of expanding into Medicare a reality. In May, it announced that Talkspace would be available to 13 million Medicaid members in 11 states, including California, Florida, New York, Ohio, New Jersey, Virginia, Missouri, Maryland, South Carolina, New Mexico and Idaho.

Today, 63% of its revenue comes from payers, 22% from enterprise customers, and the remaining 15% from the D2C business. A year ago, the share of D2C revenue was 30%.

The key affliction for Talkspace’s now-withering D2C business was the huge amount of money that was required to grow a high-churn patient base. In 2021, Talkspace spent $100.6 million on sales and marketing, about 63% of all expenses, according to its annual financial report. In 2023, sales and marketing at Talkspace cost $52.5 million, remaining a major share of expenses as other expense lines also decreased compared to 2022, according to another financial report.

Teladoc Health’s BetterHelp has taken the opposite tact: it seeks to continue to expand its nearly exclusively D2C virtual mental health offering and has eyes on investing in foreign, English-speaking markets.

“I am not satisfied with our BetterHelp segment margins in the first quarter,” Mala Murthy, interim CEO and chief financial officer at Teladoc, said during the company’s Q1 earnings call.

BetterHelp, the company’s largest revenue driver, reported that revenue decreased because the company spent less on advertising in the back half of 2023. Revenue shrank by about 4% to $269 million in the first quarter. BetterHelp accounted for 44% of Teladoc’s revenue. Adjusted earnings also dipped to $15.5 million, a 12% reduction. Sales and marketing make up $237 million, or 32% of the company’s expenses.

This resulted in the number of “paying users” decreasing by 11% in the first quarter.

“We are excited about the international opportunity, particularly in select English-speaking geographies that are relatively underpenetrated compared to the U.S. market, which will allow us to reallocate some advertising and marketing dollars at a higher marginal return as we continue to build out our infrastructure in those markets,” Murthy said, adding that the company started a pullback on ad spending during the first quarter of the year.

Even by its own reckoning, BetterHelp has a tough row to hoe in the near term. The company projects back-to-back quarters of diminished revenue for BetterHelp. Its financial guidance for the second quarter projects revenue to dip by between 4% and 8%.

The episodic experience of Talkspace and BetterHelp shows that digital mental health is so much harder when there isn’t another moderating entity in the mix, an organization that brings patients to the organization or vice versa. It also proves that the clearer path to profitability isn’t through scale. Talkspace was in shambles in the immediate aftermath of its IPO in June 2021. Its founder-CEO and other co-founder were axed after it came out that its losses were much worse than disclosed during the IPO. Its stock price cratered so hard that the company was put on stock exchange probation. However, since its pivot, the company has seen momentum increase.

BetterHelp doesn’t have the help of a moderating force like a health plan, government entity or company to hold the hand of patients and lead them to services. That kind of partner neutralizes many things that compete for patients’ time and money. BetterHelp is then forced to compete with an increasing number of subscriptions and other bills that want to gobble up patients’ paychecks. And what’s more pleasurable — introspective conversations with a stranger or binge-streaming your favorite shows?

It’s premature to dismiss the pure D2C approach at this point. BetterHelp is a more than $1 billion endeavor. Something could shake out in the next few years. It’s possible that the international play pays dividends. But if there is anything that spells the doom of this kind of model, it may be the business-in-a-box or digital enablement platforms for therapy companies. Think Rula Health, Alma, Headway or Grow Therapy — companies that Uber-ize digital mental health. These companies are the moderators and have the help of partners they make in the payer space, all the while not taking on the burden of employing clinicians as staffers. As the companies grow, they offer an alternative path with the allure of scale that the D2C model brings, with very few of the same downsides.

Companies featured in this article:

, , , , , , , ,