This is an exclusive BHB+ story
The outpatient mental health world was thrown for a loop when COVID-19 hit. Overnight, the nature of care shifted heavily to telehealth. And demand for care shot through the roof.
Now, the industry has settled into a new normal. Before, the mental health industry had only a slightly greater tendency to use telehealth pre-COVID than other health specialties and operated either direct-to-consumer (D2C) models or the odd in-network model. Now, these providers face questions of in-network accessibility out of the gate in consumer inquiries while payers want verifiable care quality outcomes and consider pushing value-based care even more.
In this BHB+ TALKS, Behavioral Health Reporter Chris Larson sits down with Alex Katz, CEO and founder of the hybrid in-person and telehealth outpatient mental health care provider Two Chairs, to dig into the future of the outpatient mental health industry.
Founded in 2017, Two Chairs employs about 600 licensed clinicians and centers services on measurement-based care and clinician matching. It operates clinics in the San Francisco Bay area, the Los Angeles area, Miami and Seattle.
The following transcript contains selections from the conversation that have been edited for clarity, style correctness and length.
Chris Larson: BHB has entitled this chat, The Future of Outpatient Mental Health. To get an idea of where we’re going, we need to talk about where we’ve been. We’re about four years out from the very beginnings of the COVID-19 pandemic. It was hopefully a once-in-a-generation upheaval that changed literally everything. Let’s talk a little bit about what we think we know to be true now about outpatient mental health, Alex. What comes top-of-mind for you when you’re looking back at these lessons, especially when it comes to telehealth? Lots of telehealth is still being done in behavioral health today.
Alex Katz: It’s an interesting question, Chris. I think to state the obvious, behavioral health changed massively on the other side of COVID. I think as you’ve watched other specialties in health care go from telehealth back to in-person, we haven’t seen that happen with behavioral at all. We had a pretty interesting view of this from the health care standpoint. When COVID hit, our business was more than 90% in-person. We were in the process of scaling a clinic-based business across the state of California and had a plan to take clinics across the country.
Then in a weekend, we had to pivot and became essentially 100% virtual overnight. As it became safe again to reopen clinics, we did so. We’ve remained hybrid in our approach to care, but our model has effectively inverted. Today, more than 90% of our visits are virtual. What we have stayed focused on through this five-year period is centering what patients want, the way that they want to engage with care. We believe that enables care most effectively. Pre-COVID, that meant in-person care. Post-COVID, most commonly that means virtual care. That’s the approach that we have taken, and I don’t think we see that going away anytime soon.
Chris: Right. I definitely hear where you’re coming from with this: this is what patients want. You’ve got to meet them where they are. What do your payer partners have to say, if anything, about the type or the amount of care and in which setting? Heavy telehealth: Are any of your payers asking any specific questions about it? Do you have to allay any fears about the telehealth volume that you guys presently conduct?
Alex: Yes, I think from the health plan perspective, from the folks that we work with and talk to a lot, the viewpoint we hear from them is they are believers in virtual care when it comes to behavioral health at this point. I think from their standpoint, they’re often responsible for many, many millions of lives, often very, very diverse populations that live in cities, that live in rural areas, that have a whole host of different types of preferences for how they engage in health care.
Health plans understand, well, they’ve got to build diverse networks that can serve their patients, their members in a lot of different ways. That’s a way in which we’ve been a valuable partner because we are hybrid, we are in-person, we’re virtual. I think the future of behavioral health care is hybrid.
Chris: I got you. Now, one thing that we talked about before, and I want to zero in on because I know we’ll talk about it at some point, but it feels right to talk about it now. It feels like there’s this very big emphasis, especially in the latter half of 2024, going into 2021, in conversations about access to care versus the right access to care. In our prep conversations, one of the things that we touched on in this topic was about the efficacy of care, the efficacy and sites of care and things like that. What are you guys learning about the efficacy of care when it comes to providing it virtually or in person?
Alex: The way I would describe the last basically five years since COVID, I think the immediate three to four years, there was a real access boom in the industry. Because of COVID and because of shifting trends demographically with new generations like Gen Z, health plans were under enormous pressure. They had to create a lot more access very, very quickly to outpatient behavioral health care. They threw a ton of money at that problem. They signed up a ton of providers. What we started to hear late ’23 and into 2024 is more and more health plans asking the question, “Well, what are we getting for all this spend?” The cost trend on outpatient behavioral health has grown a ton.
We’ve had health plans tell us they’re now spending more on outpatient behavioral health care than primary care, which is a really eye-opening stat. That is not something you would have predicted five or 10 years ago. I think the health plans are asking tons of questions. They’re getting more particular about the ways that care is measured, the outcomes that they’re looking for from provider partners. I think the way you framed it off the top is what we’re hearing. Coming into 2025, it is a lot less about access, and it’s much more about the right access.
Are you getting patients, members to the right provider, getting them the outcomes they deserve? By the way, are you starting to impact overall medical costs? Because we know now from an overwhelming amount of research literature that good behavioral health care that is efficacious should have a significant impact on the medical cost side.
Chronic conditions will be better managed. Patients will go to the ED less frequently. Those are conversations we are now having much, much more frequently with health plans versus a handful of years ago. It was, yeah, that conversation happened here and there. You heard value-based care as a buzzword at a conference, but it feels dramatically more tangible and real today versus just a handful of years ago.
Chris: We’ll talk about value-based care in more specificity in just a minute. Quick reminder to people who are joining us here for a BHB+ TALKS just now, if you have a question, go ahead and pop it into the Q&A feature, and we’ll get to those in real-time. While we’re waiting for those to queue up, Alex, I want to pivot the conversation very slightly to a bigger-picture question. Knowing what we know about what payers are interested in, what patients want, why are we seeing so many digital-first or digital-only behavioral health companies moving away from D2C cash-based models to partnering with enterprises, partnering with payers?
Alex: I think the shift away from D2C has now become almost like a law of the behavioral health industry. Even Better Health now starts to pivot toward working with payers. I think that was like the final sign. D2C as a standalone strategy is just extraordinarily challenging. I think we all see it in the provider space. It’s just really expensive to bring patients onto your platform when you’re not in-network. That cost has become increasingly prohibitive over time. I think you pair that with a second trend, which is that access boom I just described. On the other side of COVID, suddenly there was a lot more opportunity to work with health plans in-network.
Taking a step back, to me, that’s such a great trend. I got into this work for mission-driven reasons. The fact that high-quality care is not affordable for people that I know and love, we all have those stories in our lives. To me, it is a great trend. Health care in this country flows through health plans. That’s just a fact of life. Health plans aren’t always the easiest to work with, but it’s the way we have to do it if we’re going to impact patients in the way that we want to.
Chris: Right. We’re going to drill down on quality and measurement-based care in just a second. I want to learn though, how did you get these contracts? A common thing I hear at every, almost every single live event that we do at BHB, we’ll talk about value-based care and I’ll come off stage usually with the panelists and someone will approach us and be like, “Hey, I’d love all the stuff that you’re talking about. I want to do this, but I can’t get anybody at any of the health plans in my state to pick up the phone.” What more can you tell us about how you actually got these contracts?
Alex: Chris, it’s my charm and good looks. That’s the way I pull through. No, I’m kidding. I’m kidding. It is a long and hard road. I am sure many on the call have experienced this themselves. Even with the best, most innovative health plans in this country that we have the privilege of working with, it still was a multi-year journey to begin the relationship in a value-based way or to evolve the relationship toward a value-based construct. I think what we have found in our work over the last several years is that no one knows exactly how to do this. It is going to take time for providers and payers to come together and start experimenting and start trying things. One way we have found success is we’ve started small. Let’s start with a small number of measures that are easy to look at and assess. Let’s put a small portion of the fee at risk and then over time, grow it.
Over time, introduce more measures, introduce upside and downside risk, greater proportion of the fee at risk, but you can’t start there. That has been an enabler of us getting to where we are today, starting small and building on that momentum and having patience. When I set out on this journey of building Two Chairs eight years ago, I had worked in health care and I think I knew enough to know this industry doesn’t change very fast. We can move quickly in building high-quality clinical services, but we also have to have a high degree of patience in working toward the type of system change that will be required to make this industry work better. Not everyone has that patience, but it’s really important. There’s no other way around it. It’s just going to take time.
Chris: Let’s go ahead and dig into measurement-based care, quality, things like that. Two Chairs has these conversations with payers about what exactly are they paying for. How do we know what we’re paying for? Is it worth it? Is it helping people? What other specificity can you give that are on some commonalities across your payer base? What are some common things that they’re talking to you about when it gets to the quality conversation?
Alex: What we have found consistently across our value-based relationships, the metrics aren’t always identical, but the concepts, the categories of metrics are actually pretty consistent. We’re very consistently looking at access to care and speed in terms of access to care. Second, we’re looking at engagement in care. Once a patient begins a course of therapy, are they sticking with it? Are they making it to a fourth session? Are they making it through a full course of care? We’re looking at the therapeutic alliance. We know from the clinical research literature that the alliance is really the single best predictor of ultimate reduction in clinical outcomes that we have. Finally, we’re looking at clinical outcomes, reduction in symptoms of depression, anxiety, as measured by common scales. In certain cases, there’s a fifth bucket of cost. To be clear, we’re not yet taking risk on medical costs. That may be something we build toward over time. I think that’s something we feel– I think everyone feels like we’re in the earliest of innings, but we’re at least looking at that data in partnership with health plans that we work with and using that to inform populations that we target, how we scale our relationship together and so on. Those are the core sets of categories we’re looking at.
Chris: I got you. I recognize that this might be somewhat of a naive question, but simplicity is always a great thing. Is there any one indicator or best indicator of quality of care? What you talked about are commonalities across health plans, looking at different things, but in the Two Chairs experience, is there any one that you keep coming back to as an indicator of the quality that your therapists are providing?
Alex: Yes, it’s a good question, Chris. I wish there was, I wish the answer was yes. At the end of the day, it’s all about X. I think we have found that it really is a combination of a handful of the factors that I described, in part because no single measure is perfect. We don’t have objective biomarkers to look at in behavioral health. We have patient-reported data. It’s really the primary thing that we’re looking at. Secondarily, I think there’s a relationship between, for example, symptom reduction, but also engagement in care. The following thought experiment motivates it. If only 10% of your patients make it to at least a fourth session of care, but those 10% of patients just see dramatic, incredible reduction in symptoms, do you like that outcome as a health plan, or do you prefer an outcome where 90% of patients make it to at least a fourth session of care, and the symptom reduction is still very high, but it’s a little bit less high than that first case. I think that’s an example of, there’s almost a multiplicative impact when you add several of these factors together. In our partnerships, we’re consistently pointing at, well, what’s the data collection rate? What percent of patients do we actually have NBC data on? What’s the engagement rate? What’s the ultimate symptom reduction rate? The combination of those three is the thing that’s associated with medical cost. Highly engaged patients that are getting a lot better, that are getting graduated efficiently upon realizing those clinical outcomes, that shows up in a big, big way in terms of admission to the ED, re-hospitalization, those big drivers of medical costs that plans really care about.
Chris: Right. The question in my mind then becomes, how do you make that real? Let me ask it this way, what has been the most successful care quality initiative at Two Chairs so far in terms of actually improving those care measures that we’re describing?
Alex: I think that the most important enabler of care quality at Two Chairs is the fact that we have taken a W-2 employment approach to how we work with our therapists. The vast majority of our therapists are full-time, 100% of them are W-2. The reason we made that decision from day one is we recognized, look, the gap between research and evidence-based practice and actual day-to-day practice in the behavioral health field is vast. It’s been estimated there’s a 30-year gap between the gold standard in research and what is actually being practiced out there in the field. Recognizing that, we said, okay, we’ve got to employ therapists full-time so that not only can we handpick the right clinicians, but we can invest deeply in culture change and training, enabling them with the right tools and so on. With that as a backdrop, probably the single biggest initiative, most impactful initiative has been that process of rolling out and implementing measurement-based care over the last five years. Again, to emphasize, five-year journey, and that probably sounds nuts. It’s straightforward. You ask a few questions, you bring the data into the room. The fact that it took us five years, even with a fully employed clinical base, speaks to the degree of culture change that is required here is profound. The way that we are practicing measurement-based care day-to-day is in accordance with the research literature, and it has almost nothing in common with what is being taught in graduate schools or what is being taught in training programs. I think it just speaks to, we have a lot of work to do in this field to actually get practice to align with research. Today, we’ve got a clinical team that deeply embodies measurement-based care. It’s in the DNA of the clinical organization. It’s in the room with the patient, and that makes all the difference in the world.
Chris: Understood. I want to call out again, if anybody listening in wants to get a question in to myself and Alex Katz, go ahead and put it into the question and answer. We will probably immediately stop what we’re talking about to make sure that we’re addressing anything that any of our participants really, really, really want to talk about. Until those come in, let’s pause on that particular conversation and shift to a topic that’s near and dear to my heart because I have to write about it a lot, and that is deal-making. I mean that broadly, M&A, investment, whatever. It’s been, I’ll call it two years since there was this big pullback in venture capital investment into digital health generally. Behavioral health was no exception to that. Where we have seen investments go are to larger, more mature enterprises, and that includes Two Chairs, securing, I believe it was April, 2014, that Series C $6 million round. Alex, what do you think of this environment that we’re in terms of an investment in deal-making with VCs backing off of behavioral health?
Alex: Our experience raising our Series C in April of last year, what we found out in the market is there’s actually still a lot of interest in the venture and private equity worlds in behavioral health. What they see in this space are really interesting industry tailwinds. The generational shift, the way in which millennials and Gen Z are so much more open about seeking out help, health plans getting a lot more interested in behavioral health and investing here much more significantly. There’s a lot of interest in this space. What has changed is the degree that investors are focused on the fundamentals of a business. If we’re being honest, three, four years ago, money was just flying into this space, regardless of whether there was a business model underneath it all, whether or not there was a clinical model that was actually helping patients, that was actually creating value for health plans. There were a couple of years there where I was like, “Am I the one who’s gone crazy?” We’re focused on unit economics, we’re focused on clinician experience, on clinical quality, maybe that isn’t what matters in health care, but we stuck with it. In hindsight, I’m very glad we did because at some point the pendulum was going to swing, markets were going to reset.
Chris: At least from Two Chairs consideration of M&A, it doesn’t sound like it’s necessarily going to be a major tool for growth for your company, but I want to make sure I’m understanding that correctly.
Alex: Yes, certainly not in the near term. We’ve spent the last eight years growing our core business organically. Opinions can differ. I’m a big, big believer in organic build in health care services where quality matters, where culture matters. Ramming together different clinical organizations that think differently and have different clinical protocols and different technology stacks can juice financial returns in the short term. Is it right for patients? I think it very rarely is. We have found huge value in the organic build, hiring therapists, integrating them into our culture, our clinical philosophy. What we have pulled off from a measurement-based care standpoint, for example, wouldn’t have been possible if we were slamming together small group practices, because it has been such a nuanced journey of getting therapists fully on board philosophically with utilizing measurement in the room with their patients. Our outcomes speak for themselves, but it hasn’t been an easy journey. To say it again, it took five years to really fully pull it off. That is not for the faint of heart.
Chris: It really doesn’t take very much looking, especially in the English-speaking, specifically American digital discourse, to recognize what happens when questions about culture are gotten wrong, especially amongst the cohort that we have of therapists in the world. They’ll let you know if they experience it at a company that does not align with either their ethical beliefs, their beliefs around appropriate practice, and then just being an employee in the employee experience. All these things come out to show us both the negative examples that you can see on social media, the positive examples that you’re describing here, the centrality of making sure that therapists feel enabled, feel happy. Again, borrowing from other people that are way smarter than me that post a lot on social media, one way to think about it, I would assume, and Alex, straighten me out if I’m wrong on this, you need to really think about what you’re delivering to the public, not necessarily as mental health services, but rather therapists. What are you giving to people? What are you giving access to them? It’s that relationship. It’s the services that the therapists provide. Instead of thinking generically about the provision of services, just mental health, you’re actually providing access to this clinician, this community healer.
Alex: It’s well put, Chris. I think for some, it can be counterintuitive. It should be all about the patient. It should be all about the customer. That’s who we should orient around. I think we have found again and again, actually, when we start with the therapist in mind, when we design first and foremost for the therapist, we’re going to deliver for the patient in a much more efficacious way. Everyone is better off in the long run when you start with the clinician. For example, in the way that we’ve developed technology, the vast majority of code that we have written over the last eight years has been for the therapist to enable them to be more effective in the room. That comes from this belief that, look, amazing, well-enabled therapists do amazing clinical work. It’s really about handing them the tools they need, getting the stuff off their plate they shouldn’t be worried with, and making them feel supported, enabling them to do their work in a sustainable way.
Chris: Definitely hearing on that one. I don’t know. Who actually engages with the patient? It’s the therapist. What’s actually going to be the thing that you get to generate revenue against? The work of the therapist. Just a way to restate and rearticulate everything that you just laid out. Okay, so that is a very robust addressing of our first and so far only question through the Q&A feature. We’ll unpause the conversation that we have about artificial intelligence to get us through just the last couple of minutes of our chat. I really want to see what specific part of taking the paperwork off of the plate of a therapist, where this really works. Can you give me an example of a really specific use case where you think, “Man, if an AI tool can really do this, it would really help our therapist.” What’s a very specific example of a good use of AI?
Alex: It’s a good question. I don’t have a hyper-specific example for you yet. Let’s catch up in a couple of months, and I’ll probably have more to share, Chris. To be totally honest, we’re in an early exploratory phase of this. We’ve seen documentation and a lot of that backend clinician enablement. That’s probably the first and most promising use case. We’ve seen a bunch of companies pop up, focused on hospital systems, on behavioral health in particular, and they seem to have momentum. I do think there is something here, and it’s somewhere in that treatment plan notes area. The reason we’re not rushing to it, some have just said, “Just get it off the clinician’s plate, just automate all of it,” is we actually find value in treatment planning, and we find value in treatment notes. I think for some organizations, notes are just a way to get paid. What do you need to do to make sure the health plan pays you? When the health plan audits you, are you going to be able to withstand the scrutiny of that audit? It’s 100% effectively a revenue cycle management use case. For us, look, of course, that’s part of it. We want to get paid for the great clinical work we’re doing, but it’s more than that. Designing a treatment plan is an opportunity for the therapist to think through the clinical presentation and how they want to approach the work, working backward from graduation. How are they going to incorporate measurement-based care into the room and into the treatment plan? That actually requires nuanced, extremely human thinking. That’s us wrestling with the nuance here. Probably sounds like a very Two Chairs sort of thing. We’re not going to just road technology at problems. We’re going to be thoughtful about deploying technology in a way that keeps the clinical expertise, the expert human intuition of the therapist, at the center of anything we do.
