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The Rise of Behavioral Health Startups

There has been a boom in the behavioral health industry, evidenced by the steep increase in the number of behavioral health startups founded in the past two years.1 Currently, there are 326 companies and 534 investors registered as mental health startups on AngelList.2

Innovation in the behavioral health space matters because in the United States, 1 out of 5 adults experience mental illness, affecting a total of about 43.8 million people.3 The population most affected are millennials (age 18-25), who have the highest prevalence of experiencing depressive episodes.4 Mental illness not only causes pain and suffering to patients and their families, but is also a burden on the economy. The National Alliance on Mental Illness (NAMI) estimates that serious mental illness costs the U.S. $193.2 million in lost earnings per year.5

In analyzing what led to the increased activity in the behavioral health space, several factors can be pointed out. Factors such as the supply and demand imbalances that made care inefficient and costly, healthcare reforms specific to behavioral health that increased insurance coverage, and telemedicine law reforms that removed barriers to deliver care through telehealth, have all presented startup companies with opportunities to innovate. A closer look at the above factors, as well as recent trends in behavioral health startups can shed light into how the government, for-profit and non-profit entities can encourage further growth in this industry.

Supply and Demand Imbalance

The U.S. population has risen by 37% since 1995, yet the number of psychiatrists only rose by 12% during the same period.6 This imbalance is largely due to the fact that in recent years, the number of psychiatrists graduating from residency programs essentially remained flat.7 Exacerbating this lack of mental health professionals is the mal-distribution of psychiatrists and other behavioral health professionals within any individual states, resulting in rural areas being more adversely affected by the lack of behavioral health professionals.8 Due to the lack of physical access to care and the high cost of care,9 studies show that only 41% of adults with mental illness received mental health services in the past year and just over half of children with mental illness received care in the past year.10

Healthcare Law Reform

Recent reforms in healthcare laws have been aimed at addressing the high cost of care and the lack of access to care.

For example, the Mental Health Parity and Addiction Equity Act (MHPAEA) passed in 2008 “requires that insurers equalize coverage for behavioral health and medical health benefits in terms of co-pays, deductibles, lifetime caps and access to providers.”11 Since its passage, there has been improvement in coverage, and most insurance plans “no longer charge higher copays or separate deductibles for mental health care.”12 However, there remains issues with enforcement of this parity rule. In order to address the lax enforcement, a presidential task force was created under the Obama Administration and the said task force has taken actions including creating a government website to help consumers identify the right agency to assist with parity complaints, and requiring the Department of Labor to report on its investigation into any parity law violations.13

There were also several laws that were passed to address the lack of access to care and coverage. For example, the Medicare Improvements for Patients and Providers Act (MIPPA), also passed in 2008, increased access to mental health in Federal programs.14 Further, the Affordable Care Act, passed in 2010, built on MHPAEA with the “requirement that most insurance plans cover mental health and substance abuse services.”15

Telemedicine Law Reform

Telemedicine law reforms have also been instrumental to the innovative activities happening in the behavioral health space. Due to recent telemedicine reform, insurance companies and government health programs are providing more reimbursement for online healthcare service.16 For example, 48 state Medicaid programs now reimburse for “some level” of telemedicine for behavioral health services.17 Examples of other reforms includes a telemedicine bill proposed in West Virginia recently that seeks to allow psychiatrists consulting through telemedicine to prescribe medication.18

Recent Trends in Behavioral Health Startups

Experts believe that the increasing demand in psychiatric care, the shortage of supply in psychiatric professionals and the reforms in healthcare law combined are brewing a “perfect storm…to incentivize innovation” in behavioral health.19 Startups innovating in this space have seized up the opportunity to address issues in the behavioral health care system by focusing on using technology to increase effectiveness, reduce cost, and increase access to care.

In recent years, the healthcare system has been slowly shifting from fee-for-service to value-based integrated care.20 As such, there is a growing emphasis on the need to deliver holistic treatment.21 Several startups founded recently have focused on creating platforms that “aggregate different services, keep track of patient record; and coordinate different treatment patients are receiving.”22 The Integrated Care model combines primary care with mental care in one setting by pulling expertise from mental health, substance use, and primary care clinicians, with feedback from patients and their caregivers.”23 Not only does this model reduce the overall cost of treatment, but it also increases the quality of care delivered,24 addressing both the high cost and efficacy issues at the same time.

Companies are also using technology to deliver innovative care. For example, some startups are using software to deliver digital therapy that “displaces the requirement of fully engaged live clinicians or costly, side effect prone drugs,” and may potentially be more effective than “traditional pharmacologic or in-person therapy.”25 One such software uses cognitive behavioral therapy to “engage patients in thought exercises designed to improve their behavioral health conditions.”26 Another way by which innovative care is being delivered is by using technology to track symptoms in order to reduce the misdiagnosis caused by the “subjective, qualitative, and self-reported measures traditionally used.”27 Such technology allows companies to collect smartphone usage data of patients passively and use such data to identify patterns, and use them as “leading clinical indicators of [a patient’s] mental health status.”28

Recent reforms in telemedicine laws have also removed barriers for psychiatrists to provide therapy virtually and prompted companies to enter into the tele-behavioral health space. Not only are teletherapy companies being founded,29 some of the largest telemedicine providers have also been adding psychiatrists and behavioral health professionals to their network.30


  1. See Matthew Schuster, Overview: Health Tech Startups Innovating the Behavioral Health Space, MobiHealthNews (Aug. 29, 2016),

  2. Mental Health Startups, AngelList (last visited Mar. 12, 2017),

  3. Tori Utley, The Rise of Digital Technology in Mental Health, Forbes (May 28, 2016, 8:00 AM), 

  4. Id. 

  5. Id. 

  6. Lloyd Sederer, Where Have All the Psychiatrists Gone?, U.S. News (Sept. 15, 2015, 3:15 PM)

  7. Id. 

  8. Id. 

  9. See Ruth Spencer and Guardian US Interactive Team, America’s Mental Health Care Crisis: Families: Left to Fill the Void of a Broken System, The Guardian (May 27, 2014, 11:36 AM),

  10. Mental Health by the Numbers, Nat’l Alliance on Mental Illness (last visited Mar. 12, 2017),

  11. Bill Bithoney, Behavioral Health: A Market Ripe for Growth and Consolidation, BDO United States (Mar. 2015),

  12. Jenny Gold, Federal Panel Calls for Stricter Enforcement of Mental Health Care Parity Law, NPR (Oct. 31, 2016),

  13. Id. 

  14. Bithoney, supra note 11. 

  15. Id. 

  16. Bruce Japsen, Telemedicine Companies See Mental Health as Next Frontier, Forbes (June 30, 2016),

  17. Id

  18. West Virginia Telemedicine Bill Expanding Access to Medications Heads to State Senate, MobiHealthNews,

  19. Bithoney, supra note 11. 

  20. See Bruce Japsen, Medical School Curriculum Shifts to Value-Based Care, Forbes (Jan. 19, 2017, 8:07 AM),

  21. Bithoney, supra note 11. 

  22. Id. 

  23. Integrated Care, Nat’l Inst. of Mental Health (Feb. 2017), 

  24. See Id

  25. Bithoney, supra note 11. 

  26. Id. 

  27. Id. 

  28. Id. 

  29. Id. 

  30. Japsen, supra note 16. 

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