Earnings Season Proved Behavioral Health Is Under the Spotlight and the Microscope

The coronavirus pandemic and massive influx of capital into the industry over the past five years have put the behavioral health industry centerstage in the proverbial play that is American health care.

But the spotlight eventually attracts the microscope.

The industry has and will continue to face greater scrutiny, examination, criticism and challenges than ever before. The 3Q 2024 earning season underscored these two concepts.

This is to be expected and, in fact, is necessary. Elevated attention inherently breeds accountability, an inherently virtuous and essential quality. But true accountability can be rare to find in American health care.

Still, several behavioral health providers’ experiences over the last little bit seem to demonstrate that accountability has more of an effect on the provider side of the equation. That would make intuitive sense. Providers interface with patients directly and often when they are most vulnerable.

During the latest earning season, I saw several principles and themes that indicated to me that accountability is both impactful and more timely for providers than it is for payers. (That’s something I dug into two weeks ago.) Accountability is the immune system of any entity — fighting off deleterious incursions and healing them when they are gone. Avoiding accountability is inherently wrong and harmful even if the effect is not immediate or obvious. 

I’ll explore the impact of the spotlight and the microscope through the following:

— How the titans of the industry assess scrutiny

— The need for accountability for strategic decisions

— Why accountability needs to be the name of the game going forward

Defensive and dismissive but still on top

Executives with Acadia Healthcare Co. (Nasdaq: ACHC) and Universal Health Services (NYSE: UHS) struck differing tones in downplaying bad headlines, legal defeats and law enforcement scrutiny during their respective earnings calls. The fact that each company can approach what looks like overwhelming legal and regulatory challenges with this kind of posture shows how secure these companies are in their place in the behavioral health world.

Executives with Acadia Healthcare were eager to push a quality-is-king narrative with analysts. CEO Chris Hunter highlighted the company’s “ground game,” in which Acadia has sought as much face time with key constituents as possible — especially the executives leading decision-making at its existing and prospective health care system joint venture partners. Hunter and Acadia’s chief financial officer, Heather Dixon, went out of their way to downplay the scrutinythe company is facing from the news media and law enforcement officials and assure that slightly less rosy financial result of the quarter were temporary.

On Sept. 23, Acadia Healthcare settled a civil False Claims Act whistleblower investigation with several federal and state agencies that included $19.9 million, plus interest, in penalties and reservations to consider a second look at the company for comparable behavior. The settlement also details (in the austere and dry language of attorneys) allegations that six facilities in Florida, Georgia, Michigan and Nevada improperly admitted patients to inpatient facilities, held them for excessive lengths of time and exposed patients to harm due to understaffing. Some of the agencies involved sent the company subpoenas in 2017 and reviewed claims as far back as 2014.

A few weeks earlier, The New York Times released an expose detailing incidents of harm and questionable practices experienced by former patients and witnessed by current and former staffers, including rapes, assaults and patients being held against their will when not medically necessary. The article named three of the six inpatient psychiatric facilities that were included in the False Claims Act agreement, along with several others. It, too, detailed (but in more emotive terms) incidents of harm and questionable practices.

Even more scrutiny arose that same month. The day after the company signed its agreement with the state and federal agencies over the civil case, it learned it was under potential criminal examination.

On Sept. 24, the U.S. Attorney’s Office for the Southern District of New York and a grand jury from the U.S. District Court for the Western District of Missouri demanded information from the company about its billing and administration practices. The latter entity originally delivered a subpoena. Acadia Healthcare states in public SEC filings that the Southern District of New York withdrew its information request and that the Criminal Division of the U.S. Department of Justice would be handling investigative efforts in coordination with several federal agencies. The SEC has also delivered Acadia Healthcare a subpoena.

During the call, Dixon and Hunter assured listeners that all the bad news and regulatory examinations do not reflect the company’s safety and care quality practices.

“We believe strongly that quality care is foundational to everything we do,” Hunter said in his prepared remarks. “This is not new. We believe that quality, compliance and safety are not only important from a patient experience and regulatory standpoint but also are simply good business practices in the best interest of all stakeholders.”

UHS also minimized its woes in the company’s Q3 earnings call. Steve Filton, UHS’ CFO, cast two of its biggest legal fights as “subject to appealable issues” without much commentary on the cases themselves or the issues undergirding the litigation, even to assure listeners about the company’s focus on safety and quality like his peers at Acadia did.

Most recently, the company disclosed on Oct. 11 that a civil jury trial judgment against a UHS facility in Champaign County, Illinois, that originally included a $475 million penalty for punitive damages, was reduced to a total of $180 million.

On Sept. 30, UHS announced that one of its facilities in New Kent, Virginia, was hit with a jury verdict that called for a total of $360 million in damages.

Both UHS cases involve allegations of child sex abuse.

But what have these cases amounted to?

So far, UHS has expressed multiple times its intent to keep appealing those judgments, fighting against people seeking accountability for alleged misdeeds. And if UHS is to pay anything in the end, it will likely turn to what is likely an ample insurance policy to cash in, mitigating the impact of that accountability on the business itself.

The same could be said for Acaida Healthcare. However, it did opt for a big-dollar multi-case settlement that totaled $400 million late last year, but only after it was ordered to pay $405 million in damages in a separate case and turning to an insurance policy to settle two other cases.

Sure, companies like this might have to shell out some cash when finally held to account. But rarely does it seem that the harm that the legal system inflicts on corporations is anywhere near proportional to the harm corporations sometimes inflict on people.

I’ll contrast the accountability measures described above with what accountability looks like for payers in the behavioral health space. For payers, the impacts are diffused and delayed over the course of years. Often, they are seen as one-offs given the insurance industry’s ability to leverage favorable regulatory conditions to win more often than not. There rarely is an immediate or direct impact even when payers are held accountable. The hope is more that it will set favorable precedent.

But like their payer counterparts, UHS and Acadia Healthcare will still be the big fish in the behavioral health operator pond when all is said and done.

However, each company’s stock price highlights unevenness in how the market is holding each company accountable. UHS’ stock price is up 57% year over year as of the writing of this article: Acadia Healthcare’s stock price is down 42% year over year — or 44% since the day before the DOJ inquiry was announced.

Patients will always hold behavioral health accountable

Teladoc Health (NYSE: TDOC) is failing to fight gravity after rocketing growth in several financial measures. Much of its previous growth and the subsequent diminishment of its business throughout several quarters of stalling expansion can be tied to BetterHelp.

BetterHelp is likely the largest direct-to-consumer digital mental health platform. THe company is almost as well known for its ubiquitous advertising on digital platforms like podcasts and social media channels as it is for providing therapy. Therein lies the problem.

BetterHelp is one of the last legacy digital mental health platforms and the only one of consequential scale that has clung to its historic roots as a cash-pay-only provider. And patients are holding the company accountable for not making its services accessible via insurance by taking their cash elsewhere.

According to estimates on its website, the subscription-based offering of BetterHelp costs between $280 and $400 a month, depending on several factors, including patient location and preferences. That cash price is significant. That’s like adding another major utility, bill or loan payment to your budget. Odds are that cost comes on top of existing costs for medications, other co-pay obligations and premiums.

To put it frankly, this is an offering that is only approachable for those desperate enough or flush enough to pay that monthly price. I don’t know how many people that is exactly. But I do know that that number is diminishing. The number of paying users on the BetterHelp platform was down 13% in the third quarter and for the first nine months of 2024 year over year. This translates to revenue dropping 10% and adjusted earnings falling 41% in the third quarter.

This approach is a problem because the company spends huge amounts of money on advertising its services. Based on my coverage of BetterHelp and fellow publicly traded digital mental health company Talkspace Inc. (Nasdaq: LFST), the direct-to-consumer model demands strenuous amounts of ad spend to gin up a high-turnover patient base. It’s not working for either company. In 2021, Talkspace swiftly pivoted to a mostly business-to-business model, going hard after contracts with commercial payers and other enterprises like employers and government entities.

And it’s worked for Talkspace. It is now profitable by all measures. Teladoc Health announced that it would accept insurance last quarter but won’t follow through in meaningful ways anytime soon. CEO Chuck Divita and CFO Mala Murthy stated repeatedly that BetterHelp is “going to be primarily a direct-to-consumer model for the foreseeable future.” Divita said the company planned to take a “measured” and “methodical” approach to enabling the use of health benefits at BetterHelp.

“What we’re trying to do is explore, of the consumers that are wanting to engage with BetterHelp and want to access benefit coverage, how we most effectively do that,” Divita said. “That’s why we’re being very methodical in terms of how we’re rolling it out.”

Until BetterHelp’s pivot makes meaningful progress or makes changes to the other part of Teladoc Health, Teladoc Health Integrated Care, the company is likely to continue to struggle financially. Resolving these model and financial problems will happen because the market is holding the company to account for not matching consumer demand.

Accountability can only be dodged for so long. To some degree, it is inevitable that the time will come to pay the piper, face the music, to sleep in the bed you made. And when accountability is forestalled, it’s a signal that something is wrong or there is some harm being done.

If the industry wants the light that it is under to remain more spotlight than microscope, then accountability must be allowed its due.