Here's why digital therapy startups should explore D2C models

Digital therapeutics (DTx) company Omada Health launched a new musculoskeletal (MSK) tool that uses computer vision tech to help physical therapists virtually measure a patient’s movement and range of motion, which is typically done in-person. The new offering will be incorporated into Omada’s current MSK offerings, which includes Physera, an app-based physical therapy consultation platform it acquired last May for $30 million.

MSK pain management accounts for a huge portion of US medical costs—and we’ve seen employers and commercial insurers start incorporating DTx into their benefits packages to get a handle on this spending.

  • US employers collectively spend over $20 billion annually on addressing employees’ MSK conditions, according to Optum. That means employers are dedicating 17% of their health budgets to MSK conditions alone, most of which is spent on medications to treat chronic MSK pain.
  • Payers like Cigna and BCBS Massachusetts are already offering members access to DTx tools that help them cut back on $130 billion in annual chronic pain spending. For example, in October, Cigna incorporated Omada’s MSK Physera into its digital health formulary; and in 2019, BCBS Massachusetts paired up with Hinge Health.
  • Employer-DTx tie-ups should be attractive then, since DTx provide clinically validated alternatives to costly chronic pain meds. For example, last year, a study from DTx firm Kaia Health revealed its employer partners saw a 62% incremental reduction in annual claims cost after using its app-based MSK therapy for 9 months, driven by a 39% reduction in the number of MSK claims.

However, many DTx companies could be missing out on another massive revenue channel: direct-to-consumer (D2C).

  • Most DTx companies get their tools to patients via employers and insurers, but there’s a massive population of people in the US who are uninsured they lose access to. For example, virtual chronic pain treatment startups like Kaia Health, Hinge Health, and Sword Health are only available to individuals under certain employers or insurers. Over 30 million US individuals are uninsured and more than 20 million people suffer from chronic pain—so, there’s a substantial number of uninsured individuals who likely can’t try out MSK digital therapies from leading DTx startups.
  • Digital health startups like Ro and Hims & Hers have seen significant membership growth going straight to the consumer and bypassing the need for insurance. For example, Hims & Hers offers patients rapid mail-order prescriptions and virtual primary care visits at an affordable cost—sidestepping the need for insurance coverage—and its approach has paid off: It reported $41.5 million in Q4 2020 revenue, marking a 67% year-over-year (YoY) jump from Q4 2019.