Overview
Yesterday, we spoke to a psychologist and former practice owner on the East Coast that sold a large practice to LifeStance (LFST). They left LFST toward the end of 4Q21 and now run a private practice part-time. 40%-50% of the acquired ~50 clinicians departed over the course of the year following the acquisition, although we could not corroborate with our tracking data. Steep losses in light of management's unwillingness to provide detail on organic versus acquired headcount growth is concerning. Management's quote of 80% retention may be better understood as substantial departures on acquired practices and more same location attrition. We expect to have additional calls over the next week or two with clinicians that left LFST in 2021.
As always, if you have questions or feedback: .
Highlights
- Patient demand is high, but clinician productivity is down due largely to the pandemic (stress/emotional toll and physical illness)
- LFST's story and focus on in-network mental health sound good, but the culture shift post-IPO was "pretty shocking" - communication is bad, relationships w/ PCPs may not be as good as advertised
- The cost of attracting and retaining talent may weigh on LFST; PhDs that stick around are expensive (6-figure salaries + good benefits) and other mental/behavioral health specialists like social workers do have attractive, salaried options to choose from (CVS mentioned favorably); people are setting up their own practices as well
- LFST may have overpaid for several of its acquisitions in late 2020/early 2021
- The majority of patients want telehealth due to convenience, but a mix of 3 virtual to 1-2 in-person makes sense, which favors LFST
Call Notes
Edited lightly for length and clarity.
Background: Our contact is presently working `15 hrs per week seeing patients via telehealth (100%) - all cash, no insurance anymore, an relying on own referral sources. Previously a practice owner for over 15 years, the need for succession planning drove the partners to look for a buyer. Many options were explored, but with >50 employees, there were limited buyers (Refresh, LifeStance, and a couple of others). Ultimately, the group was sold to LFST because our contact felt like they understood the culture (only outpatient, insurance-based mental health).
We’re curious about the 80% retention/20% attrition stat that management uses and your experience. You obviously left last year (4Q21) and had sold a practice to them…
- 80% is questionable. There may be differences in states across the country, who the leadership is, etc., but in my area, it’s a new region for them. At first, about 90% stayed because we – the leadership – stayed, but then over the remainder of 2021 about 40%-50% of acquired team left due to poor leadership/communication.
What makes people stay with a practice, in your opinion?
- We ran a practice for decades. We found a way to love our employees. It was a, “We care about what happens to you, no matter what it means to hours worked, when you work, etc.” environment. People could stay or come back – we’d save spots for people. We paid great attention to everyone’s story and helped them have a secure place to work and develop. Employees know the leadership cares.
- As a smaller practice, insurance-based, money is not the mission. It's a “healing community” and people want to be there.
- Clinical supervision, provided for free, had to have it.
- Issued – research-based practice is questionable. There are only a few things that help – quality of connection is one. Everyone doing CBT and wanting their name on the map – that became the most researched treatment. Whatever. We promoted development.
Clinical supervision – how?
- Most practices have something. Many do it cheaply via supervision groups. Come to group and talk about cases. Groups are good for certain things, but we liked individual, go over difficult cases, administrative problems, working on countertransference was big.
- Cultural difference with LifeStance – much of what I said went by the wayside in a corporate setting (they had groups, but then how much was admin vs. clinical would vary/was up for grabs – easy to avoid clinical stuff in groups).
So, might end up with more of an administrative, business-oriented theme?
- Yes, if you’re working insurance-based, not going make money – a lot – what else? Development, mission, etc. doesn’t matter if 3 years, 20 years.
- Business structured the same – I liken it to hair salons. They get a certain amount, percentage, some development, but not personal development – they don’t need that – not exposed to trauma/pain every day. Need that acknowledged, way to process, it, have people show them how to deal.
In-network, not super lucrative…is there something to rate lift that it’s attractive, why wasn’t that enough?
- Rates were comparable, but they offered things we couldn’t. To avoid attrition, track to benefits. Benefits is the biggest cause in 1099 practice. Need stability and benefits. Doing that at rates getting paid very difficult. Until the pandemic, rates – profit margin thin – then people sicker, parity shows up. We were paid commensurate w/ PTs, $66-$75/hr., except psychiatry, but that was suppressed for years too, only up until a few years ago.
- Competition - $250k for academic psych (salary).
- Went up to more like $80-something, Masters level.
On average, how does a private practice run with 1099 pre-benefits employees?
- Standard split in the region is about 60/40, 60 for the practitioner, 40 for practice. One person concentrating on PhDs in practice – benefits to that – more training, more independent, generate more money from insurance companies. Someone may do a 70% split for practitioners…
- What costs come out of the 40%? There’s some insurance, but a lot of the overhead has to do with billing – it’s difficult, complex, you need to use the right codes, an administrators bring more cost. Part of the attrition issue may be that you don’t get paid until the practice gets paid. When things are good, 2-3-week turnaround, and you can deal with it. It’s product-dependent though. Sometimes EAP vs. commercial insurance, legal involvement can delay.
We followed the Mednax roll up and asked LifeStance Management how they are different and about the % of new hires coming from practice acquisitions, but they don’t break out the numbers…
- I don’t know. It’s all aggregate numbers and it was hard to connect with other leaders.
- Why? It was a very corporate environment – a somewhat secretive culture. You can look at when my practice was purchased. I think it was around the IPO that everything seemed to culturally change – it was pretty shocking.
The “sell”, what you agreed to, evaporated overnight?
- Yes, for some understandable reasons, but I didn’t understand all the changes – standardization of protocols after a purchase like that. Gradual building, then buying spree – it felt like that – higher multiples than ever before… I think I sold at the top of the market.
- Market rate – on average – has been 3x-4x trailing EBITDA.
- Split – changed – as small practice hard to afford all being W2, even though all supposed to be… 15 years ago audited for that… the laws are changing in various industries, have to be employees, main work of firm. Part of differential, all employees, all basic equipment and benefits. Then, issue becomes how important those are.
What’s the importance of physical location vs. virtual – need face-to-face?
- It depends. The majority of clients want telehealth because of convenience – that’s the biggest thing. Private mostly. Things that interfere – kids don’t do well on telehealth, generally. Some people with certain kinds of trauma need to be seen, form trust, etc. The experience matters.
- Is there an optimal mix? I think 3 days virtual, 1-2 in person is a good mix. Also, sometimes people just want to get out of the house (older people). Therapy is one of the most dangerous things in a pandemic though. You can wear a mask at the PCP for 15 min but sitting there for 50 min talking in a confined space is dangerous. Even if you wear a mask, you can’t cry into a mask. It’s just not good.
Where did people go – better alternative? How consolidated is the outpatient space?
- I hear people setting up their own practices. They know how to do it, have a big enough client base to start, etc. Most of us would rather get the whole chunk of money and pay for what we need to pay for. Given telehealth, there’s no need to rent an office. I think it was Psychology Today that published an estimate of 55% spent on expenses. So, this is perfect time to try it – it’s the least risky in history.
- Other places people are going offer salaries and/or benefits. For example, I hear of people wanting to go work for CVS. They are paying social workers at $70k+ w/ benefits at Minute Clinics. Then, there’s Amazon, Walmart, etc. all doing the same thing – salary is not based on productivity.
Integrating mental health into medical practice?
- Not really. They are practicing. Long ago I was in a staff model HMO on unit w/ doctors, part of a team, funding was all bundled, and that worked well until dismantled. For 20 years, they’ve tried to recreate it, but the closest is the Medical Home idea… if they go back to that, that would go well.
- Give therapists sense of community – community mental health, Medicaid.
- University counseling centers.
It seems like a team environment…with support, etc. is where people are going?
- Exactly. College counseling centers – nothing to do w/ insurance, productivity expectations are reasonable, sufficient vacation and benefits.
When we think about it, docs leave, they take their patients? Non-compete?
- There is, but if you have 20 clients… are you going to go to court for that? Historically, therapists don’t solicit. Give clients the choice, don’t solicit, and you’re ethically and legally doing what you’re supposed to do.
How is LifeStance at driving new patient volume?
- I think they have limited experience in a new market, and they didn’t seem to care about referral sources. In my opinion, new offices struggle a little. The corporate model alienated some referral sources (embedded in a primary care practice, for example)
- When you collocate w/ PCP, it may not be a contract. Become CPC+ Partner for Medicare, the practice gets incremental reimbursement. The exchange is, you’re affiliated, come in or don’t, then Medicare recognizes you as having a partner, give the PCP extra money for that. Then, no contract, no rent, but get referrals.
- I think LifeStance understands that – the company to watch for integration is Refresh, which was recently acquired by Optum/United.
- When you become CPC+ Partner with behavioral practice, they get extra reimbursement. It’s all billed, it’s an add on for being affiliated.
Regarding LifeStance’s M&A strategy – it seems like a land grab, regardless of specialty/practice area?
- They wanted insurance-based only with a level of income – practices that were prepped for purchase.
- Every therapist wishes they were cash practice. They make more money. Insurance-based is a mission. Easier to get Medicaid therapist vs. commercial insurance because of suppression tactics.
- Anything about COVID help with billing/collections? Yes, some of it did and we got raises w/ out asking. Raise after psychiatry.
- Rate high and sticky? Or risk of declines/reversion? They’ll try. Telehealth… they wouldn’t pay for it. Magellan would, nobody else would. Fear about changing rates – lower.
- Why? Because they can. Why wouldn’t they be looking for something to pay less for. My take: after 20+ years doing this, insurance companies will suppress access and funds as much as possible, sometimes I think/know it’s intentional, sometimes it’s incompetence.
Is a prescriber or non-prescriber – PsyD vs. lower-level – more likely to stay or be part of the attrition?
- More volatility with NPs because of competition and nature of lives… once I had a psychiatrist, they were likely to stay for a while (hard to quantify though – all depends). Psychologists, LPCs, LMFTs… Masters level people have less options than PhDs have. So, if you’re paying the PhDs a larger cut they are likely to stay, but they can get 6-figures almost anywhere.
The equity grants/program that management announced… how is that viewed?
- I think it’s a “corporate answer” to a low-level problem… not attractive – too far in future, comp in present not great – other attentiveness not that great. It’s not the kind of crowd that’s moved by that.
- Clarity of processes, community, etc. need to be clear. That’s what moves this crowd.
OK, on a 1-5 scale, with 1 being terrible and 5 incredible, how would you rate LifeStance on what’s important – communication, processes, etc.?
- I’d give them a 2.5 on that scale – the communication processes is lacking. There’s a real lack of clarity, people disappear with no explanation or guidance on what to do (you don’t know about it), emails go unanswered, and I thought it was like that at every level.
We’re wondering about productivity at the clinician level, and we respect that the metric may vary by clinician type or type of service. How has that changed? How has the pandemic influenced it?
- That’s an easy one - everyone’s productivity dropped. The clinicians are going through a traumatic period at the same time as clients, and people are sicker, banging on the door for help. There’s only so much that clinicians can take mentally. It’s hard to be productive. People took more time off.
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Thomas Tobin
Managing Director
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