Editor’s Note: The Commonwealth Fund is developing an innovative digital health advisor (DHA)—an integrated suite of digital services that would provide consumers with health information, connect them with care providers and empower them to achieve their health goals. The DHA—named Sage—would be key to connecting care providers with patients and helping consumers address a broad range of health-related questions, decisions and tasks. To help advance this exciting initiative, Manatt Health performed a research project for The Commonwealth Fund to understand the current state of digital health business models and to learn from digital health experts which types of models would support a successful DHA. The research consisted of interviews throughout the summer of 2017 with digital health leaders from 14 organizations, including investors, industry analysts, technology innovators, health system executives and a leading drug manufacturer. Below is a summary of key results.

We shared an in-depth look at building a sustainable business model for digital health, including the results of our research and paths to making digital health more accessible and useful, at a recent webinar for The Commonwealth Fund. To view the program free, click here.

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Few observers doubt that machine learning, voice assistants and technologies we haven’t even heard of yet will supplant our traditional “brick-and-mortar” health system. Future technologies will be matched with business models that enable a new paradigm of care—one that may not be tethered to health plans or providers. In the meantime, innovators are left to ponder how to pay for their digitally supported applications.

To help understand—and begin to resolve—the complexities around launching and sustaining a robust digital health advisor, like the one The Commonwealth Fund envisions in Sage, Manatt Health spoke to leading digital experts across the country. Here are the insights and guidance they shared.

Industry Leaders Disagree About the Prospects for a Digital Health Advisor

A key challenge with adopting a human-centered design approach—like the one Sage would use—is that its features would need to become part of consumers’ online workflows. Some see overcoming this challenge as a critical and achievable goal, while others are less certain about the future for digital health apps. One health system executive we interviewed declared that getting patients online with his health system is his first priority, followed by building a digital presence that makes his system relevant to consumers between episodes of care.

One veteran investor, however, expressed doubt about the prospects for a digital health advisor, believing that consumers simply aren’t interested enough in digital health to support a sustainable revenue model. According to the investor, “People don’t want to use [health apps] unless they are desperate—either they have cancer or their kids are really sick. In practice, people just aren’t excited about health apps.”

Seniors, Their Caregivers or Underserved Populations Are Not the Target Users

One health system executive described his system’s lofty expectations for digital health to help improve access and outcomes for underserved populations. In spite of the initial enthusiasm, he shared that his health system chose to stop piloting digital health for underserved communities, because the populations didn’t have smartphones, were not facile with them, or weren’t connected to a data plan or Wi-Fi. Instead, his health system has shifted its attention to digital health applications that enhance its ability to improve fee-for-service revenue from commercial plans.

Another industry observer believes that Medicaid and Medicare managed care organizations could do more to address the spectrum of unmet needs among dual-eligible populations. She advocates a toolkit approach that would allow plans to test digital health services to learn what individuals need and which services would be of greatest benefit. Plans should not need to wait for scientifically rigorous evaluations. They can do their own assessments to determine how best to apply digital health to benefit specific populations.

Should a Digital Health Entrepreneur Sell to Health Plans or Health Systems?

Depending on their industry vantage point, the executives we interviewed hold vastly opposing views about whether health plans or health systems would be the most effective go-to-market entry point for digital health tools. Health system executives believe they can be most successful in building online relationships with patients, based on the trust patients have in their healthcare providers.

Health plan executives challenge this perspective, however, with one pointing out that health systems tend to be financially constrained and sometimes internally conflicted about their investment priorities. For example, to defend revenues, a health system might be more likely to invest in recruiting physicians with strong referral networks rather than in services to build consumer loyalty.

A few leaders observe that health plans regard consumer-centered features as strategic levers to attract and retain members, because these features can decrease marketing costs and extend the timeline for plans to generate returns on their R&D investments. Plans’ financial responsibility for target populations also motivates them to test and implement clinically oriented point solutions. Plans view innovation as a way to help employers reduce medical spending without shifting more of the cost burden to their employees.

Some Organizations Are Better Positioned Than Others to Invest in Digital Health

Our research revealed some common characteristics that entrepreneurs should look for when prequalifying their potential buyers:

  • Deep financial resources. Potential buyers should have sufficient resources to support large up-front development costs and a comprehensive, multiyear digital health strategy.
  • In-house product development capability. A skilled technology development team is critical to building, testing and implementing the convenience-oriented features that drive digital health success.
  • Financial alignment. Entrepreneurs should seek buyers who are financially aligned with high-value care delivery.
  • A competitive position in the commercial insurance market. The desire to improve their competitive position with employers is an important characteristic of potential buyers.
  • Consumer acquisition and retention. Entrepreneurs should look for buyers who place building and sustaining online relationships with consumers among their strategic priorities.
  • Scale. Potential buyers should have a large enough patient or member base to ensure their digital health services will yield a meaningful impact.

Entrepreneurs may find that more health plans than health systems possess these characteristics. According to one health system executive, only a handful of health systems can afford to have the patient density, geographic reach and balance sheet to make sustained, multiyear investments in digital health. For healthcare, the path to digital adoption may well be a B2B strategy, where the largest health systems eventually commercialize their digital health platforms for smaller health systems.

It’s Critical to Understand How Buyers Evaluate Digital Health Solutions

When the objective of a digital health solution is to inspire brand loyalty, buyers typically consider the target user to be a head of household who controls 90% of healthcare decisions for the family. Even when the objective is to reduce medical spending, target users are not necessarily those in the sickest populations, such as older adults or the chronically ill. Instead, buyers target those populations most likely to welcome and benefit from technology.

For example, one health plan executive designed a digital health pilot specifically for teenagers with type 1 diabetes. Not only are these teenagers tech-savvy, they are motivated to engage in their health because they already make “15 life-saving decisions a day” and, developmentally, they want to act with autonomy. In addition, diabetes is a condition of sufficient magnitude to justify covering the digital solution as a plan benefit offered by employers.

Drug Manufacturers May Play a Larger Role in Digital Health

One executive flagged an emerging trend among drug manufacturers: the development of digital therapeutics. Designed to demonstrate and maximize adherence, these services involve a combination of digitally enabled support services coupled with a therapy.

The trend is a response to complaints among employers about their high drug spending. It also appeals to drug manufacturers by helping them gain market access for their emerging, more expensive personalized therapies.

What Are the Implications for Entrepreneurs and Investors?

A common refrain heard during our interviews is that healthcare cannot out-innovate the technology sector. The technology sector excels at both advancing technology and disrupting business models.

The time may have come for innovators to replace the prevailing business models in healthcare with one that views individuals holistically. This is The Commonwealth Fund’s vision for the Sage digital health advisor.