This is an exclusive BHB+ story
With economic volatility in full swing, consumers are tightening their purse strings.
That means fewer dinners out, vacations abroad – and maybe even therapy sessions. This could hit especially hard for cash-pay providers who rely on their clients’ financial well-being to stay afloat.
Folks often pull back on expenses such as therapy precisely when mental health support becomes most critical. Recessions are a time of uncertainty. Some individuals might be dealing with job loss and are concerned about how they will provide for their families.
Yet, often, patients put off elective care – both on the physical and behavioral health side, which has historically led to worse patient outcomes in the long term.
“In the mental health arena, what will happen downstream is as the economic downturn happens, people will get more depressed, more anxious, suicidal, those sorts of things,” Dr. Caroline Carney, president and chief medical officer at Magellan Health, told me. “We’ll see an increase, then downstream, in emergency room utilization, suicide and hospitalization, when people don’t get treated early on in the process.”
Magellan Health is a Centene (NYSE: CNC) subsidiary focused on managed care services for specialized populations.
It’s not just patients that could feel the long-term impacts. The private practice industry – particularly providers that are heavily weighted toward cash-pay – could face a financial crisis as more clients prioritize living essentials (food, shelter, clothing, etc.) over services.
I think this could lead to more providers inking in-network contracts – even if it means less money.
But the B2B space isn’t necessarily the answer for all providers. Businesses may also re-evaluate their EAP strategies and pull back on additional services.
In this latest edition of your exclusive BHB+ Update, I’ll explore what the market volatility could mean for the outpatient therapy industry and explore:
– Why more cash-pay providers may consider going in-network
– How providers are looking to future-proof their business model
– Why EAPs could face some growing pains in times of economic uncertainty
Cash-pay providers could feel the heat
As consumers evaluate their budget more closely, many seek to reduce out-of-pocket expenses, potentially choosing in-network providers over cash-pay therapists.
This often means cash-pay private practice providers are less insulated against economic hardships.
“One of the risks of becoming a standalone cash-pay provider is you bear the risk of the market, and if the market can’t pay you anymore, your business goes,” Carney said. “What I would hope we would see is some of those cash-pay providers move into the network. The network is not going to change rates. We’re not going to lower rates.”
Providers with a strong in-network model have so far been protected from an unstable market and potential recession.
“We’re not experiencing that volatility in demand in our business because of the economic uncertainty,” Alex Katz, CEO of Two Chairs, told me. “But I think it speaks to the fact that 99% of our patients see us in-network through their health insurance. And to me, that’s the key. I think expensive cash pay and out-of-pocket therapy could swing based on economic conditions.”
Two Chairs is a hybrid mental health provider. The venture-backed startup has more than $103 million in funding.
Even some of the most notable names in direct-to-consumer therapy are beginning to re-evaluate their business model in the wake of economic uncertainty. Take Teladoc’s (NYSE: TDOC) BetterHelp, for example. BetterHelp made a name for itself as the largest D2C tele-therapy provider in the country.
Recently, however, the virtual therapy giant has been changing its stance on a D2C-only model. On Wednesday, Teladoc announced the acquisition of Uplift Health – a virtual mental health provider with strong in-network coverage – for $45 million.
During the company’s Q1 earnings call Wednesday, Teladoc CEO Chuck Divita noted that the lack of in-network coverage was the No. 1 barrier for potential BetterHelp clients.
“While often more affordable than traditional in-person therapy, out-of-pocket cost is a key reason cited by those not ultimately subscribing to BetterHelp, and many express an interest in accessing their covered benefits,” Da Vita said on the call. “This transaction will accelerate our ability to offer this choice to consumers and capture a larger portion of the scaled funnel that we have built with BetterHelp.”
Economic uncertainty could put third-party facilitators in a strong position.
Payers are, for the most part, looking to grow their behavioral health network partners. There could be a large pool of clinicians to add if more opt into the in-network space. A whopping 34% of psychologists are not currently in-network with any insurance, according to the American Psychological Association.
Third-party providers such as Headway and Alma have built a business model to facilitate more therapists getting in-network with payers. And I could see these platforms increasing in provider popularity as the need for services continues to grow but the appetite for cash-pay depends on the larger economic climate.
While the move to more therapists going in-network could be a win for patient access, it could mean private practice providers take a hit in rates.
The average private-pay rate for individual therapy for all license types was $159 last year, according to The State of Private Practice report by Heard. Meanwhile, the average reimbursement rate from insurance was $111 – a 36% reduction.
If a provider went from accepting only cash-pay to a combination of cash-pay and insurance, that could be a significant hit to their average annual income.
Still, working with health plans may be a path forward for some providers; others may simply go out of business.
EAPs could feel the pressure
A B2B model isn’t necessarily a fail-safe for providers. Over the last three years, a number of digital providers have pivoted from direct-to-consumer to enterprise models.
This proved to be a savvy business move for many providers. For example, the strategic pivot benefited companies like Talkspace (Nasdaq: TALK), which rebounded from near-delisting at under $1 to trading above $3.
Yet, this space is still vulnerable to market fluctuation as businesses pull back on any “extras.”
“At the employer level, as they erode economically, will they have the dollars to put into a really nice EAP service versus the most very basic EAP service?” Carney said. “So we’ve already seen the effects of that. … Employers that gave the EAP 12 visits might go down to three, or do something to help them save money. The pressure on behavioral health will be high.”
Over the last few years, the EAP space has become crowded, with many employers and payers experiencing “point solution fatigue.” The combination of a pullback on services and increased competition could make this market more difficult for companies catering to the employer market.
Again, any pullback in services would come at an inopportune time for consumer’s overall health.
At the end of the day, pullbacks on services impact people in need of services. As patients’ severity increases, this could mean more downstream effects in the next few years.
In a perfect world, more therapists will go in-network, and payers will increase rates. But in the imperfect world that we live in, there is no one answer on how to increase access.
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