Virtual mental health provider Talkspace (Nasdaq: TALK) is stepping into the unknown as it doubles down on its efforts to work with more government payers, such as Medicare and TRICARE.
On Tuesday, top executives at the company said that it doesn’t yet have a solid idea, beyond estimates, of how the economics of working with American seniors or military members and their families will compare to its core commercial payer contracts.
Both efforts are just beginning. Talkspace announced in May that it would be offering Talkspace via Traditional Medicare by the end of the year in all 50 states and that it would be in-network with several Medicare Advantage plans by the end of the year. Medicare Advantage is a privately administered version of Medicare.
Earlier this week, Talkspace revealed it had a contract with TRICARE East region benefits contractor Humana Military to provide access to virtual mental health benefits on an in-network basis to 6 million people.
“We have no data yet, quite honestly, on what that’s going to look like,” Talkspace CEO Jon Cohen said on the company’s second-quarter earnings conference call about the Medicare expansion. “It’s really, really early days. … We have not, quite honestly, launched a fully baked marketing plan to go to market with Medicare.”
The company has infrastructure in place to provide care in 12 states and is on track with its national rollout, Cohen said, adding that Talkspace simply doesn’t have real-time data on reimbursement rates.
It’s also an open question at Talkspace — and for anyone providing virtual mental health services in the space, Cohen posited — what the lifetime value will be within the Medicare market: “How long are they going to stay on the platform?”
Mental health benefits for American seniors have expanded in recent years through several federal government reforms, many of which expanded behavioral health services.
Privately held digital mental health competitor Brightside Health announced it would serve Medicare and Medicaid patients in October. In May, it raised $33 million, in large part, to aid in the expansion of serving those covered by government payers.
Talkspace is taking a mellow approach to marketing its Medicare business to reflect its present ability to take on and care for patients. However, it expects to accelerate its development, as well as unspecified new contracts with Medicare Advantage plans later in the year to coincide with Medicare enrollment.
“We don’t want lots of people to come to the site and then find out that they’re not eligible yet because we’re not in their state,” Cohen said. “As we get launched into Medicare Advantage at the end of Q3 or in Q4, that means that there is the opportunity for essentially any Medicare person to become eligible (for in-network Talkspace services). That’s really what we’re trying to do — we’re trying to time it so that we have the best possibility to capture as many patients as possible.”
The company’s finances reflect the expansion of its B2B and payer focused initiatives. It posted its second profitable (on an adjusted basis) quarter in its history as a public company. It did so for the first time earlier this year.
Total revenue for the second quarter was up 29% to $46.1 million compared to the same period last year. Net losses totaled $474,000, a 90% improvement compared to last year, while adjusted EBITDA totaled $1.18 million, up 130%. Cash on hand totaled about $115 million, a 9% reduction.
Here’s a breakdown of its revenue and patient sources:
— Payer revenue: $29.9 million, up 62%
— Other B2B revenue: $9.63 million, up $20%
— D2C revenue: $6.49 million, down 29%
— Payer sessions completed: 299,000, up 49%
— Eligible lives covered: 145 million, up 33%
— Active consumer members: 10,700, down 22%
Talkspace estimates that its revenue will total between $185 million and $195 million, while its adjusted EBITDA will be between $4 million and $8 million.
The company is confident in its ability to generate cash through a new stock buyback effort. Talkspace’s board of directors has authorized $32 million in stock buybacks. Talkspace’s share price is $1.75 as of the writing of this article.
Considering a new competitor
An analyst asked Cohen what he thought about Teladoc Health’s (NYSE: TDOC) mental health subsidiary BetterHelp’s newly announced pivot to in-network coverage. BetterHelp has been a stalwart in the high-spend, high-churn direct-to-consumer (D2C) model that Talkspace (and others) have spent the last few years leaving behind.
Cohen declined to specifically comment on the development. But he laid out the daunting task that Talkspace, and presumably BetterHelp or the others, would have before them during a D2C-B2B pivot. He identified four strategic considerations: product design, getting in-network contracts, provider credentialing and quality control.
“We’re 2.5 years into this journey. For any entity out there, and there are several who are considering or talking about going in-network, it’s going to take them some time to get there,” Cohen said.
Each of these elements requires big-time investments to develop completely different infrastructure and systems than those required in a D2C business. The fundamental setup of digital health products now needs to account for patient- and payer-specific cost-sharing and eligibility assessment, revenue cycle management, care and outcomes tracking and other back-office functions.
Cohen joined the company as CEO near the end of 2022 after it was about a year into a leadership shakeup and pivot that saw its founders, who were also top executives, removed from the company and its signature D2C texting therapy model transformed into a B2B mental health platform.
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