Top 10 market entry strategies for digital health companies

Health insurance benefits have been used as a tool to attract new employees since the mid-20th century. WWII decreased the number of workers in USA and companies started to increase wages in order to recruit skilled employees. This impacted inflation, which led the Roosevelt administration to declare a wage freeze. The solution used by employers to draw and retain talented employees was to provide health insurance benefits, a practice used today not only as an alternative to raising base wages, but to preserve a healthy and productive work environment.

The rise of healthcare costs and expenditures has prompted employers to become more actively involved in seeking or architecting health benefits that are cost efficient for them and valuable to their employees. This search often led employers to meet with digital health companies – providers of flexible, cost effective, accessible and innovative healthcare benefits. But the path these companies need to take, in order to become the health benefit of choice for customers that would consequently make them a profit and enable them to grow, is a difficult one. To succeed in this endeavor, digital health companies need to understand how to tackle the challenges they will inevitably face, how to adjust to customers' ever-changing requirements and how to best anticipate their needs as a means of gaining and maintaining a competitive advantage.

The evolution of digital health companies

In the early 2010s, providers, payers and life sciences companies represented the primary distribution channel for digital health products. Digital health companies were solely supporting the key players in the market, providing them with solutions like internal workflow tools. Because they lacked the ability to engage closely with patients face-to-face, digital health companies were not able to capture significant value and were less visible to customers as standalone health benefit suppliers.

The mid-2010s, however, brought a change triggered by the technology revolution: the maturation of healthcare infrastructure enabled digital health companies to compete with the market's key players in seizing healthcare providers and patients. Some of these start-ups went directly to consumers (like Headspace [CA, USA], Hims & Hers Health [CA, USA], Ro [WA, USA]), while others (like Lyra [CA, USA] and One Medical [CA, USA]) convinced large employers to adopt digital health solutions as benefits for their employees.

Today, the healthcare value chain has changed considerably thanks to new care options and formats. The preference of consumers for virtual-first healthcare experiences, new payment models and new buyer dynamics are among the elements that enable start-ups to provide innovative digital health infrastructure solutions.

However, in order to enter the market and grow there, digital health companies need to understand who to take their business to (be it payers like Medicare and Medicaid or self-insured employers), how to define their value propositions, how best to configure their staff structure and how to allocate their resources. Below are examples of potential entry points for digital health companies planning their go-to-market strategy.

Work with self-insured employers

According to a 2016 survey [1] released by Kaiser Family Foundation (CA, USA), 61% of the employees received health coverage through a self-insured employer, meaning an employer that directly pays the medical bills of its employees and is large enough to assume the risk of paying out these healthcare claim costs. In order to make an impact in healthcare, digital health companies, especially start-ups, should firstly approach them, since in 2016, companies with x,000 or more employees had 94% of them covered through healthcare self-funding.

Unlike traditional commercial payers such as UnitedHealthcare or Blue Cross Blue Shield, who require pre-existing data and a longer track record of success before investing in new solutions for care, self-insured employers are more open to implementing nascent, innovative solutions that are in the process of proving their potential value.

These employers are also focused on providing their employee population direct, convenient access to healthcare services due to the high costs of postponed care, which makes them the perfect channel for testing and providing digital solutions.

A contract with an employer is a big win for a digital health company, providing access to a reliable, consistent source of revenue and a population of new users of their services. For employers, entering into these partnerships with digital health companies is especially appealing because it shows their employees that they care about this specialized type of care enough to invest in it significantly, in order to keep their staff healthy and productive at work.

Enter distribution partnerships through massive players

Google, Amazon and Facebook own distribution channels to huge pools of users, which automatically makes them distribution platforms with huge potential for digital health start-ups. Some of these companies consolidate purchase decisions by monetizing their position as influential distribution channels, with Accolade's Partner Platform (DC, USA) and Express Scripts' Digital Health Formulary (MO, USA) enabling distribution of digital health solutions to employer customers.

Prove the solution's value for all healthcare stakeholders

Digital health companies often create solutions that can bridge gaps in healthcare, but these solutions do not reach their beneficiaries because they cannot convince the stakeholders to try them. Identifying the needs and the means to persuade each stakeholder increases the chances of those solutions being adopted: patients want to feel better and have easy access to and management of their health, providers are focused on delivering better care with lower spending and optimizing their decision-making process, while health systems are concerned with decreasing costs and improving their efficiency in care delivery.

Doctors are an essential link in this process: they can assess a digital health solution by going through the clinical trials that support it, research the data used for developing that solution and evaluate the users' experiences. Their input can convince other health providers to recommend the solution in question to their own patients, making them more likely to try it. This enables doctors to better understand the conditions affecting the patients and to prescribe them new and more efficient therapies.

Provide integrative DTx solutions

Experts estimate that the chronic disease segment will play a key role in expanding the global Digital Therapeutics (DTx) market valuation by 2027. Providing customized DTx solutions to employers who seek health plans that enable them to achieve their financial targets, while maintaining employee health and retention, is tempting for digital health companies. However, these solutions do not always provide benefits for the majority of employees. As employers add more and more solutions to address specific population health needs, their vendor ecosystem quickly grows out of control – some employers can have up to 10 different employee health programs in place, and HR teams start to turn to consolidation or elimination where possible. The solution, then, is to develop a mix of integrated solutions.

Take chronic diseases, for example. They are the most costly and frequent health issue among US employees and make up a significant portion of the overall healthcare expenditure. These diseases are often associated with stress, depression and anxiety, and DTx companies need to come up with solutions that address these conditions alongside the chronic diseases themselves. Value-based and patient-centered care represent the core reason for adopting DTx solutions, so taking an integrative approach will grant DTx companies a strong competitive advantage in the market.

Attract venture capital & develop healthcare solutions for Medicaid patients

A Rock Health (CA, USA) report [2] released in October 2021 indicates that digital health companies raised about US $21.3 billion in venture capital in Q3 of last year. This money mostly went to areas like telemedicine, Medicare Advantage and mental health, leaving the key population of Medicaid patients largely out of the picture. Medicaid is the public insurance program for low-income individuals, many of whom have high health costs and complex healthcare needs. The program covers one in five Americans.

The private sector has ignored this population for several reasons:

• Low return on investment;

• Lower and constantly changing reimbursement rates, depending on the state in which patients reside;

• Rapid, unpredictable change of patients' eligibility for Medicaid, leading to enrollment churn;

• Patients' Social Determinants of Health (SDoH) impacting their access to health services and ability to stay in contact with providers.

Digital health companies can partner with investors and venture capital firms to design, with the help of technology at hand, solutions to address the needs of Medicaid patients. From a business perspective, this is not a charitable project, but an opportunity to access a large pool of potential digital service users. This endeavor is achievable especially taking into consideration the Center of Medicaid and Medicare Services' position [3] – they have stated they are eager and willing to work with healthcare stakeholders to “improve capacity to transform healthcare”.

Moreover, technology is now available to nearly 90% of Americans who have access to a mobile phone and public WIFI, as indicated by a report [4] released by Pew Research Center (DC, USA) in 2021. If digital health companies can make the case that their solutions, by closely monitoring patients' health statuses, decrease the number of visits to the emergency department or risk of hospital readmission, many states would be willing to allocate their budgets to achieve these health outcomes. The number of patients with complex needs, though small, make up a significant amount of overall healthcare expenditure.

Another opportunity that digital health start-ups can explore is to design tools that would help low-income pregnant mothers with poor access to healthcare afford proper pregnancy monitoring support and healthy delivery of their babies, which could significantly impact Medicaid expenditures.

Digital health companies can also focus their efforts on developing solutions to address opioid addiction, a health problem on which Medicaid spends around US $9.4 billion. The federal government has already proven to be a viable supporter of this trend by awarding, in 2017, a US $10,000 prize to a team that created a digital tool tracking overdoses in real time. The tool enabled first responders and health authorities to know what they are dealing with before arriving on site and to allocate their resources more efficiently.

All of the above are viable scenarios, especially since states can apply for Medicaid waivers that allow them to use their budgets to try new approaches in care delivery, and technology is one of these approaches. Technology can convey the information that Medicaid patients need in a format and structure that would reach them from a cultural, language and medical education perspective, helping decrease health access disparities.

Design & implement a ‘virtual first’ business model

Telemedicine was around for a while, before the COVID-19 pandemic accelerated its spread nationwide. In order to reduce their risk of infection, patients and doctors began to increasingly use remote monitoring of health by virtual consultations. Telemedicine was just the start of providing online care, and it was soon followed by other means that doctors use to keep in touch with their patients for routine check-ups, chronic diseases monitoring or establishing diagnostics for various health issues.

As the pandemic started to slow down, all healthcare stakeholders searched for ways to make virtual care a regular type of service and integrate it into their business models or in their ‘see the doctor’ routine. The natural next step we have been witnessing for some time is the development of hybrid care – virtual and in-person consultations. A patient can have a virtual consultation followed by a visit to the brick-and-mortar healthcare unit if the doctor decides it is necessary.

Several payers are adopting this model by investing in expansion of their provider networks to accommodate providers offering different modes of care [5]. Brick-and-mortar healthcare units and clinics have begun collaborating with companies that offer virtual care. All of these movements in the sector benefit patients, providing access to healthcare services in the format they need and ultimately improving their health outcomes.

Use payment models based on outcomes

Many employers search for value-based payment models to decrease their healthcare spending, and this holds true in their vendor contracts as well. Digital health companies that offer outcomes-based payment models can gain a competitive advantage in the market if they can provide measurable clinical outcomes by collecting data that proves the efficacy of their solutions. While in the case of certain diseases like diabetes, the outcomes can be demonstrated and measured, for other diseases the outcomes may not have the same clarity. For example, it is difficult to establish that a certain drug has prevented a hospital visit or readmission. To navigate these challenges, digital health companies need to establish, with the employer, the indicators to measure (financial, clinical or both) and the standard used for measuring or comparison.

Enter the market of discounted health services & lower cost prescriptions

Patients without medical insurance coverage or with high deductible health plans represent a consumer segment that companies find appealing, as they are the ones mostly on the lookout for discounted healthcare services and prescriptions. And several companies are already proving this is an efficient strategy to enter into the market:

• Amazon has created PrimeRx, a program providing discounts for prescriptions bought by uninsured patients from Amazon Pharmacy and 50,000 other pharmacy locations;

• GoodRx (CA, USA) collects current prices and discounts to help patients with and without insurance to find the best price pharmacy for prescribed medications or lab investigations both online and via apps. They also have a platform – GoodRx Care – that enables patients with any type of, or without, insurance to chat via text with a doctor about medical treatment such as prescriptions or advice on common ailments, in exchange for a fee;

• Mira offers 125 clinics, 1600 laboratories and more than 60,000 pharmacies through which patients can access basic services at fixed prices based on a membership fee. These services are also provided by the company's partner clinics. For an additional co-pay, patients can access in-person consultations, Rx, lab investigations and other procedures without extra charge applied for each service;

• MDSave (CA, USA) created the first discounted healthcare marketplace that connects online patients looking for lower cost medical services with providers offering affordable healthcare. Patients can purchase and schedule medical procedures directly on the website.

Utilize broker channels for employer outreach

Benefits brokers and consultants have become reliable subject matter experts and evaluators of digital health solutions for employers, and make recommendations tailored to employers' needs, population health concerns and budgets. Their understanding and perspective on the healthcare provider market and point solution market makes them an efficient and valuable channel that digital health companies can utilize to get the attention of employers.

Design health solutions that appeal to Medicare & Medicare Advantage

Medicare is the largest healthcare payer in USA, has a continuously growing base of beneficiaries and is moving toward value-based care. These are the most important justifications for digital health companies to want to work with this payer, and yet they are reluctant to do so, most likely because of Medicare's strict reimbursement regulations and sometimes inflexible structure. By working with Medicare, digital health companies can also connect with the Medicare stakeholders – providers, payers and beneficiaries. Providers like hospitals, clinics, nursing facilities and others that operate under Medicare's umbrella can be equipped with software and services that meaningfully improve care delivery and require only a small portion of the Medicare services budget. Digital health companies can also work with physicians, practices and other individual providers. They can develop value-based payment models that are appealing for Medicare Advantage, who may be open to providing financial incentives if they are assured of cost-effective care and improved health outcomes for their members.

One direction that digital health companies can explore is healthcare provided outside traditional medical units, such as in-home care. Addressing SDoH with innovative solutions is another segment digital companies can use to enter into the market. Understanding these factors is crucial for providing quality care to patients, for optimizing payers' costs and providers' efficiency and for improving patients' health outcomes. Many research studies have demonstrated that the impact of SDoH on individual health weighs just as much as genetic factors.

Looking forward

The digital health sector is currently witnessing five new go-to-market approaches – B2SMB, B2C2B, two-sided networks, risk-based contracting and distribution partnerships through aggregators. Many digital health companies often enter the market using one of these approaches and shift strategies along the way in order to maintain competitive advantage or meet the changes in the requirements of their healthcare beneficiaries.

Enterprising digital health startups should align their value proposition to the business objectives of their identified customer segments. If pursuing the employer sales route, they should be aware that some employers consider the health benefits they offer to employees as a retention tool, while other employers perceive them as an important avenue for improving employee health and well-being, especially when the healthcare system may fail patients. Many employers look for solutions that will either decrease their spending with healthcare benefits or relieve the stress of their employees caused by a fast-paced working environment – keeping in mind the geographical and socioeconomic context of their employees. If pursuing a business model catering to Medicaid or Medicare patient populations, digital health companies should understand public payers' motivations to reduce high healthcare expenditures of patients with complex care needs, and also know the regulations by which public programs are bound. A solid understanding of the customer landscape – and effective pursuit of the target customer – enables digital health companies to better define their value propositions, secure successful contracts and achieve their missions of improving the healthcare system and patient experience within it.