Catasys’ Novel Approach to Patient Care Could Transform the Health Industry

Spotlight Companies |

The healthcare industry has seen dramatic changes in recent years, and with a wide array of perspectives on whether the field is headed in the right direction, the entire sector has become the subject of blistering political debate. However, no matter what your ideology may be, it’s impossible to deny that those patients who suffer from maladies related to substance abuse and mental illness are finding effective, quality care increasingly hard to come by.

That’s what makes the work of Catasys, Inc. (CATS) so intriguing, and why the company could potentially provide significant value to their shareholders – and society as a whole. By providing specialized healthcare management services to health plans and employers through their OnTrak program, Catasys has illustrated great efficacy in treating those underserved patients with behavioral health conditions who often prove most expensive to insurers.

Launched by the company’s current CEO Terren Peizer in 2004, Catasys is a behavioral management services company that is changing the way behavioral health patients get treatment throughout the country. In that time, Catasys has been adopted by national carriers throughout the country for the treatment of substance dependence. They’ve also expanded to provide treatment for anxiety, depression and other behavioral diseases.

Healthcare’s Forgotten (and Expensive) Stepchild

Over the past several years, the behavioral health field has unfortunately been a stepchild of sorts among the facets of managed medical care. Health plans have largely separated behavioral health from their medical care operations, and they've allocated less and less money per patient for treatment. Part of this is the result of not having a lot of faith that treatment outcomes would justify the expenditures, so over time, while managed care and behavioral health have processed claims and cases, patients have continued to get worse. The expense of those patients doesn’t show up on the behavioral health side – it shows up through hospital room inpatient stays and emergency room visits.

Through in-depth analytics and the investment of tens of millions of dollars, Catasys has developed an outpatient, high-tech program that involves not only medical care, but psychosocial care as well. The team at Catasys understands that behavioral health is often a pathology of the brain, which is why they integrate the medical with the psychosocial on an outpatient basis, thus limiting the stigma associated with checking into rehab and being separated from community and family.

Through their outcomes, Catasys researchers have demonstrated that these plans save 50% to 60% of the medical bills for every patient they treat – and that data is beginning to resonate with health plans. They've signed national plans like Aetna Inc. (AET) , Centene Corp. (CNC) and Humana Inc. (HUM) – the leader in medical advantage. Meanwhile, Aetna is the leader in commercial, and Centene is the leader in Medicaid.

OnTrak – The Next Step in Treating Neural Disorders

When pioneering psychiatrists like Carl Jung and neurologists like Sigmund Freud began researching the brain, the field of neurology was still largely unknown. While there is still a great deal of mystery regarding the inner-workings of the brain, research has come a long way – particularly in terms of treatment options for neural disorders. The researchers at Catasys understand the underlying pathologies of the brain, so they don’t only treat side effects, but the factors that augment neurochemistry as well. Their goal is to create an integrated health package for the patient.

Unfortunately, as time goes by, less money is being paid per patient – and the effects of poor psychosocial healthcare can be felt throughout society. That’s why Catasys has created a value proposition that incentivizes health insurers to pay for 100% of the treatment class. Through the Catasys OnTrak program – their 52-week outpatient program – the company is able to save 50% to 60% of the cost for insurers from patients that normally cost an average of $27,500 per patient.

Seventy-five percent of those who are substance dependent are employed. By providing comprehensive outpatient care, and integrating the medical doctor with psychosocial treatment, the OnTrak program ensures that substance dependent patients, as well as those suffering from depression or anxiety can undergo treatment without the stigma that comes from taking time off from work for mental health care.

The OnTrak outpatient program was created with the help of University of Washington in Seattle, which integrates the physiological with the psychosocial aspects of medicine. OnTrak also employs a care coach, which coordinates the pay and the treatment, while staying in constant communication with the patient. The care coach helps enroll these patients as well, keeping them up-to-date as to what treatments are available, and that their health plan will pay 100% of the costs.

The hands-on efforts of these care coaches help ensure that Catasys can retain over 80% to 85% of the patients in their program. This means that patients are not in the hospital, emergency room or other inpatient stay – one of the primary ways Catasys saves money for insurers while helping patients to get better. Although these behavioral health patients represent approximately 20% of the patients covered by insurers, they account for about 80% of the costs – or $27,500 on average, compared to $3,250 for most other patients.

Untangling a Complex Health Field through Financial Ingenuity

Considering the significant, and arguably systemic, challenges faced by the health industry today, it is perhaps unsurprising that a medical field innovator like Catasys is led by health care outsider Peizer. Having originally started his career on Wall Street (he held senior executive positions with investment banking firms Goldman Sachs, First Boston and Drexel Burnham Lambert), Peizer utilizes his financial background to help Catasys raise capital effectively.

In fact, in addition to his role as CEO at Catasys, Peizer is currently the chairman of industry-leading micro-cap investment company Crede Capital Group, LLC. Thus far, hundreds of millions of dollars been poured into Catasys in order to get the company off the ground in the competitive health field. It is perhaps a testament to Peizer’s commitment and belief in Catasys that he has even invested $14 million of his own money in the company – most recently at the same level that the stock trades at today.

The Future of Catasys

Recently, Catasys announced publicly that they needed 1.5 million in covered lives to ensure profitability. Over the coming year, though, some estimate they could cover as many as 10 million lives due to the expansion of Humanas, Centenes and Aetnas. At 10 million covered lives, investors could expect the company to do roughly $70 million in revenue. Further still, considering the depth and breadth of this largely untapped market, over the next two to three years, Catasys could potentially cover as many as 100 million lives.

Usually, when you spend money at the medical side for chemo treatment, that money is gone. Catasys provides health insurers with a return on their capital, which motivates them to spend a dollar on treatment of these patients – a 50% to 60% savings on every dollar that precious few health insurers are likely to turn down.

For more on Catasys, Inc. visit their website or contact the company’s offices at 310-444-4300.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to:


Symbol Name Price Change % Volume
AET Aetna Inc. 109.58 -1.43 -1.29 1,570,272
CNC Centene Corporation 62.60 -1.35 -2.11 278,475
HUM Humana Inc. 174.21 -0.44 -0.25 156,771


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