The trend-that-must-not-be-named is back: Layoffs.
Behavioral health so often has to paste on a smile while muddling through its many challenges. So often, that leads to worries about being too cheery.
The last several weeks have seen seriously positive developments. But another development hauls the industry off cloud nine and back to earth with a thud.
Behavioral Health Business is tracking several layoffs. While the specific reasons are unlear, these serious happenings deserve sober consideration. Layoffs were a defining aspect of 2022 and, to a lesser degree, 2023, especially in the autism therapy space.
I reported that Alma laid off 9% of its corporate workforce. Brightline shut down most of its previously digitally focused operations and started in-person services in a much smaller footprint, the fourth time in recent years it has reduced its business.
Several other companies are facing troubles. Kyros has folded after it, along with its founder, faced intense scrutiny for an alleged scheme that defrauded Medicaid. Several psychiatric hospitals are laying off staff or are shutting down altogether. Many hospitals, for that matter, are trimming jobs. Even the generalist health care organizations are being hit: CVS Health Corp. (NYSE: CVS) is cutting thousands (not an overstatement) of jobs. A few months ago, we saw cuts impacting hundreds within Optum, the services division of UnitedHealth Group (NYSE: UNH).
On top of the behavioral health industry layoffs, several other major employers in other industries are cutting staff too, especially in the tech space.
So what are we to make of these? What bummer is lurking behind the effervescent wisp of optimism that blew through behavioral health? In this week’s BHB+ Update, I’ll dig into:
— What the national data shows
— A contrast between two examples of layoffs
— My final assessment
What the data show
Big picture for the whole of the economy, I don’t think it’s time to freak out. Granted, there is one key caveat to that assessment.
The national, all-industry data and health industry-specific data show that total separations, including layoffs, quits and other cases, have been trending down since the start of 2022, largely driven by drops in the number of people quitting their jobs, according to the latest data from the U.S. Bureau of Labor Statistics.
Perhaps counterintuitively, monthly job separations across all industries in the U.S. have slowly but steadily trended downward since the beginning of 2022 which saw the start of the Federal Reserve’s interest rate increases.
Layoffs across industries have more or less been flat after the COVID-related spikes in 2020. The health care industry has seen a similar trend, according to BLS data. However, the health care layoff data is a bit choppier, with more dramatic peaks and valleys. In the three months ending in August, the more recent month’s worth of data available, layoffs in the health care space have trended downward and dropped to a low point.
The caveat is that there is roughly a two-month delay in data. A lot of business initiatives, like layoffs, come out at the end and beginning of quarters. Getting September and October data will add a lot of clarity around the impact of recent layoff activity.
Trying to find context at the outset
The TL;DR on this part of the Update — I don’t know why Alma cut jobs. That complicates making sense of them.
I learned about the layoffs at Alma, one of many digital therapy enablement platforms, at the start of the month through my network. As is often the case with layoffs, the communications from the company, to me and others, were heavy on mushy rhetoric and light on facts.
While the company did confirm a 9% reduction in its headcount, it never explained why it made the move, other than mentioning vague notions of long-term sustainability. That doesn’t clarify the situation: that is a perennial and eternal question of all companies regardless of stage of development or industry.
At this point, I don’t truly know what to make of the layoffs. At this point, I have two buckets of loosely associated ideas sloshing around in my head.
First, this might be a manifestation of the issues driving the steady deflation of the tech workforce, a trend that defined that industry in 2023 and 2024 so far. TechCrunch has tracked 130,000 job cuts across 457 companies in 2024. In short, many companies are trying to claw back profit margins gobbled up by inflation. They are also making the most of greater post-pandemic efficiency — aided by AI — and reconciling with the over-hiring many tech companies engaged in earlier in the pandemic to deal with the Great Resignation and Quiet Quitting phenomena. As a technology company, Alma could be impacted by these trends. But are these truly at play for Alma? I don’t know.
Second, the undercompensation of talk therapy might stymie the software middleman business play. Alma and its therapy enablement brethren are foremost (and maybe only) technology companies. (Despite their marketing, they don’t want to truly own the whole ball of wax that comes with owning and managing a therapy practice.) It is a tried-and-tested business strategy that can command large margins. So often, being the middleman — more sympathetically described as conveners, connectors, enablers, platforms, etc. — is a prime business play because you get to extract value from others’ goods or services at a fraction of the cost. And yet, Alma has hit an obvious barrier. There might not be enough value to extract from low therapist rates in the first place.
In my mind, Bucket No. 1 is pretty self-contained. If any of those issues are at play, other technology companies like them could be impacted. But those impacts are time-constrained and can simply be moved past with minimal thought.
Bucket No. 2, on the other hand, could be sloshing around for a while.
If the too-little-value-to-extract idea is correct and true, it shows a fundamental flaw in applying the software middleman play to therapy. All platforms would potentially have to deal with this fundamental flaw. But what holds me back from putting too much stock into this theory is the fact that none of Alma’s peers are laying off staff. That might show that what we are seeing is an Alma-specific issue, not a wider theoretical issue. But at this point, we don’t know.
Alternatively, the feast-or-famine venture capital investing landscape in digital health illuminates the situation and lends some credence to each of the buckets of ideas. Early in the year, layoffs at the digital addiction treatment provider Bicycle Health laid off 15% of its staff, citing an inability to secure new funding to help it manage its losses. However, other digital behavioral health companies have been able to do so, with high dollar amounts, too. One of them is a therapy middleman company: Grow Therapy raised $88 million in a Series C announced in April.
As an aside, I’ll make the case for honesty even when honesty is inconvenient. Yes, that sounds preachy. But pragmatically speaking, if we knew more, we could give this development at Alma proper consideration on its own and in the wider context of the recent health care layoffs. That’s a big part of what bothers me with the layoffs at Alma.
The change context makes in the analysis
While the layoffs at Alma don’t jump off the page, the layoffs at Brightline certainly do. They are a manifestation of a fundamental reworking of the company’s whole strategy and impact huge swaths of the company.
While we don’t know specific numbers, all clinicians in 45 of its 50 state markets were laid off; so too, it thinned out its staff in enterprise function, sales, marketing and client success roles. Now with a fraction of its previous reach, Brightline is offering a hybrid of in-person and virtual behavioral health services for kids and families in five states.
Co-founder and CEO Naomi Allen said in a blog post that this is a return to form for the startup. This move is more in line with what the company had in mind when it started in 2019. COVID drove Brightline to pivot to the all-digital model that it sold to payers and other organizations that work with employee benefit managers.
The hang-up with the model is that employees and employers didn’t specifically seek out or promote Brightline. The cost to acquire patients was just too high, and the volume didn’t deliver the revenue the company needed. Plus, Brightline had learned over time that employees didn’t look to their employer for pediatric behavioral health solutions; they looked to pediatricians and hospital systems, friends and family and their own internet searches. Plus, people want to feel like their in-network health care is high quality and local to them; thus, going to an in-person appointment is apparently top of mind for the patients Brightline wants to serve.
Brightline is adding a D2C element to its work while shifting the partners it seeks in its historic B2B strategy: it will look to generate business by establishing partnerships within the health care system itself and through word-of-mouth and other D2C marketing opportunities.
Knowing all of this leads me to believe that these issues presented here are either Brightline-specific or narrowly specific to the digital pediatric mental health space. There is still an interesting truth to extract from the situation.
It shows the limitations of the impact of B2B partners in behavioral health. Brightline historically focused on those partnerships, stepping over the turbulent but alluring rapids of D2C digital services. Many digital companies get their start going D2C and then pivot to B2B. Talkspace Inc. (Nasdaq: TALK) is my go-to example of this evolution. Talkspace, and more recently Teladoc Health’s BetterHelp, demonstrate the mismatch between high acquisition costs and relatively low reimbursement rates for therapy services, highlighting the need for some moderating entities between digital behavioral health providers and patients. Apparently, if you don’t have the right business partnerships, you’ll run into a different version of the acquisition cost problem seen in D2C digital health.
Putting it all together
The layoffs at places like Optum and CVS are concerning. They are the top dogs, right? But there are good reasons to give them a little less weight.
The whole UnitedHealth Group enterprise is reassessing how it implements its holistic health strategy throughout the year — including its digital health and in-home care strategies — in the wake of the Change Healthcare hack. This has resulted in layoffs across several parts of the enterprise.
At the beginning of the month, CNN reported that CVS Health was going to lay off about 3,000 people. While a big number, the CVS we see today is an amalgamation of dozens of companies, including Aetna, one of the largest health plans in the U.S., and the layoffs total about a roughly 1% reduction.
Plus, the cuts impact mostly corporate roles, CNN reported. If frontline workers were impacted, that would be more worrisome. More often than not, these incremental layoffs at large employers are the result of a more efficient model of doing business, correcting an overhiring mistake or leaning more on technology for mundane processes.
And just because I mentioned Kyros shutting down at the beginning, I’ll simply state that if you set up or run your business in a way that invites tough questions, don’t be surprised if the outlook of your company is grim. Don’t commit fraud, and make sure you’re on top of compliance and documentation. It’s as simple as that. Not much else to learn.
While attention-grabbing, the layoffs we are seeing today are worth keeping an eye on but not anything to disrupt the industry’s winning streak. We can only hope what remains of 2024 is positive.
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