Digital Therapeutics vs Digiceuticals: defining the software-mediated healthcare landscape
“Technology will replace 80% of doctors.” Vinod Khosla made headlines with this prediction in 2012. While not true yet, technology is allowing healthcare to rapidly change.
Technology is allowing treatment paradigms to change. As treating chronic diseases has overtaken treating acute conditions in our medical system, treatment programs have had to adjust. Chronic diseases are overwhelmingly behavior-mediated. For example, smoking status is the number one health predictor — smoking is addictive, but it is behavioral. Today, behavior change is the first-line treatment for many chronic diseases including smoking cessation, type 2 diabetes, heart disease, mental health.
Behavior change is a human-mediated treatment paradigm. It can take the form of therapy, of coaching, of check-ups, of sensors, etc. In fact, the biggest problem with behavior change is the lack of consistency and reproducibility of process and outcomes. Enter the new field of digital therapeutics and an era where technology is finally enabling healthcare.
Mike Payne, the CCO of Omada Health defined digital therapeutics as: “this new field of medicine consisting of immersive programs that act reliably and remotely to change individual’s behaviors in order to achieve positive clinical outcomes and ‘bend the curve’ of future medical cost growth.”
Digital Therapeutics versus Digiceuticals
Digital Therapeutics is a different class of product than Digiceuticals. Most people confuse the two. The difference is similar to prescription medication versus nutritional supplements. Both play their role, but the standards of efficacy, and thus pricing and reimbursement are very different.
Hundreds of millions of dollars have been invested in digiceuticals: in “wellness,” including MapMyFitness, Strava, Diabetek, Fooducate, Cardiio, Luminosity, Pacifica, Headspace. These companies provide important tools. Some provide live one-on-one sessions with experts. They are often based on scientific findings or clinical practice. But, the efficacy has not been evaluated in prospective randomized clinical trials and found to be non-inferior to the control group. Thus, while the app usage data might show correlation with the end goal, it has not proven causation.
Digiceuticals are important, but like nutritional supplements, are a consumer-focused business. Consumers will pay for them and they need a traditional consumer acquisition marketing approach. In healthcare, consumer businesses have a very different model: they are typically not reimbursed, not FDA cleared, and have much lower pricing and customer lifetime value (although they often have much larger customer bases). This post will focus on Digital Therapeutics and will examine four different approaches to digital therapeutics trying to answer: what is the digital therapeutics business model?
Digital Therapeutics Business Models
Will digital therapeutics look like medication where a doctor writes a prescription? Will your insurance company pay directly? Will you have a small “co-pay”? Will it come automatically with a pharmaceutical? Who chooses your digital therapeutic: your doctor? your insurance company? your employer? you?
All of these models exist today. It’s too early to know what the winning model will be or even if there will be one dominant model.
Omada Health has transitioned from a digiceutical to a digital therapeutic as they’ve spent a lot of time and money generating clinical data to prove the value of their product. As a result, the company collects a per-member-per-month (PMPM) fee from self-insured employers and, importantly, also insurance companies. While the PMPM might be lower than a pharmaceutical, Omada can provide adherence feedback to payers, identify the appropriately motivated patients, and provide tracking measures. All of which are valuable to payers and not possible with the old pharmaceutical model. As a result, with prospective randomized data and a way to verify adherence, Omada could move to a much higher PMPM for the perfect patients. Essentially, the “personalized medicine” promise, but digitally.
Other companies like Chrono Therapeutics, which is an app paired with a drug delivery system and embedded sensor, are focused on the power of digital modalities to supplement traditional pharmaceutical benefit. In this model, a physician prescribes the drug, which comes with the digital therapeutic. It will be reimbursed the typical way drugs are reimbursed, often with a small co-pay. It’s unclear what the penalties will be, if any, if that patient is non-adherent to the digital therapeutic component. Will it be part of the drug’s label? Could it be an orange-book listable patent, thus increasing the exclusivity of the drug?
Pear Therapeutics is another digital therapeutic created to supplement traditional drugs. It is built on the foundation of our existing pharmaceutical distribution system, making payment/collections less problematic. Pear develops digital companions for approved drugs (initially CNS drugs). While not on the market yet, theoretically it will increase the value of a branded generic. Or, potentially extend the exclusivity of a drug if introduced prior to patient expiry (similar to formulation changes). The distribution model is difficult, however, as the digital therapeutic would need to be clinically proven, detailed to doctors, and the prescription written “fill as prescribed” for the branded generic to gain any value. That’s an expensive sales process, but that sales channel already exists. It’s marginal cost is likely low. And, since the prescription goes through traditional channels, it should be straight forward for Pear to get paid via the partner drug company. But, wouldn’t the generic substitution also perform better with the digital therapeutic? If so, how would the doctor write for that? How would it be reimbursed? How would off-label use be treated or monetized?
Finally, Akili Interactive Labs is another interesting approach. Bringing gameified technology to cognitive assessment and therapy, Akili is pursuing a strategy that mirrors the drug industry. Specifically, they are patenting a digital approach to measuring and improving interference processing (a component of executive function), and will seek FDA clearance for the resulting product. While reimbursement pathways are unclear, Akili could price like a product (drug or device) or could charge the physician directly, who would cover that cost out of their revenue from reviewing the data (similar to the reimbursement for remote monitoring of devices). The former would yield more pricing flexibility, but requires negotiation with payers to get ‘on formulary,’ often a time-consuming and difficult process.
It is clear that digital therapeutics that help create behavior change are here to stay. Companies are investing in the rigorous clinical data that unequivocally suggests unique benefit. Our system of paying for healthcare, which entails paying for items of care — whether it be physician time, a pill, a blood test, etc — is not well suited to behavior change. The exact payment mechanism for digital therapeutics is unclear. But, it’s too important a weapon in the treatment arsenal to be excluded.