(2019-12-20) Strauss Navigating Business Models For Mental Health Tech

Gabe Strauss: Navigating Business Models for Mental Health Tech (and other e-health). Choosing a business model is one of the most important decisions for a mental health startup. After several years of working at early-stage healthcare startups and speaking with colleagues across the industry one thing is clear: mental health business models are complicated. It is critical to choose the right one(s), and many founders, product managers, and business teams wish they knew more about them.

much of what’s described here applies to the broader health tech industry.

We’ll cover 5 business models:
Direct-to-consumer Self-insured employer benefits
Fee-for-service
Value-based reimbursement
Device-like reimbursement

Most mental health startups target multiple revenue models simultaneously

Direct-to-consumer (D2C cf DTC)

sells directly to consumers, generally as a monthly subscription fee

often the first business model that mental health startups try because it offers a fast path to revenue and the ability to quickly gain product feedback to iterate.

There are two categories of mental health products that have worked at scale with a D2C business model: meditation apps and telemental health (tele-health) platforms.

Meditation apps such as Calm and Headspace have been very successful using a D2C model. These have largely been successful because they are non-medical. (So patients don't resent having to pay for it instead of health insurance covering it.)

Several telemental health platforms have also been successful with D2C, namely Talkspace and BetterHelp. These have been successful because people recognize that it is very difficult to find an in-network therapist (i.e. one that their insurance covers), and are therefore open to paying out of pocket for more affordable face-to-face therapy alternatives

Long-term, many startups run into difficulties with D2C models because consumers generally expect their health care costs to be covered by insurance or their employer.

the majority of mental health companies that start with a D2C business model end up pivoting to some variant of B2B.

Self-insured employer benefits

Services are generally paid for on a per member per month (PMPM) basis. There are many variations of this, with some models requiring payment regardless of usage, while in other models the company only gets paid for active users in a given month.

Many of today’s high-traction mental health startups obtain a large portion of their revenue through employers. These include Ginger, Big Health, TalkSpace, Livongo, Omada Health, Lyra Health, and Modern Health, to name just a few. This traction is possible because mental health has arisen as one of the top concerns of employers.

Selling to employers is attractive because it offers a faster sales cycle than selling to health systems and insurance plans, and employers are known to have a greater willingness to try less proven solutions if they can see a positive ROI.

One hidden difficulty of the employee benefits model is the ‘second sale’. In most cases, a company will only get paid if an employee uses the service.

This is generally achieved by directly mailing or emailing employees, putting flyers and advertisements in places of employment, or attending employee health and wellness fairs.

Working directly with health systems and payers

This section is divided into fee-for-service, value-based payments, and device-like reimbursement.

Fee-for-service

the insurer pays an agreed-upon rate for a service

Fee-for-service billing is generally done using a CPT (Current Procedural Terminology) code.

To bill using CPT codes, a startup must be a healthcare provider with a national provider identifier number (NPI). Many mental health startups take this approach. For example, Ginger, Ableto, MindStrong, and Omada Health are all health care providers with NPIs and are therefore able to bill with CPT codes.

Another option is to directly contract with a payor to receive a specific rate for app usage.

This structure is suitable for software vendors that are not healthcare providers or who offer a service that is not already covered by an established CPT code. Standalone mental-health platforms such as myStrength (now owned by Livongo) and SilverCloud Health are known to use this model.

Digital formularies are a recent development in the fee-for-service model. CVS launched its digital formulary in June this year — which they call vendor benefits management (VBM) — and Express Scripts quickly followed by launching its digital formulary earlier this month.

allow payors, such as health systems, commercial insurers, and self-insured employers to opt-in to agreed-upon financial terms. BigHealth, Livongo, SilverCloud Health, and Learn to Live, are among the first digital mental health solutions to be offered through these digital formularies. Expect digital formularies to quickly become a major distribution channel for digital mental health products (digital therapeutics), similar to how pharmacy benefit managers (PBMs) are the major channel to market for traditional therapeutics

Value-based reimbursement

The next model for working with health systems and payors is value-based reimbursement. In this model, the mental health startup is paid based on cost savings from reducing overall healthcare utilization. Value-based reimbursement for mental health has become a hot topic because of data showing that mental health conditions, when comorbid with chronic illnesses, lead to large (2–3x) increases in overall healthcare costs.

it can be difficult to administer because it is hard to directly attribute cost savings to a specific product. To address this, it is common to use proxy metrics like reductions in ER visits or symptoms.

It’s also common to combine value-based payments with fee-for-service payments

Device-like reimbursement

The FDA recently began clearing Software as a Medical Device (SaMD).

SaMDs are often referred to as prescription digital therapeutics (PDTs), although there are subtle differences in their definitions. The clearance process is similar to that of traditional medical devices, and generally requires rigorous safety and efficacy data from randomized controlled trials (RCTs).

FDA clearance enables companies to make medical claims and pursue device-like reimbursement. The goal is to obtain a dedicated CPT or HCPCS code.

A small number of mental health products have received FDA clearance. The most notable of these are RESET and RESET-O by Pear Therapeutics, which are both cleared for the treatment of substance use disorders. However, the path from FDA clearance to reimbursement is still uncharted, and many are looking to Pear to see how it will be achieved.

The conventional wisdom is that the Centers for Medicare and Medicaid Services (CMS) make a coverage decision based on clinical efficacy and cost-effectiveness, and then commercial insurers follow suit. However, analyses show that CMS and commercial insurers only make the same coverage decisions in about 50% of cases.

Most digital health startups pursue FDA clearance to obtain a long-term, defensible competitive advantage, while simultaneously pursuing shorter-term revenue models to reduce company burn. It takes many years and significant funds to obtain FDA approval, and even longer to obtain device-like reimbursement

The commercialization difficulties of companies such as Pear, and more recently, Proteus Digital Health, have led to a greater emphasis by investors on generating revenue and market traction earlier.