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LifeStance Plans to Cut Offices, Reduce Payers Contracts in Push to Profitability

LifeStance Health Group (Nasdaq: LFST) will cull locations and reduce the number of payer contracts in its shift from growth to profitability.

Company CEO Ken Burdick said the shift demands LifeStance Health scrutinize costs and administrative burdens in 2023. But once this chapter on efficiency is complete, LifeStance will move again into consolidating the outpatient mental health segment.

“What we’re really positioning this company for is, as we build out and fortify that foundation, [that] we will then set ourselves up for the next big growth run,” Burdick said at the 2023 JP Morgan Healthcare Conference. “Because there’s so much runway ahead of us, we want to be prepared for that.”

LifeStance Health will likely close a “handful or more” centers in areas with low levels of in-person visits. Across the company, about 70% of LifeStance appointments are held via telehealth.

Previously, the company sought to give each provider their own exam room. It will abandon that approach. Going forward, it will consider more efficient uses of office space including the practice of “hoteling.”

“As we experience the continued prevalence of telehealth visits, we’re now looking at our footprint,” Burdick said “We’ve got 600 centers. Do we need 600? Probably not.”

Reducing administrative burden

On the administrative side, 50% of LifeStance Health pays contracts account for 5.7% of its patient visits. The company has more than 400 payer contracts. Having that many contracts is a drag on its administration.

“We’re not talking about paring down by 50%, certainly not anytime soon,” Burdick said. “We can simplify our business by not trying to administer all those contracts where so many of them — I mean, literally more than 100 — have a de minimis number of visits attached to them.

“There are ways to simplify and standardize that will absolutely not get in the way of the patient’s experience and the clinician’s experience.”

Other efficiency efforts already described by LifeStance Health leaders include cutting back on M&A and de novo growth, improving the patient and provider experience with technology, and focusing growth on hiring more clinicians at existing locations.

Burdick estimates that the efficiency efforts will be complete in the next 18 to 24 months.

“So while it’s not particularly sexy, what you’re going to be hearing much more of from LifeStance is the things that we are doing to drive a scalable platform, focus on end-to-end process improvement, some simplification, and standardization, Burdick said.

A major portion of streamlining its administration will require automation and standardization, Burdick said. LifeStance has a long history of acquiring companies but its integration process is often lengthy. It has made 86 acquisitions over the company’s lifetime.

LifeStance preps for growth

LifeStance Health won’t seek additional debt or equity raises in the near term. Burdick said it can sustain itself with its balance sheet following the operational improvements.

Over the next two to three years, LifeStance Health will engage with physician practices to enable behavioral health integration partnerships and establish its value proposition for value-based care.

“Value-based care still is a small minority of the care that’s delivered in the United States today and that’s on the medical side,’ Burdick said. “On the mental health side, it’s in its infancy.”

Today, value-based care arrangements are as simple as patients getting an appointment in two weeks, he added.

All of these efforts are preparing the company for its next wave of growth. Burdick echoed a figure shared by LifeStance Health execs previously — that LifeStance’s 5,400-member diversified clinician group and 600-location footprint represent 1% of the outpatient mental health market.

“Even though we’re large, there’s so much whitespace. It’s incredibly exciting,” Burdick said.

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