Platforming Mental Healthcare: Investors Create New “Mental Models”

by Randy Williams, MD and Vince Kuraitis, JD

One sector at this year’s JP Morgan Health Care Private Equity Conference caught our attention: the platforming  of virtual mental health care. Six months ago, market leader Headspace Health announced a $6 billion merger with Ginger to create perhaps the largest mental health platform business to date. Headspace announced yet another acquisition, this time with the Y Combinator incubated start up, Sayana. The combined companies support the mental health and wellness needs of over 100 million individuals.

Many others are joining the investment opportunity of tech enabled mental health. This past year alone, investors poured $5.5 billion into the space, up over 130% from 2020 according to CB Insights.

“Mental Models” Shape Our Thinking

The Headspace/Sayana merger announcement has us thinking…is it time for a broader “mental” model reset in healthcare? (Pun definitely intended).

As in any industry, healthcare leaders use mental models to frame their thinking about the current state and how to envision tomorrow. Mental models are useful tools that help us understand and act within complex systems. They not only shape what we think and how we understand but they shape the connections and opportunities that we see.

Consider the mental model of Ptolemy, a first century astronomer and mathematician who posited that the earth was the center of the universe and that all heavenly bodies rotated around the earth. It made “sense” based on the realities that could be “seen” at the time and reinforced by a human centric view of the natural world. New technology — the telescope — allowed reality to be viewed and understood in a different way. The telescope ultimately led to the ability to discover new lands, develop new trade routes and circumnavigate the globe.

No one would argue that healthcare is a complex system that sometimes defies logic. Healthcare leaders, investors, operators and entrepreneurs each have a framework that shapes their view of the “what and why” of the healthcare system. But that same mental model also can limit their view of “what’s possible”.

Mental Health Platforms: Part of a Bigger Trend in Digital Health Investment

So… what do mental models have to do with the emergence of mental health platform businesses like Headspace? We think it’s a demonstration that healthcare investors are beginning to recognize the need for a “new framing” of their own investment theses (investor speak for “mental models”). Three related trends spur this new framing:

• The success of digital first business models in the broader healthcare delivery market. Recent digital health exits have fueled investor enthusiasm. Rock Health reports nearly $30B in capital invested in digital health in 2021, rivaling investor interest in cryptocurrency, another platform business model.
• The rise of consumer demand for self-care support, accelerated by the pandemic. This is especially true in the mental health market, where increases in anxiety, depression and loneliness have been well documented. Depression rates alone have tripled from pre-pandemic levels!
• The emerging global market opportunity for disruptive delivery models of mental health support being explored by payers and employers. Traditional delivery systems can’t keep up with the demand.

Platform Business Models – A Powerful Investment Thesis for Healthcare Investors

Platform business models have the advantage of reaching unprecedented economic scale and marketplace power. They exploit a new mental model when thinking about supply chains, customer acquisition methods and distribution channels, value creation and value capture. Most importantly, they are built to leverage the exponential power of network effects. Let’s look at each as it applies to virtual mental health platforms.

New Supply Chains. Rather than “owning” and integrating a traditional supply chain — such as employing counselors, social workers, and psychiatrists — virtual mental health platform businesses have opted to develop first order functionality within their technology, for example mindfulness exercises or virtual chat bot screeners. Companies source second and third order customer needs — such as counseling or prescribing — to outside“ producers” who sign on as mental health providers using the platform.

New Distribution Channels. Rather than distributing mental health services through traditional healthcare gatekeepers, e.g., requiring referrals from primary care or hospital ERs, virtual mental health platforms are going directly to users and/or marketing through employers or payer sponsors. This customer acquisition strategy overcomes geographic limitations and reaches well beyond existing provider relationships.

New Value Creation. Traditional models of mental health services center offerings around provider availability, referral networks, and reimbursement structures that place users at the mercy of suppliers. Virtual mental health platforms center their offerings around the needs and situations of users by putting service offerings in their workflow (on demand and available on a smart phone). They create value for users by reducing friction.

New Value Capture. Virtual mental health platforms are introducing new ways of capturing and monetizing the value they create. For example, by charging consumers directly, they avoid the artificial constraints of face-to-face visit reimbursement. By monetizing the value of a healthier workforce, platform offerings are gleaning payment and/or customer acquisition support from employers and payers. Virtual companies are displacing traditional providers or relegating them to the position of contracted “producers” on the platform.

The Power of Network Effects. Finally, virtual mental health platform businesses are beginning to experience network effects. There is incremental value for incremental users (suppliers and/or consumers) as the platform grows. In the case of virtual mental health, Headspace Health alone now serves over 100 million users. If mental health providers wish to gain access to that large and growing Headspace customer pool, they need to join the platform and meet the requirements of being a Headspace service provider. Platforms like Headspace can tune their matching algorithms, allowing user preferences and provider performance to be honed over time, leading to another powerful network effect.

Time for a Mental Model Shift in Healthcare?

There is a growing recognition of the shift in consumer needs, preferences and demands accelerated by the global aftershocks of the pandemic. Investors, often the first to sight the economic opportunities of such shifts, are increasingly spotting and rewarding disruptive healthcare platform businesses.

Many well capitalized startups pose a significant threat to traditional healthcare service producers. They leverage the power of platform business models to rapidly scale and more importantly, rapidly transform traditional care delivery. Many incumbents will not see this shift coming until too late; others, such as Providence Health and Mayo are placing bets on platform business strategies of their own.

An abundance of structured data and rapid technology advances in healthcare, e.g., artificial intelligence and consumer facing digital health technologies, are paving the way for a new mental model to emerge in healthcare. These advances allow one to imagine a future where gatekeepers are supplanted by platforms, physicians become platform suppliers, and hospitals are relegated to deliver only high cost, complex care.

Conclusion

Despite some stumbles, investors will continue to look for innovative opportunities in disruptive sectors of healthcare, especially where traditional solutions rely on limited provider supply and in markets where demands of consumers are going unmet.

Platform thinking seems to be driving not only the business models of several rapidly scaling disruptors like HeadSpace and Sayana but fueling new mental models for investors to explore. Time will tell whether advances in digital/virtual technologies and the care delivery models they enable will validate these mental models. Will traditional healthcare models will be left to the fate of Ptolemy’s view of the cosmos!

If you’d like to explore how platform thinking might impact your own mental models and your sector of healthcare, whether through investment strategy, technology solutions development, or new delivery models, we’d be happy to hear from you.