Digital Behavioral Health is Growing Hand Over Fist

The COVID-19 pandemic has turned digital behavioral health into a hot field. Even Britain’s Prince Harry is getting in on the game, joining the digital coaching company BetterUp as chief impact officer just weeks after the company raised $125 million in additional funding.

Money is pouring into digital behavioral health companies. Investment has more than doubled from 2019 to 2020, reaching $2.4 billion in venture funding, according to a report by Rock Health, a venture fund focused on digital health. At the same time, the number of deals jumped from 40 to 67. The investment spree continued the first few months of this year, with hundreds of millions more pouring into companies. “It feels like the momentum created in the pandemic … is still underway,” says Megan Zweig, Rock Health’s chief operating officer and co-author of the report. “The potential is accelerating.”

BetterUp said it will use its latest funding to support its new BetterUp Care, which offers businesses access to such services as coaching with behavioral health, parenting and sleep specialists. A month later, the company said Harry would work to drive awareness and advocacy around mental fitness.

The day after BetterUp announced that the prince would join the company in late March, the digital mental health company Ginger said it had received $100 million in financing. Investors are recognizing “the important shift of how we’re dealing with mental health,” says Andrew
McCarthy, head of corporate marketing for Lyra Health, which provides mental health benefits for employers. Lyra raked in $187 million in January, bringing the company’s value to more than $2 billion and making it the top-funded specialist behavioral health company, according to Rock Health.

Digital delivery

These investments are occurring as two trends in American healthcare take hold: the shift to digital delivering and the growing number of Americans with poor mental health due to the pandemic.

When the pandemic hit last spring, the delivery of healthcare services shifted across the board. As states went into lockdown, providers across all specialties scrambled to implement or expand their telehealth capabilities.

In a survey released last October, the telemedicine company Amwell reported that 80% of physicians had conducted a virtual visit in 2020 compared with 22% in 2019. At the same time, the number of consumers who had a telehealth consult rose from 8% to 22%.

In the past, most telehealth visits were for on-demand urgent care, but during the pandemic, most visits have been prescheduled, according to Amwell’s survey. The pandemic also ignited already-smoldering mental health issues as Americans grappled with the fear of contracting the virus and faced a host of other concerns, including isolation, job loss, caregiving and financial struggles.

More than 40% of Americans reported symptoms of anxiety or depressive disorder in January, 10 months after the pandemic began. Just 11% reported such symptoms during the first half of 2019, according to results of a study by the nonprofit Kaiser Family Foundation (KFF).

Findings of a KFF poll from July showed that, due to the pandemic, about one-third of adults had sleep or eating issues and 12% reported increased alcohol or substance use because of worry and stress. The poll also revealed that young adults and people of color were more likely to struggle with pandemic-related mental health issues. The CDC reported that more than 10% of respondents to a survey had suicidal thoughts during the previous 30 days, including one-quarter of those ages 18 to 24.

Researchers have started to put some numbers to the widely recognized shift to digital behavioral health services. For example, results of a study published in Neuropsychopharmacology earlier this year found that in October, more than 40% of mental health or substance use disorder consultations were conducted virtually compared with less than 1% before the pandemic began. Because of COVID-19, “people almost instantly adopted telehealth counseling,” McCarthy says.

Growth in niche businesses

Even before the pandemic began, investment was growing in the digital behavioral health sector. In 2017, less than $500 million was invested in digital behavioral ventures. In 2018, investments almost tripled, to $1.4 billion, according to Rock Health.

The services were seen as a way to both decrease the cost of and better coordinate care, while enabling providers “to scale up help to mitigate the shortage of providers,” says Vin Phan, partner and practice leader of national healthcare transaction advisory services at BDO. There was also recognition that “the mental health system is really broken,” says Joe Grasso, Lyra’s clinical director of partnerships. Half of those seeking care couldn’t get it — or couldn’t get the right kind of care. Providers are in short supply, and many don’t take the amounts paid by insurers, so many people cannot afford mental health services.

Lyra matches clients with providers based on a range of needs, including suicide prevention, individual or group therapy, and wellness apps. The money flowing into Lyra and other digital behavioral health companies recognizes “the important shift of how we’re dealing with mental health,” McCarthy says.

With its new investment, Lyra has added capabilities to deal with mental illness and substance abuse issues, he says. “Digital health has become the front door where individuals start their care journey ,” says Bryan Vercler, director of partnerships at Modern Health, which also contracts with employers to connect employees with care. “People want to be met where they are.”

At the same time, “a lot of employers are realizing the link between mental health and physical health,” Vercler says. Modern Health received another $74 million in investment in February, boosting its value to $1.17 billion. “Mental health has been underinvested in,” Vercler says. “We’re in the very early stages of the transformation.”

Meanwhile, the online therapy app Talkspace in January announced it was going public through a merger with Hudson Executive Investment Corp., a deal valued at $1.4 billion.

Rock Health ranks Amwell as the largest generalist company in the digital mental health space, and last fall it raised $742 million in an initial public offering. Generalist digital behavioral health providers drew in $1.6 billion, and specialist companies brought in more than $800 million, Rock Health said in its report. From 2019 to 2020, the average deal size climbed from about $23 million to $36 million.

Demand for digital mental health solutions will continue even once the pandemic is under control, says Chandni Mathur, a senior industry analyst at Frost & Sullivan: “The WHO (World Health Organization) looks at this (mental health) as the next pandemic.” With so many people struggling with mental health issues, “the stigma associated with (mental health) has suddenly been overcome,” Mathur says. She expects the demand for services for children and adolescents to increase because the lockdown and the halt to in-person education has affected the mental health of younger people.

Phan says he is seeing increased investment interest in behavioral health services to serve those with autism and to treat substance use disorders. The number of niche behavioral health services also is expected to grow, Zweig says. For example, Omada Health, which focuses on diabetes management, has added mental health services to its client programming. Services also are cropping up to serve patients coping with a range of issues, including eating disorders and the trauma of racism, Zweig says: “It’s not one-size-fits-all. There are lots of opportunities to see curated solutions.”

Susan Ladika is an independent journalist in Tampa, Florida.