Much is riding on whether digital behavioral health operators can address the challenge of high customer acquisition costs.
Last year, investors poured 5.5 billion dollars Capital to digital operators coffers. However, high customer acquisition costs are a largely unaddressed concern that may limit the promise of digital behavioral health to accelerate healthcare delivery and alleviate local provider shortages.
One of the biggest players in the space is Teladoc Health Inc. (NYSE: TDOC ) and Talkspace Inc. (Nasdaq: TALK ) are facing a heavy cost burden on advertising costs associated with customer acquisition due to the rapid expansion of digital health. Companies have generally followed a higher level of investment over the years.
“I’d say we define it strongly. [higher customer acquisition costs] “The smaller private competitors that have been well funded recently are getting into that space with quick capital and we’re making decisions that don’t make economic sense,” said Jason Gorevich, CEO of Teladoc. He said during the company’s Q1 earnings call.
Despite this, the Covid-19 pandemic has raised the bar in addressing behavioral health care access challenges.
The beginning of the covid is inclined A triple increase In the year Americans reporting symptoms of depression in 2020 compared to 2019, according to research from the University of Chicago and Boston University. Follow-up research is available The amount has increased From 27.8% in 2020 to 32.8% in 2021.
Separately, since the onset of Covid-19, overdoses have ballooned A total of more than 109,000 During the 12-month period ending in March.
Fostering more innovation in technology and healthcare requires developing responsible and profitable digital behavioral health models, Project Sane CEO and co-founder Philip Shermer previously told Behavioral Health Business.
“Lighting a lot of marketing dollars on the fire and hoping you figure out your business model in ten years is not a sustainable business,” Schermer said.
Customer acquisition costs are strongly related to the community
Traditional behavioral health operators have the advantage of being more naturally connected to the local health care environment. These local communities have many forces that create natural patient movement in the local market.
As a result, time combined with proactive marketing efforts by operators can result in lower customer acquisition costs, says behavioral health-focused marketing firm Circle Social Inc. CEO Nick Jaworski told BHB.
“That lower acquisition cost comes from accumulated community relationships and reputation,” Jaworski said. “The thing that is really crippling [customer acquisition costs] It’s the invisible community conversations that are happening.”
This aggregate community chat can happen if the provider is connected to a community, whether or not they work in a virtual or physical environment.
According to Jaworski, a Circle Social customer in the Seattle metro area makes 90% of their visits through telehealth today. Pre-pandemic, this client only operated in brick-and-mortar facilities.
“They were very involved in the community and had a good reputation before Covid hit,” Jaworski said. “So that cumulative advantage is still there for them because everybody knows about them and even though they’re pure telehealth, there are conversations that are happening. …
“National players are not doing that. They are trying to be everywhere across the board. You can’t really build that reputation.”
The lack of a cohesive national community requires digital behavioral health operators to create greater marketing diversity.
The data shows
A handful of high-profile publicly traded companies illustrate the wide variation in market spending for digital behavioral health companies or other digital health companies with a mental health component.
Scottsdale, Arizona-based LifeStance Health Groups Inc. (Nasdaq: LFST ) will spend about $11.7 million on advertising and marketing in 2021, accounting for 1.2 percent of the company’s total spending.
Dan Qureshi, co-founder and then chief development officer of Lifestyles, said the company is trying to get its transaction costs below 1 percent during the Q&A portion of the company’s Q1 2022 earnings call.
“Again, this is not an acquisition model based on bidding on keywords or unsustainable referral patterns,” Qureshi said.
LifeStance Health relies heavily on community relationships with local health plans, providers and organic online self-referrals, LifeStance Health founder and late Michael Lester said during the Q1 earnings call.
“We’re not dependent on direct-to-consumer marketing and we never will be,” Lester added.
Customer acquisition costs and other marketing data can often be unclear from public institution-based behavioral health companies.
Acadia Healthcare Co. Inc. (Nasdaq: ACHC), the largest pure-play behavioral health operator in the U.S., and Universal Health Services Inc. (NYSE: UHS), operator of acute and behavioral health facilities, do not report marketing, advertising or similar expenses. In their official filing with the Securities and Exchange Commission.
UHS does not seem to struggle with patient acquisition costs because it has more patients than it can handle.
For consecutive quarters, UHS management has said the company has been unable to meet higher-than-normal patient demand due to staffing shortages. UHS was able to take advantage of this. As used with payers Paying less than the company would like to see.
Both UHS and Acadia Healthcare declined to comment for this story.
“Metaphorically speaking, we have patients lined up outside our door whose payers or insurers want to pay us more,” said UHS Chief Financial Officer. Steve Filton said. at the Goldman Sachs 43rd Annual Global Healthcare Conference in June.
In contrast, many of the problems helped virtual mental health provider Talkspace Inc. (Nasdaq: TALK ) could be. Related to excessive spending on marketing And Inability to convert digital traffic to paying customers. Talkspace spent in 2021 100.6 million dollars in sales and marketingAccording to its annual financial report, about 63% of all expenses.
The company is trying to control that cost, Talkspace Interim CEO and Chairman Doug Brownstein said during the company’s second quarter earnings conference call. In the last three quarters, the company has He cut his media spending in half But the revenue, which is largely focused on direct-to-consumer sales, has seen a decline.
Teladoc Gorevich blamed mental health arm BetterHelp for the disappointing results on well-funded private companies driving up marketing costs.
Jaworski is skeptical of what he says will be hyper-competition in digital marketing.
“Google Ads, Facebook, Twitter – they all work from the same thing. [auction system and] Financial model, “Jawarski, increased competition increases costs. But, to be honest, it is generally not very meaningful.
Teladoc Health does not incur special costs for BetterHelp. The New York-based digital health company’s total advertising and marketing spending was $416.7 million, or 18.1% of its total spending in 2021; Public annual financial application with the SEC.
Like Talkspace, Teladoc is looking to rein in its marketing and advertising spending to rationalize customer acquisition costs.
“You’ll see that we’re not going to zero on ad spend in the fourth quarter, but it’s a significant decrease because of the higher spend per ad view,” Gorevich said during the Q3 earnings call.
BetterHelp is driving. Much of Teladoc Health’s revenue growth.
Public digital health companies Himes & Hers Health Inc. (NYSE: HIMS ) and American Well Corp. (NYSE: AMWL ), better known as Amwell, are also armed with mental health. Amwell spent $66.2 million on sales and marketing (15.3% of 2021 expenses), while Himes & Hers Health spent $136 million on marketing (42.5% of total expenses).
The blessing and curse of brick and mortar vendors
Queens Orchard Psychotherapy has become one of the fastest growing behavioral health companies in the US by adopting marketing efforts focused on its niche market.
The company effectively does no marketing and has very low client acquisition costs, Carrie Singer, founder and owner of a Rockville, Maryland-based group therapy practice, told BHB. Instead, he simply lists himself in the online therapist directory, Psychology Today, and makes a point of connecting with local health plans.
Word-of-mouth referrals and insurance networks bring many of the company’s new patients to Quince Orchard Psychotherapy.
In the year Since its inception in 2015, the practice has grown to include 40 vendors and approximately $7 million in annual revenue. By Inc. 5000 is mentioned on the list Income grew by 87 percent From 2018 to 2021.
“If we didn’t take insurance, I think it would be a different story because people have more options,” Singer said.
Many parts of the medical department do not work with health plans in network for a handful of common reasons. Among them, insurers pay less per session than what a therapist would charge if he or she were working cash-only or out-of-network. In addition, many therapists avoid the administrative burden of working with insurance companies.
Research by Milliman He has seen a growing disparity between the rates at which behavioral health companies offer behavioral health out-of-network compared to physical health services.
Singer notes that other practice owners who don’t work in network with payers are forced to focus more time and effort on things separate from care, such as “lighting up the profile of their medical professionals.”
“If we didn’t take insurance, I think it would be a different story because people have more options.”
Carrie Singer, Owner/Founder of Quince Orchard Psychotherapy
However, the challenges will be to actually meet the needs of a community. Quince Orchard Psychotherapy has a long waiting list.
Operators closely tied to communities are also limited by those communities. This is especially true from a workforce and supplier perspective.
The Health Resources and Services Administration (HRSA), part of the US Department of Health and Human Services, has confirmed that some states have More mental health providers than needed Others are much smaller. Those trends are expected to worsen in the future.
In the year In 2016, the Northeast region had a surplus of about 5,700 mental health counselors, while the Midwest, South, and West had deficits of 10,100, 20,400, and 3,200, respectively.
In the year By 2030, mental health counselor surpluses in the Northeast are expected to decrease to 2,700, while shortages in the Midwest, South, and West are projected to increase to 13,300, 22,000, and 7,500, respectively.
By facilitating better communication between providers and patients, digital behavioral health has the potential to overcome inequitable distribution and access to providers.
“The problem now is that no one is showing up in my town. Anyone who is allowed to practice in your state can see it,” Singer said. But how do you find someone who lives in a different state but is the best fit in your region? [the patient.]
“That’s what these digital health companies do — they aggregate these fragmented markets to make it easier to have just one place to search.”