So who’s going to pay for it? The challenges of monetizing digital health apps and what to do about it
by Tim Bogdan, Dr Sven Jungmann and Felix Staeritz
When you look at guides on innovation in digital health, you’ll mostly find great pieces on how to create a solution that people will love to use. There’s very little, however, on how to create something that people will also want to pay for. Even in large traditional healthcare companies, many business leaders tell us:
“I can see that my teams are implementing a lot of great digital offerings, and they’re nice, but when I look at my P&L, these initiatives seem to appear only on the cost side. Where’s the commercial mindset in digital health?”
There are prominent cases of digital health companies that managed to both create a lot of value for society and capture their fair share of it. However, all too often, commercialisation seems to be an afterthought for digital health innovators. And yet, monetisation in healthcare is such a difficult, complex, and regulated topic that viability should be a prime concern from the very beginning.
And it should be considered in depth. We’ve seen too many entrepreneurs, consultants, and corporate innovators satisfy themselves and their investors with really superficial statements such as
“We’ll just sell the data to pharma” or “Doctors will certainly pay for this extra service to their patients.”
Validate these hypotheses early by asking dozens of representatives of your prospective payors, dive very deep into the incentive schemes and laws, or watch your beautifully desirable product die in vain.
In this article, we equip you with the knowledge needed to go one level deeper in your assessment of your offering’s viability. Mind you that since monetisation possibilities differ massively from country to country, we decided to select Germany as an example. We choose Germany because we get a lot of questions from international start-ups and corporates curious about the opportunities arising from the country’s new laws, such as the Digital Care Act (enabling doctors and therapists to prescribe apps that can be reimbursed by insurers) or the Hospital Future Law. You can, however, use the structure of the thinking that underlies this piece to conduct your own assessment of other settings.
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Why is the healthcare market so different and so complicated for digital health entrepreneurs?
It all starts with the problem that healthcare is almost always an imperfect market. If you’re interested in economics and want to learn more about what actually means, we recommend this article as a primer. Because of all the market inefficiencies, most governments decided to step in by heavily regulating how every player in the market gets paid. These regulations, in turn, created their own complications. All of this is abundantly studied and out of scope for this article. But it is important for any innovator in the healthcare space to be acutely aware of the mechanics of their healthcare systems and truly understand how their solutions can be paid for and whose income streams it might hurt.
The bird’s eye view on digital health monetisation
To break it down at a macro level, here are the types of buyers who could pay you for your solution (see also monetisation overview for digital health apps in Germany):
- Patients or healthy end-consumers (your classic B2C approach)
- Providers (Hospitals or office-based doctors for example, often likened to a B2B2C approach)
- Companies (e.g. for employer benefits)
- Researchers (a.k.a. monetising data, e.g. by selling it to pharmaceutical companies or research institutions, which is rarely feasible, legally speaking)
- Payors (primarily insurance companies or the government)
In most of these settings, you will have three different buyer-personas:
- a user-buyer (e.g. the doctor),
- a technical buyer (e.g. the IT department of a hospital), and
- an economic buyer (e.g. the insurance company or a hospital manager).
They all will have their own concerns or needs, you should craft a compelling solution for all of them.
Which reimbursement pathway should you focus on? Or should you focus at all?
“By the time I closed my first contract with an insurance company for my digital health solutions, my entrepreneur buddies doing eCommerce had just closed their Series B rounds.”
— Renowned German Healthcare Entrepreneur
The environment is changing, fortunately, but it is still the case that getting officially reimbursed by an insurance company or a National Health Service will likely take a long time. You need to be able to survive long enough for that. So don’t put all your eggs in the insurance basket and start to think about other ways of making money. It will likely also help you with the negotiations with payors: if they see that your solution is wanted on the market and solves real medical needs of their insurees, they might be more willing to cover the cost than if there’s only an abstract and unproven value proposition.
We’ll dive into the current reimbursement options in the next section, but first, let’s have a look at the ways of making money without involving insurers.
Patients: The obvious thing to do is ask the end-consumers to pay directly. That’s what works everywhere else, too. But in many healthcare systems, patients aren’t used to paying for healthcare services, they are used to having their insurers cover the costs. Plus, often, those who would benefit the most from a digital health solution are also those who are least able to afford it. Your impact will likely be limited through this approach alone. But it can be a great place to start, get some early adopters on board and fund your next iterations through the money you make with them. Having a strong customer base that pays out of pocket is often seen as a solid validation of your value proposition!
Providers and companies: Similarly, you can think of providers or employers as good customers. Just don’t be so naive to believe that they will pay you large sums solely to the benefit of someone else. Of course, doctors and employers want to do the best for their patients and employees but they also need to see it as an investment that is financially sensible.
Abstract promises such as “you will save time” or “you will increase retention” are not robust enough to justify solid payments. You need to provide evidence.
Researchers: Then there’s the indirect game: making the product available for free and monetise through the use of data, either by selling it (typically anonymised) or through advertising (promoting a clinical trial to users who meet inclusion criteria also counts as advertising). In the age of the GDPR and other data protection rules, this is really difficult to pull off at scale and comes with a lot of ethical challenges. We’re not discarding this approach entirely. In fact, some patients would love to hear immediately about new well-run studies that they could take part in to finally overcome their disease. If you can provide real value to patients and can get a truly informed consent from your users, this can be a very meaningful approach.
So, already the options are quite diverse. Let’s now have a look at reimbursement through insurers with Germany as an example. We’ll then come back and discuss which one to choose (spoiler: you probably should choose a combination).
Playing the reimbursement game for your digital health offering
The beauty of reimbursement is that it usually affords a reliable income stream and often pays higher prices than an out-of-pocket payment would (at least when you aim to sell to a large part of the population). The price you pay for this, however, are the immense efforts needed to become eligible for reimbursement.
In any case, reimbursement is a space to watch. Especially in Germany, many new opportunities have come into place. You might have heard of the Digital Care Act, for example, which makes certain health apps prescribable, as we’ll show below. Previously, you could only have selective contracts or hope to get funded through the marketing budget of an insurer. Here’ an exemplary overview of what’s available in Germany in 2021.
- Selective contracts (§140a, SGB V): The so-called selective contract is the classic contract between a digital solution provider and the individual health insurance — and sometimes even further parties (like health providers) — with the goal to enable better and more efficient care of patients. With such a contract in place, it allows solution providers to sell thousands of licenses in one batch to the insurance. These can then offer the solution to their insurees within certain programmes or simply as an additional standalone service. This can be attractive, but brace yourself for long negotiations (12–24 months or more) and bring a strong value proposition that’s also writing a true success story for the payer.
- Digital health applications (DiGAs): DiGAs form a relatively new commercialization opportunity as they are part of the 2019 Digital Care Act. They can be prescribed by physicians or psychotherapists to the nation’s 73 million publicly insured citizens and will then be reimbursed by the German statutory health insurance, assuming that certain conditions are met. First, they have to be certified medical device, second, you have to provide clinical evidence in support of your claims within one year. At the moment, pricing is very attractive: listed DiGA prices range from 428 Euro (Invirto) to 2190 Euro (Selfapy) per year. We don’t expect that it will stay as lucrative, however. And it’s certainly not as easy as it may sound. Expect challenging negotiations with the insurers after the first year and anticipate rising competition in the near future. Also: even if it’s reimbursable, you’ll still need to figure out how to get doctors to prescribe your solution to their patients. This won’t be easy, either.
- Digital nursing applications (DiPAs): What DiGA is for health, DiPA is for care. As the newest of the revenue streams which comes into place mid-2021 under the DVPMG law, DiPAs are expected to improve the life quality of people in need of care. Similar to the DiGA process, it will be based on reimbursement but in this case paid by a different statutory insurer. Although there are still many many unknowns in the regulation e.g. how to prove the nursing effect, it has huge potential since it might positively affect the lives of the 4.1 million persons in need in Germany. Current information also reveals attractive pricing: max. 60 Euro per month (720 Euro per year) for DiPAs in the context of nursing support. In a nutshell, for those searching for new revenue streams, it is worthwhile to have a close eye on the next upcoming news — however, also being aware of the current uncertainties. For those interested, you can also read more about DiPAs in our most recent article.
So many options to monetize, none of them easy. So what should a digital health innovator do?
The first rule of thumb is: don’t put all eggs in one monetisation basket. Be realistic about timelines and aim to secure revenues as early as possible, even if that means that you will have to start with a slightly different value proposition and then gradually evolve to where you want to be in the long run. Getting reimbursed by institutional payors such as insurance companies or the NHS, is certainly desirable, but know that this will take time and costs a lot of efforts.
Even with new revenue streams on the horizon, such as Germany’s DIGA or DIPA, it’s often advisable to find a way of getting paid for by patients, providers or employers first. This doesn’t just provide you with money but also proves that you have something people really want to use. But also don’t shy away from insurance companies. They, too, want to advance innovation and make new possibilities accessible to their customers. Don’t shy away from their requirements of scientific evidence etc., building in clinical rigor is the right thing to do regardless of who pays you.
In the long run, you can consider ethical secondary data use cases as additional revenue streams. Just make sure that they add value to your users, and not just to your P&L.
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About the authors
Tim Bogdan is a digital health entrepreneur and senior venture developer at FoundersLane. His passion and focus is on building digital ventures in the health space — for example, alley.de. Furthermore, he is a co-founder of the elderly care startup MehrPflegegeld.de, simplifying access to care services. In his previous roles, he was working in digital innovation as a strategy consultant, chief of staff to the management board of a global professional services firm and project lead in an innovation lab.
Dr Sven Jungmann is a doctor-turned-entrepreneur. He is a partner at FoundersLane and an advisor to health start-ups and investors. Handelsblatt listed him among Germany’s smartest innovators. Sven consults Wellster Healthtech, the D2C health success case in Germany and continues doing so via an advisory board role.
Felix Staeritz is a serial entrepreneur, investor, founder and CEO of the corporate venture builder FoundersLane, member of the Board of Digital Leaders of the World Economic Forum and book author and is one of the internationally recognised experts on entrepreneurship and digital transformation. Driven by the firm conviction to sustainably improve the world through digital innovations, he has been in close dialogue with the global business and scientific elite in relevant international bodies for around 20 years.
FoundersLane creates new, fast-growing digital companies in categories that are highly topical and current. FoundersLane counts more than 100 founders, experts and entrepreneurs with great expertise in the fields of medicine, health, climate, disruptive technologies such as IoT connectivity, AI, and machine learning. Clients and partners include SMEs and corporations as well as more than 30 Forbes listed companies, such as Trumpf, Vattenfall, Henkel and Baloise. FoundersLane is active in Europe, MENA and Asia with offices in Berlin, Cologne, Vienna and London.
