The boom year of digital therapeutics has us at KP Ventures thinking about a new last mile — how would a health system get a digital therapeutic into the hands of a patient?
As shared in my “primer” on digital therapeutics & the health system, my perspective on digital therapeutics company is greatly influenced by what I’ve learned in the boardrooms of Omada, Big Health, and Chrono Therapeutics, and what I’ve learned from leaders around Kaiser Permanente, who approach digital therapeutics in the same pragmatic, thoughtful, mission-first way they approach everything else.
Before we get to the health system last mile, it’s important to first recognize where we’ve been. To date, most digital therapeutics have found their way into patients’ hands via employers, as an employee benefit.
Why? Self-insured employers have borne the rising cost of healthcare most directly, and have had the dexterity and motivation to try new solutions. For many digital health innovators, that’s made the employer channel the fastest path to early revenue. Health plan and provider sales have often proven too slow, or opaque and difficult to access.
But for many, the employer market is proving to be more of a first stepping stone than a total market strategy.
To drag you into the wonkery for a moment, self-insured employers pay for these innovations out of a “wellness budget,” a portion of healthcare spend that they control directly, to offer special benefits intended to improve the health of their employees. Think everything from onsite clinics to onsite flu shots, team fitness challenges to gym discounts. The wellness budget is the tool that employers can steer to try to help employees stay healthy, but it’s small compared to the “medical budget.”
The medical budget is the lion’s share of the $3T US healthcare market, and is controlled through health plans, providers, hospitals, pharmacy benefit managers (PBM’s), and other long-established stalwarts of the healthcare industry. If digital therapeutics are to achieve larger scale and align with the benefit they are seeking to offer patients, it’s important that these other healthcare stakeholders take an interest.
Even in innovative, forward-leaning health systems like my own, where digital therapeutics are just starting to integrate into practice, we have gaps that slow us in adopting these treatments into mainstream care. The missing pieces of the “last mile” must be built out for digital therapeutics to properly access the payer and provider channels that provide a path to true scale.
Building the Last Mile: Getting to Market, and to Scale
Digital therapeutics’ go-to-market challenges are new and different from those faced by their evidence-based brethren in the pharma and biotech worlds. They are are often building their own last mile, ideally with the help of an innovative establishment player.
Below I’ve called out a few of the segments of the last mile that are top of mind right now, as we look at the newer entrants to digital therapeutics, and reflect on the successes and struggles of the longer-standing companies that we’ve been close to.
What proof points will a health insurer need to decide to cover a digital therapy? The digital landscape lends itself to copycats and me-too products. As a result, it’s appropriate for payers, providers and patients to seek evidence, validation of efficacy. How will they do so at scale?
We are seeing early examples here, with CMS beginning the conversation about including a digital alternative in its DPP coverage discussions, large insurers like Cigna offering Omada’s digital DPP as a point of competitive differentiation, and players like BCBS MA beginning to curate marketplaces of top-quality digital therapeutic offerings.
Digital therapeutics also offer unique opportunities for new payment paradigms — by creating a new source of real-world, real-time data, digital therapeutics can offer value-based pricing in a way that their traditional therapeutic brethren would struggle with. This presents opportunity on both sides.
Getting into provider workflow.
What will it take for a provider to prescribe a digital therapeutic, where that is necessary? Considering the provider viewpoint often helps to ground us in the pragmatic reality of medicine today.
For example, is the product differentiated enough from current options, sufficiently to get providers to change from the norm? Is it more effective, safer, or easier to administer? Does it make the provider’s life easier, or at least fit seamlessly into existing workflows? Does it align with existing financial incentives, or is it possible to overcome and change those incentives?
Many of these questions are best sorted out in initial product design. They are fundamental to product-market fit if a product will ultimately be distributed through providers.
If a product will be prescribed by physicians, how will physicians a) know about your product, b) believe in its evidence and benefit, and c) know how to prescribe it?
Is a pharma-style salesforce needed to reach the full physician base that needs to know about your therapy? Can a new product be sold by an existing salesforce, or another channel? Or will you need to build a new salesforce uniquely capable of and motivated to sell a digital solution?
This is an expensive question, and a good one to front-load in your strategy. In some cases, building that unique salesforce may be valuable in the long run. In other cases, a smart partner or channel strategy will unlock the most value for your offering.
Will the parties that currently distribute medical products, like pharmacies or pharmacy benefit managers, build new plumbing to support digital offerings? Or will each new entrant need to become its own distributor, and figure out tactical challenges such as how to receive physician orders / prescriptions, validate, dispense to the patient, and bill the payer?
We see third parties like Xealth, RxHealth, and home-grown solutions building to become a new “digital formulary” in the electronic medical record, trying to pave a road for digital offerings where the traditional players have not.
As mentioned in the Economist article on digital medicine, some patients will be skeptical of the value of a digitally-delivered therapy. Others may have technical barriers to access or use these therapies.
But when it comes to creating a top consumer-grade user experience, something sorely lacking in so many aspects of healthcare, digital therapeutics companies are often leaders — and for good reason. The digital medium allows us to track and understand what helps and hinders adoption (what percent of a population decides to try a given therapy) and what garners engagement (what percent of those who try a therapy stay with it through to the point of clinical benefit). This feedback loop, so important to so many of the digital innovations we use every day, can strengthen both the digital therapeutic and be a service to the customers they serve.
That demand for a technology-enabled consumer-grade user experience is visible in the large segments of people have already voted with their feet when given the chance to use digital tools in the healthcare setting — to email or text their doctor, to ask a chatbot about symptoms, to use a virtual tool as part of their care.
What Will Make It Through?
We don’t have full answers yet to these questions yet. We do have forerunners blazing trails, showing us how the last mile will be built. And we have early momentum, with payers and providers paying new attention to the category. They’ve taught us some of the fundamentals that give a company a better shot at bridging those last mile gaps.
Identify conditions where an innovative, digital therapy has a higher chance of taking root. Seek places where the winds will be at your back: be they regulatory, access need, patient preference, etc. For example, look for a highly-effective therapy that is well-accepted, but where access needs remain enormous — like cognitive behavioral therapy, or the Diabetes Prevention Program. Or where purchasing dynamics give you a leg up — such as in ADHD care, where existing drugs are known to work, but parents often want alternatives for their children — this may make them willing to try a video game with proven impact, like Akili is trying to bring to market.
Smart and experienced leadership is mission critical. You want to build a team with highly relevant experience, ideally having done what you need to get done before in a parallel industry. Are you building a specialty pharma prescription engine? Leveraging data science to strengthen ongoing outcomes? Opening up relationships with payers? Building a direct-to-provider salesforce? This may sound obvious, but find the people who have done it before, who can help you build that bridge. And as with all things entrepreneurial, experience is not sufficient — creativity, persistence, tenacity, and willingness to fail and try again are all essential.
Don’t be snake oil. Build your evidence base. (including evidence of engagement and adoption!)
- The head of the AMA was taken to task for calling digital health apps “snake oil.” But in the realm of digital therapeutics, the risk of snake oil is a valid one to consider. Without standards, without demanding evidence, low-cost look-alike products that make promises but do not deliver clinical benefit can and will gain market share. In a nascent market like digital health, this is a real risk — the market may lose faith in the category as a whole.
- Clinical evidence must separate wheat from chaff in this market. To grow roots in the medical community, a digital therapeutic must generate evidence to validate that it has a clinically-proven impact on patient outcomes. The burden of evidence required is, and should be, a high bar. It falls to health systems and regulatory groups to choose wisely, and develop criteria that will set the gold standard for digital therapeutics to rise to.
- Leaders within KP have been encouraging early digital therapeutics companies to deliver evidence of 1. efficacy and safety, but also of 2. enrollment (or initial adoption) and 3. sustained engagement. Evidence of all three is essential in order to understand how a digital therapeutic has an impact on a person’s health.
There are a number of other strategic questions for digital therapeutics companies to consider — whether or not to go through the FDA, whether to build strength as a single therapy or quickly grow to building out a suite of solutions, whether and how to work with platform providers. I’ll leave those for another time, and welcome your thoughts and feedback.
And finally, I leave you with one parting thought: a note of thanks. I have found some of the most talented, thoughtful and creative teams are working in digital therapeutics. They are teaching the rest of us how to bring about change to healthcare. For the chance to work with, learn from and support them, I am grateful.
Liz Rockett is an investor in healthcare tech & services at KP Ventures. Her portfolio includes Big Health, Chrono, Omada, Vapotherm, and Xanitos, and she serves as an LP adviser to Rock Health. She formerly ran health impact investing for Imprint Capital, acquired by Goldman Sachs in 2015. Liz’s operational background is in product development & customer success at the Advisory Board Company, the TriZetto Group, and Outcome, a health IT startup acquired by Quintiles. She is a graduate of Princeton, and completed her MBA and MPH at Berkeley. Beyond her work to help make the healthcare system work better, she has a longstanding love of all things related to career development, talent strategy and team culture.