LifeStance Health (Nasdaq: LFST), one of the nation’s leading behavioral health providers, is charting a new course by shifting its focus from aggressive expansion to sustainable behavioral health profitability. With over 600 locations across 34 states, the Scottsdale, Arizona-based company is implementing a multifaceted strategy to streamline operations, achieve cash-flow positivity by 2025, and ensure long-term behavioral health profitability. This includes consolidating brick-and-mortar facilities, reducing payer contracts by 25%, and scaling back mergers and acquisitions (M&A) in favor of organic growth. Below, we explore LifeStance’s transformative approach, its financial performance, and its vision for balancing behavioral health profitability with high-quality patient care.
A Strategic Shift Toward Behavioral Health Profitability
Since its inception, LifeStance has pursued rapid growth, expanding its footprint through acquisitions and new locations. “Through the company’s early years of tremendous growth, we’ve been in an all-out sprint,” said CEO Ken Burdick during the Q4 earnings call. “Now we’re focused on building scalable processes and systems not only to support the level of growth we’ve already attained but to prepare LifeStance for the huge opportunity in front of us in behavioral health profitability.”
This pivot comes after a challenging period in the public market since LifeStance’s 2021 IPO, which prompted a leadership overhaul with new appointments for CEO (Burdick), Chief Operating Officer (Danish Qureshi), and Chief Financial Officer (David Bourdon). Despite market struggles, the company’s financials remain strong, with Q4 2022 revenue climbing 21% year-over-year to $229.4 million and full-year revenue reaching $859.5 million, a 29% increase from 2021. These results highlight LifeStance’s market resilience and the growing demand for mental health services, setting the stage for its focus on behavioral health profitability.
Strategic Pullbacks to Drive Behavioral Health Profitability
To achieve sustainable behavioral health profitability, LifeStance is making targeted reductions in three key areas: physical footprint, M&A activity, and payer contracts. These changes aim to simplify operations and reduce costs while maintaining patient access and care quality.
Consolidating Physical Locations
In 2023, LifeStance plans to close 30 to 40 of its over 600 offices nationwide. Burdick emphasized that this consolidation will have “minimal to no disruption” for patients and clinicians due to the proximity of existing locations. This move aligns with evolving patient preferences, as Burdick noted, “We are seeing increased demand and preference from our patients for in-person visits. So we’re going to be really careful to make sure that we find that right balance.” Balancing accessibility with operational efficiency is critical to achieving behavioral health profitability.
The end of the national public health emergency (PHE) on May 11, 2023, adds urgency to maintaining in-person care options, as it reinstates requirements for prescribing controlled substances in person. LifeStance’s hybrid model, blending virtual and in-person care, positions it to meet these regulatory changes seamlessly. “We expect this will further magnify the competitive differentiation of our hybrid offering,” said COO Danish Qureshi. By optimizing its physical footprint, LifeStance is enhancing behavioral health profitability while ensuring compliance and patient satisfaction.
Shifting from M&A to Organic Growth
LifeStance’s early growth relied heavily on acquisitions, with 13 completed in 2022 and 90 de novo locations opened. However, the company is now prioritizing organic growth to drive behavioral health profitability. “We continue to shift toward organic growth versus acquired growth,” Burdick explained. “In 2022, over 80% of our gross clinician adds were hired rather than acquired.” This shift reduces reliance on costly acquisitions while leveraging LifeStance’s established presence in 34 states. “Acquisitions were absolutely crucial to building scale in LifeStance’s early years,” Burdick said. “But with a broad footprint now in place, we are hyper-focused on the organic growth opportunity in this massive market.” This strategic focus is a cornerstone of LifeStance’s plan for behavioral health profitability.
Streamlining Payer Contracts
LifeStance is reducing its payer contracts by 25%, targeting smaller local and regional payers to alleviate administrative burdens. With over 400 contracts previously, this streamlining is expected to have minimal impact on revenue, as these contracts represent less than 1% of visit volume. “The leverage is in the administrative simplicity that it creates,” Burdick said. “It’s going to help contribute to running a more efficient business.” By simplifying payer relationships, LifeStance is removing barriers to behavioral health profitability while preserving partnerships with national payers, ensuring stability in its revenue streams.
Investing in Systems for Long-Term Success
While pulling back in some areas, LifeStance is making strategic investments to support behavioral health profitability over the long term. Over the next 24 to 36 months, the company will focus on three key initiatives:
- Human Resources Information System (HRIS): A new HRIS will streamline the employee lifecycle, from recruitment to retention, supporting LifeStance’s growing clinician network.
- Clinician Onboarding and Credentialing Platform: Investments in technology will simplify onboarding and credentialing, enabling faster integration of new clinicians to fuel organic growth.
- Enhanced Electronic Health Record (EHR): Upgrades to the EHR system will improve patient care delivery and operational efficiency, reducing administrative burdens.
These investments are already yielding results. In Q4 2022, LifeStance improved its days sales outstanding (DSO) by eight days, from 48 to 40, due to enhancements in its revenue cycle management system. “We believe it’s imperative to make strategic investments in those areas, which will deliver significant long-term benefits,” said CFO David Bourdon. These efforts are critical to achieving behavioral health profitability by enhancing scalability and reducing costs.
Navigating a Changing Behavioral Health Landscape
LifeStance’s strategic overhaul comes amid a dynamic period for the behavioral health industry. Demand for mental health services is surging, driven by increased awareness and reduced stigma. However, the end of the PHE and the return to in-person care requirements present challenges for providers. LifeStance’s hybrid model positions it to adapt to these changes while maintaining accessibility. “Having convenience and accessibility to our patients is critical,” Burdick emphasized. By balancing virtual and in-person care, LifeStance is well-equipped to meet patient needs while pursuing behavioral health profitability.
The company’s focus on operational efficiency, organic growth, and technology investments reflects broader healthcare industry trends toward sustainability and scalability. By addressing administrative complexities and optimizing its footprint, LifeStance is building a resilient foundation for future growth.
The Road to Behavioral Health Profitability by 2025
LifeStance’s leadership is confident that its strategic changes will lead to cash-flow positivity by 2025. By consolidating operations, prioritizing organic growth, and investing in technology, the company is positioning itself to capitalize on the growing demand for mental health services while addressing the challenges of a post-pandemic healthcare landscape. “We are hyper-focused on running a more efficient business,” Burdick said, underscoring the company’s commitment to behavioral health profitability.
As LifeStance navigates this transition, it remains dedicated to its mission of providing accessible, high-quality mental health care. With strong financial performance, a refined growth strategy, and a clear roadmap for behavioral health profitability, LifeStance is poised to lead the behavioral health industry into a new era of sustainable success.
