Digital SUD health services in 2022

Here are my (intemperate) predictions for the substance use disorder healthtech space in 2022.

Predictions: trends

Hard lessons in healthcare finance

Do you ever get the feeling that exposing one hidden metric could take down entire segments of behavioral healthtech?

There was lots of talk about the deals we saw this year, and there are some concerns around how the long-term financials might support them.

This year reminded me of when PE started getting into residential SUD treatment in the mid-to-late-2010s thinking they could pull 50% margins. That didn’t work out so well. Healthcare SaaS isn’t normal SaaS and healthcare profits always are subject to payer vig. I think this might be the year of the reckoning.

Stephen Hays of What If? Fellowship had a great survey on investor sentiment that came out around this time last year. I hope we get an update on these data next week. I was especially fascinated by the valuation expectations. While the largest group thought that 9-12x EV/sales ARR multiple made for reasonable valuations, 28% of respondents thought 17x to 21x+ was appropriate. Hey, it isn’t 100...

I hope I’m wrong and that we see a massive expansion in the entirety of our reimbursement structure and actual day-to-day increase in utilization of effective tools to help people get well. I hope this drives valuation multiples even higher. That would take a functioning, bipartisan, bicameral approach to regulatory change and parity enforcement in behavioral healthcare, in my opinion.

What absurd hopes do you secretly harbor?

Realistically, I think the froth in this space will get replaced by a pendulum swing. We have seen a bit of a correction this year, but I think there will be some more movement as investors continue to understand the fundamentals of the space a little better. How many patients actually use your platform? What is your actual differentiator? Why do you think that a PHQ-9 and GAD-7 are enough when it comes to quality measures?

Continued Commodification of Clinicians

Clinicians aren’t widgets. They aren’t production workers. They are knowledge workers, and they have been taking a beating for the last… well, several decades should about cover it.

We have seen incredible success for organizations which many believe are actually arbitrageurs masquerading as care companies. The story out of Modern Health, this from Cerebral, and the whispered anecdotes from therapists and provider colleagues contracting with the other big companies in this space make me think this bus has to drive off the cliff before there is a cultural shift in the fundamental power dynamics between care providers and the vanguard.

For orgs that are about to have even fewer cogs for their collective machines, this seems like a great way to render yourself obsolete. Somebody else will be happy to attempt to recruit and retain this massively fluid, well-trained workforce.

Hopefully, the damage done in the fallout doesn’t wipe out the good actors as well.

Legacy flex

Some of the biggest names in SUD care have sat on the sidelines watching while everyone innovates around them. Commercial-insurance-focused, non-profit speciality treatment organizations or academic health systems would do well to support a system-wide solution that isn’t just moving care to virtual.

They have the heft, the capital, and the brands to make a big play in this space if they don’t forget that their move to telehealth wasn’t actually innovation. There’s nothing wrong in looking outside of the Hallowed Halls for an acquisition.

New Season (formerly Colonial Management Group) has 70 methadone clinics around the country serving 25,000 patients a day. No reason they shouldn’t be hunting constantly for an acquisition. Honestly, if you wanted to go the other way around, you could acquire a system like Meridian. For reasonable money, you could improve some of the clinical fundamentals, slap your solution on it and sell it in six months for a 25x return with the way things are currently.

FQHCs, CMHCs, and Hospital Systems, Oh my!

We have an entire chunk of our system just waiting to be activated. Whether it is programs like CA Bridge or larger systems efforts funded via the State Opioid Response grants, there is an entire system of care without decent options for hundreds of thousands of people. There is so much focus on — and competition for — the 10% of people who are already being treated in specialty organizations. The big value is in the 90% who receive no care at all. This is a huge, huge opportunity for somebody, or even 100 more somebodies to align with where the care should be occurring anyway. For smart investors banking on long-term trends, there is no substitution for efficacy.

Predictions: Two Favorites, big & small

Eleanor Health

There are so many great things happening in the SUD digital care delivery space, but my hands-down favorite is what has been going on at Eleanor. Where Workit, Bicycle, Ophelia, Monument, and Boulder seem to lead with a narrower approach led by virtual, substance-specific service lines, Eleanor appears to be leaning into more global care solutions and blended care models. With the epidemic having shifted to polysubstance use led with methamphetamine, many folks are going to find (or likely have found, whether they recognize it or not) their care models not matching the clinical severity of the populations they serve. Halycon has a similar approach, but they appear to be in-network with just a single payer in a single region.

This is where Eleanor’s lead is just massive. Not only is their clinical model much more sophisticated than the competition, they have a lead out of the gate with traditional healthcare providers and systems that will be the key to a future moat for their business.

Their recent announcement of a partnership with Point32Health, and the ongoing work with Bamboo (PatientPing) and Quartet demonstrates their vision for a blended clinic/virtual system that is focused on outcomes across large populations, not just narrow, well-defined segments.

Much of the bullish predictions we see in this space are contingent on expanding access to mostly commodified, virtual care models that are appropriate for targeted populations, whether they are specific to payer, state, substance, treatment options, etc... Eleanor has the heft to be the payer solution, not just a solution.

RecoveryLink

Somebody is going to crack the SUD/SDoH nut and I think that this team has as good a chance as anyone in the space. Led by some people with real-world experience building engaging peer-driven supports for people and families experiencing issues related to substance use, RecoveryLink has created a platform to boost the productivity, efficiency and power of the single most under-appreciated care organization in this space: Recovery Community Organizations.

For all of the talk about how social determinants drive healthcare spend, the corresponding investment is tiny. We have seen some major investment and visibility through Unite Us and their subsequent purchase of NowPow and Carrot, but the actual implementation of these solutions is the thing that needs to be proved, not a top-down, conceptual, universal solution that works in the functional world of our utopian healthcare dreams.

In the SUD space, properly supported and trained peer recovery specialists can be the secret to this, and RecoveryLink’s communications and data management platform helps them leverage the infrastructure of real-life, brick and mortar recovery solutions. There are some great things happening with peers and coaches in companies like Tempest, Map Health, Marigold, WeConnect, (in addition to the previously mentioned companies that all have various non-clinical psychosocial supports), but the value is in the system/breadth/depth in my opinion, and that’s where RecoveryLink really is different.

I’m assuming that they are looking to be able to step into value-based contracts (or supporting existing contracts) at some point in the future — with receipts from their massive data collection efforts — and I hope they are successful. This is truly innovative, if not necessarily the sexiest thing in the market.

I absolutely love it.