On the podcast: The new PE behavioral health play – PitchBook News & Analysis

In this episode, PitchBook PE and healthcare senior analyst Rebecca Springer welcomes Avi Jayaraman and Dexter Braff for a discussion about the rapidly evolving behavioral health industry and how private equity is helping to drive innovation in the space. Jayaraman co-founded Sonara, which provides a remote solution for medication-assisted opioid addiction treatment. Braff is president of The Braff Group, an M&A advisory firm specializing in healthcare. They share their thoughts on growth and greenfield opportunities in behavioral health, the advantages and challenges that PE firms face when operating in healthcare, how technology can bridge staffing shortages and more. Plus, PitchBook senior manager of publishing joins discuss the 2021 Annual Interactive PE Lending League Tables and PitchBook's exclusive coverage of venture debt deal terms.

In the Upwork segment of "Innovations in Private Equity," Tim Sanders is joined by Dave Stangis, chief sustainability officer and partner at Apollo Global Management. Dave discusses how private equity firms can bring strong sustainability practices to life internally as well as across the portfolio companies they're invested in.

Listen to all of Season 5, presented by Upwork, and subscribe to get future episodes of "In Visible Capital" on Apple Podcasts, Spotify, Google Podcasts or wherever you listen. For inquiries, please contact us at podcast@pitchbook.com.

Avi Jayaraman: Thanks Rebecca.

Dexter Braff: Thanks for having me.

Rebecca: I want to give both of you a chance to introduce yourselves a bit and talk about your perspective on the behavioral health space and where that comes from. Avi, maybe you can go first. Why don't you give us the elevator pitch for Sonara?

Avi: Oh, fun stuff. Yes. I'm Avi. [I] founded Sonara in my fourth year of medical school. The reason we founded the company is because right now we live in a pretty remarkable world. You can get anything delivered on Amazon that you want within 48 hours. You can send Jeff Bezos to space, but for some of the most vulnerable in the addiction communityspecifically those addicted to very severe opioidsto get quality treatment, they need to get methadone and they have to go into the clinic every single day to get this treatment for the first few months that they initiate treatment. Then they stay on the drug for quite a while after that, still having to come to the clinic very regularly.

In this world where everyone else can get stuff delivered to their door in 48 hours, we thought there should be a way to get this drug delivered to their doors, or at least taken home in a safe and dignified manner. We came up with a technology platform to help these patients do that, to help clinics keep better track of their patients when they're at home and to just optimize things for everyone involved in this workflow specifically, which is just so highly unique in medicine.

Rebecca: Avi, you're an M.D. What made you want to found a company rather than practicing medicine?

Avi: Oh man, that was totally by accident. ... I met my co-founder just taking an elective course in psychiatry actually. I [had] just finished applying for plastic surgery residencies and I want[ed] to learn more about other types of medicine just before I went and shipped off to the operating room, ostensibly for 90 hours a week for forever. I met Michael, he had this cool idea, and we just rolled with it.

We picked up a bunch of momentum as the year went on. Then once we started getting some serious investor attention, validating things in the market and getting some customer attention, I saw the writing on the wall. I'd had a lot more fun doing this than I had wanting to train to be a doctor. I thought I could make a bigger impact in propagating healthcare technology out to the world, rather than the individual patient-to-patient perspective that you get just when you're in the operating room [and] you're physically limited by what you can do with your hands. I decided to make the jump.

I wouldn't recommend it for most people, but I think we had a pretty cool idea at hand and the ability to help a lot of people quickly. I wanted to strike fast and I suppose I can always go back to medicine if this doesn't work out. It's been a great ride ever since.

Rebecca: Yes. Love it. Dexter, why don't you introduce yourself and introduce us to The Braff Group?

Dexter: Thanks Rebecca. The Braff Group is a boutique M&A advisory company that focus exclusively in healthcare services. One of our primary verticals these days is behavioral healthcare, which has just exploded over the past five years and then exploded even further in the most recent two as it relates to what's happened with COVID.

As we all know, COVID has been very, very difficult on the collective mental health of our country and other countries as well. As a result of that, investors are rightly identifying that whatever streak behavioral health had been on prior to COVID, it's now even greater because of the expectations of increased utilization predominantly in mental health services.

Unfortunately in the servicesnot unfortunately because of Avi's company, unfortunately because of the need for interventions for substance use disorderI think it was well-documented last year that there were 100,000 deaths from opioid addiction, which was absurdly high and the need for intervention on addictions and substance abuse disorder is astonishing.

Within the behavioral health area, we look at five different primary segments within that. That's mental health, substance use disorder, which is what Avi's company is involved with predominantly, intellectual and developmental disabilities, programs that target at-risk youth and then autism services, which has also exploded in the last four or five years.

Rebecca: That's great. With that higher-level view, can you just set the scene for our listeners in terms of what kind of private equity activity we're seeing across behavioral health and some of the economic dynamics that we're seeing in the space?

Dexter: Well, let's just say it's good to be a sell-side intermediary right now in behavioral health. I'm looking at our data over the last 10 years. In 2021 we were able to identify 251 aggregate behavioral health transactions. In the previous year, which was a new record in 2020, was 189. [That's a] 33% increase in the number of transactions done in the behavioral health space from 2021 versus 2020.

The other thing that we note is that within behavioral health, if we look at the percentage of deals being done by private equity versus the percentage of deals being done by strategic players in particular in behavioral health, there's a substantially higher percentage of deals being done by private equity sponsors than there are by strategic players. That includes both platform transactions and follow-on transactions.

Rebecca: Yes, pretty remarkable. I want to bring in this regulatory and policy context as well, because this has been in the news lately, the last State of the Union address included an emphasis on behavioral health. We're seeing some movement at a really bipartisan basis at the state level around this space. I'll start with you on this Dexter, but Avi, feel free to jump in. How's the political landscape shaping the investment dynamics that we're seeing right now?

Dexter: Sometimes it's unfortunate when you're talking about something like behavioral healthcare, where people are really struggling. Then you talk about it from an investor standpoint. The reality of it is that the regulatory environment could not be any better than it is for behavioral health. Now, when I say that [it] doesn't mean that there can't be improvements.

What I mean by that is that the openness with which Congress and federal state and local governments are looking at providing services to people suffering from mental health and behavioral health issues has just never been better. There's a real emphasis on trying to find new and creative ways, both for people to access behavioral health services and to have them funded.

It's really politically incorrect at this point to be voting against things that are going to improve access to behavioral healthcare. From that perspective the acceptance is just so favorable. It had been getting better under the Affordable Care Act where President Obama expanded the regulations that required that private insurance reimburse behavioral healthcare services on par with what they were reimbursing on medical services, but even greater as needs have become more important.

The openness with which we're seeing all payer sources looking at behavioral healthcare has never been better with the exception that the private insurance companies are still, they're being dragged, kicking and screaming into the amount of money they're having to spend because the amount of utilization has gone up and their spend has gone up tremendously in behavioral healthcare.

Avi: Well, that's capitalism for you, right? They've got to learn to play the game. I would agree with a lot of what you've just said especially being on the other side of the investment market, trying to raise myself, there is money floating everywhere in the behavioral health space. And fortunately that means that, it's unfortunate that the need is there, but the fact that the money's starting to float around to everyone who needs it, really means that people are starting to pay attention and that the need for important solutions is really staggering.

I think Dexter, you had mentioned the 100,000 opioid addiction deaths that had happened last year. I think that was actually the highest cause of deaths from people age 20 to 50 from 2020 through the end of 2021, higher than COVID even. Then need is certainly there and it goes beyond just the market reaction to the problem. Biden in his last State of the Union speech had mentioned that we need to increase access to care, even named opioid addiction by the specific disease, but they're backing that up hard.

The NIH is investing billions and billions and billions of dollars into technologically enabled solutions for behavioral health. Fortunately for us, that means addiction too, but everyone really wants to solve all of these problems in behavioral health and I think it's an amazing time for people to be looking for solutions and looking to invest in solutions.

Dexter: Yes, and one of the things that we sawI was writing something about tech-enabled pay for healthcare, and the space that you're in Avi is so attractive because you're not only marrying the behavioral health needs, but you're marrying a technology solution or assistance into that and so your matching digital health on one side, behavioral health on the other, and people just love that combination. But I believe I read somewhere, and Avi you might have seen a different number, but I think I read somewhere there were approximately 20,000 different apps that have been developed that in some way, shape or form are trying to address the various different aspects of behavioral health.

We're talking about these various different [apps], like Calm is one of those apps that you see advertised on television. But there are literally thousands and thousands of applications that people are trying to develop to engage people from that smartphone interface, as people are trying to find easier ways, frictionless ways, to engage people, to get more in touch with their mental health needs. One of the things that we see as a result of that, is we see that, and I think the investment community sees it right, is that any of these access points are ways, not necessarily to cannibalize services that might be used by more traditional mental health providers, but bring people in as people who would otherwise never seek treatment.

Now we're seeing an easy way to do it and to say, "Hey, I'd like this, I'm getting benefit out of this, I'd like to expand that into other areas, and maybe tap into telehealth, telemedicine, face-to-face type of services." And then the money is there to support it. You've really got this tremendous [support] from various different directions, this groundswell of access into behavioral health services, it's really a fascinating time.

Avi: Absolutely. It's almost like you've seen our company. I should just have you do our pitch for us. You certainly know what to do.

Dexter: By the way, Avi, I'd like to do that, anytime you're ready I'm all with you, but it's a great thing that you're doing in there. There are other folks that are working on that tech adjacency to these services and there are some people who are doing really, really innovative creative work that are generating real, measurable returns. Not only do we get to see the financial benefits that investors and sellers have, but it's really making a difference and it's always a nice bonus.

Rebecca: I want to jump in and put a kind of a fine point on that and then I'm going to hand it back to you, Avi, because I think we've seen such a broad interest in telehealth through the COVID pandemic, a lot of investor interest in anything that can be considered remote or enabling healthcare to happen outside of a clinic or a hospital, and we're starting to see in public markets, certainly, and maybe, to a lesser extent private markets, kind of a winnowing down of solutions that do clearly add value to the patient care experience and maybe those that were sort of jumping on a trend, but haven't really proven that value that they can add.

I want to turn it back to you, Avi, and talk to you a little bit about where are the data points in terms of telehealth utilization by patients within behavioral health? I think behavioral health is one area where we're able to see really clear positive results from telehealth solutions. Maybe talk a little bit about that.

Avi: Yes, totally. I can speak more specifically to patients with opioid addiction. I think I'll leave the kind of broader telehealthI mean, I imagine the numbers are, I don't think you have to be a genius to figure out that the numbers are probably higher now than they've ever been and that access is greater than it's ever been. But even saying that, I don't really think it brings to light how ubiquitous this type of thing is now and I think discussing a little bit about the most vulnerable opioid addiction patients can really bring to light how technologically enabled kind of everyone is.

So one of our early customers/partners is a clinic in rural Oregon right now. I think about like a good two-hour drive from Portland, another hour-and-a-half drive from Eugene, if you were to fly in there. Relatively low literacy rates in a very, very rural community. Exactly the type of place where you wouldn't expect people to have smartphones or internet or LTE, 5G, or whatever it is. And when we were doing some of our early market research last year, we realized that like 84% of them had a smartphone with a data plan.

These are folks ... I'd say maybe not half of them are homeless, but probably a good quarter of them don't have stable housing. A number of them are under the poverty line. But the one thing that really seems to be connecting everyone is that they do have access to technology now. Again maybe the most, most, most vulnerable folks don't, but we're really reaching a point where everyone's able to access tech and get themselves plugged into exactly the type of help they need.

With opioid addiction specifically, I think Sonara it's just one solution. That's specifically for the folks who need methadone, but there are tons of other applications, really high-growth startup companies that are there helping folks with addiction who don't need methadone, and it's amazing to see.

Dexter: Yes, the broad telehealth utilization obviously has gone up with COVID. There has been a contraction, by the way, in the last five or six months, because what happened is that the payers and the government pretty much opened the floodgates and said, "We are not going to subject these types of visits to the type of scrutiny that we would normally apply in terms of whether or not it's a reimbursable service or not." There was this acknowledgement across, by the way, many healthcare sectors, where their guidelines for getting paid were loosened.

Look, we're not going to require you to do all this pre-authorization. We're not going to require this. We're not going to require that. We need to push out services, and we'll worry about that later. So you saw this big explosion. [Now] we're seeing a little bit of contraction. But the thing about [it] that's inescapable, is that if you think about telemedicine, and you think about applications for telemedicine, what could be more intuitively understandable than talk therapy? I don't have to have somebody look in my ears, to see if I have an earache, it is already a visual and a verbal medium.

Now, there'll be people, and Avi you probably know about this, that will say that there is something lost in the actual in-person, body language type things that you can't quite get. But if you think about the greatest, easiest application of telemedicine within all of healthcare services, you look at mental health and talk therapy. It's about as intuitively likely to be successful without loss of clinical efficacy, as virtually anything else.

I've used, for example, telemedicine for some physical ailments and I'm like, "I hope that the doctor can see everything." But I'm not 100% sure it's efficacious, but talk therapy, I would imagine it's probably very, very efficacious.

Rebecca: Well, there's also an element of access to care for folks who may live a distance from a clinic to Avi's point about rural communities. I don't know if either of you have a perspective on how that's perhaps changed some of the provision of behavioral health.

Dexter: Well, you can't see a therapist now. I mean, right nowand I know this from personal experience from some family membersto try and get an appointment, to be a new patient for a mental health provider, is very difficult. People [are saying], "I have no room." And the shortage of healthcare professionals across the board is acute. It was acute prior to COVID. It's much worse now with COVID.

But even within the healthcare professionals, SAMHSA, which is a government body that kind of looks over addictions, put out a report that suggested that the number of behavioral health professionals broadly speaking, that would be necessary within the next three to five years is something on the order of five million5.2 million, 5.3 million. And they say that the number of people that are currently in those positions are about 800,000.

They're suggesting is about an 80% shortfall in the amount of professionals that are needed. And in clinical nursing there's a shortfall, but it's not 80%. And so it is so difficult. Telepsychiatry and telemental health is designed to at least provide some access to people who can't otherwise get it because some places you might have some capacity built in, but it's hard. One of the best value propositions, if we were to represent a telepsychiatry company, one of the biggest value propositions is just simply having the psychiatrists and the practitioners that are able to actually do the service, because it's just not there.

Rebecca: This staffing issue is something that is on the mines of everyone in healthcare, but as you say, Dexter, it's just been such a key issue for behavioral health. Avi, how have you thought about your own product in the context of addressing the shortfall and providers?

Avi: Yes, I would love to say that we can totally fix that problem. I don't think we can, but I really do think we can help with that one, at least specifically in the context of the pandemic and a highly contagious disease, which fortunately isn't that terrible, but gets in the way of people's lives now. A number of these clinics that we go to are in very rural communities. It's not just a matter of people having burnout now that the staffing problem is there. It's because physically for people ... [in clinics that] are fully staffed, the staff can't come in because a bunch of them end up having COVID or whatever it is.

And obviously, that boils down to the root problem of maybe that full staffing wasn't actually full, but what we would hope for technology to do is be able to either increase access to care for patients or make life easier for clinicians, right? Right now, in methadone clinics and opioid treatment programs, patients have to come and be seen taking their medicine every single day when maybe they could be doing that on video instead, maybe for patients who know that they come in and they take their meds like they're supposed to.

You don't have to watch every video with the normal speed. Maybe you could speed those videos up for some patients, maybe you don't necessarily have to have them come in every single day, or maybe you can communicate with them in some other way. Instead of having clinic staff who are reviewing videos necessarily be at the clinic every day maybe they could do some of this work from home. In terms of what our technology does, I think reducing foot traffic to the clinic, of course makes itI guess COVID [is] hopefully going through one of its valleys now and not at one of the peaksbut I think that would help reduce foot traffic to the clinic, prevent risk of staff getting sick from their patients and then staff getting sick from one another too.

Anything that allows the work to be done from home, it's not really a medical specific thing, would probably help a lot in the medical world where the disease is more likely maybe to be spread around.

Dexter: There is also another factor and that is that the specific area that Avi is in, which is medication-assisted treatment, is ... , from a human resource perspective, [far] less costly than other treatment mechanisms. Now you can get instances and theoretical issues that people get a little anxious about, and some people believe in abstinence-only programs and they're not real big fans of medication-assisted treatment. But the reality of it is, it has been proven time and time again, from an effectiveness standpoint, in terms of people staying on medication, staying employed, staying with their families, not resorting to any criminal activities.

Medication-assisted treatment is not only the most effective, but it also requires the least amount of external resources. So as you move, not only toward a technology-enabled solution, but you move toward a technology-enabled solution that is a medication-assisted treatment solution, that in and of itself is a less human resource-intensive approach, which is why the government agencies really like that as an intervention strategy.

The residential programs obviously have a different approach and it's not that one necessarily is instead of the other, they could be a continuum, but the fact of them matter is that MAT, medication-assisted treatment, can extend the resources that are available without having to necessarily have to add tons and tons of staff. Now again, we're only talking about addictions [and] substance-use disorder. We're not talking about mental health, autism services, individuals with developmental disabilities, that's a whole another area of behavioral health.

Avi: Of course, and I think one important thing to hit on specifically in substance abuse and specifically with opioids, the term medication-assisted treatment, it sounds obvious to a lot of people, right? You take medication, it assists with your treatment. But if those people need medicine for the disease that they're afflicted with right now, by a disease called addiction, they're going to get that medicine wherever they go. So whatever technological solutions come around, they need to make it more appealing to seek to specialized treatment than it is to just go and get the drugs on the street or to go get the drugs from whoever you're going to get the drugs from.

That's such a big part about making any of these solutions succeeding, right? The ones that succeed are the ones that make it easier to seek treatment rather than the ones that add hurdles, even if they reduce costs or help in some other way.

Rebecca: I want to bring it back a little bit to the investor perspective, not to dehumanize the conversation, but because it's really important to get these clinics and these treatments funded and because we are a private equity podcast, so here we go. [I] wonder, Dexter, if you can talk a little bit about how you are seeing behavioral health providers position themselves in terms of this staffing shortage that we're looking at, in terms of the technologies that can be adopted to mitigate it. What are some of the selling points that a provider might have when they're approaching a private equity buyer that might make them stand out?

Obviously you can't just snap your fingers and have plenty of providers running around everywhere, but you can make some of these dynamics a little bit more attractive for a specific group, so maybe talk about that.

Dexter: Yes, as you mention, there are a variety of issues. Right now, a lot of private equity, it's not that they don't want companies that have technology part of them, they do, but that's one of the value adds that they bring, often. What they're predominantly looking for, what they really want to do is, they want to see programs that are where there's strong census, where the number of patients that they are treating is regular and or increasing. They want to see good clinical protocols to make sure that what's being done are good and accurate services [that] are being billed properly.

One of the things that they are very, very concerned about is the difference between what a company is billing and what they actually get paid. Because when you're dealing with private insurance, very often there's a bill rate and then there's a pay rate. And those numbers can be very, very different and if you're not managing that revenue cycle well, you can think that you have a $20 million company when you really have a $18 million company and an $18 million company may look really great. But if $2 million isn't really there and your EBITDA is $5 million, it means your EBITDA is actually now $3 million and all of a sudden the numbers become very different. They're very concerned about in-network versus out-of-network providers.

For those of you who don't know, when services are being provided out-of-network, so a beneficiary is accessing care that is not part of their network of services, the bill rates tend to be much, much higher. And in behavioral healthcare, there's a lot more out-of-network coverage because I can't access a lot of my behavioral healthcare services in my catchment area where I have insurance. So if I want to go to a residential treatment center, there may not be one in the area where I'm currently covered by my insurance. So the utilization of out-of-network services is substantial in behavioral health, much more than we see in other areas. So understanding the reimbursement dynamics between in-network and out-of-network is very, very critical.

Buyers also like when services are being provided in a tight footprint. So there's one thing about having a clinic in Seattle, and a clinic in Boston, and a clinic in Dallas, and a clinic in Chicago ... But it would be much better if I had one in Seattle and Olympia and Portland, and so I could say I serve the Pacific Northwest. Because there's commonality of reinsurance. There's a greater opportunity to leverage infrastructure. We don't have to manage by going across the entire country from West Coast to East Coast. Those are some practical issues which contribute to value. As you can imagine, there are a host of other things, but those are some of the big ones.

Compliance, though. I will say that if compliance is not there at pretty much the gold standard, it's not like buyers go, "Well, I would have paid $20 million for your company, but your compliance is so-so, I'm going to pay you $18 million." It's, "I would have paid you $20 million and now I'm not going to buy it."

Rebecca: Interesting and [I] want to pick up on one thing that you said there. Often a private equity firm is going to make an investment in a provider group. One of the things that they're going to look to do in addition to growing revenue expanding, improving some operations is to add technology-enabled elements. Avi, I want to turn this over to you. What should provider groups and their private equity sponsors look for in evaluating a technology partner?

Avi: Yes, that's a good one.

Rebecca: Other than going with Sonara, clearly.

Avi: Yes, it keeps on coming back to everyone should just buy us. But I guess if everyone doesn't want to buy us, other things that they should look for should be things that I think we excel at. The first thing I think that's really important, just from a fundamental level, is alignment of all your stakeholders. Everyone knows that in healthcare, behavioral health, ... honestly just any technology that's going to be helping people's lives, the patient, whoever's the end user, needs to be able to use it well. The provider needs to use it well, have clear benefit, and it has to benefit the payers eventually, too. Without those fundamental three layers of alignment, I think any solution is going to fail.

I'm sure there are some that are falling through the cracks, but at an early-stage company, I don't think you really want to take a risk on investing in a technology or taking up a technology that doesn't do all those three things. From that point onward, I think scalability is something that's important. I remember early on one of our original ideas was not very cost effective, but it still aligned the payers, the providers and the patients. It made everyone's lives easier, but it cost too much money.

Even though it saved payers a little bit of money, in the end, it wasn't really worth the upfront investment to go and propagate everything. Cost effectiveness is huge. I think not just from a pragmatic perspective, but just from an uptake perspective, any technology that you want to go propagate in the healthcare world shouldn't be a technology that's made just for the Kaiser Permanente's or the UC San Francisco's or the Harvard's and the Yale's of the world.

Going back to Sonara, we tried to make our software something that I can go into a rural clinic in the middle of nowhere in any rural state that's two, three hours from the nearest airport [and] I can get them up and running in three hours. Every solution does not have to be that simpleif it is, that's probably not a good thingbut they need to be able to scale quickly at a low cost and in a variety of different environments. [That's] I think the second layer.

The third is probably just likability of the team which I think is just normal VC stuff. From both a provider and an investor standpoint, you want to listen to people who are coachable. In the end if you're a provider, that customer that you're buying technologies from, they're working for you. They should listen to you, they should be willing to customize things to what you want or to address the needs that you have. And if you're an investor, you now you'veDexter, it's clear from the way you talk that you've been around the block. You know what you're doing, right? If I were to come here and start not listening to you if you were to give me advice on something, that'd be pretty silly, you wouldn't want to partner with me. I think just from a person-to-person level they need to be likable. It doesn't need to be that they're amazing, great people, but you should at least get along with them.

Dexter: Yes, and Rebecca there's also something really unique that's happening right now with private equity groups and what's happening particularly in behavioral health. That's that they have a real challenge because the typical model that we would see in healthcare services, where there is so much fragmentation out there, is that I buy at a small company multiple, and I get really, really big, and then I sell for a large-company premium plus other improvements to profitability I may have been able to add along the way with technology and revenue cycle management and things of that nature.

One of the challenges private equity has, of course it's to the benefit of the sell-side folks, which is what we work on, is the valuations that buyers are having to pay right now for companies that they previously would not have to put these kinds of multiples in. They're now buying companies at size premium levels. So we have clientsand this is literal and it is surprising to mewe will have clients that have well below $5 million of EBITDA, that are getting multiples of 12x and 13x.

Now, that used to be the exit multiple after I had gotten to size. If I'm buying at 13x, there's not a lot of multiple expansion I can get with size. There may be some, but it's not nearly as much as it was before. The pressure to me as a buyer is I have to look at it two different ways. I have to first really focus a lot on what I can do to increase profitability in terms of real organizational improvements. I have to be a better private equity group than I had to be before, because before I could just rely on getting big.

Now some people did it better than others and also added the other things, but you could do really well buying companies at 6x and selling at 12x. That's a model that works. That opportunity is substantially less. I have to be able to really add real value in terms of technology, marketing, revenue cycle management, and all the other nice things that a good private equity can do, can hook up companies with human resources and things of that nature.

The other thing that we're seeing which is very interesting is the buyers, the ones that are really smart, the PE guys that really understand the market dynamics, after they make their platform deal, they are immediately looking towards startups as opposed to doing secondary acquisitions. Because the ROI on a startup is going to be much higher. But they have to do it early in their investment cycle. They can't wait to year six because that's too late.

One thing about behavioral healthcare is that because it's, generally speaking, not referral-source driven, I actually can have much better opportunity to grab revenue through a startup than I can otherwise have in other businesses that are referral-source driven and I can't grab that referral source from somebody else. It's hard in behavioral health because I'm paying a lot more, but I have greater opportunity to layer on startups. You've got to be good at it, you've got to be conscious of it and you've got to make that a prime directive as opposed to a secondary directive.

Rebecca: Yes, I completely agree. It underlines the importance, I think, for investors in behavioral health right now to be looking into the future and trying to see where this industry is going in terms of patient care improvements and technology improvements to deliver that. I want to put a bow on what has been a fantastic conversation. Thank you both. I wonder if each of you can give me one prediction for the future of behavioral health that is either contrarian or just a little bit under appreciated by folks who might be listening to this.

Dexter: Well, my first prediction is that Avi's company is going to be very valuable. No, I think the one prediction is this is not a flash in the pan. This is not something that's ramping up fast and it's going to fall off as quickly. There is a long runway of opportunity, and the other thing is that the model of delivery is going to change. We're already beginning to see the carters between autism services, individuals with developmental disabilities, at-risk youth. Those are all handling people of youth.

We're beginning to see that the big boundaries between those begin to drop as we're trying to be able to service the whole human. A lot of Avi's services, there's co-existing conditions, co-occurring conditions. Treatment of addiction services is not separate necessarily from treatment of mental health services. People who are beginning to look at treating the mental health services of a population, as opposed to defining my population as someone with addictions, defining my population as anybody who needs to access behavioral and mental healthcare services, is where all of healthcare is going and the opportunities to be able to provide a lifetime suite of services to people at all levels of their treatment program.

Because people in behavioral health don't necessarily have a beginning and a defined end. The opportunity to create new models that have longer and more comprehensive bases of services, I think are absolutely there. They're real. There's benefits to them both financially and clinically, and I think we're going to see that evolve over time.

Avi: Yes, I agree with all of that. I think two specific areas that I think are going to be really interesting to hit on and I think a lot more information and data will come to light in the coming years ... Eventually whatever mental health companies or behavioral health companies start to prop up, they're going to start to going back to helping the most vulnerable people in society. I guess specifically homelessness, low socioeconomic status at birth, those things are intrinsically associated with worse medical outcomes, worse mental health outcomes, worse behavioral health outcomes, and hopefully we don't want technology to leave those folks behind.

I think as a society, we really improve and we become better when all these technologies that we're developing are able to help the most vulnerable and bring the most vulnerable up. ... Right now it's great that most people have smartphones, most people can probably download some app and get access to care, but how many of them have insurance? How many of them can afford to pay for the services once they actually download the app? I think there's going to be a huge, huge, huge explosion.

Whoever figures out that problem, that real access problem, that getting the money to the people who need it problem and seeing if they're able to fix their lives or better themselves however that way. I think that's going to lead to a huge boon in the general mental health of the nation. Part of that's going to come from behavioral health and increasing access to care, but I'm curious to see what, there's a deeper layer in all of this. I'm fascinated to see what folks can come up with when it comes to helping the whole person and how that's going to affect mental health and behavioral health.

I'll close with one last thought here, I think we probably don't even know what's going to come in the future. We started treating depression by having people snort ketamine five years ago. We eat mushrooms now that like our folks used to eat in the '70s for Grateful Dead concerts and it's like a real medical treatment right now. We can change behaviors with a smartphone and, and we're at the infancy of all of it. Crazy stuff is going to happen.

We just need to make sure it helps the most vulnerable because I think people who are richer, they're happy, they're doing their thing, but society really evolves when it's not just the rich that are benefiting.

Dexter: Avi, you actually said something and I think it's really, really meaningful. Treating the person as a whole. I mean, it's interesting that we separate behavioral health from physical health, because we all know that they're connected. So this is where population health, movements toward population health, are innately going to merge behavioral health services and medical services together. So we are beginning to see combinations of primary care and mental health care and that they're not separate and that we need to blend them from the onset and what opportunities are there to create a more healthy society that down the line is not going to be accessing more expensive care further down.

We have a dichotomous system right now, but arguably it shouldn't be. But everything springs from reimbursement. With models becoming more population-based that changes everything. I've been in a lot of conferences where people talk about the next new thing and it's like, "Yes, maybe." An no. This is happening, this population-based approach towards treating people more of a whole person is definitely happening and I think it's both great clinically and it's good financially from a cost-saving standpoint.

I actually think that we've actually made progress as a nation and as a society in terms of being able to provide services better. It's kind of cool to see some of these forward thinkers when they're talking about stuff, and then they are actually showing that's actually working and it's not really theoretical. That's always pretty exciting.

Avi: Yes, we're already helping patients and we track when you drink your medicine. There's so much more in the world, there's so much more to be connected and to be built on. We live in a pretty beautiful time.

Rebecca: That's a great note to end it on, so I'm going to thank both of you Avi and Dexter for a fantastic conversation. Thanks so much for your time.

Avi: Cool, thanks.

Dexter: Thanks for having us. It was fun.

In this episode

Avinash JayaramanChief Growth Officer and Co-Founder, Sonara

Avinash Jayaraman, M.D., is a co-founder and chief growth officer at Sonara, a healthtech company providing telehealth options for methadone patients. Avi and his co-founder (Michael Giles, M.D.) started Sonara while they were in medical training. Michael wanted to use simple technology to increase access to methadone, a segment of opioid addiction treatment that had been neglected. Since earning his M.D., Avi has been building Sonara full-time.

In his pre-Sonara life, Avi was a prolific researcher across many disciplines including plastic surgery, transplant surgery, psychiatry and genetics. He has been published numerous times and gave over 50 poster and podium presentations at research conferences. Before medical school, he spent time as a project manager at Epic, a transplant surgery researcher at Northwestern, an MCAT tutor with BluePrint prep and also served as a nationally renowned high school debate coach.

Avi holds an M.D. from the University of Texas Southwestern Medical Center in Dallas and a B.A. in mathematics from Northwestern University.

Dexter BraffPresident, The Braff Group

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On the podcast: The new PE behavioral health play - PitchBook News & Analysis