Thursday, January 13 was the last day of the virtual J.P. Morgan Annual Healthcare Conference for 2022. And since the conference was virtual, what better topic to start us off today than a consideration of the new Virtual-First trend that surfaced in 2021. We’ll follow that with a dive onto the couch to consider the conference’s mental health offerings and where the behavioral health sector is heading.

Virtual-First: United Healthcare and Babylon Health

In 2021, we saw the launch of multiple virtual-first health plans by national and regional health plans. Many of these plans are designed to promote access for patients and reduced in-person utilization when medically appropriate. For example, Cigna launched a virtual-first health plan for employers with a $0 co-pay and made virtual primary care services available to millions of its customers via MDLIVE. Per media reports, Cigna will be working to provide MDLIVE physicians with access to patients’ health information, so as to provide a more connected, coordinated experience for both physicians and patients. In addition to primary care, Cigna virtual-first plan members can access virtual dermatology services. Interestingly, no primary care physician referrals would be required to see in-network specialists.

United Healthcare, together with subsidiary Optum, launched NavigateNOW to provide patients with their own dedicated virtual care team, led by a primary care provider. That provider could address the patient’s needs virtually and connect the patient to in-person resources when necessary. The United plan also is a $0 co-pay plan, with unlimited chat and offering same-day appointments. Referrals can be to any provider in United’s network. United initially is offering this plan in eight markets.

During Day 4 of the J.P. Morgan Conference, Babylon Health gave its first ever conference presentation after going public through a SPAC merger in 2021. Babylon entered the U.S. market approximately two years ago and offers a digital first, artificial intelligence-driven healthcare service to its members that includes digital triage, health assessments, digital care plans and care monitoring. Babylon’s model is to move away from the traditional American “sick care” fee-for-service approach and instead be able to continuously monitor its patients and collect data, so as to be able to better manage care and to intervene early enough to decrease severity of disease effects and avoid emergencies and hospitalizations. While Babylon did undertake some initial physician group acquisitions in the U.S., CEO Ali Parsa noted that further physician group acquisitions were not critical to Babylon’s model.

Parsa suggested that Babylon, with its more than 700 technologists globally, could be an effective partner for health plans offering virtual-first products. Parsa forecasts that many health plans likely will consolidate their virtual networks and offerings over time into a limited number of virtual care providers who can provide superior and reliable technology and consumer benefits. He foresees that such consolidation will further accelerate the competitive advantage flowing to the virtual care leaders, creating significant barriers to entry for newer companies.

The question, however, is one of defining core competencies. Will the leading health plans, which have been adding virtual assets, wish to partner with an outside partner/vendor or do they see virtual-first as a core competency that must be successfully grown and maintained within the health plan? That remains to be seen, and, in any event, there are many health plans throughout the country which do not yet have virtual care assets and who will be potential partners. We also certainly can see reverse flow, where Babylon assembles substantial numbers of patients so that it has to become an important part of a health plan’s network approach if the health plan is to remain relevant.

One of the most interesting comments today in Parsa’s presentation is his statement that healthcare can create some of the largest companies in the world. He cited to the Babylon 4 year CAGR (compounded annual growth rate) of 230% and compared it to the 4 year CAGR of AirBnB at 146%, Tesla at 126% and Netflix at 74%. Hubris or vision? Whether or not Babylon Health ultimately meets its goals, we believe that Parsa is correct in his vision that some of the largest companies can come from the healthcare industry.

As Rajeev Ronanki, Anthem’s President of Digital Platforms, said, “[S]even of the 10 most valuable companies in the world today are platform businesses that have effectively digitized supply and demand.” (Anthem’s 2020 Annual & Corporate Responsibility Report). Think about that from the healthcare context and our experience from the pandemic that we are still going through – telehealth is booming, remote monitoring is rolling out, chronic care management is starting to utilize digital modalities and machine learning and analytics are starting to power interventions. So, you could say that we are at the beginning of digitizing supply and demand in the healthcare industry, with much more to come.

If we look at other Internet companies and digital demands for attention and engagement, should we expect to see the engagement tactics of FaceBook, TikTok, Instagram or SnapChat applied to the healthcare industry? Gamification to drive behavior, likes to accumulate for healthy behaviors (Remember the “nudge” we mentioned in our Day Two Notes?) and “health influencers?” It will be a fight in the healthcare industry for eyeballs and engagement, as that will ultimately drive healthcare choices.

The cost of customer/patient acquisition is and will continue to be an important determinant of success in the healthcare industry. Look for example at the relative growth curves of agilon health and Caremax. Based on the companies’ conference presentations, agilon has a customer acquisition cost of about $400 per member and a current market cap of about $8.1 billion after rapid growth, while Caremax (a Florida-based Medicare Advantage provider with a sophisticated clinic model) with a customer acquisition cost in the range of $500 – $1,000 has a market cap of $0.6 billion. (The Caremax model, though, is very thoughtfully structured – using proven low-panel, high touch senior clinic approaches, in addition to specialists in the clinic and homecare and remote monitoring as needed), and it appears to be very effective for patient care, but it has not yet scaled nationally).

So, who prospers in the upcoming digital world? A quick peek at the technology industry suggests that large companies at scale have a strong and defensible competitive advantage (Apple, Google, Amazon, etc.), which augers further consolidation of the healthcare industry. That scale can not only grow capabilities and membership, but it also can lower the per-unit (you and I are definitely units for this purpose) cost of information technology systems, infrastructure and marketing. So, larger companies that can invest in more branding, marketing and customer acquisition activities, as well as better consumer experience through better technology, could have a marked (and market) advantage. That tells us that we likely will continue to see further consolidation in the healthcare marketplace. It will be a bit of a self-reinforcing cycle, as Parsa said – more data allows the opportunity for more effective analytics and intervention, resulting in healthier and happier patients, who are in turn more loyal to their selected branded healthcare provider.

Some Final Thoughts on Mental Health: Acadia, Talkspace, Headspace Health

We have followed behavioral/mental health providers during this year’s conference and wanted to share a few observations.

We are seeing increasing investment in mental health companies. Whether it’s a recognition of the insufficiency of physical health care delivery that ignores the related and significant impact of depression, anxiety, psychosomatic illness, substance disorders and chronic mental illness, the effects of the pandemic and access to teletherapy and telepsychiatry, the rise of the whole health movement or the recent mental health parity rules that require insurance companies to cover behavioral health on a basis equivalent to physical health, it has become apparent that our nation’s mental health system is not working and needs to be fixed.

Coupled with the destigmatizing of mental health treatment led by many athletes, social influencers and other celebrities and the development of virtual care options, there now is far more acceptance in our culture of those who seek help and expanding options to find needed care. Providers in this space have an incredible opportunity to capitalize on all of these tail winds and address a significant need in our communities. Yet, according to Headspace Health (the result of a merger with Ginger), wait times for a mental health provider visit range from five to six weeks, and 50% of U.S. counties don’t have access to a single mental health provider. The CDC says that one in six children has a mental health disorder, yet only around half of them receive treatment. How is the healthcare industry going to address this challenge and opportunity?

We heard today from Acadia Healthcare, the leading pure-play provider of behavioral health inpatient services in the country. Acadia has 238 facilities nationally providing mental health treatment. It has treatment centers focused on substance abuse, eating disorders and opioid addiction, as well as acute mental health facilities. Acadia is growing rapidly and highlighted the high demand for its services. Acadia also highlighted the vast number of people in our country that desperately need help but either do not seek those services or cannot find them.

Acadia estimates that 22 million adults in our country need substance abuse treatment but only 10% actually receive care. 10% – that’s all we can do? Acadia also noted a 33% increase in depressive symptoms in 2021 as compared to pre-pandemic periods, and a 30% increase in overdose deaths in the 12 month period ended in April of 2021, the largest increase ever recorded. Acadia is following a “build it and they will come” model with plans to expand its facilities, grow through de novo sites, mergers and acquisitions and joint ventures with hospital systems. With all of the growth we’ve seen in the digital health space highlighted during this conference, it seems Acadia has a big opportunity to expand even more using patient outreach and digital tools to engage its potential clients. The immense power of digital technology and the new and effective ways primary care providers are able to connect to their patients and really engage them in a meaningful way provide a significant blueprint for companies like Acadia to maximize growth and utilization as the behavioral health space continues to expand and mature.

In that vein, we also heard from Talkspace, a growing provider of digital mental health services providing self-help, therapy and psychiatry to patients through its digital and virtual applications. Talkspace has a business split into three categories: it has a direct to consumer approach, a B2B approach in which it partners with health plans and employee assistance programs, and a direct-to-employer model. Talkspace focuses on using data analytics, an easy-to-use app and virtual care options to engage its patient population. Talkspace uses technology to improve access and outcomes. Could a mental health inpatient provider like Acadia benefit from the kind of patient engagement that Talkspace provides?

It’s worth noting that Talkspace, Acadia and many other behavioral health providers still utilize a fee-for-service (FFS) model in part, a model at the conference that has been roundly characterized as inefficient. Talkspace’s CEO remarked on its success using the FFS model – the more sessions Talkspace books with patients, the more money it makes. Is the FFS model appropriate for mental health, or is there a better approach?

Clearly, mental health care is a critical aspect of the care continuum that is driving higher costs and impacting other areas of the healthcare system. A 2019 JAMA Network Open article indicated that the healthcare cost for patients with mental health disorders was more than 70% higher than for patients without such disorders. One of every four Medicaid patients is estimated by the U.S. Department of Health & Human Services to have a behavioral health issue. And, mental health claims grew by 21% between 2019 and 2020, per a 2021 Sun Life Research Report. The need for a better model is clearly present.

In addition to more effective patient engagement and more access to treatment options, there is an opportunity for payors and providers to share savings or participate in global risk to create alignment, better outcomes and profitability. We certainly are aware of a number of behavioral health companies taking risk or participating in value-based care, but across the country they are not yet the majority.

And one further pet peeve – why are we still calling this sector “behavioral” health? It’s not just about behaviors, a term that implicitly places stigma and blame for not being able to control yourself adequately and look normal. Treating only behaviors and popping pills doesn’t get us to the root cause of people’s issues since it inadequately considers their genetics, their family and personal histories, their traumas, their brain chemistry and their feelings and motivations. Good mental healthcare helps people return to building and rebuilding their lives with meaning and purpose, and it takes time to do it right, just like with any other effective chronic disease treatment. Let’s recognize that and invest in ourselves. And, with that, we wish you a happy, healthy and better 2022.