Teladoc Health (NYSE: TDOC) is having a much better go of it in the mental health field through its B2B-focused Integrated Care division than its much more visible D2C entity, BetterHelp.

BetterHelp, ostensibly the largest D2C digital talk therapy company in the U.S., is diminishing in scale and profitability, contributing to Teladoc Health’s overall financial woes. On the other hand, the Integrated Care division performed much better, finishing 2024 in positive territory by many metrics.

Teladoc Health CEO Chuck Divita said Feb. 26, during the company’s year-end and fourth-quarter earnings call, that the Integrated Care division grew mental health-related “visits” to 1 million in 2024, a 10% increase relative to 2023. 

Mental health-related services also contributed about $150 million in revenue, about 9.8% of the Integrated Care division’s 2024 $1.53 billion in revenue. About 60% of the 93.8 million members have access to their mental health services.

“We will continue to assess synergies across our mental health offerings going forward,” Divita said. He emphasized expanding mental health services in this segment as a company strategy at another public appearance earlier this year.

These mental health services include digital tools, coaching, therapy and psychiatry services. Specifically, the company employs these mental health clinicians and supports patients with the myStrength Complete offering, a step-care support system and app.

Teladoc Health got the myStrength service through its $18.5 billion acquisition of Livongo, which closed in October 2020. Livongo acquired myStength, then a standalone digital behavioral health company, in 2019. Livongo, before the merger, would partner with behavioral health insurance entities such as Magellan Health, now part of Centene Corp. (NYSE: CNC).

Within the same month of closing the Livongo acquisition, Teladoc Health announced the creation of “Mental Health Care” within the Integrated Care service line and pitched it as part of an integrated approach to care that it sells to payers — health plans and employers alike.

The relative success of the mental health services within the Integrated Care segment puts the diminishing of BetterHelp during 2024 into sharp contrast.

Here are some core metrics from BetterHelp’s 2024 performance:

— Revenue: $249.8 million, down 9.5%

— Adjusted loss: $77.8 million, down 43$

— Adjusted earnings margin: 7.5%, down from 12% in 2023

The news comes as Teladoc Health continues to try to improve customer acquisition costs, conversion and retention in the U.S. At the same time, it is pushing toward additional international users. It started with English-speaking countries. About 20% of BetterHelp’s revenue is from international markets. Expansion to non-English-speaking markets has started with Europe. The company is investing in localizing its content and systems and engaging with local clinicians. BetterHelp recently launched in France and will launch in other countries in 2025. The executives on the earnings call declined to name where.

Adding international users is driving down BetterHelp’s overall revenue per paying user because initial pricing in European markets will be lower than in the U.S., Murthy said.

The company is also in the midst of landing contracts with payers to provide in-network access to BetterHelp’s largely independent contractor clinician group. Mala Murthy, CFO for Teladoc, said that the company has established the capabilities to provide care via in-network contracts but doesn’t expect this will benefit BetterHelp in a material way in 2025.

Holding off on the pivot toward payer contracting after launching via D2C, a common digital health strategy, has separated BetterHelp from its other digital behavioral health peers.

Murthy and Divita largely sidestepped questions from analysts on the call about why Teladoc Health wasn’t moving faster with contracting and why health plans would opt for BetterHelp over the Integrated Care service.

On the latter point, Divita pointed to BetterHelp’s brand awareness and the wide adoption of telehealth services within behavioral health as its key selling points to health plans.

“It’s one thing to be a network, but you need to actually have a brand that actually resonates and gets people to use your services. And that’s what BetterHelp brings,” Divita said. BetterHelp also brings “massive amounts of volume.

“You’ve seen post-pandemic, a lot of players were able to get into network arrangements and so forth, but some are struggling to get the volumes because you have to activate the membership.”

But for the time being, Teladoc Health expects BetterHelp to continue shrinking in the near term, projecting that revenues could diminish by 9.75% and 3.75% in 2025. It also predicts an adjusted earnings margin between 2% and 4.25%, much lower than its 2024 actuals.

Another area of potential improvement discussed by executives includes improving BetterHelp user retention. BetterHelp will launch weekly pricing structures company-wide in 2025 after pilots in 2024 yield positive results. The company has made some degree of progress, as shown by the refunds. In 2024, BetterHelp refunded users $84 million. That’s down about 9.7% from 2023, when it refunded users $93 million.

No Blue Orca sightings

On Feb. 19, activist investor Blue Orca Capital released a report disclosing its short position on Teladoc Health’s stock and its investigation alleging that BetterHelp clinicians inappropriately use AI when messaging with patients, that it uses questionable accounting practices to mask losses and that high insider turnover and equity sales demonstrate a lack of confidence in the Teladoc thesis.

The executives did not address nor did analysts ask about the report.

“Ultimately, we think that Teladoc is far less profitable and generates far less cash than investors are led to believe, and that accounting maneuvers have concealed that the business is failing to scale,” the report states. “Against this backdrop, we expect the BetterHelp business to continue its downward trajectory as more patients come forward with evidence that their therapists secretly used AI. After all, why would a patient who needs help keep paying $400 a month to talk to ChatGPT?”

Teladoc Health and BetterHelp faced several points of scrutiny in recent years. In 2023, it reached a settlement with the Federal Trade Commission to settle a civil lawsuit alleging that BetterHelp inappropriately tracked its users and shared their data with other firms. And it and several other digital health providers have been criticized for pushing the use of the AI in therapy settings.

These allegations stretch back as far as at least 2022 when both scrutiny from the news media and U.S. senators brought Teladoc Health’s and BetterHelp’s data and tracking practices to the fore.

The use of AI by clinicians is not unexpected. The company has been pushing these types of tools for years. In 2023, Teladoc Health said that making its therapists more efficient was a key strategic priority, and AI would be part of that.

The Blue Orca Capital report cites unnamed “whistleblower patients” and their BetterHelp records, as well as public social media posts and online company reviews.

While the report acknowledges BetterHelp therapists shouldn’t be using AI tool, it claims that the company uses productivity incentives that drive therapists to do so: having very full therapy session calendars and being available to patients 24/7 via digital communications.

The BetterHelp’s terms and conditions for contract therapists forbid the use of third-party AI that involves “member personal or health information.” A separate data processing agreement for contract therapists goes further, forbidding therapists to “not divulge the Personal Data whether directly or indirectly to any third party without the express documented consent of BetterHelp.”

While the impact remains to be seen, the allegations of the use of AI in therapy settings harken back to a previous bit of industry discourse. For the most part, wide skepticism of tools like therapy chatbots is likely to limit widespread adoption within behavioral health itself. In previous years, concerns about AI as an efficiency tool raised concerns about security and privacy.