Substance use management platform Pelago raises $58M

Steven Loeb · March 28, 2024 · Short URL:

The company works with employers to offer substance abuse management as a benefit

The pandemic did a number on the mental health of a broad swath of the population, causing a spike in drug overdoses and addiction, including opioids and cigarettes. During this time, drug deaths increased 30% nationally, from 21.5 in 2019 to to 27.9 2020, the largest year-over-year increase since 2007. In 2020, 91,799 people in the U.S. died due to drug injury, an increase of 21,169 over 2019, and roughly 75% of those involved an opioid.

This is having an effect on employers: research from Pelago, a company that partners with businesses and health plans for substance use management, discovered that nearly half of the U.S. workforce, roughly 72 million people, have experienced personal or family problems stemming from substance or alcohol misuse.

"Although we saw a spike during COVID, the need for substance use care had been trending up for years prior, with the CDC recently reporting that the average annual number of U.S. deaths from excessive alcohol use increased by more than 40,000 (29%) from 2016 to 2021," Pelago CEO and co-founder Yusuf Sherwani, M.D. told VatorNews.

"Despite this, less than half of those who report a personal problem with substances or alcohol have asked their employer for assistance, largely due to fear of negative impacts on their careers or relationships."

Pelago, which provides a virtual clinic for personalized substance use care for members wanting to cut back, stop or otherwise manage their tobacco, alcohol and opioid use, announced a $58 million funding round on Thursday. Led by existing investor Atomico, with participation from all existing investors Kinnevik AB, Octopus Ventures, and Y Combinator plus new investors Eight Roads and GreyMatter Capital, this round brings the company's total funding to $151 million. 

In conjunction with the funding, it was also announced that Atomico Partner Laura Connell will join the company's board. 

Pelago's typical customers are large enterprise employers and health plans; from an employee perspective, the company delivers what is thought of as “traditional rehab” in a virtual care setting, Sherwani said, at the same level of care but without the stigma and challenges of in-person care. 

"Stigma and access to treatment are two of the leading barriers preventing individuals from receiving care and support. Stigma often leads individuals to delay care or avoid reaching out for help until their acuity level jumps, leading to higher costs for receiving treatment when more care is required. That’s why Pelago strives for quick access to care," said Sherwani. 

When someone enrolls in the program, they complete an in-person assessment about their substance use, gives the Pelago team the ability to understand what the employee’s level of use, or misuse, of a substance is. The team learns about any complications the employee is having related to their substance use such as physical health or mental health problems, and also ask questions that relate to self-harm risk as well. It then places them on a continuum of care.

About 90 to 95% of the time, the person can be treated somebody virtually; if a person’s situation is such that they need care beyond our virtual program, the Pelago team works to find an appropriate facility and program to get enrolled in. Members seeking care are able to get appointments with a substance use counselor in an average of 4.5 hours.

From the employer perspective, substance use management is available as a benefit to employees at little to no cost. The company works very closely with employers to get the word out about its program to employees; this is done through its internal marketing team which helps employers promote awareness of the program and reinforce its confidentiality, reassuring employees that the program is 100% safe and anonymous.

There's a big need for substance abuse coverage among employees, as most employers still don't offer dedicated substance use management as a benefit: despite nearly 2 in 3 workers believing their employer should offer support for substance or alcohol use management, only 17% report having this benefit.

"By not including this essential employee benefit, it can add significant costs to employers as well as employees and prevent individuals from getting the care they need," Sherwani explained.

Pelago currently works with hundreds of companies and, as a result, its platform now covers more than 3.4 million eligible lives. It has partnered with Fortune 500 companies including AT&T, Philips, GE Appliances, and MetLife.

The program has been shown to impact the cost of care: in the first ever ROI study conducted on the impact of a substance use management program in an employer population across multiple clients, Pelago demonstrated healthcare cost savings of $9,367 with a 3:1 ROI. More than 80% of cost savings realized in it analysis were attributable to lower medical spending, with the remainder tied to lower behavioral health costs.

In 2023, Pelago saw 287% revenue growth; 100% client retention; and a 140% increase in membership for Pelago's substance use management platform. That growth follows 500% increase in substance use disorder-specific RFPs from employers and payers in the past twelve months.

Now that it has this new funding, the company plans to announce a Partners of Excellence Program that refers members to inpatient facilities in the second quarter of the year, supporting 50% of inpatients who don’t complete substance use disorder treatment. In addition, Pelago plans to accelerate its product roadmap to include emerging threats in substance use, including cannabis and stimulant treatment. 

"After our last funding round, we set out to provide nationwide care, and we have successfully achieved that. For this funding round, we will be focused on expanding our substance use care into new areas, and on continuing to build out best-in-class care teams," said Sherwani.

"Overall, we're planning to focus more on early-stage prevention and being able to help people across the entire continuum of care. We’re also going to be investing more into clinical research to better understand and demonstrate our cost savings and ROI results, which are already some of the best in the industry."

The bigger vision for Pelago to create a world where everyone has access to substance use support, no matter where they live, what they do for a living, or what their socioeconomic situation is, and to do so without the stigma that’s typically associated with substance use disorders.

"We’re continuing to work towards this by breaking down barriers to that care and providing treatment that actually works. That has always been and will be our mission. In doing this, we want to remove the shame and judgment associated with having a substance use disorder. We’re encouraging more individuals and their employers to prioritize substance use care, and enabling more people who need help to seek it and actually see success from it.," said Sherwani.

"Success for us as a company means we’re helping as many people as possible with the highest level of care possible. Success is also measured by how strongly we’re positioned to address and solve the substance use disorder challenges our nation faces."

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