Jun 25, 2021 - Health

The stock market's bet on mental health care

Data: Yahoo! Finance; Chart: Axios Visuals
Data: Yahoo! Finance; Chart: Axios Visuals

Mental health care provider LifeStance Health has traded publicly for two weeks, and its stock has soared 57% from its $18 IPO price, giving the company a $10.6 billion valuation.

Why it matters: LifeStance's business rests on the idea that future demand for mental health services will continue to grow in the wake of the pandemic.

By the numbers: LifeStance, which is predominantly owned by private equity firm TPG, registered $377.2 million of revenue in 2020 and is on pace for roughly $600 million this year.

  • As of April, LifeStance operated 370 outpatient clinics with 3,300 psychiatrists, therapists and other mental health clinicians.

The big picture: LifeStance's business model is simple: People aren't getting enough care for their mental health conditions. So, build new clinics, attract mental health providers with better-paying, in-network insurance contracts, and then take a cut.

  • Mental health providers are more likely than any other specialty to be in their own practice, which means solo practitioners don't have leverage against large insurance companies and consequently are out-of-network.

"There's not a shortage of clinicians. There's a shortage of clinicians accepting commercial insurance," said LifeStance CEO Mike Lester, who owns roughly 6% of the company, a stake worth more than $600 million.

  • Before joining LifeStance, insurers paid the company's providers 85% of Medicare rates, Lester said. After, those rates jumped to 125% of Medicare.

What to watch: The growth. LifeStance is opening a 12-clinician outpatient center every four days, and each provider has waiting lists, Lester said.

Yes, but: 90% of LifeStance's revenue comes from people with commercial coverage, which means it caters to those who have job-based insurance over the poor and elderly.

Go deeper