Aug 7, 2023

A staggering 57.8 million Americans are thought to live with some form of mental illness, according to a 2021 study from the National Institute of Mental Health – more than 20% of the adult population. Even more troubling is the prevalence of Serious Mental Illness (SMI), with an estimated 14.1 million U.S. adults who are rendered with significant functional impairment, requiring assistive resources. SMI strikes young adults particularly hard, often leading to a lifetime of health issues. According to the Open Minds Intelligence Report in 2019, $225.1 billion was spent on mental health treatment services (~$4k per person with mental illness). A study in the Lancet Psychiatry concluded that nearly half of us will develop some type of mental health disorder by age 75. Past Year Prevalence of SMI Among U.S. Adults (2021) Source: Substance Abuse and Mental Health Services Administration Fifty years ago, only 10.1% of the total U.S. population of 207 million was older than 65; this year, that number is 16.7%. Fifty years ago the “population pyramid” actually looked like a pyramid. Now it looks like a rectangle with a point. Not lost on anyone, the population is aging with profound implications for society and the healthcare system architected to support it. And now there are 339 million Americans. Distribution by Age (U.S.) Source: United Nations, Department of Economic and Social Affairs, Population Division With the aging population come issues with physical and cognitive decline. Shockingly, substance abuse among elders (over 65 years of age) has increased dramatically. Notably, it has been shown that one’s tolerance declines as brains age, further complicating this demographic trend. A recent study by the University of Albany concluded that opioid abuse has increased 3x to 15.7 cases per 1k just in the five years from 2013 to 2018. Overdose deaths increased 4x from 2002 to 2021 to 12 fatalities for every 100k. In 2021, 6.7k elder Americans overdosed. A recent federal study of Medicare claims showed that 2.0% of enrollees reported a substance use disorder (SUD), 87% of which were related to alcohol, nearly 9% due to opioids, and the balance was marijuana and other drugs. In 2020, there were more than 11.6k alcohol-related deaths in this study. And of course, SUDs can directly lead to other risks attributed to poor diet, falls, and bad lifestyle decisions. At the outset of the Covid pandemic, the Commonwealth Fund analyzed the incidence of SMI across the Medicare population. The findings underscored the heightened prevalance in younger adult populations, a foreboding of what is to come. Exacerbating the situation, the study concluded that 112 million Americans reside in counties with inadequate mental health providers, which was particularly acute in rural communities. According to the U.S. Department of Housing and Urban Development, approximately 600k people are homeless and of those, 20% suffer with SMI. Furthermore, insurance coverage for these psychiatric and other counseling services has dropped dramatically. A 2014 study by the Journal of American Medical Association showed that psychiatrists in the U.S. that accepted Medicare declined from 74% in 2006 to 55% in 2010, approximately where industry analysts peg it today. While the Mental Health Parity Act of 1996 (and other legislative directives such as the 2008 Mental Health Parity and Addiction Equity Act ) compelled employer-sponsored plans to provide comparable mental health benefits as for medical and surgical benefits, issues around provider network adequacy, opportunities for waivers, and modest penalties provide ample room for employers and insurers to undermine mental health benefits. Prevalence of Mental Illness Among Medicare Beneficiaries Source: Commonwealth Fund (July 2020) Notwithstanding a challenging funding environment in the early-stage healthcare technology sector, the market opportunity to develop a more robust, more effective SMI treatment platform is very evident. Arguably, the healthcare technology sector has entered an “anoint the winner” phase, whereby a more limited number of very significant companies will emerge from what has been an extraordinary level of investment activity (since the start of the pandemic, Rock Health data suggest over $50 billion has been invested in over 2k digital health companies). Now that capital is neither plentiful nor cheap, expect sub-scale healthcare technology companies to combine and consolidate around a handful of emerging winners in each category. Specifically, technology-enabled healthcare service companies that need scale in order to reach profitability will seek private-to-private acquisitions as a way to ensure viability. Economic value can be created by these novel business models at scale, but paradoxically, what if scale means several years and several hundred million dollars of invested capital over several rounds of financing? It is very hard today to bootstrap your way to validating interim milestones. Building deeper investor syndicates with significant capacity that are aligned on longer term milestones is essential. Today’s funding environment simply does not readily embrace incremental stepwise approaches. The launch of Author Health is such an approach. In close collaboration with General Atlantic (a world-class investment firm with deep expertise in healthcare), my firm, Flare Capital Partners , closed a $115 million Series A earlier this summer. Working closely with a significant launch customer, Author Health has introduced a robust comprehensive virtual-first hybrid care model for the SMI population. More so than ever before, capital is a distinct competitive advantage. Great people will always attract capital. Right out of the gate the investors did a few things right. Dr. Katie Hobbs Knutson , who was most recently the CEO of Optum Behavioral Care and deeply understands the SMI population, was recruited as the founding CEO. Katie is working alongside Dr. Gary Gottlieb , a national thought leader in the behavioral health field, who is serving as Executive Chair and is a Flare Capital Executive Partner. The two of them have been extraordinary pied pipers, quickly recruiting an amazing executive team. The overarching milestones are to reduce the cost of care and improve outcomes. All healthcare technology companies aspire to do so. Specific measures like reduction of medical loss ratios or improved risk adjustment scores are relatively straightforward to determine but require significant time to demonstrate with enough attributable data. Therefore, early interim milestones are centered around patient acquisition, engagement, and activation rates, on which the team is maniacally focused. Significant attention has been paid to clinical and administrative workflows, deconstructing every step in the process, looking for opportunities to optimize. Understanding referral patterns is essential. No one debates the market opportunity or the urgency and need for a robust solution. Management and the investors are acutely focused on proving the thesis that such a value-based care model will also create economic value. Absent that, it will be challenging to get to scale. Tried and true traditional approaches have been utilized for centuries to “treat” the SMI population, with arguably mixed success. A recent narrative seems to have taken hold again in many jurisdictions to more aggressively institutionalize the SMI population, going so far as to bring back asylums in the face of shocking cases of random street violence. A just published study from the National Association of Counties estimated that counties spend $41 billion annually on mental and SUD services, concluding that 64% of all incarcerated people have some level of mental health illness. Mayor Adams of New York City has been pushing for law enforcement to aggressively detain people with SMI. For many, the judicial system is their first line of mental health treatment. Notwithstanding questionable therapeutic benefits with institutionalization, the costs are staggering. A 2015 study in Massachusetts concluded that annual costs are in excess of $55k to warehouse these people. An intriguing development on the horizon involves the therapeutic use of psychedelics to address certain SMI conditions. A recent study from Johns Hopkins and published in Nature suggests that psychedelics can return the adult “rigid” brain to a more flexible child-like state. Numerous pre-clinical studies are underway but anecdotal evidence is provocative, suggesting these compounds might offer profound benefits for the SMI population. A whole ecosystem will need to be built to administer and manage such treatments should these clinical studies validate current working hypotheses. Coud this be the anti-SUD? Share this: