#12 Profit vs Purpose in Mental Health

The false dichotomy holding back our progress

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Hi friends,  

I got into a bit of a fight this week on LinkedIn…

I saw a post about the appointment of the Doordash CRO as the new CEO of Headspace.

The post questioned the impact this would have on the clinicians working at Headspace. It’s a fair question and we were having a good discussion on whether Healthcare companies should have people with clinical experience as their CEO.

But in the comments I noticed something else.

Another interesting conversation was kicking off.

I started reading comments like this…

“There will always be an inherent conflict between the goals of capital-led enterprise (making more $ than you spend) and the goals of the healing services industry”

“So glad I don’t work in the Mental Health tech sector, its inherently toxified by the tech sector.”

or

“I hate the way health of all kinds and education have been turned into profit machines.”

I hear quotes like this all the time in Mental Health.

There seems to be a pervasive scepticism about for-profit organisations in this industry.

And for a long time, I’ve wondered where exactly this scepticism comes from? I also wondered if it was justified?

And if it wasn’t justified, what impact was this attitude having on our ability to create solutions?

I took these questions to the shower with me and soon started to think about exactly what role for-profit companies could and should play in Mental Health.

By the time the hot water was running out, I was also thinking about what we need to do at a systems level to ensure that the for-profit companies that do exist, act in the best interests of patients and have the best chance of making a meaningful impact on this problem we all care so deeply about.

That’s what we get into in this week’s edition of The Hemingway Report.

“Nothing is more dangerous than a dogmatic worldview - nothing more constraining, more blinding to innovation, more destructive of openness to novelty.”

Stephen J. Gould

I think I understand the root of people’s scepticism of businesses in Mental Health.

They believe that if a Mental Health organisation is for-profit, then they will prioritise making money above everything else - including doing what is right for patients.

These concerns are not entirely without reason.

There are some high profile cases where companies have undoubtedly ignored patient wellbeing and prioritised their bottom line (Purdue Pharma is a sad example in healthcare).

These stories get a lot of headlines, have been propelled by a broader current of mistrust in capitalist systems and has lead to a deep suspicion of for-profit organisations in healthcare.

While I understand the source of this scepticism, I do not agree with it.

These morally bankrupt organisations are the exception, rather than the rule. And it’s a mistake to allow them create prejudice against a whole class of well intentioned organisations with the ability to delivering great solutions.

The unfortunate reality is that there are just some people in the world with a moral compass that doesn’t point north. If these people find themselves leading a business, they may make decisions that replace patient outcomes with profit.

But it is their actions (those based on a lack of good moral and ethical judgement) that lead to these negative outcomes, not the fact that their company has a for-profit mandate.

Profit is not evil. It’s the things people can do to generate profit that is evil.

Remember that there are lots of non-profit organisations who have also failed to prioritise their patients. Such failures are not reserved exclusively for businesses.

A lack of profit does not guarantee good behaviour, nor does its presence guarantee bad behaviour.

But let me continue to steel man the sceptics case for a moment.

They may say that sure, those companies are outliers, but there are other for-profit companies in mental health who ignore quality of care in order to generate profits.

I have more time for this argument. Mental Health is a tough industry with high costs of delivering care. However, while being a business creates incentives to generate profit, I disagree that this must come at the cost of quality of care.

In most economies, the incentives are set up to ensure that companies provide good outcomes for Mental Health patients. Sure, it’s not perfect, but most of the time it works. The NHS has a bunch of contracts with private mental health businesses. Why? Because they know these organisations can deliver good outcomes for their patients and as a result they are happy to pay for it. If the businesses stops delivering outcomes, they’ll end their contract.

Hell, in every country, a lot of frontline Mental Health treatment is actually provided by private, for-profit practices (the sceptics seem to have less of an issue here for some reason).

Sure, the system is messy and some companies may get away with delivering poor outcomes for a while, but in the end, behaviour aligns to the incentives of the system (more on that later).

I find the sceptics of the role of business in Mental health tend to have a form of binary thinking about this topic that doesn’t hold up to much scrutiny.

Just because a company wants to make a profit, doesn’t mean they can’t also create positive impact. There is a plethora of evidence of exactly these kinds of businesses delivering life changing solutions - see below. Sceptics like to call out the cases where things have gone wrong in mental health businesses, but are a lot slower to realise that there are thousands of for-profit businesses delivering great outcomes for mental health patients every single day.

There is no natural law that says you can’t do deliver good patient outcomes and make a profit. In fact, in this piece I’ll argue that in many areas, for-profit companies are the ones capable of delivering the most social impact of all.

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A history of delivering impact

When we look at the history of many of the biggest improvements to our standard of living, we see that they have been developed and scaled by for-profit organisations.

The Covid vaccine was developed by Pfizer-BioNTech and Moderna, Siemens and GE developed and scaled CT scans and for-profit companies like SunPower and First Solar have scaled our ability to generate renewable energy from solar.

So instead of worrying whether an organisation is creating profit, people should worry more about what they are actually doing to deliver impact. They should focus on their results and outcomes, and must avoid a dogmatic view of for-profit organisations.

More similar than different

Alongside for-profit businesses, there are two other kinds of organisations in our mental health system, public health organisations and non-profits.

Each of these types of organisations have different strengths and weaknesses, and we need them all to play a role in creating a system that can achieve the kinds of outcomes for patients that we all want.

We also need to recognise that in many ways, all three of these organisations are more similar than many of the for-profit sceptics may realise.

In public health systems, for-profits and non-profits, the organisation has to pay expenses every year and must generate income to be able to afford them - either by charging your customers or raising funds (from donations or taxation). Either way, they all have to deal with the same pressures of managing and funding their costs.

The only difference is at the end of the year, the money you have left over either gets recognised as profit, or kept in the bank for next year. All three organisations have to make tough decisions on how much money they spend on care and where they allocate it. And all three organisations feel the pressure of trying to deliver the most impact for the least expense.

So if this cost pressure is consistent across all organisations, then why do the sceptics only focus their criticism on businesses?

There are a lot of amazing non-profits out there. But being a non-profit does not guarantee that you deliver high impact.

I know plenty of non-profits who are pretty useless. They waste money and often fail to deliver on their goals, whether that’s in providing care, conducting research or developing innovative solutions.

Instead of demanding that organisations not be driven by profit, we need to demand that they are driven by purpose.

Yes, non-profits and public health systems play a massive role in combatting our mental health crisis, but there are attributes unique to for-profit businesses that give them advantages in many areas.

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The benefits of for-profit organisations

1. An ability to invest in research and development

There’s one thing a lot of people get wrong about for-profit companies.

They think that at the end of the year, they take all the money left over after paying their expenses and go around the table handing wads of cash to their shareholders. These fat cats stuff it into their pockets, give the CEO an “attaboy” and a slap on the back and walk off into champagne sunsets.

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What happens instead, is that many companies reinvest a significant amount of their profits back into the company - specifically into Research and Development. What’s more, their shareholders actually want them to do this as they know this is how they create long term value.

Look at how much the top companies in the world are investing into R&D - up to 28% of all their revenue!

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The surplus they have created between their revenue and their operating expenses allows them to reinvest into their product.

This is one of the biggest challenges I hear from non-profit organisations. They tell me how they are funded to deliver specific programs or have grants to conduct specific research, but they don’t have the control to define an R&D budget each year to invest in the areas where they see most potential. For-profit companies do.

This is a good thing for patients.

To meet the demand for care, we cannot just continue to deliver the treatments we have today at the current costs. We need to massively improve efficacy whilst also driving costs down. This can only happen through innovation. Innovation requires investment and funding from for-profit budgets is a great source of such funding!

2. The power to attract top talent

If we are going to make the step-change we need to make in Mental Health, we need the world’s best people working on this problem.

For-profit organisations are fantastic vehicles to achieve this.

I can already hear the people screaming “but if people really care about impact, they shouldn’t want to work somewhere because of the salary”. This is another example of binary and overly simplistic thinking that ignores reality and leads to bad decisions.

People don’t exist in two exclusive categories of (1) cares about impact and doesn’t care about money and (2) doesn’t care about impact and only cares about money. They exist on spectrums across these two dimensions. And if you want your organisation to build something incredible, it helps to be able to convince talented people who yes, care about your mission, but also have realistic concerns about their own financial wellbeing.

If you need a top machine learning engineer to build your product, you’ll be competing with Meta who are going to pay well into the six figures (if not seven figures) in compensation. Because you’re an impact driven organisation, you won’t need to match that necessarily, but you need to bridge the gap and make the decision easier for the candidate.

The profit generated by businesses allows these organisations to pay the compensation needed to attract this kind of talent. And we should be OK with that!

There is something weird about the human psyche that makes it hard to accept people making big money when doing something good.

Mark Zuckerberg can be worth $174bn for running Meta and we’re OK with it. But pay a CEO of a Mental Health business a few hundred thousand to massively improves people’s lives and suddenly, we’ve got an issue!

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This is non-sensical and we need to get over it. We should be attracting the best talent to work on this problem and celebrating the businesses who are capable of doing so.

3. Investment to reach scale

The people in the comments of the LinkedIn post (see above) talked about “scale” like it was a dirty word.

I hate to break it to them, but there are hundreds of millions of people suffering with mental disorders every day. Reaching scale is an absolutely necessity to deliver impact and for-profit organisations are well positioned to do this.

Why? Because they can use their profits, or the capital they have raised, to fund their expansion. Non-profits don’t have this option. I’ll reiterate, they should not do so at the cost of patient outcomes, but ignoring scale is a luxury we cannot afford.

4. Adaptability to customer needs and technology changes

For-profit organisations need to be in-tune with the needs of their customers. If they’re not, their customers won’t pay them and they’ll soon be out of business. This is a good thing. We want businesses to feel the pressure to improve their offering over time.

One challenge in healthcare of course is that the customer may not be the user, and that can cause some challenges, but overall, having organisations that must adapt to the needs of the system is a good thing for the system.

They also tend to be more agile organisations when compared to non-profits or public health systems. They can adopt new technology and translate new research into real world solutions more quickly. Both good things.

5. Improvement in outcomes, driven by competition

Look, without getting into a deep economics debate, I hope we can all agree that competition is good. It drives better outcomes and lower prices. In recent decades healthcare costs have been exploding with limited improvement in many areas of patient outcomes and much of this is driven by a lack of meaningful competition.

I’ll say it once more (you know, just to be sure) this is not an excuse to compromise on outcomes or patient care. But it is a forcing function for companies to improve their treatment and lower costs over time. These are two things we desperately need in Mental Health.

System changes to promote desired behaviours

I must tell you, I am not a free-markets ideologue.

The dominant business ethos for the last 50 years has been to focus on maximising shareholder returns. It was based on Milton Friedman’s post World War II ideas of encouraging free markets and for many years it worked well at both delivering financial returns to shareholders and positive social impact.

While I still believe in the ability of for-profit organisations to deliver social impact, there have been some shifts in the conditions required for markets to operate well that require us to make some adjustments, especially in healthcare.

These changes will help us prevent the existence of bad actors and increase the chances of success for those creating genuine impact.

Firstly, we need to create more shared-value organisations.

A shared-value organisation - a rephrasing from Reimagining Capitalism by Rebecca Henderson - focuses equally on delivering positive social value and financial value to shareholders. We already have lots of these in Mental Health. When I speak to the founders of these organisations, it’s clear that they care deeply about creating social value and I know that their dedication to impact is not just lip-service - I can smell a bullshitter a mile away!

There has also been a welcome increase in shared value investors (aka purpose driven investors). These firms look for shared value organisations to invest in and are the kinds of people you want on your cap table as a Mental Health company. They are deeply interested in balancing impact with profits which creates the right incentives and pressures for the companies they invest in.

From a systems perspective, we need to create an environment that allows these shared-value organisations to be judged on their merit and rewarded accordingly. If a for-profit mental health business is able to deliver great clinical outcomes at low costs, then it should be adopted by health systems, offered to patients and reimbursed accordingly. We must avoid a system that favours incumbents purely due to their incumbency and do everything we can to avoid regulatory capture. We want fair markets where the best solution for patients wins.

We should also increase transparency of the impact delivered by all organisations in Mental Health (not just businesses) and enforce strict standards for how they treat patients.

We should fight hard to align the incentives between payers and patients.

Reducing bureaucracy in healthcare would of course also help, as well as streamlining of regulation - making it fit for purpose and not overly burdensome where it isn’t needed.

For-profit businesses will not solve all problems in Mental Health.

We need non-profits and public health systems to play a massive role in this system. But there are inherent strengths to businesses that these other organisations do not have and we can’t afford to ignore them.

Yes, we must ensure that businesses don’t prioritise profit over patients. We need to encourage shared value organisations, who balance social impact and profits. We should set up our systems to facilitate this and judge companies on their actions and ability to deliver the outcomes for patients that we all want.

But we should not fall into the trap of dismissing these organisations on the sole basis that they can generate profit. To do so would be to take much needed arrows out of our quiver at time when we need all the weapons we can get our hands on.

That’s all for this week.

If you liked this post, share it with a friend.

If you’ve got your own thoughts, let me know, I’d love to hear what you’re thinking.

Keep fighting the good fight!

Steve

Founder of The Hemingway Group

P.S. feel free to connect with me on LinkedIn