Over the past several decades, there has been a change in how the U.S. views mental health issues. Today, a conversation about a tragic shooting has transitioned from being an “NRA issue” to a “mental health issue,” with these topics being picked up by industry, media, and politicians alike. With near-daily news reports of teenage or young adult suicides, attacks on family, military, schools, movie theaters, and so on by undiagnosed and untreated individuals, and a rise in accidental drug overdoses from both illicit and prescription products, conversations have begun to focus on increasing fairness in health insurance for behavioral and mental health conditions while reducing the stigma, costs, and hopelessness of seeking treatment for those who are suffering from a mental or substance disorder.
Substance abuse costs the U.S. over $700 billion annually due to crime, lost work productivity, and healthcare. There is a need for more efficient methods of engaging and treating substance-dependent individuals, such as what Catasys is working toward, in order to rectify the treatment gap that currently exists as individuals seek treatment for a physical infirmity but not for an underlying behavioral health condition. As of 2013, approximately 22.7 million U.S. residents (or 8.6% of the population) needed treatment for a problem related to drugs or alcohol, though only 2.5 million people (0.9%) had received treatment at a specialty facility (Source: National Survey on Drug Use and Health).
Catasys offers a new method of integrated substance dependence therapy to health plans and employers for its members through the Company’s proprietary OnTrak™ program. Employing analytics and proprietary engagement techniques to enroll and engage participants in need of care and patient-centric treatment, the OnTrak™ program has been developed to improve treatment outcomes and lower the utilization of medical health plan services by high-use/high-risk enrollees. Its services integrate medical interventions, a proprietary web-based clinical information platform and database, manualized psychosocial programs, and Care Coaching services in a 52-week outpatient program.
Seeking to transform the entire health management services system, the OnTrak™ program has shown to improve member health while reducing inpatient stays, emergency room utilization, and insurers’ total healthcare costs for enrolled members by more than 50%. The Company’s system is set up with the intent of benefitting healthcare insurers/payers (through cost savings), patients (financially and medically, including encouraging better treatment outcomes as people do not have to avoid treatment or leave the program early due to cost since, for most members, it is 100% covered under their health plan), and Catasys.
Catasys reports that it holds contracts with a number of health insurance plans for the OnTrak™ program, including Aetna/Coventry, Humana, and Centene. OnTrak™ is presently available in Florida, Illinois, Kansas, Kentucky, Louisiana, Massachusetts, New Jersey, Oklahoma, West Virginia, and Wisconsin. These contracts cover approximately 2.3 million commercially equivalent lives (CELs). Management has specified that it has a sales pipeline with insurers for an additional 10 million CELs, of which it is in advanced stages of discussion for about four million. Catasys’ pipeline reportedly includes existing customers that have acknowledged the value of OnTrak™ and are considering expanding it to additional geographies or lines of business.
Catasys’ proprietary data analytics enables it to identify high-cost, substance-dependent members within health insurance plans who have the potential to have reduced costs through effective treatment of their behavioral health conditions. The Company then reaches out to these specific members, and has historically been able to persuade an average of 20% of a plan’s eligible substance-dependent individuals to enroll in the OnTrak™ treatment program.
High-cost, substance-dependent members cost commercial health plans an estimated eight times more than other members, averaging $27,500 in annual claims versus $3,250 for a “normal” covered life. Catasys’ data indicates that patients enrolled in the OnTrak™ program exhibit a reduction in claims cost of over 50%. Since health insurers are under constant pressure to reduce costs, they have an incentive to pay Catasys to enroll members in the OnTrak™ program.
To Catasys’ knowledge, OnTrak™ is the only program of its kind entirely devoted to substance dependence. Developed by specialists in addiction, OnTrak™ has facilitated the formation of key areas of expertise, differentiating Catasys from others through member engagement, working directly with the member treatment team, providing a consistent, evidence-based treatment across geographies, and a more fully integrated treatment offering.
Catasys can provide its insurance plan customers with outcomes reporting as it relates to clinical and financial metrics to demonstrate and confirm the value of its program—with data showing an average gross cost reduction of over 50% as measured from the prior 12 months of enrollment. Furthermore, roughly 80% of members who have remained eligible have stayed in the program to date.
The Company’s model has been validated in its quarter-over-quarter (and year-over-year) growth. For the second quarter 2015 (ended June 30, 2015), revenue was up 51% to $472,000 versus $312,000 reported for the second quarter 2014. Catasys also reported a 102% growth in enrollment in the second quarter 2015 versus the first quarter 2015, which was driven by the expansion of the Company’s OnTrak™ program. Catasys recently expanded its Wisconsin program with a national health plan to include its Medicare Advantage members, added a new behavioral health condition (anxiety) in Kansas, and entered into an agreement with a new customer in Illinois that commenced enrollment during the third quarter 2015. For the first six months of 2015, the Company reported revenue of $905,000 versus revenue of $511,000 in the first half of 2014.
There are an estimated 204 million lives covered under managed care in the U.S. For every 1 million members in a healthcare plan, approximately $160 million in claims are incurred by commercial plan members diagnosed with substance dependence (equating into what could be a $2 billion market opportunity according to Company calculations). Catasys further has the opportunity to expand into other high-cost, under-managed populations having behavioral health diagnoses, such as anxiety (as it has recently announced) and depressive disorders—which could more than quadruple its current market opportunity.
Catasys is run by senior management that collectively has over 50 years of substance dependence treatment experience and over 100 years of healthcare experience, having developed an expertise in engaging, treating, and empowering members with coexisting medical and behavioral conditions to modify their behavior.
Catasys holds certain technology, know-how, and related intangible assets with respect to its OnTrak™ treatment programs.
As of August 13, 2015, Catasys reported a balance of approximately $451,000 cash on hand. The Company had cash and cash equivalents of $152,000 as of June 30, 2015, and subsequently closed on a bridge note financing in July 2015 for approximately $3.3 million in gross proceeds that was used to repay outstanding indebtedness and provide working capital.