Behavioral Healthcare: Robust Demand and Ripe for Innovation

Following the COVID-19 pandemic, the behavioral healthcare industry has experienced an unprecedented surge in the need for innovation, increased access to care, and demand for services. In this episode of the William Blair Thinking Presents podcast, Ryan Daniels, CFA, partner, and group head of William Blair's healthcare technology and services sector, discusses how long-term investments in cutting-edge healthcare technology solutions can effectively address these growing needs.

Podcast Transcript

00:20
Chris T
Hello everybody. Today is Monday, August 26th, 2024 and we are back for another episode of William Blair Thinking Presents. This time and once again with Ryan Daniels, CFA partner and group head of the health care technology and services sector for William Blair. Always a pleasure having you, Ryan.

This time it's going to be again around his newest health care mosaic. And this, of course, is a report they release every quarter that sets out to cover a far-reaching topic of interest in the health care space. They analyze it for its impact on the broader health care marketplace. But this one in particular falls very quickly on the heels of their Provider Burnout Mosaic, which we did an episode out a few weeks ago, and focuses on the behavioral health care market, which is a market that Ryan and his team say in the report as one they have rarely seen as ripe for innovation and such robust demand in the nine years that they've been putting out these reports.

So again, Ryan, welcome back. We want to start with a brief overview of this report, including what drew you to this particular area of behavioral health care and then from there, I figure we can start walking through the details.

01:21
Ryan D
Sure, Chris, and thanks again for having me on for another episode, especially as you just said, given that we completed one just a few weeks ago. But I really enjoyed doing these. So again, very glad to be back on again with you. Now, regarding your question, this is actually a space we've followed closely for a number of years, and we actually did our first quarterly mosaic report on the behavioral health care space a few years ago.

Like all of our mosaic reports, as you know, it was driven by the big uptick of interest we saw in a particular subsector over a short period of time. More specific, we saw a huge increase back then in the demand for and subsequently the insurance coverage of behavioral health care services. So we wrote a very detailed piece at that time on why we believe it would be such a great growth industry going forward.

And frankly, we were right, but probably even underestimated how much demand there would be for behavioral health care services, especially in the aftermath of the COVID-19 pandemic. Put simply, there was a huge uptick in demand for behavioral care post-pandemic. And the delivery model really changed to more virtual care delivery, in the post-pandemic environment. And it remains that way today.

So given these two big changes, we thought it would be a really great time to do an update on the market and to bring our thesis really more up to date, given the current market realities. So thus the reason for your report to directly hit your question.

02:42
Chris T
All right. Perfect. The first piece of the report focuses on demand for behavioral health care, which you say has reached critical levels. So much so that the industry is nearing a breaking point regarding the need to expand care delivery solutions. Want to talk through that a bit. What would you say has been the catalyst for this growing demand?

03:01
Ryan D
Yeah, that's a great question. It's actually a perfect starting point, Chris. And there's really a few ways to answer that. First, I think the stigma behind getting mental health care treatment has really abated a lot over the last few years. So, if you think about it, we recently had the Olympics, and this is a great example. You have Michael Phelps in the stands.

He's cheering on Simone Biles. Those are two of the greatest, most elite athletes, competitors of our times. But they also both have been outspoken about their mental health care conditions and the need to get care. And they've even become advocates and sponsors for specific companies. In Simone's case, for a large private online company. And with Phelps, he actually partners with the largest public player in the space to be an advocate, help with marketing.

And it may not sound significant, but when people see such heralded athletes in a wide variety, whether they are movie stars, singers and even the Prince and Princess of Wales talking about the condition, it really helps reduce the stigma. And it's driven a lot more people into treatment, which is a great thing. Second point, I bet we get into this a bit more later and more detail, but the ability to get care virtually has also eliminated a number of barriers to getting treatment.

Put simply, if you think about it, it's the perfect condition for virtual care delivery as it's mostly talk therapy. There's really no need for provider to put their hands on a patient to assess pain or mobility or movement. The doctor doesn't need to run a diagnostic test or throw a blood. So again, it's the perfect condition to be treated virtually. And this also helps eliminate a time constraint barrier for patients to travel to a clinic and wait to get care. And that also probably reduces stigma or fear of getting care, as one can attend a session from the privacy of their own home. So again, I think the improve access to virtual care is the second aspect driving demand.

And then third, the need for behavioral health care is just skyrocketing in general. As an example, we reference a few surveys in the report, and they indicate that about two thirds of adults are concerned about their own mental health or that or their friends and families, which is remarkably up about 15 percentage points since 2020 alone. So used to be about half the population. Now it's 65%. So, a big uptick. It kind of worries about various aspects of behavioral health care. And a recent Gallup poll. We also talk about the report found that 51% of Americans had depression or anxiety or another mental health condition during the last year alone, with about 22% of them stating it was so bad it actually disrupted their normal activities, like going to work or caring for their family.

So, it's really clear that it's become a major health care crisis for the country. Now, all that said, it's impossible to directly determine what's causing this uptick. It could be post Covid ramifications from isolation. It could be working at home, other societal factors at play. But the punch line is the demand for care and the need for care, unfortunately, is really skyrocketing.

05:59
Chris T
We did touch on some of the findings that you found about the increasing need for mental health services in the workplace. So, I think we can actually probably skip that question. But I do want to touch on the fact that in the report we have this demand for mental health services reaching an all-time high.

You've got this very worrisome trend of child and teen mental health hospitalizations being on the rise. And yet accessibility to care somehow still remains a big problem. Can you can you talk about this a bit?

06:27
Ryan D
Yeah, I can actually hit both because I think it is important for the workforce as well. So if it's okay with you, I'll hit that and then I can go on to the kids.

Yeah. I mean, the workforce issue really follows suit with what I just mentioned. More than 1 in 5 people are being so impacted by a mental health issue, they have trouble functioning at work.

It becomes an issue for employers. And again, data indicates that increasing access to mental health care was one of the top, if not the top area that benefit managers were focused on in 2024. And we really see similar demand manifesting for 2025. So in the report, there's a great study from the era called State of Workforce Mental Health Care, and it found that 90% of HR benefit leaders said mental health benefits are very important.

And while that is incredible in and of itself, what's even more amazing is that that percentage we get 94% of all H.R. managers, is up from only 36% as recently as 2022. So just a remarkable increase in the recognition among employers that they need to offer this level of care to their employees and their dependents. And, you know, this is not only to help treat the conditions and lower cost, but to ensure more productive and engaged workforce.

So along with becoming a public health crisis, I would say actually become a key investment area for employers as they consider their health and benefit offerings going forward. So again, I think it's kind of an important point to add to our discussion. Now, I know you also asked more directly about kind of the impact on teens and youth for mental health care, and it's a big issue there as well.

It's really a big issue everywhere. And quite frankly, this is pretty tragic. CVS Health did a study recently which found that about 70% of all parents are concerned about their children's mental health. And this is actually yeah, it's shockingly high and it's higher than the 66% in the survey that were concerned about their physical health, which, again, is really telling about the size and impact of this problem.

Another data point from Morning Consult indicates that mental health care issues are disproportionately impacting today's youth. Again, hard to say why, but it's clearly out there. And, Education Advisory Board or EAB report that surveyed more than 6000 U.S. high schoolers that are currently applying to college indicated that almost 30% of them are actually debating whether or not to delay going to college due to mental health care concerns.

So there is a clear needs to this in this population as well. Unfortunately, as you said, that access still remains somewhat limited. Just a basic supply demand imbalance is you had this very significant uptick in demand in the near term that's outpacing capacity to treat. And also even in markets where capacity exists, it's not always covered by insurance.

So, a lot of care is what we call out of network. It might simply be unaffordable for teens and their families. And again, it's why going back to my first point and really focused on the space and offering affordable access is a workforce benefit for employees and their families more than ever.

09:31
Chris T
And that brings us to potential advancements in the space. You know, one area of advancement that you deem most promising is the influx of new capital that providers are using to create solutions for the space. But then on the flip side, you also talk about how things like a lag in health care, IT adoption and the lack of digital health integrations hinders the patient's healthcare journey, which creates a significant barrier to the exchange of behavioral health data across the care continuum.

Can you talk about both areas and what's being done to facilitate digital integration?

10:04
Ryan D
Yeah, sure. Happy to. And there's a lot to unpack there. So, I'm actually going to answer that question separately if that's all right. All right. So first on advancements in the space, what's interesting is the private equity and VC investing market. Mental health care. Behavioral health care really been enormous over the past four years or so. In fact, we have data again in the report that shows that it has been the number one clinical condition receiving private investments every year since 2020.

And not only that, but it's actually been, about twice as high as the number two condition, which is cardiovascular or oncology disease, depending on the year analyzed.

So again, a lot of dollars targeting innovation sector. And this capital is going to a few areas. I would say first and foremost into virtual care delivery options. Again, this is really a key area as it can break down barriers. It can scale efficiently and it can therefore provide more affordable access to care, which is key. Also, by enabling patients to get this care outside of a local treatment area, it really helps better load balance the supply of provider, the demand of patients across the country versus just one market. And given the shortages in a lot of markets, that's pretty critical as well.

Second, with virtual care, you can really make patient intake processes and visits themselves much more efficient. For example, you can do things like initial screens of the patient based on some pretty simple intake questions in order to pair them with the best behavioral health care provider. For instance, let's say it's a young black woman. Maybe she's not exactly comfortable talking to an older white doctor.

Or maybe there's a man doesn't want to work with another man for therapy. He'd rather talk to a female practitioner. So, you can really address all that in the intake process and better match patients and providers. And it makes the visit really better for everyone involved. It increases the odds that a patient will stick with the treatment, which is probably the number one indicator of long term, success for these patients.

So again, it creates a lot of, effectiveness in the market. You can also triage patients more effectively. Perhaps some need more immediate care. Some could be addressed with asynchronous communications versus having spent time with a life therapist. And that just means that you would actually send text messages and then receive text back, but it wouldn't be real time.

So again, a ton of options to leverage technology to increase capacity and really increase and improve outcomes at the same time. So virtual care that's seeing a ton of growth and thus capital inflow. Second, and you discuss this as well, more and more broader health care providers are really starting to realize that integrating behavioral health care into the broader care continuum, as you said, is critical.

For example, if you're depressed, you're stressed out about something, you know, maybe addressing your physical condition becomes second tier. So, by leaving a behavioral health care issue unchecked, you can have the second order effect also impacting your physical health. So maybe you're not taking your medications. You're not doing your exercises for physical therapy. You're not following your diet or eating well, you're not making your doctor's appointment, you name it.

But simply if you don't address the behavioral issue first, you can't really expect success in treating the physical ailments. And that's getting widely recognized. So, this growing appreciation also drives the need to integrate behavioral and physical health care into what we like to call whole person care. And as a result, a lot of providers like PCPs are actually starting to share patient data and actively make referrals to behavioral health care professionals as part of their daily practice.

In fact, one of the companies that I cover, a large public company which does both virtual care and in-person care, which we like to call clicks and mortar, gets almost all the referrals from PCP. So, it's a really big opportunity. And even some of the onsite near site care delivery providers are starting to add behavioral health care practitioners to their onsite services.

So again, really crossing into the mainstream health care delivery, which I think is really important. Another area we didn't cover is that regulators, I would say, are really starting to push for more coverage and access to behavioral health care as well. When industries really see innovation. And our view is when both the market and the regulators are aligned to drive growth, that drives a ton of investment.

It drives innovation. So, I do think it's an important point. And I'll give you a couple of examples of this. The government is increasing payments for behavioral health care services. It's allowing more types of providers to enroll as Medicare eligible specialist Medicare beneficiaries. It's covering more types of care, including virtual care and items like post-discharge care follow ups.

So, it's really looking to increase the supply of caregivers with allowing more to practice and paying them more and to open up more types of treatments. So, I think it's a really relevant data point to bring up. Second, I know we typically try to avoid mentioning specific companies by name in these reports, but I'd also just throw out there that our report does a really good job providing data on all the entities that have entered the market, their fundraising activity, and the different players in various areas of care.

And, and so I would encourage our listeners to get a copy of this or take a look at those sections as, there's some really interesting companies doing some highly innovative things in the marketplace. So that's second point. And then third point. Just on a personal note, if I could, I'd like to end this by, giving a shout out to a very loyal podcast listener. Over the weekend, my mom said she has found the podcast site, listens to all my podcasts now, sometimes multiple times, to make sure she gets all the data. So, a shout out to mom, love you. Many thanks for constantly listening and supporting me.

15:48
Chris T
Well, I love that. All right. Well, Ryan, appreciate it. As always. We'll do the next health care mosaic as well. And, until next time, have a great one too.

15:56
Ryan D
Can't wait to do it. Thanks so much for all your, time consideration with this. Really appreciate it.

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