Monetizing mental health technology

[This article is part of the 2024 Trends Report]

In 2020, interest rates were low and concerns about mental health were high. Funding for digital mental health poured in. But times have changed.

Companies such as Better Therapeuticsopens in new window and Akili Interactiveopens in new window have laid off at least 30% of their workforces, and clinicians have often been among those let go. Even popular products are struggling to stay afloat: Headspace Healthopens in new window let go of 33 therapists, and weight loss startup Noomopens in new window made three rounds of job cuts in under a year. After going public in 2021, Pear Therapeuticsopens in new window filed for bankruptcy and sold its assets in April.

And the problems are not just on the business side; some of the layoffs and business practices have caused therapeutic harm to patients. Headspace laid off therapists abruptly, providing little warning or explanation to patients. Cerebralopens in new window faced scrutiny for alleged unethical prescribing practicesopens in new window, problematic adsopens in new window tying attention-deficit/hyperactivity disorder to overeating, and sharing personal health dataopens in new window with social media platforms.

“The intent was probably good. We have a mental health crisis, particularly as a result of the pandemic,” said C. Vaile Wright, PhD, senior director for health care innovation in APA’s Practice Directorate. “But mental health is not a ‘get rich quick’ scheme, and funders need to have appropriate expectations.”

Abruptly firing clinicians is not only antithetical to the goal of providing effective mental health care, but also bad for business. In many cases, companies hit troubled waters because they failed to integrate clinical expertise from the start.

“How are you building mental health tools or mental health care without mental health clinicians? You don’t see companies building a pacemaker without cardiologists,” said Jessica L. Jackson, PhD, a licensed psychologist and chair of APA’s Mental Health Technology Advisory Committee (MHTAC).

But there are also reasons to be optimistic as we enter what some are calling a “second wave” of mental health technology. One aspect of this second wave is a shift in investors’ approach. Instead of backing technology experts looking to capitalize on the upswing in demand for mental health care, investors are increasingly looking to fund mental health care experts who are building technologies and digital products that serve those seeking help.

“I’m still optimistic, because companies are starting to adjust from what they learned in the first phase of digital mental health,” said Matt Scult, PhD, a digital mental health consultant and part of the leadership team for Therapists in Techopens in new window, a nonprofit organization that supports mental health professionals working with technology companies. “People still have trouble accessing and paying for mental health care, so there’s still a need for innovation to increase access to care.”

Around the start of the Covid-19 pandemic, the mental health technology industry was booming. A favorable economic climate (low interest rates and lots of venture capital funding) coincided with a strong need for affordable and accessible mental health care—what digital mental health expert David Cooper, PsyD, calls “easy money and people with really good intentions.”

In startup culture, funding companies with potential rather than a proven track record is common. Most startups do not need to be profitable right off the bat. But when the economy took a downturn, digital mental health companies without clinical know-how or a clear path to profitability started to struggle.

“That changed the timeframe for which the economics needed to be figured out and gave a real jolt to the industry that people weren’t necessarily expecting,” Scult said.

When the money started to run out, mental health technology companies had a few options, said Cooper, who is a member of the MHTAC. Companies could take a “down round” and raise funds at a lower valuation—which can send the message that a company is struggling. They could find a way to increase revenue—which is tough in a crowded market—or “extend the runway,” meaning try to keep the lights on as long as possible with remaining funds. One way to do that is through layoffs. In many cases, psychologists are among the first to go because they are seen as service providers who can be rehired later if funds allow.

“Health tech and startups tend to focus on this hyper-growth model, and with that often comes over-hiring,” said Kay Nikiforova, head of clinical and research at health equity startup Violetopens in new window and a member of the MHTAC. “Clinicians who provide direct care are viewed as a dispensable resource, rather than as part of the organization.”

Perhaps surprisingly, psychologists working in other roles—including clinical strategy, clinical research, product development, and marketing—are also some of the first to go. While those layoffs might temporarily extend the runway, Cooper said they are likely to harm a company’s long-term viability when it comes time to demonstrate the quality of their services in an increasingly saturated market.

“Who can assess your product’s quality, advocate for it with credibility, and help you improve quality compared to your competitors? All of the psychologists you just laid off,” he said.

Cutting clinicians is bad for business, and it can also cause real harm. Patients may feel abandoned, and even those who stay engaged with technology products may be less likely to seek out mental or behavioral health care in the future, Wright said.

“These apps could be a gatekeeper, in a good way, where they allow people a less stigmatizing or more cost-effective way to approach their emotional well-being,” she said. “But if someone has a bad experience, how does that impact them in the long run?”

For patients who have never had an experience with mental health care and who cannot access or afford traditional private practitioners, an app could be the next best thing. An abrupt termination of their burgeoning therapeutic relationship or other ethical breach could sour their views on therapy.

“Technology can be a path toward a more inclusive field of psychology, but the people building these apps aren’t always thinking about ethics,” Jackson said.

Another concern is that the rocky early days of digital mental health care might bias psychologists against the industry, which could limit its growth potential.

“If these challenges cause us to see technology as a threat, rather than as a tool, that could have negative implications for the profession,” Wright said.

Despite the recent struggles—and to some extent, because of them—digital mental health experts are optimistic about the industry’s prospects. As a second wave of mental health technology begins, companies are seeing that success requires some changes to the business model.

For one, outlining a clear path to profitability is particularly important for technology companies in the health care space, Cooper said, where factors such as insurance and licensing rules can limit potential profits. One way to plan effectively is to integrate clinical founders, leaders, researchers, and strategists from the outset.

“Companies who did not have clinical leaders or founders have really had to backtrack over the years, so the ones that are just getting started are learning from that,” Nikiforova said.

Mental health startups without clinical leadership have struggled on the business side, and some have even made legal and ethical missteps. In 2023, mental health chat service Koko sent its users responses written by GPT-3opens in new window without getting their informed consent, then defended the decision to do so. Other companies repurpose online resources intended for individual therapists in a way that could be seen as plagiarism, Jackson said. And many do not understand the complexities of mental health licensing restrictions and interjurisdictional practice.

“A lot of people in the tech space think they’re disrupting health care, but [true mental health innovation] is much larger than creating a new app,” Jackson said. “It’s not the simple fix that people think it is.”

Mental health technology companies are increasingly being founded by clinicians or adding clinical leadership in their first few hires, Nikiforova said. Examples include Nema Healthopens in new window, Appa Healthopens in new window, and Instride Healthopens in new window. Rather than starting a technology company that addresses mental health, new startups are launched as mental health companies that leverage technology to reach more people.

Investors are also more cautious, seeking proof of how a new product will benefit patients, save money, or address an unmet need. That’s leading startups to place a focus on research that demonstrates clinical efficacy from the beginning, which presents another opportunity for psychologists.

“Most mental health tech companies honestly don’t know what’s under their hood,” Nikiforova said, and could benefit from guidance on what data to collect and how best to utilize it. “There’s a lot of data they aren’t using, and some aren’t measuring the right things.”

Even with these encouraging signs, Scult concedes that layoffs may be a reality of startup culture that cannot be entirely avoided. Rather than cutting clinicians entirely, though, he suggests that companies consider ways to shift them into other roles—for instance, into marketing or operations.

“That way, even if a company can’t afford a robust clinical team, they won’t lose all of their clinical expertise,” he said.

For psychologists looking for work in digital mental health, job prospects may remain slim for a while.

“We have this perfect storm of more people than ever wanting to get in, more people being laid off and entering the job market—and frankly, we need fewer companies,” Cooper said.

But the layoffs could present an opportunity to ramp up training opportunities if psychologists with expertise in mental health can loop back into academia, he said, then inject their expertise into academic literature and psychology courses. Most graduate programs provide little training on skills needed to work in tech, such as navigating electronic medical records, or guidance on what to expect from the industry.

“Individuals are transitioning and starting careers without having a clear career path. That can be very exciting, but also very daunting,” Nikiforova said.

Therapists in Tech is working to change that, with career development, mentorship, and advocacy efforts, as well as an extensive database of company reviewsopens in new window, which includes details about compensation, company culture, and how legal and ethical issues are handled. In addition to clinical and research roles, psychologists are working in operations, product management and design, software development, customer success, and content development, which hints at other possible paths into the industry. Meanwhile, the MHTAC is exploring how APA can shape the field of mental health technology and better support psychologists who hold or seek roles in digital mental health.

“Despite the rough sailing ahead, I still believe in the ability for technology to enhance how we address mental health concerns,” Cooper said. “This crisis isn’t something we can train our way out of, so we’re going to have to expand our reach. Technology remains one of the best ways to do that.”