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2023 Q3 Digital Health & Benefits Ecosystem Update

In this video, our team at Informed Consulting of Founder & Partner Jeff Oldham, Partner Sharon Bryan, and Consultant Anna Torchio discuss key themes they have seen emerge thus far in 2023 in the digital health and benefits ecosystem. This conversation covers a number of key trends such as:

The Maturation of Digital Health

As funding has slowed, the best digital health companies are starting to think with the end (member/consumer) in mind and are making better product choices as a result. This digital 2.0 world sees more mature companies with data place a greater focus on the member, while companies receiving net-new funding are closely examining their business models and showing a willingness to take new GTM and operational approaches.

Elevated Buyer Expectations

Power is in the hands of the buyer as we move into a digital health 2.0 world, and the ROI case data must exist to validate a six-to-seven-figure contract. The correct clinical outcomes, a purposeful strategy around personalization, and a complementary set of enablement tools or services to support those lean HR and Total Rewards teams makes for a winning formula for young digital health companies.

The Impact of GLP-1 Drugs

With a complicated class of drugs gaining notoriety for a broader range of applications, it’s imperative for health plans, PBMs, digital chronic condition management, and navigation companies to work together to ensure compliance and that the appropriate outcome is obtained.

The Importance of Finding the Right Partners

While many lessons were learned in the digital health 1.0 era, early-stage companies can find value in the crawl-walk-run approach prior to seeking funding. Then, when going out for funding, securing money from the right people and finding partners with experience will give founders the best opportunity to create a viable, healthy company.

Expansion of Digital Health Beyond Health Plans

Finding the right partners isn’t just important when it comes to funding. With digital health bringing scalability, personalization, and cost-effectiveness to the table, we’re starting to see distribution take place in new market verticals outside of traditional health plans. Americans need support outside of their brick-and-mortar visits and are now gaining greater accessibility to digital healthcare to help them do so.

Carriers are Placing Tech Bets

As new technologies have emerged that are lightweight, easy to use, and natively incorporate mobile, insurance carriers are trying to determine which horses to bet on. Insurance carriers are reevaluating their strategies and seeking technologies to best serve their entire book of business and help them achieve operational excellence.

We've provided a transcript below for your convenience. We hope you find the conversation valuable!

Anna Torchio, consultant at Informed Consulting: For our mid-year industry check-in, there've been several recently published articles indicating a slowdown in the digital health space with fewer numbers of VCs investing in up-and-coming solutions, as well as fewer numbers of exits for companies like this. What is this telling us about the digital health space?

Question: What’s your take on the slowing of investments in digital health in 2023?

Jeff Oldham, founder and partner at Informed Consulting: On the one hand, on the surface, it may be perceived as sort of negative or disheartening, but it's just a maturation process.

As we've seen in the employee benefits space our entire career, these things come in waves where wave one is sort of the advent of new products and services and early adopters access these products and services. They learn a lot from this first wave. The companies learn, their investors learn, employers, brokers, and consultants.

While there have been economic challenges that have been going on, this isn't necessarily a bad thing because two things are occurring. For the existing companies that have funding, it is much more dialed into things like obtaining clinical data, third-party validation, and direct consumer feedback.

Elevated Buyer Expectations

  1. Clinical Outcomes

  2. ROI Data

  3. 3rd-Party Validation

  4. Consumer Feedback

Not to paint with a broad brush, but as opposed to attempting to sell out of the gate, it's allowing companies to take a step back and focus on customer satisfaction, outcomes, implementation, and things of that nature.

Sharon Bryan, partner at Informed Consulting: To Jeff's point, the first generation was, let's make sure everyone has access. Behavioral health is an excellent one that everyone's familiar with. How do we make sure everyone has access to mental health and behavioral health? Now, both the employers and the investors are more savvy on how to ensure the ROI and case study data is there to show the results and the quality associated with those outcomes.

Secondarily, with transitioning into this 2.0 world of digital health, you're going to see a lot more specialization. As opposed to phase one, behavioral health for all employees, family members, et cetera. Phase two, you have behavioral health now for teenagers, adolescents, mothers, caregivers, et cetera.

We're now seeing, that of those companies that are receiving net-new funding, they're not copying and pasting a previous business model or product. But they've taken that product, they've double clicked on it, and they've made it more personalized to the audience, which as we know, just in participating in consumer-related shopping online that the more you make something personalized, the greater the probability that you're going to drive, maintain adoption, and make it a better experience.

That's actually what I see happening now as a result of this trend.

Digital Health 2.0

  1. Specialization

  2. Personalization

Lastly, this really doesn't have anything to do with funding, but health plans, PBMs, and digital chronic condition management companies are very honed in on GLP-1 drugs. For those of you who may not know, this is a particular class of weight loss drugs that have been attributed to diabetes for quite some time, either pre-diabetic or diabetes, based upon certain factors, BMI and what have you. And now it is or will be introduced to help people with obesity.

Perhaps folks that aren't pre-diabetic, but they're obese or what have you. It's a complicated drug. It's something that in between brick-and-mortar visits, people will need a lot of guidance.

I'm seeing a lot of energy in the market around how health plans, PBMs, and these digital chronic condition management and navigation companies can work together to ensure that with the release of this class of drugs, folks have the support that they need to ensure both compliance and also to ensure that people continue to use the drug in and of itself to ensure that you're obtaining the applicable outcome. That's very much a trend that I've seen a ton of the last three to four months and I don't see it ending anytime soon.

Anna Torchio, consultant at Informed Consulting: In addition to personalization and making sure that you have that ROI and case study data in place as you go to market, what other features or what else would you reiterate to digital health startups trying to make it in such a competitive environment?

Question: What advice do you have for digital health startups?

Jeff Oldham, founder and partner at Informed Consulting: The fundamental elements that we talked about last time, which is a combination of working with people who have been there, done that in the benefits space. Sometimes in particular, the health plans or PBM experience is incredibly advantageous to, not be careful, but be cognizant of who you take money from and what their experience is. Not all money is good money and not all money is helpful and productive.

Crawl-Walk-Run Approach

  • Find partners with experience

  • Take money from the right people

  • Crawl, Walk, then Run

What I mean by that is if you're taking money from folks who don't specialize in digital health and don't understand how to navigate that world, don't be surprised if you encounter challenges because, yes funding and money come in handy, but to obtain funding without the required experience and background and coming from the trenches of doing this, that in and of itself is something that I think is still incredibly important.

Sharon Bryan, partner at Informed Consulting: This doesn't apply to all digital health, but in a lot of companies, there's a lot of value associated with the crawl, walk, run approach. So, starting really small and if possible doing things without outside investments until you really refine your user experience and process so that when you do go out for money, you're really ready to scale and you've done all those things on the front end.

Anna Torchio, consultant at Informed Consulting: With the scope of digital health potentially narrowing or shifting gears a little bit, where do we see other major opportunities for companies to get involved with digital health or potentially grow their relationship with digital health companies and really leverage what is out there in the market since we have been able to address so many different opportunities to bring healthcare to a larger population through digital health. What opportunities do we see in the future?

Question: Where are the opportunities for digital health product distribution?

Jeff Oldham, founder and partner at Informed Consulting: I think the advancement or distribution of digital health into other benefits above and beyond healthcare and PBM. We talked earlier about disability management, FLMA administration, we're also seeing this in the EAP space. Now that you have these products, particularly those that have matured over the last three to four years and have subsequent outcomes, the issue is that you have digital health companies that are selling into health plans, employers, EAPs, etc. with a lot more focus on the consumer piece and the member. The adoption of these products is not like the proverbial Field of Dreams, “If you build it, they will come.” You've got to go out of your way, above and beyond just sending emails. And so I would say an omnichannel approach and reaching out to people are key.

Back on the idea of looking at different market verticals, think this is terrific because the beauty of digital health is it's scalable, it's personalized, it's cheaper, and it's what I would say most Americans need help with that in between brick-and-mortar visits. If you have a chronic condition, whether that's behavioral health, diabetes, asthma, or cardiovascular disease, you need help above and beyond your brick-and-mortar visits. So, I love the idea that digital health now is expanding beyond health plans.

New channels for distribution

The rationale for that is members of health plans obviously receive these benefits attributed to if they elect medical through their employer, but how about the people who don't obtain medical from their employer? How about they receive it from their spouse's employer? Does that mean they shouldn't have the opportunity to utilize digital health? How about Medicare Advantage folks? An enormous amount of adoption and attention to digital health products is happening in Medicare, and Medicaid as well.

Lastly, as we talked about earlier, let's say even members that perhaps at one time didn't receive a lot of attention, but now are such as adolescents. What I like about what's going on in this world used to be very, very siloed. You are an employee, which means you're a member of your employer's health plan, but through a combination of digital health companies, I think diversifying where they can distribute their product. And then also these other third parties having an interest and a willingness to obtain greater adoption and engagement is a good thing.

Specialization drives engagement

To summarize and double-click on that point, the engagement piece used to be something that everyone would have on our brochure or their website, but now I would say it's everything. You've got so many pricing models that are shifting from per employee per month (PEPM) or per member per month (PMPM) so you've got folks that are now beginning with the end in mind. Not only in digital health but in the employee benefits space as a whole because it's B2B.

Pricing flexibility improves accessibility

The immediate focus area has been how do you get this product to a health plan, to an employer, and then by the way, we'll figure out the employee-consumer part. One of the great things I'm seeing now is it's just the opposite. Now you're thinking better companies are thinking about how do I get this product in front of the consumer and then sort of working backward. In the world that we come from, in this B2B employee benefits space, that hasn't always been the case. So much pressure has been applied to the employer around driving communication and implementation and everything.

Let's face it, with the economy the way it is, these HR and benefits staffs are getting leaner and leaner and leaner. Your more intelligent digital health companies are figuring out not how can I ask the employer to do more work, but how can I partner with them, compliment them, and actually take some burden off of their desk to help them in reaching their members. I think that's terrific and really cool.

Consumer-centric strategy

Sharon Bryan, partner at Informed Consulting: We're seeing the same tricks of the trade that direct-to-consumer products outside of healthcare are doing around predictively reaching out. For example, I think we all have been susceptible to weekly mailers from some sort of vacation company and it just gets thrown in the trash versus you're looking on TripAdvisor and then you suddenly get a targeted email about a trip. So, just being more predictive. Obviously, there are a lot of regulations around HIPAA that these companies have to align with, but I think it's a really good opportunity to help cut through the noise for employees who have a dozen or more different vendors that their employer may offer to provide really prescriptive outreach versus just blanketing the market. And I think we'll see more of that as technology becomes a bigger part of digital health.

Question: What other trends are you noticing?

Jeff Oldham, founder and partner at Informed Consulting: I would say a couple of themes that we're seeing in the market that we're very much focused on. The first one is whole-person health.

Whole-Person Health

In conjunction with digital health, it's fantastic that you have point solutions for particular conditions. The average American who has chronic conditions has multiple needs. So, how do you serve that whole person, that whole member, or that whole dependent? I'm seeing a lot of energy and investment spent around looking at the individual in totality and being able to provide assistance to that individual versus saying, “Oh, we don't do that. You need to call this other company.” That's one thing that I see that's happening in the market that, from our team's perspective, we're incredibly interested in.

The second is distribution. I would say that's a topic that never ends, but how do you drive distribution in a more efficient manner? There are two trends I've seen there. One is in our work with insurance carriers, particularly those that sell ancillary products like disability, life insurance, or voluntary benefits. Everyone is trying to figure out how can they better distribute their products in a more efficient manner into the small employer market. The old world which I come from is set up with a sales office in a particular geography and just have people smile and dial and knock on doors. But in this day and age, because people are so used to just buying products online, carriers are now figuring out or trying to figure out how can they take that idea, fit it within the broker-consultant distribution model, and make it easier for people to adopt products for small employers. That's been an enormous trend that we've seen, and I continue seeing that moving forward. We’re definitely looking forward to the work that we have in that regard.

Accessing the Small Employer Market

Lastly, for your medium and larger employers, the evolution of an ecosystem and for these InsurTech companies that have SaaS, per employee per month models, in an attempt to diversify their revenue and provide additional value and bring employees back to the platform above and beyond open enrollment, qualified life events, or new hires is how can you distribute other products that will meet employees where they are, bring value, and remove work from HR teams? This team is fortunate to have a great amount of experience in creating an ecosystem for a large benefit administration company in a past life and going through the learnings of how do you create a meaningful product mix? How do you ensure that the right products are offered to the employees based on demographic data and things of that nature? How do you ensure that the internal mechanism is focused on consulting and distribution? Both with brokers themselves, but then also driving the right behaviors.

Growing Benefit Marketplaces

The infamous story around Steve Jobs having a conversation with Mark Benioff. Steve was a mentor to Mark, CEO of Salesforce. During one of their sessions, Steve just said, “You know, I look at your business model and I see one enormous need and that is the need to create a marketplace, ecosystem, or app store.” For Mark Benioff, that was just such an eye-opening thing which of course now perhaps in HCM world and CRM has become sort of an expectation, even in payroll. Now, how do you take the learnings from HCM, CRM companies, and payroll and apply those to benefit administration companies? Both in terms of ensuring that you have meaningful products, that they're distributed in a very lightweight fashion, and again, that you're removing work from others. That's another very big trend that we're seeing in the market and are very keen on focusing on for the second half of the year.

Anna Torchio, consultant at Informed Consulting: So what are the changes that we have seen in the market, how can Inform to provide support?

Question: What types of projects are you looking forward to for Informed?

Jeff Oldham, founder and partner at Informed Consulting: I would say so while we talked about sort of digital health heading into the sort of 2.0 and what that means both from an investment perspective and new companies coming into the market that are more focused on personalization, our team does a lot of work with InsurTech and benefits technology as well.

In the last five years that sort of 2.0 version of companies that are native to AWS, that are incredibly lightweight, and flexible, that look at the world in a much different place than perhaps other benefit administration companies have looked at in the last 25 years, relative to ease of use, incorporation of mobile, the opportunity to actually provide service above and beyond your typical enrollment-related events. That is another big theme. So you have insurance carriers that are really trying to figure out which horse or horses to bet on. Which of these technology companies is going to be around in the next 10 years? Either those that are able to adopt and or re-platform or should they look at younger companies that have been in the market for the last five years?

Since the three of us have been in this space, I've never seen it as dynamic. I've never seen more questions being raised around, is the way we're managing this business today the right way? Should we be questioning maybe decisions that we've made in the past and look at things differently? Whether that's the incorporation of middleware, third-party billing and reconciliation, and a myriad of different other things.

Every carrier that I've spoken to, at least in this year, they're all reevaluating their strategy. We love working on these kinds of projects. One, because it's the world that we come from. Then two, I would say one thing about Informed Consulting is we're always trying to stay very dialed into emerging technologies and evaluating their opportunity for success, market adoption, and distribution. These kinds of projects really take advantage of our previous old-world experience and the new and emerging technologies. Those are projects I find really exciting.

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