Navigating Digital Behavioral Health’s Growing Pains: From Payer Partnerships to Employer Contracts

Once a rarity, digital behavioral health companies are now an established part of the industry’s ecosystem.

However, as this subsector of behavioral health begins to mature, many startups face a number of growing pains, whether it is garnering enough investor dollars to stay afloat or developing contracting strategies with employers. I don’t see these hardships as a negative necessarily, as with human growth, they are a natural part of development.

And the good news is many pioneers in the space are starting to tackle some of these difficult questions.

Earlier this week the Behavioral Health Business team headed to the nation’s capital to host our inaugural INNOVATE conference. Here we heard about some of the industry’s greatest and how startups could navigate the changing landscape.

In this update we will discuss:

• How to successfully navigate a payer–digital provider partnership
• What investors expect out of behavioral health startups in order to sign a check
• Why employers are no longer signing off on the ‘all-you-eat buffet’ of behavioral health services 

The keys to a successful digital health pilot

Pilots between digital behavioral health companies and payers are lengthy, time-consuming processes. A successful pilot can result in a sustainable long-term relationship. However, first, digital providers must meet certain requirements.

What are the highest-stakes obligations for a pilot? Scale and speed.

“The only time I’ve seen a pilot go incredibly bad… is not understanding the scale or the speed that will get there,” Andrew DiGiacomo, director of provider partnerships at Evernorth Behavioral Health, said at INNOVATE. “If we are suddenly pushing [for] more and more referrals, where we’ve seen it fail [when] a provider comes back to us and says, ‘This is too much.”‘

Evernorth is Cigna’s (NYSE:CI) health service division. The company launched a 1,000 clinician-strong behavioral health group in March, guaranteeing patients appointments within 72 hours.

The consequences of a failed pilot can be costly for both payers and providers – and have serious consequences for fledgling behavioral health startups. Providers and payers must complete extensive groundwork and have honest discussions from the get-go to avoid failures associated with a lack of scale and speed.

“Payers are getting so much better at this, and I’m seeing more and more provider groups really dedicate teams to sit down, spend that extra day together to think about all the potential things that could happen and put a really strong roadmap together,” DiGiacomo said. “Because then it’s fair to everybody.”

To measure success during a pilot, payers and providers should agree on a select set of crucial metrics. For Evernorth, this means keeping track of two to four metrics rather than requiring providers to accumulate large amounts of data that may not be relevant for evaluating a pilot’s success.

Metrics should be refined to measure the most relevant data, according to Damayanti Dipayana, CEO of virtual pediatric mental health provider Manatee.

Denver, Colorado-based Manatee provides child and family therapy and parent counseling. The venture capital-backed company raised $5 million in a funding round in 2022, according to public records.

“What I’ve seen is not necessarily an addition of metrics, but really a refinement of metrics,” Dipayana said. “When COVID hit, everybody was [focused on] access, access, access. Now the layer on top is access – to the right level of care.”

For Manatee, getting patients into the best level of care means using a thoughtful clinician-matching process. Fewer than 3% of the company’s patients seek to match with a different therapist after meeting their first one, Dipayana said, which drives engagement and outcomes.

And at the end of the day, outcomes are the “most important part,” DiGiacomo said.

Investors’ changing expectations for digital behavioral health

As the behavioral health industry matures, investors’ interests and expectations are evolving.

While investors once focused on top-line revenue, they now seek evidence of a sustainable business model. Additionally, investors are looking to de-risk their investments by finding the right founder to invest time and resources.

“There used to be far more appetite and tolerance for founders with an interesting idea that had to come up through a steep learning curve in health care,” Natalie Schneider, CEO and founder of Fort Health, said at INNOVATE. “Now the expectation is that day one, these founders have high healthcare acumen with an understanding of credentialing, licensure, regulatory environment, as well as a Rolodex of payer partners.”

New York City-based Fort Health is a virtual pediatric behavioral health provider that provides services through a collaborative care model, working with pediatricians to offer patients therapy, psychiatry and parent coaching. The company recently raised $5.5 million and is expanding into two new states in January 2025.

Investors are also increasingly interested in companies with a societal benefit, like those working in climate technology or health care, Schneider noted. This trend still requires companies to demonstrate attractive returns.

Luckily, a beneficial clinical model often directly relates to profitability depending on a company’s economic model, according to Rob Pahlavan, partner at Healthcare Foundry.

Portola Valley, California-based Healthcare Foundry is an early-stage venture capital firm. Among the companies Pahlavan helped to co-found is Overstory Health, a partial hospitalization and intensive outpatient program (PHP/IOP) provider with virtual and in-person components.

Contracts with value-based or similar components directly link outcomes and financial success, Pahlavan said.

“Clinical quality and outcomes … are actually front and center,” Pahlavan said. “If those are not there, your leading indicators are not there. You’re not going to be profitable either.”

These changes in investor preferences come during the mental health investment frenzy of 2021 and 2022 hangover. Investors are now watching their “mistakes come to roost,” Pahlavan said, but the market is slowly flushing out the bad investments and setting the stage for a better year of behavioral health investing in 2025.

Employers no longer pay for the ‘all-you-eat buffet’ of behavioral health services

Over the last few years, a number of digital behavioral health companies have focused their business model on the employer market. But most employers–and payers, for that matter–are reluctant to pay for a flat per-member-per-month contract. Instead, employers want to see engagement and outcomes.

“I think employers have moved away from wanting to pay for an all-you-eat buffet to a consumption-based model. And so I would say that the majority of our contracts are looking at utilization and what that consumption is, and paying for it from there,” Dr. Jenna Glover, chief clinical officer at Headspace, said at INNOVATE. “Certainly, in our health plan partnerships, we have milestone payments, and it’s much heavier in value-based care, but we are exploring those in our employer relationships.”

As employers become more savvy in behavioral health, contracting has also evolved. While many providers are open to new types of contracting, it takes some brave employers to test-drive these models.

“I think there’s a lot more interest in the value-based, performance-based care pricing than there has been in the past. We’ve had those types of contracts with a couple of our customers for many years now, but we’re more and more open to that kind of idea,” Alethea Varra, SVP of clinical care at Lyra said at INNOVATE.

Yet, these types of contracts include some degree of variability. That means some risk for providers and employers. Varra noted that it was easier for providers to give you a straightforward figure in traditional per-member-per-month contracts.

Still, as more companies begin to sign these alternative contracts, both parties can better understand what those models will look like.

“We now have so much data on it that we can reliably predict those costs,” Varra said. “The customers, companies, and organizations that did that a couple of years ago were really on the forefront, and they’re the ones who took the risk. And now the models are so good at predicting this and airing it out that even whenever you go into one of those variable rate types of contracts, you can have a lot more predictability than there used to be.”

–Laura Lovett also contributed to this piece.