ARE YOU SELLING MENTAL HEALTH SOLUTIONS TO EMPLOYERS? WE NEED TO TALK ABOUT YOUR ROI...
Yoav Fisher
Head Of Technological Innovation and Digital Health- HealthIL and Early-Stage Health-Tech Investor at ANOVA Ventures
PREFACE:
Everybody is trying to hit up employer insurance, this we know.
We also know that employers have long ago hit vendor fatigue – trying to sort out the comparative advantage of a bazillion startups who are all offering eerily similar solutions – particularly in mental health.
With so many overlapping solutions, the ones that will stand out are the ones that can prove economic value, and not just clinical value.
Therefore, it was quite interesting, and maybe a bit “coincidental”, that three major mental health startups – headspace , Lyra Health , and Spring Health - all offered the same open webinar on the topic of "ROI for digital Mental Health Startups" – and all within 2 weeks of each other.
Headspace has raised $216M, Lyra has raised $915M, and Spring has raised $465M.
That is about $1.5B dollars that has been allocated to three companies that to an untrained eye seem to have noticeable similarities in the product, business model, and customer base.
So, I was very curious to see how these three competitors differentiate themselves regarding ROI. I sat through all three webinars and took extensive notes 😊
The webinars were illuminating and interesting, but also somewhat disappointing...
Below is a summary of my insights, so we can all build better products. I am aggregating everything, so as to not call out one of the companies.
This is relevant not just for mental health, but for any founder who is building a solution for US employers, and also for the investors who are exploring the space.
INTRODUCTION
There is no question that Mental Health is a massive and growing issue in the US. The more we unpack Mental Health issues, the more we realize how widespread they are.
Mental health costs the US healthcare systems nearly $300B a year.
As the always brilliant Eric Bricker, MD spoke about recently, the connection between mental and physical health is real. Better mental health has a positive effect on physical health.
There are many studies supporting this. In 2016 Intermountain Health released results of a massive longitudinal study on how mental health care affects Diabetes. Those patients who received mental health support reported higher adherence to their Diabetes care protocol, and subsequent decreases in utilization. Incorporating mental health care to their existing Diabetes care protocol saved the system about $260 PMPM,
There is even a very strong correlation between depression/anxiety and medical debt.
Employers have also woken up and realized that the mental and behavioral wellbeing for their employees is critical for financial results. Happier workers means better business.
ENTER THE STARTUPS!
So now we have a bazillion startups building various flavors of mental health support all trying to take a slice of this massive market.
Employer benefit managers are saturated with solutions, with little tangible differentiation between them. Many of these startups are showing strong signs of clinical benefit. Some are even showing strong retention rates.
But this makes the economics even more important... In order to truly win a corporate customer, these startups need to also show financial benefit.
There are two main economic triggers to ROI - reducing cost or increasing revenue. That's about it. The nuance comes in how you do this and how you define this. So let's explore.
COST REDUCTION
In the mental health world, cost reduction follows a set logic: reducing employee claims and healthcare utilization by pro-actively increasing mental-health intervention.
At the highest level this is true. Savings for employers come primarily from reduced outpatient visits, less inpatient visits, and better medication adherence (which also reduces both outpatient and inpatient services).
But it is important for startups to show this in a standardized way:
Startups should demonstrate cost savings on actual employees of the potential customer, not on random employees from a different customer, or from open-source data.
Like clinical trials, startups need to show the effects of mental health intervention on two different arms - those who receive the intervention vs. a sample of those who do not receive intervention.
And please do not use Crossover Studies.
Claims data is the way to go to show utilization decreases and cost savings.
Special note on this - it is very hard to show actual causality where a specific mental health intervention decreased a specific type of utilization.
Another special note on this: IT ACTUALLY DOESN'T MATTER. The causality between mental health and physical health is still amorphous, but ultimately you just want to show reduction in any way possible.
This is a huge sticking point. Many startups are able to show cost savings for the intervention - but that does not necessarily mean over-all cost savings to the employer.
In order to show cost savings to the employer, mental health startups need to show full costs, including the all costs of the service itself that the employer pays to the startup.
This is where many known mental health startups fail.
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INCREASING REVENUE
Increasing revenue is the other main trigger for ROI. The connection between mental health and revenue is also logical: Happier employees perform better (increasing productivity) which will drive up revenues.
To be blunt, this is an area that needs work...
Mental Health startups typically show increased productivity by tracking "Absenteeism", which is basically a fancy word for not showing up for work.
Almost every mental health startup, including the three who presented, is using this metric. Cursory google searches also reveal a bunch of pseudo-intellectual articles that also cite Absenteeism as the go-to metric.
This is incorrect.
Absenteeism is actually a very poor metric for measuring productivity and revenue, especially for mental health.
Absenteeism is a poor metric for three reasons. First, you can't really ask people why they aren't showing up besides begging them to fill in some survey. Secondly, many people don't tell the truth. (How many of us have "called in sick" in order to go on a Bachelor/Bachelorette day-drink tour in Napa?)
The third reason is always overlooked and is actually most critical to mental health, which is known in academic circles as: DECREASED PRESENENTEEISM.
Mental health is distinctly different from physical health when it comes to how it affects employers.
If an employee gets a hip replacement then you know that employee is going to be out of the office for a set period of time.
If an employee has Depression, or Adult ADHD, or Acute Stress, odds are very strong they are still going to be coming in to the office, but will be less productive. This is known as "Decreased Presenteeism", and has been studied in academic circles for over thirty decades.
The Stanford Presenteeism Scale (SPS) was developed in 2002 as a way to assess this, way before Mental Health became a topic for employee benefit managers.
Recent studies have expanded to include mental health, and show exactly how mental health affects not only absenteeism but also significantly affects presenteeism.
An Ipsos-Reid study from 2009 looked at depression and came to the (not so shocking) conclusion that depression has a massive impact on the ability to remain productive.
So how does a startup measure productivity and subsequent revenue when Decreased Presenteeism is so prevalent in mental health?
The world of labor economics is filled with metrics to measure productivity. A lot of these metrics may seem rudimentary, but they work. Some examples include:
And plenty more.
More importantly, these metrics can be transformed to Revenue.
The key here is for startups to match these metrics to the industry in question, and to how the business units are operating. For example, if the target customer is a large legal or consulting firm, Billable vs. Non-Billable hours is a good metric that they are probably tracking anyhow.
Like with cost measurements, startups need to example productivity metrics against similar cohorts that do not receive the intervention.
ADVANCED TOPICS - FINANCIAL METRICS
One of the biggest misses from the three webinars was the glaring lack of financial metrics.
For every startup trying to sell to employers, you need to speak their language. Corporates speak the language of Margins and EPS and EBITDA, and startups should make sure they can translate their cost and productivity metrics to common financial metrics.
I am sure that Lyra, Spring, and Headspace have all had these conversations internally with their customers, but it was clearly lacking in their presentations.
This is going to be increasingly important because healthcare expenditure for employers, both self-funded and fully funded, is projected to increase dramatically in the coming years.
This will put heavy margin pressure on employers. Every benefit manager and every CFO is working on their pro-forma for 2025 and 2026 as we speak, and startups should be ready to speak to this upcoming trend.
For example, Walmart, the largest employer in the US, spends $6B a year on healthcare for their 1.5M employees. Walmart typically rolls to about 2.3% net margin, that's it. So anything they can do to address healthcare expenditure has material affect on margins, and subsequent EPS.
In the face of this massive and scary growing expense, Walmart has started to push out virtual primary care as a way to lower this cost. Early indications point to an 11% decrease in healthcare expenditure for the company. To put it into perspective, that is a $660M increase in their net profit. All things being equal, had Walmart pushed out this initiative in 2022, this would have increased EPS from $1.92 to $2.00 in 2023.
Startups selling to employers should strive to speak this language.
SUMMARY
With all of these solutions out there hitting up employer insurance, it is very hard to create differentiation. Clinical relevancy and retention are obvious musts, but startups that can successfully show economic benefit are going to stand out.
This will come not only from understanding how to properly convey cost savings (lower utilization), but also increased revenue and the impact on common financial metrics measured over a tangible fiscal timeframe.
Many startups are doing a decent job of addressing cost savings, but there is work to be done on showing revenue increases and translating results to financial metrics.
Startups should start on this path earlier rather than later. Those startups who do it right will be rewarded with more/better contracts and potential early acquisition as the market consolidates.
Don't be scared of finance. Excel is your friend :)
Till next time!
Great insights! Thanks for sharing
Very interesting insights and summary! Enjoyed reading it!
🎗️GUIDE Client Relationship Manager | Podcast Host I HealthTech Sales I LinkedIn Campaigns | Lead Generation I LinkedIn Campaign Management
4moInsightful! We always need to evolve and create new meaningful ROI messaging. Thanks for sharing .