What can traditional behavioral health operators teach startups about reducing customer acquisition costs

There is a lot going on about whether or not digital behavioral health operators will be able to solve the challenge of rising customer acquisition costs.

Last year, investors flocked $5.5 billion Capital in the coffers of digital operators. However, high client acquisition costs remain a largely unresolved concern that could limit digital behavioral health’s promise of accelerating access to care and alleviating the shortage of local providers.

He faces several big players in the field, including Teladoc Health Inc. (NYSE: TDOC) and Talkspace Inc. (Nasdaq: TALK), a heavy burden in advertising costs associated with customer acquisition, has been driven by the rapid expansion of digital health companies in general after years of high investment.

“I would say that we attribute it strongly to him [higher customer acquisition costs] to smaller private sector competitors that have recently been well funded with venture capital money flowing into that space and making what we consider economically irrational decisions,” Jason Gurevich, Teladoc CEO, said. He said during the company’s Q1 earnings call.

All along, the COVID-19 pandemic has raised the stakes around solving behavioral health care access challenges.

The acceleration of the emergence of COVID triple in the prevalence of depressive symptoms in Americans in 2020 compared to 2019, according to research by the University of Chicago and Boston University. Continue searching to discover that the rate increased From 27.8% in 2020 to 32.8% in 2021.

Separately, overdose addiction has ballooned since the onset of COVID-19 to Total more than 109,000 In the 12-month period ending in March.

Fostering additional innovation around technology and healthcare requires developing responsible and profitable digital behavioral health models, Project Healthy Minds CEO and co-founder Philip Shermer previously said to Behavioral Health Business.

“Just setting a lot of marketing money on the fire, hoping that within a decade you will discover that your business model isn’t always a business,” Shermer said.

Customer acquisition costs are strongly linked to society

Traditional behavioral health workers have the advantage of an innate connection to the local health care environment. These local communities have many forces that naturally create patient movement in the local market.

As a result, time combined with proactive marketing efforts by operators results in lower customer acquisition costs, according to Nick Jaworsky, CEO of marketing firm focused on behavioral health, Circle Social Inc. , for BHB.

“Where this low acquisition cost comes in is the cumulative community outreach and reputation that happens,” Jaworsky said. “What really drives me down [customer acquisition costs] It’s the invisible community conversations that happen.”

This cumulative community conversation can occur regardless of whether or not the provider is operating in a virtual or physical environment if it is otherwise connected to the community.

Jaworsky said that a Circle Social customer in the Seattle metro area conducts nearly 90% of his visits via telehealth today. In the pre-pandemic period, this client only worked in brick and mortar facilities.

“They were very involved in the community and had a good reputation before the COVID hit,” Jaworsky said. “So this cumulative advantage still works for them because everyone knows them, and there are those conversations that happen even though they are purely telehealth. …

“The national players don’t do that. They try to be everywhere everywhere. They can’t build that reputation very well.”

The lack of a cohesive national community requires digital behavioral health operators to make up for the difference in high marketing.

What the data show

A handful of publicly traded high-profile companies illustrate the wide gap in marketing costs for digital behavioral health companies or other digital health companies with a mental health component.

LifeStance Health Group Inc. spent in Scottsdale, Arizona (NASDAQ:LFST) about $11.7 million on advertising and marketing in 2021, which is about 1.2% of the company’s total expenses.

LifeStance co-founder and then chief growth officer Danish Qureshi said the company was trying to cut marketing costs to less than 1% of expenses during the question-and-answer portion of the company’s Q1 2022 earnings call.

Just setting a lot of marketing money on fire in the hope that in a decade you’ll discover that your business model isn’t always a business.

CEO and Co-founder of Healthy Minds Project Philip Shermer

“Again, this is not an acquisition model that relies heavily on keyword bidding or an unsustainable type of referral pattern,” Qureshi said.

LifeStance Health relies heavily on community relationships with area health plans, referral providers and online organic self-referral, Michael Lister, founding and now departing CEO of LifeStance Health, said during a first-quarter earnings call.

“We have never, and have never, relied on paid direct-to-consumer marketing,” Lister added.

Customer acquisition costs and other marketing data from public utility-based behavioral health companies are often opaque.

Acadia Health Care Corporation (NASDAQ: ACHC), the largest behavioral health operator in the United States, and operator of acute behavioral health facility, Universal Health Services Inc. (NYSE: UHS) does not report marketing, advertising or similar expenses in their public filings with the Securities and Exchange Commission.

It appears that UHS has not struggled with patient acquisition costs since it already has more patients than it can handle.

For several consecutive quarters, UHS leadership has spoken of the company’s inability to meet much higher-than-normal patient demand due to staff shortages. UHS managed to use this As a lever with pushers That pays lower rates than the company wants to see.

Both UHS and Acadia Healthcare declined to comment for this story.

“Metaphorically speaking, we have patients queuing outside our door whose payers or insurance companies are willing to pay us more,” UHS chief financial officer Steve Felton said: At the 43rd Annual Goldman Sachs Healthcare Conference in June.

On the other hand, many of the problems faced by the virtual mental health service provider Talkspace Inc. (Nasdaq: TALK) linked to overspending on marketing And the Failed to convert digital traffic in paying customers. In 2021, Talkspace spent $100.6 million sales and marketingAbout 63% of all expenses according to its annual financial report.

Talkspace CEO and interim Chairman Doug Brownstein said during a conference call about the company’s second-quarter earnings, that the company is trying to rein in that spending. Over the past three quarters, the company Cut media spending in half But it also saw a decline in its revenue, which was largely focused on direct-to-consumer sales.

Teladoc’s Gurevich blamed the disappointing results of his mental health company BetterHelp on well-funded private companies that drove up marketing costs.

Jaworski is suspicious of claims that growing competition in digital marketing is raising costs to extraordinary levels.

“Google ads, Facebook and Twitter ads – they all work the same type [auction system and] A monetary model,” Jaworsky said, adding that increased competition is driving up costs. “But, frankly, it’s not generally overly important.”

Teladoc Health does not separate specific costs from BetterHelp. The New York-based digital health company’s total advertising and marketing costs were $416.7 million, or about 18.1% of its total expenses in 2021, according to it. General annual financial deposit with SEC.

Like Talkspace, Teladoc is looking to reduce its spending on marketing and advertising as a dimension to rationalizing customer acquisition costs.

“You’ll notice that we’re not going to zero in ad spend in the fourth quarter, but it’s a significant drop because of the higher cost per ad impressions,” Gurevich said during a third-quarter earnings call.

BetterHelp is leadership Most Teladoc Health revenue growth.

The two public digital health companies Hims & Hers Health Inc. (NYSE: HIMS) and American Well Corp. (NYSE: AMWL), otherwise known as Amwell, is a mental health trend, too. Amwell spent $66.2 million on sales and marketing (15.3% of 2021 expenses) while Hims & Hers Health spent $136 million on marketing (42.5% of total expenses).

A blessing and a curse for brick-and-mortar providers

Quince Orchard Psychotherapy has become one of the fastest growing behavioral health companies in the United States by embracing marketing efforts focused on its specific market.

The company doesn’t market effectively and has very low customer acquisition costs, Carrie Singer, founder and owner of a group therapy practice in Rockville, Maryland, told BHB. Instead, it simply lists itself in the therapist’s online guide, Psychology Today, and makes it a point to be in the network with area health plans.

Oral referrals and insurance networks drive many of the company’s new patients to Quince Orchard Psychotherapy.

Since its founding in 2015, the practice has grown to include 40 providers and annual revenues of approximately $7 million. It is listed on Inc. 5000 Revenue increased by 87% From 2018 to 2021.

“If we didn’t take insurance, I think it would be a different story because people have a lot of options,” Singer said.

Large parts of the network treatment sector do not work with health plans for a number of common reasons. Among them, insurance companies often pay a lower rate per session than a therapist would charge if they were working on a cash-only or out-of-network basis. Furthermore, many therapists avoid the administrative burden of working with insurance companies.

Study by Milliman It found that behavioral health companies have experienced an increased disparity between the rates at which behavioral health is provided on an out-of-network basis compared to physical health services.

Singer notes that other clinic owners who do not network with taxpayers have to focus significant time and effort on out-of-care things like “lighting up therapists’ pictures” on their websites.

“If we weren’t getting insurance, I think it would be a different story because people have a lot of options”

Carrie Singer, owner/founder of Quince Orchard Psychotherapy

However, the challenges actually become meeting the needs of society. Quince Orchard Psychotherapy has a long waiting list.

Operators closely related to communities are also restricted to these communities. This is especially true from a workforce and provider perspective.

The Health Resources and Services Administration (HRSA), part of the US Department of Health and Human Services, has found that some areas have There are more mental health providers than needed While others have a much smaller number. These trends are expected to intensify in the future.

In 2016, the Northeast had a surplus of about 5,700 mental health counselors while the Midwest, South, and West had shortfalls of 10,100, 20,400, and 3,200, respectively.

In 2030, the mental health counselor surplus in the Northeast is expected to shrink to 2,700 while the deficit in the Midwest, South and West is expected to increase, respectively, to 13,300, 22,000 and 7,500.

By facilitating convenient communications between providers and patients, digital behavioral health has the potential definitive benefit of overcoming the unfair distribution of and access to providers.

“The problem now is that you are only seen by anyone in my city. You can be seen by anyone who is allowed to practice in your state,” Singer said. “But how are you going to find someone who may live in a different state but is listed in your state and is the best fit [the patient.]

“This is how these digital health companies do it – they bring together these segmented markets to make it easier to have only one place to search.”

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