Digital Health Technology Functions are Fueling Health Market Disruption
Medical workforce alternatives are contributing to a long-overdue disruption in the traditional provider-centric medical services business model.
By: Robert J. Horne & Jim Bialick / Published December 8, 2022
Part 6 Disruptive Innovations in Health Series
Key Takeaways
The healthcare market has largely resisted disruption from the 4th industrial revolution (or the leveraging of digital technologies to reimagine product and service delivery) that has occurred in nearly every other sector of the U.S. economy.
Good news for disruption advocates: change is on the way and could be big.
The business opportunity for CVS Health and Amazon appears ripe, given key shifts in consumer shopping behaviors since the onset of the COVID-19 pandemic. In November 2022, CVS Health released the results of a 2022 patient survey that found significant shifts in consumer shopping behaviors.
Introduction
The healthcare market has largely resisted disruption from the 4th industrial revolution (or the leveraging of digital technologies to reimagine product and service delivery) that has occurred in nearly every other sector of the U.S. economy. The causes and consequences of this economic slow walking are many and explained further in our previous articles. But good news for disruption advocates: change is on the way and could be big.
A myriad of factors is driving the changing landscape. The contractual partnership between CVS Health (via Aetna) and Dario Health offers the public a unique insight into one of the factors fueling this disruption: digital medical workforce alternatives. But first, some background on Dario Health.
Dario Health
DarioHealth Corp (NASDAQ: DRIO) offers digital versions of certain medical services (e.g., therapy, disease management, and musculoskeletal consultation) to patients covered by health insurance and employer plans. Customers are offered direct access to medical care and personalized feedback on their data without seeing a physician in person or through a video appointment through a fully integrated suite of services.
The company has a well-developed and mature Artificial Intelligence (A.I.) that can act as a physician between physician visits, allowing customers to access medical care 24 hours a day wherever they are and without needing an appointment. The A.I. is also capable of personalizing the care treatment pathway of every patient, no matter the complexity of their needs or background, using a specific user’s experience to help guide the way.
The product reduces systemic costs and improves outcomes through an all-inclusive subscription model that allows consumers unfettered access to their chosen care–for less than $100/month–while increasing care adherence. Dario’s clinical outcomes meet or exceed those of current medical workforce approaches, boasting an 80 percent customer retention rate, which is unheard of in health care. More on this later.
New Consumer Shopping Habits Are Changing the Market
As noted in our October 2022 report, CVS Health laid out a strategy in 2022 to capitalize “…on the significant opportunity to make health care more convenient, personalized and affordable for consumers.”
This strategy has been years in the making, including crucial acquisitions like national health insurance company Aetna. The intention is to establish a viable and competitive medical services business model to compete with physician and medical service provider businesses on convenience and cost.
The business opportunity for CVS Health appears ripe, given key shifts in consumer shopping behaviors since the onset of the COVID-19 pandemic. In November 2022, CVS Health released the results of a 2022 patient survey that found significant shifts in consumer shopping behaviors.
“Patients value deeper and more meaningful relationships with their primary care physicians (PCPs) and other providers and are finding that new virtual care options are filling in gaps and making it easier to achieve successful relationships with their PCPs. People want their PCPs to know and understand their lifestyle choices, personal health goals, and family medical histories and are open to their health information being shared virtually across care settings to ensure seamless continuity of care. Coordination and communication are the two watchwords for a new generation of health care.”
While patients are generally happy with their physicians, consumers want to play a more prominent role in shaping their healthcare experience via the technology platforms with which they are already comfortable. Consumers in more significant numbers demand more frequent access to medical services while maintaining a lower-intensity relationship with traditional medical workforces. Additional care options, cheaper and more transparently priced products and services, and greater control over their healthcare experiences are also high consumer demands.
We view the emergence of CVS Health and Amazon Care’s retail-medical services models as the right financial opportunity at the right time to take advantage of a changing consumer landscape. The burgeoning consumer-directed digital economy has fostered new generations of access-savvy patients who act more like traditional consumers than have existed previously. Now digital technologies are beginning to disrupt medical service workforces and, in doing so, are allowing consumers new opportunities to direct their care.
Health Care In-Between Doctor Visits: An Emerging Market Opportunity
“The best digital health platforms are designed to help people manage their health between doctors’ visits, provide more complete and accurate data to doctors, and minimize the need for severe interventions.”— OMAR MANEJWALA, M.D., CHIEF MEDICAL OFFICER, DARIO HEALTH. NOVEMBER 17, 2022.
The maturation of digital health, specifically A.I., opens up opportunities for patient engagement in health care. On September 22, 2022, Dario Health President Rick Anderson spoke on how the company’s own A.I. allowed patients to personalize their healthcare journey:
“(We have) an A.I. engine that enables us to personalize the solution to members. And lots of people talk about the fact they personalize[…]and really what people mean is, if you look like a person who’s in group A, you get group A’s journey through the process, because you look like them. And what Dario does that’s a little bit different[…]So, you’re going to start with the journey that group (A) would get, but actually what [our A.I.] does is it dynamically personalizes[…]So, it allows that journey to not stay static, but actually change over time.”
Consumers can get personalized feedback on their health care from the A.I. enabled systems and other digital tools the company offers. For example, a “digital-physician consumer” can visit at one set monthly rate daily, regardless of frequency.
Dario Health’s A.I. ability to “function like a physician” between physician visits, where current workforce capabilities cannot compete, opens up the potential for a new secondary market within the healthcare sector: continuous patient engagement (CPE). CPE personalizes the care experience to match the individualized needs of patients based on their health data and behavior and gives consumers greater control over their relationship with the medical services side of health care. Imagine the possibilities. More on this concept is coming next week.
We anticipate that other leading digital health companies like Omada Health, recently valued at more than $1 billion, may soon offer similar capabilities. The likely result of this market penetration over the next 5–10 years is a competitive landscape for A.I.–enabled data analytics systems capable of around-the-clock care while effectively managing costs, improving care quality, and increasing consumer satisfaction.
Policymakers and the public should soon have more insight into this emerging business model and digital technologies’ role once the likely rollout of CVS Health’s new Virtual Primary Care model occurs in early Q1 2023.
Digital Health Finally Hitting its Stride with Payers
Private insurance plans and government programs like Medicare have been slow to warm to digital health products and services over the years. The inability of the industry to offer compelling economic cases for insurance coverage, the primary payment method for consumers today, is one of the main reasons for the slow uptake. Unfortunately, this fact has, in many ways, stifled more considerable growth within the digital health market, with M&A being the only available way to invest meaningfully.
Digital medical service providers appear to be driving a market resurgence, and companies like Dario Health are leading the way. The company is on pace to have 100 payer and employed-sponsored plan contracts to provide digital medical services and A.I. support by the end of 2022. Furthermore, the company anticipates doubling that number in the following year. As health insurance plans pay for most health care products and services consumers use, these plan signings suggest more than just business for the company. Instead, they suggest good days may be ahead for digital medical service providers.
A closer look at the Dario business model suggests possible reasons for the payer attention:
A personalized care path for every consumer improves care plan–including medication–adherence, which improves outcomes and increases lower-intensity healthcare engagements leading to savings for payers;
The subscription-based Dario Health model allows payers to save over traditional fee-for-service, effectively baking savings into every use;
Subscription models allow consumers unlimited service use throughout the life of the subscription, meaning that the model saves money without sacrificing quality and refuting arguments that virtual visits lead to costly overutilization;
Clinical data demonstrate measurably improved outcomes for all patients when compared to available alternatives, with no differences across demographies, including race, gender, and other factors; and
Dario has an 80 percent overall customer retention rate, seemingly attractive to payers and employers as a strategy to grow their customer base.
Customer retention and cost savings are two main priorities for public and private payers. So, a company that can offer medical services at savings with a track record of turning first-time clients into repeat customers 80 percent of the time isn’t a complex business proposition for payers to grasp. Nor is it hard to imagine where this trend could lead. The business model, in short, pays for itself and then some.
The current expected rate of payer contract signings by Dario Health indicates that payer behaviors may change in favor of digital medical service providers. In addition, given the recent spate of medical workforce M & A in healthcare, business models like Dario Health can win over large segments of the payer market and drive insurance companies to embrace digital medical service alternatives in the short term. Such a change should accelerate insurance plan adoption of future digital technologies. Similarly, the pace at which such a model could change the U.S. healthcare system may also aid policymakers in improving the fiscal solvency of public payers like Medicare.
Conclusions
All signs indicate a market shift by payers toward digital health technology use in health care. For example, recent attention on medical workforce M&A and overall workforce shortages in some medical service provider areas, such as behavioral/mental health, are making digital service providers more attractive to payers and private companies like CVS Health, Amazon, or Cigna. In addition, recent advances in the functional nature of digital health offerings from industry leaders allow wholesale business model changes like those developed by CVS Health and Amazon.
We will expand upon this thinking in an article next week, including our thoughts and projections on the overall health market disruption underway and what it may mean for policymakers and investors.
Note: The authors are not offering investment advice, and nothing in this report should be considered investment advice related to Dario Health or any other company. The authors are current investors in Dario Health.
Originally Posted on Medium - December 8, 2022