Insurer confusion over digital health tools creates new market for startups

Digital healthcare company Collective Health on Tuesday launched an initiative to help self-insured employers navigate the sea of digital health companies they could partner with.

Collective hopes its Premier Partner program will help self-insured employers select, integrate and evaluate digital health companies. Nine startups have agreed to share their data with Collective Health, which will combine their information with claims data to determine the digital health tools’ employee engagement, utilization, financial return-on-investment and clinical outcomes impact, said Lance Larson, director of digital health partnerships. Collective Health acts as a plan administrator for some 60 self-insured employer customers, including some of Health Care Service Corp.’s clients.

Startups included in this program target some of the most common, and costly conditions companies face, and include behavioral health businesses Lyra, Modern Health and Ginger; musculoskeletal startup Hinge Health; fertility benefits services Carrot Fertility and Progyny; cancer care company AccessHope; and virtual care and diabetes management companies 98point6 and Teladoc with Livongo services. By sharing their data, these companies can use Collective Health’s research to hopefully break into the slow-to-adopt insurer market.

“In the first half of 2021, we had about the same digital health investment as we had all of 2020, so we’re on pace to double that,” Larson said. “That’s a lot of new solutions. Cutting through the noise is a big part of this program.”

Digital health companies have already banked $14.9 billion in 2021, a sum already larger than what the industry raised for the entire year of 2020—which itself represented a record year for venture investment.

Employer customers are behind much of this growth, with four in 10 U.S. companies saying they believe digital health tools will help them retain staff and 68% reporting that they plan to increase investment in digital health over the next five years, according to a recent Mercer report. Insurers, meanwhile, tend to be more cautious about in-network decisions around digital health, said Ari Gottlieb, a principal at A2 Strategy Research.

“I think employers are more struck by the convenience angle and the fact that they can promote that to employees,” Gottlieb said. “Employers tend to be a little more forward-thinking and willing to innovate and experiment with things than the fully-insured population.”

Payment models used by employers and insurers can also vary.

For employers, 54% of carved-out telehealth contracts are based on pure subscription-based capitation fees, without any additional fees that go up with high utilization, according to a survey released by investment bank Credit Suisse late last year. But for insurers, Gottlieb said most operate under fee-for-service agreements, since they do not pose the attribution challenge of shared risk arrangements, where insurers have to figure out how to divvy up the cost savings among multiple partners. But recently, Gottlieb said he has seen a rise in some “light value-based” arrangements with digital health startups.

“A lot of these value-based contracts are not really value-based contracts, they’re more shared risk with some upside,” Gottlieb said. “I think the question, though, becomes, is that really value-based?”

When figuring out how to divvy up cost savings, insurers generally offer condition-specific digital health tools the shared savings achieved from a specific episode of care, like knee surgery, said Lili Brillstein, a former director at UnitedHealth Group and Horizon Blue Cross and Blue Shield of New Jersey. These shared savings are generally split between the specialist provider and the digital health tool, she said. For providers that offer more consistent care, they can receive a per-member-per-month care coordination fee along with any health savings achieved, Brillstein said.

“Many [digital health companies] are anxious to take risk, I think some are flying blindly,” said Brillstein, who runs the BCollaborative value-based consultancy. “I think it’s dangerous. I tell them, ‘Figure out what you’re doing, and make sure it works before taking on risk.’ Now is such a good time to do it since most models are retroactive upside, nobody gets hurt.”

Ultimately, Brillstein said insurers’ confusion over how to partner and integrate startups into their operations will likely drive consolidation in digital health. A Mercom report found that 136 companies were acquired through June 2021, which is the most since the data analytics firm started tracking digital health in 2010. Attribution challenges could also create a heightened market for claims administrators like Change Healthcare—a Nashville, Tenn.-based company that was acquired by Optum for $13 billion in one of the largest deals so far this year. The Justice Department is reviewing this acquisition.

“Insurers find it hard to keep track of a hundred different vendors who are tracking a hundred different disease states,” said.

Attribution negotiations often represent the heart of value-based contracts, said Adam Block, the head of Charm Economics. He said that he has seen contracts with 30 pages of boilerplate language, and then two pages of language that essentially outlines what insurers’ claims administration algorithms’ stipulate—like, if a patient sees a primary care provider one year, then the primary care provider will receive a per-member-per-month fee.

Young companies can stand out in the crowd by focusing on the ROI insurers can achieve through partnerships, and the improved customer experience, quality metric adherence and clinical outcomes they can offer, Block said. Industry associations like the Alliance of Community Health Plans and Association for Community Affiliated Health Plans offer preferred vendor lists that insurers also use.

“You’ve got a lot of cooks in the kitchen,” Block said. “Everybody’s trying to manage the care of the patient and each digital health application is just trying to manage a part of the patient. That leaves the insurer to manage the whole patient.”


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