Electronic Health Reporter

By Paddy Padmanabhan, founder and CEO, Damo Consulting, and author of “The Big Unlock“

“We’re sad to say goodbye.”

That was the subject line of the message from Lantern, a behavioral health startup whose app and coaching services I had used for a while. Lantern’s letter stated it is shuttering its business on August 1, helpfully offering to continue the coaching services for a limited period and pointing to other resources for those who relied on its services for six years since it started. News reports say Lantern is laying off 25 employees after failing to find a buyer for the company.

Firstly, I want to say this to the folks at Lantern: I’m sad we have to say goodbye. Although I had ceased to use the app a while back, I had developed a relationship with my personal behavioral coach who checked in with me regularly to see how I was doing with my meditation practice, often prodding me with a gentle nudge when I missed reporting on my sessions. I had the benefit of several conversations with my coach who was helpful, understanding and skilled at her work. Despite my short relationship with Lantern, I felt a positive impact on my well-being through regular meditation and mindfulness.

I came to know about Lantern back in December 2016 when I shared a stage as a speaker at an industry event with one of their executives. Back then, behavioral health was getting recognized as a $280 billion problem, which I wrote about after the Senate Health Committee announced the Mental Health Reform Act. Behavioral health is a complicated and expensive issue in U.S healthcare, which consulting firm McKinsey estimated affected 20 percent of the U.S population and was significantly underfunded in terms of treatment infrastructure.

In late 2016, there were more than 200 behavioral health startups, all of whom were responding to a brewing mental health crisis, and a favorable legislative and funding environment. Lantern was one of the highly visible ones, raising $17 million in series A money from marquee names, such as UPMC, Stanford University and Mayfield Ventures. The opioid epidemic and the exacerbation of related mental health issues was about to explode into public consciousness. Health insurance companies, faced with increasing costs for mental health and substance abuse, had started taking an interest in these startups. High profile partnerships were announced, such as the one between Highmark BCBS and Quartet. For a while, behavioral health seemed like a sure shot.

So what went wrong?

I’m sure the folks at Lantern and their VCs are pondering the question hard. However, back when I wrote about it, the signs of trouble were already visible. The Lantern executive I met at the time indicated that the lack of a reimbursement model for behavioral health was a huge challenge for growth. In healthcare, as we know, following the money is a prerequisite for success. The Department of Health and Human Services (HHS) had thrown $44.5 million at the problem, a drop in the ocean relative to the size of the problem.

Even for those who had access to funding, finding and recruiting trained clinicians with experience in behavioral health was a massive challenge.

Many startups, looking to stay outside the purview of regulation, tried to sidestep the FDA and go straight to employers and consumers (an expensive mistake that many failed digital health startups have learned the hard way).

Eventually, these problems had to come to a head. Lantern’s sad demise, brought about by a lack of ability to scale, and a lack of interest from the same insurance companies who were bullish on the sector two years ago, tells us that a business model with no revenue model has limited chances of success.

Is behavioral health dead then? Perhaps not. Many new telehealth companies, such as Teladoc, now offer behavioral health services. The CMS’s new rule to boost telehealth payments could be a shot in the arm that revives the fortunes of struggling behavioral health startups.

The lessons from Lantern’s demise apply to digital health startups across the board. The recent shuttering of CareSync, a Florida-based care management startup, is one such example. The slowdown in the shift to value-based care is a factor that could impact the fortunes of startups looking to benefit from digital transformation and population health management.

The one silver lining in all this is the breakneck pace of funding for digital health startups, more than $1.6 billion in Q1. While exits haven’t entirely kept pace yet, the tsunami of funding should hopefully deliver some much-needed successes soon.