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The pandemic added significant mental health stress into the daily lives of most Americans. And, in a world subject to virus surges, stay-at-home orders and an avoidance of in-person gatherings, the need for virtual mental health treatments and solutions has increased, too.
Many mental health providers, however, continue to struggle to deliver these needed behavioral and mental health services. Now, investors and innovative providers are looking for ways to implement forward-looking technology solutions for improved patient engagement, workforce management and population health initiatives. These efforts are changing the way we think about and address our mental health challenges and treatments going forward.
The mental health toll of the pandemic
According to the Centers for Disease Control (CDC), since the onset of the pandemic, approximately one U.S. adult in three reported symptoms of anxiety or depression, a three-fold increase from pre-pandemic levels.
In another study conducted by Blue Cross Blue Shield in 2020, 27% of those surveyed indicated they were “very” or “extremely worried” about the pandemic, 9% reported losing their job since the start of the pandemic, and 51% reported having a CDC-identified underlying condition that puts them at a greater mental health risk. Further still, there has been a 10% to 40% increase in alcohol intake, smoking, vaping, use of drugs for non-medical purposes, and eating more food, according to the study. More recently, the CDC released data that showed 100,000 Americans died from drug overdoses in the past 12 months, a tragic record. The stress of losing friends, family and employment to the pandemic, as reflected in the survey data, has a direct correlation to increases in conditions such as anxiety, major depressive disorder and addiction-related illnesses.
Source: Centers for Disease Control, NHIS Early Release Program, RSM US LLP
While more people are suffering from mental health issues, more people are also willing to seek help. A recent survey from Health Partners, an integrated health system, suggests 46% of adults surveyed in 2019 were reluctant to seek help for mental health, which represents a decrease from 50% in 2017. The same survey suggests that more people are comfortable talking about mental illness and admitting to friends they are suffering. The reducing social stigma of mental illness is also increasing demand for services.
The increased prevalence of anxiety, depression and other mental illness that came with the onset of COVID-19 means mental health can no longer be ignored. Providers, patients, employers, payers and investors are rapidly acknowledging and addressing the increased demand for vital mental health care services, despite short-term implementation challenges.
Funding fortifies a sector in need
At the same time more people needed mental health care, the mental and behavioral health sector also saw significant labor supply decline. In April of 2020, the sector lost 5.8% of its total employee headcount, or 31,900 people, according to the Bureau of Labor Statistics. The sector has since generally recovered its employees, with the notable exception of inpatient psychiatric providers; however, certain markets and sub-sectors remain understaffed. Simply recovering to pre-pandemic employment is not enough because demand remains elevated at three times pre-pandemic levels.
Source: Bureau of Labor Statistics, RSM US LLP
Source: Centers for Disease Control, NHIS Early Release Program, RSM US LLP
The chart above shows that despite increased hiring in most markets and behavioral and mental health sub-sectors, the supply of labor is not enough to meet demand. This is an imperfect measure, as we’re using available data as proxies for both supply and demand, but the collapse in the ratio suggests that demand for behavioral and mental health services has increased three to four times faster than the supply of labor in the sector.
The surge in need for care has put tremendous additional pressure on care providers who were already pressured before the start of the pandemic. Many organizations have had to make tough decisions to limit new admissions, and some have also closed shop as they were not able to sustain the changing needs and adapt to the new world that we now live in.
The Trump, and now Biden administrations have implemented new programs, plans and regulations to infuse funds into the broad health care ecosystem, including the behavioral and mental health sector. The March 2021 American Jobs Plan included a substantial increase in Medicaid funding for home-based care and community-based services of up to $400 billion, and the CARES Act included provider relief funding, to the benefit of behavioral health providers. The 2022 final patient rule and other regulatory and reimbursement tweaks have been generally favorable to behavioral and mental health providers.
On the private investment side we are also seeing a surge in venture capital funds flowing into the for-profit behavioral health service provider community. Venture capital investment in digital mental health solutions in 2021 ($2.0 billion) has almost doubled compared to the investment level in 2020 ($1.2 billion), according to data from Pitchbook. The median post-money valuation has also increased to nearly $16.5 million in 2021 from $12.5 in 2020 – a sign of maturation in the space.
Source: Pitchbook, RSM US LLP
A large part of the investment has been in technology, workforce and innovation to keep up with the changing landscape, sustain growth and provide high quality of services.
While there is an increased amount of funding, it is also coming with a changing regulatory implication, which is going to be results-oriented. This regulatory impact is intended to have service providers prove out the value they are creating through better care and outcomes for the clients they serve, which will also require a change in the mindset of the clinicians and service providers as they move away from the fee-for-service models of the past.
This deluge in funding is being driven by two primary factors. First, as touched on earlier, the pandemic has rapidly accelerated digital health adoption across use cases while simultaneously casting a pall over the nation’s collective mental health. Data from the U.S. Census Bureau’s household pulse survey suggests the average share of adults reporting symptoms of anxiety or depression has approximately quadrupled from pre-pandemic levels. And while telehealth volumes (a proxy or the adoption of digital health in general) are falling from peak pandemic levels, they will remain above pre-pandemic norms and will eventually grow again as the new regulatory and reimbursement regime is solidified.
Investors want to participate in the rapid transformation of behavioral and mental health brought about by the pandemic and changing social views on mental health. The opportunity is significant, and we expect investors will continue to pour record amounts of capital into the sector over the near and medium term, if not longer.
The power of digital
Digital technology has unleashed incredible value as it has disrupted other ecosystems. Its ability to reproduce and transmit services instantly and across great distances with little to no loss of quality, while also reducing costs of services and improving the value for consumers, can be transformational to organizations and the consumers they serve. Mental health has long been underserved as people did not understand or want to admit what they were suffering from, or lacked access to mental health care. Digital technology has incredible potential to improve access for mental health delivery, just like it did for personal banking, retail and entertainment. Investors will continue to invest in solutions and platforms at record levels as the nascent subsector grows and patient care needs expand.
The diagram below outlines some of the trends in relation to the evolving needs that service providers have to improve productivity, provide better care and generate additional revenue.
Source: RSM US LLP
While most of these trends have been around for a while, they have been significantly amplified over the course of the pandemic, forcing organizations to think out of the box, and often digitally, to survive and invest for the future.
At a time when change is the primary constant, mental health leaders need to be regularly evolving their outlook and finding ways to improve access, improve the quality of care provided to their patients and increase revenues to be market leaders who build a better future for the communities they serve.
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