Hazel Health Announces Second Major Layoff Amidst Financial Restructuring

The Development

Hazel Health, a prominent K-12 health care startup, has announced a significant reduction in its workforce, laying off 135 employees. This round of layoffs, which occurred on February 5th, notably impacts clinicians, who constitute approximately half of those affected. This marks the second time in four months that the company has undertaken such a measure, signaling ongoing financial and operational challenges within the organization.

Internal communications, including memos from CEO Iyah Romm obtained by Behavioral Health Business, revealed the stark reality facing the company. Romm explicitly stated that Hazel Health’s “current way of operating isn’t financially or operationally sustainable.” He further elaborated on the company’s substantial financial losses, emphasizing that despite aggressive transformation efforts, the company would not achieve its sustainability goals quickly enough. This follows an earlier layoff in October, which saw an 11% reduction in staff, attributed then to the integration of artificial intelligence and automation tools, with the company stating at the time that clinicians would not be impacted. The current layoffs, however, directly affect the clinical workforce, with the company reportedly targeting clinicians with the smallest caseloads to minimize disruption to patient care. Despite these reductions, Hazel Health has publicly assured its partner organizations that it retains the capacity to accept new patients.

Market Impact

The challenges faced by Hazel Health are multifaceted, reflecting broader pressures within the digital health and school-based services sectors. CEO Iyah Romm identified several key factors contributing to the company’s struggles. These include difficulties in securing timely partnerships with school districts, with some existing partnerships even proving to be a financial strain. Furthermore, the company’s strategic decisions regarding acquisitions and new technology initiatives created internal inefficiencies. Specifically, Hazel Health continued to operate Little Otter, a digital behavioral health company acquired in October, as a separate entity, while simultaneously investing in an ambitious artificial intelligence project named MAIA. Romm, who transitioned from a board member role in February 2025 to CEO around the time of these initiatives, acknowledged that the overlap and independent management of these projects led to a dilution of resources and a need for executive restructuring.

The company’s decision to temporarily abandon the MAIA project and prioritize the merging of its various teams underscores a critical re-evaluation of its growth strategy. This shift also led to the departure of several key executives, including Zack Clark (Chief Commercial Officer, Hazel Health), Addison Giannini (SVP of Health Plan Partnerships, Hazel Health), Jenny Zhou (VP of New Ventures, Hazel Health), Tom Futch (Chief Commercial Officer, Little Otter), and Allon Mordel (Chief Operating Officer, Little Otter). Romm highlighted that continuing to invest in MAIA would divert resources better used for core execution and performance. Moreover, increasing price sensitivity within both the education and healthcare sectors has significantly impacted Hazel Health’s financial prospects, making it harder to secure profitable contracts and necessitating these drastic cost-cutting measures. For ABA providers, this situation highlights the precarious nature of relying solely on school-based funding and the growing pressure to demonstrate cost-effectiveness in a competitive market.

What’s Next

Looking ahead, Hazel Health is embarking on a significant strategic realignment, focusing its energy on three foundational capabilities. First, the company aims to increase the number of children it serves and streamline the referral process, making access to care easier. Second, a core objective is to enhance the efficiency of care delivery. Third, and perhaps most critically for the long-term sustainability of the business model, Hazel Health is committed to ensuring it gets paid for the care it provides, actively working to shift the financial burden away from schools and onto health insurers, who are ultimately responsible for mental health coverage. This strategic pivot could have significant implications for how school-based behavioral health services, including ABA, are funded and accessed in the future, potentially opening new avenues for reimbursement but also requiring providers to navigate complex insurance landscapes.

Romm candidly admitted that the company had not consistently met its commitments to partners, indicating that further changes are anticipated on both client engagement and clinical fronts. The process leading to the layoffs involved a systematic reduction of expenses, starting with non-personnel spending, flattening leadership structures, and cutting ‘HQ’ support roles (such as sales, support, tech, and operations) before impacting clinicians. Despite these profound challenges, Romm emphasized Hazel Health’s substantial footprint, noting its operations in 22 states and partnerships with over 6,100 schools, making it one of the largest providers of school-based health services in the country. In a message to the affected employees, Romm expressed deep gratitude for their work, acknowledging that they “did nothing wrong” and apologizing for the difficult situation. This restructuring reflects a broader trend in the digital health sector where rapid expansion and innovation must eventually yield to sustainable financial models and efficient operational integration.

Fast Facts

Expert Perspective

The challenges faced by Hazel Health underscore the complex financial realities and operational hurdles confronting digital health startups in the K-12 sector, emphasizing the need for sustainable funding models.

Source: bhbusiness.com