The digital therapeutics (DTx) industry is at a crossroads after one of the most prominent companies in the space, Pear Therapeutics, filed for bankruptcy earlier this year. The turmoil comes after DTx began catching on in the behavioral health field.
Despite Pear’s setback, some believe there’s now a chance for other digital therapeutics companies to learn from their competitor’s mistakes and pave the way for DTx. One of the most challenging questions for the burgeoning sector remains payment strategy.
“I’ll tell you what we aren’t seeing take [hold], which is reimbursement by third-party payers and, in particular, insurance companies,” Jennifer Goldsack, CEO of the Digital Medicine Society (DiMe), said on a Behavioral Health Business webinar.
DiMe is a nonprofit organization dedicated to “driving scientific progress and acceptance in digital medicine to enhance public health.”
Payment problems have caused many digital therapeutics providers, including those that focus on behavioral health care, to shift their reimbursement models while finding new ways to expand access.
While the exact definition of DTx is often debated, generally speaking, the term refers to evidence-based treatments delivered through software interventions to treat or manage a condition. Today, most DTx products on the market focus on addressing behavioral health conditions such as substance use disorder (SUD), anxiety and attention deficit hyperactivity disorder (ADHD).
Some digital therapeutics have FDA clearance, meaning providers can prescribe the products to patients like they would a drug. Other companies have designed their products to be accessed “over the counter” by patients without a prescription.
Traditional reimbursement streams drying up
The digital therapeutic industry has historically struggled to figure out a sustainable reimbursement pathway.
Last year, Cigna (NYSE: CI) became the first commercial health plan to cover these products. But overall, commercial insurers have lagged behind in their coverage.
Instead, state Medicaid plans have been more active in covering DTx.
“Across the board, while we’ve seen pockets of innovation, I think state Medicaid [programs] have been remarkably innovative around these things,” Goldsack said. “And VA covers a number of different digital therapeutics products for veterans seeking care. I think that we should applaud those innovations, but we aren’t seeing broad uptake of coverage by insurance companies.”
Pear Therapeutics blazed the trail for digital therapeutic providers looking to partner with Medicaid. In 2021, the company partnered with MassHealth to reimburse for its addiction and opioid-focused prescription digital therapeutics. Prior to going broke, it inked deals with roughly 10 other states, including Oklahoma, Ohio and Kentucky.
But Pear’s early work with Medicaid could be a mixed bag for providers trying to follow in its footsteps.
“Part of the problem with Medicaid is that it was the primary channel that Pear was using [for reimbursement],” Chris Wasden, chief strategy officer at Twill, said during the BHB webinar. “But because Pear went bankrupt, it left a bad taste in the mouth of these Medicaid programs that they can’t trust the digital therapeutic company to be around long enough to deliver.”
Twill, previously called Happify Health, is a digital therapeutics company focused on treating behavioral health conditions. It has raised more than $100 million in funding, according to Crunchbase.
The traditional reimbursement model that covers digital therapeutics, which acts like a pharmacy benefit, also requires workflow changes and provider education.
“If there’s no workflow, physicians will not prescribe it,” Wasden continued.
In addition to Pear and Twill, some of the bigger DTx players include Big Health, Akili Interactive and Dario.
With Pear’s struggles, it may be time for the DTx industry to seriously consider how these products get reimbursed and fit into the larger digital health ecosystem.
“I think one of the greatest failures to date of the digital therapeutics market has been to fail to contemplate the digitization happening in every other aspect of health care simultaneously,” Goldsack said.
Too many digital therapeutics providers narrowly focus on having the products work as a single-point solution and be reimbursed in the same way a drug is, which may not work for the industry, Goldsack said.
The employer market
While some digital therapeutics have FDA clearance, there is a movement away from getting these products covered like a pharmacy benefit. Instead, many companies are looking to make deals with the employer market.
“The employer route … has been incredibly successful and is an exciting pathway in an era where the workforce is changing their demands and expectations of their employer,” Goldsack said.
This shift has changed the makeup of many digital therapeutic providers’ revenue streams. For example, Wasden noted that over the last five years, about 20% of Twill’s revenue has come from employers, with another 50% from health plans and 30% from pharmaceutical companies.
Going to the employer market also helps boost adoption, according to Wasden, because employers are motivated to promote the products.
“When you look at our activation rates of our product, employers will often get as much as 20% to 25% of their entire employee base using our product,” he said. “When you work with a health plan that has millions of covered lives offering your program, you might only get low single-digit activation levels. So it’s a very different model, and different way of marketing, promoting, activating and engaging than you get with employers.”
Another way digital therapeutics organizations are being reimbursed is as part of a larger suite of behavioral health offerings.
“We’re starting to see recognition that software products alone, while incredibly valuable, is a tough market for reimbursement,” Goldsack said. “We are seeing [providers] building different layers on top of the software product. So we are starting to couple this with clinical care.”
She noted that freespira, an FDA-cleared digital therapeutic designed to reduce or stop panic attacks and PTSD symptoms, offers additional behavioral health coaching and clinical oversight to its product.
“You start to look more like a virtual-first care service,” Goldsack said, “which can be paid for just like health care, as opposed to from a pharmacy benefit, for example, where we’re just not seeing coverage.”