DTA Members and DTx Stakeholders,
Despite the efforts of entrenched healthcare executives to stifle innovation and prioritize revenue over patient care, we continue to make advancements in providing clinically validated digital healthcare.
I’ve had a unique opportunity to sit down with global organizations, policymakers, investors, and thought leaders over the past three years. As we come out of an incredibly difficult period, I want to share what I have learned as we are clearly moving into the next phase of Digital Therapeutics.
I have been swimming through a sea of people saying what is and isn’t possible with DTx, and I have watched the impossible happen and the obvious get shut down. In the U.S., seasoned policy experts with extensive experience on Capitol Hill have said that certain DTx endeavors were unattainable or futile. Initially, I took that as fact, yet, a few months later, they were proven wrong.
I have heard some of our seasoned DTx partners on stage at conferences say “the prescription model will never work”only to be contradicted offstage by a top-ten health system, which exclusively engages with prescription products. (this was 6 months ago). For years now, many have been trying to choose the right business model for the industry, but in digital it is about choosing the right business model for your product. It’s not about jumping on the next buzz word, it’s about being realistic in your approach to the market. For example, Venture capitalists are only hesitant about the prescription DTx model because of inflated projections (seen particularly from Pear Therapeutics) rather than an inherent flaw in the model itself.
While we have hit speed bumps and roadblocks in the U.S., the global perspective on Digital Therapeutics is strong. In December I sat down with the Korean FDA, and when I asked how I could help, they said the U.S. FDA is visiting to learn from the progress that has been made in South Korea. . Since then, we have seen AIMMED launch Somzz in South Korea, and the Korean FDA said they want to see more DTx come to South Korea as quickly as possible. As U.S. Pharma companies start to embrace PDURS (Prescription Drug Use-Related Software), South Korea is moving quickly with their version, and without the same reimbursement issues faced in the U.S. (South Korea: Digital Medical Products Act Enacted | Library of Congress)
Germany has also demonstrated adoption of PDTs through DiGA. Although not perfect, DiGA has established a revenue pathway that allows for DTx expansion and growth. There are over 60 products covered in Germany (DiGA-Verzeichnis). Germany is demonstrating the viability of the DTx promise: we can build products fast, bring them to market faster than pharmaceuticals, and adapt them faster. That promise was just a dream, until now.
We forget that biologics found their foothold in Europe well before they were adopted in the U.S. Do we also forget how many biologics companies went out of business before the industry took off? Here is a List of bankrupt biotech, pharma & medical device companies in Europe. For products that aren’t FDA regulated, or fall under enforcement discretion, think about the issues with supplements making claims: Label Claims for Conventional Foods and Dietary Supplements | FDA.
The (DTx) industry is still young, and the initial excitement felt the real pains of healthcare. But now is THE TIME to pick ourselves up and take this industry to the next level as various initiatives and programs are aligning to drive real change. With CMS’s recent RFI in the Physician Fee Schedule and the increasing utilization of remote therapeutic and remote physiologic monitoring (RTM & RPM), alongside legislative pressures like the Access to Prescription Digital Therapeutics Act, policymakers are compelled to respond. Moreover, the FDA’s breakthrough and TAP programs, alongside PDURS, signify evolving market opportunities and exert ongoing pressure on CMS and commercial payors.
VC, pharma, payors, manufacturers and policymakers are looking for people to be realistic and grounded. We’re entering the slope of enlightenment in the Gartner Hype Cycle…Embrace it. (Gartner Hype Cycle Research Methodology)
And last but not least, Fierce Healthcare showed $2.7 Billion across 133 deals in Q1 2024, so we’re still seeing major investments in digital Q1 2024 digital health funding: Great (reset) expectations. With many DTx products already incorporating AI capabilities, I want to point out that AI interventions are DTx. While there is a new hype around AI, every roadblock to coverage of SaMD and DTx exists for AI interventions. DTA’s work on Capitol Hill applies to all software as a medical device delivering clinical validated therapeutics interventions
So let’s focus on what is working and look towards the next phase of DTx. Let’s rally around the success stories and use the pressure that we have put on policymakers to pave our way for success.
Business models: Let’s look at what is working. 6 years ago this landscape didn’t exist. But the collective WE made THIS happen:
PDT in the EU: Board member Hannes Klöpper, CEO of HelloBetter, has 6 prescription products on DiGA. I also sat down for dinner in April with other DiGA companies. Their rate of bringing new products to market because of DiGA is that of the promises we heard in 2018 in the US. The phrase “We can bring products to market much faster than drugs” was heard around the clock in 2018, and Germany is showing that that is truly possible. France is following suit (watch the French Ministry of Health’s overview of PeCAN here)
Question: Would you consider launching in Germany and France first based on actual reimbursement models for PDTs?
DME: I can’t tell you how many times I have heard “DME will be the end of us”. Companies and associations were asserting to CMS that software as a medical device should be recognized as a medical device (imagine a drug company having to assert that a drug is indeed a drug). However, CMS’s stance was clear: they don’t reimburse for software alone. Interestingly, a company that initially sought parallel review was denied eligibility on the basis that CMS doesn’t reimburse for software. Yet, this same company is now classified as a medical device, demonstrating the importance of understanding and navigating CMS regulations in securing reimbursement.
Our most public example of a product getting DME classification is Applied VR. They now have a code from CMS and a reimbursement rate. Let’s strike through the statement that “DME will be the end of us”, because there is a big difference between coverage under DME or a reimbursement rate of $0. If this is the right pathway for your product then, just like PDTs in Germany, you have a viable business model and are able to demonstrate revenue and RWE to scale.
Chronic Care Management and SaaS models: “Care at home” is the next buzzy topic with policymakers as we look at our aging population. Well it isn’t a new topic for DTx companies. These platform models have been around for almost a decade now and have shown to be embraced by patients, particularly in diabetes. These models absolutely work. We have seen them transition into care platforms that include telehealth, coaching, medicine titration, etc. These have shown up now in diabetes, COPD, at home pulmonary rehab, and many more.
Pharma Partnerships: Pharma is starting to show enticing business models for DTx. This includes a therapeutic offering to build market awareness instead of an “unbranded campaign”, a lift to utilization, extensions to branded products, chronic care management to offer a higher touch approach to patient care, and the ability to have the sales force carry more products in their “bag”.
These models find stability due to recent PDURS regulatory considerations, signaling a future where prescription drugs, alongside DTx, can play a more significant role in patient care.
Provider Reimbursement: JOGO is demonstrating success by being paid as a provider. (Watch the JOGO Webinar here) We see RTM companies doing this to accompany their DTx, and we see software diagnostics companies like Digital Diagnostics using this model.
Last year, the idea that DTx could be reimbursed under the “incident to” benefit category started gaining traction. DTA submitted an RFI to CMS so that we could gain reimbursement via supply codes when providers’ offices procure the digital products. We have collectively put pressure on CMS to move reimbursement out of legislation. The next Physician Fee Schedule will be open for comment in early July. Regardless of what happens, you will see DTA continue to put pressure on CMS to move this reimbursement pathway forward.
Medicaid: In 2022, Massachusetts covered Reset and Reset-O in a value based agreement, Florida covered those products on the pharmacy benefit, and Oklahoma covered the product through a bulk purchase agreement. These are all opportunities for you if Medicaid is your market. IF you can show cost savings, you can also gain coverage in Managed Medicaid programs via “in lieu of services” Brief Leveraging In Lieu of Services in Medicaid Managed Care. You can also gain coverage through EPSDT programs. DTA put forth legislation in 2022 to help move this forward. If you want to see this move again, please contact us S.5238 – Medicaid and CHIP Access to Prescription Digital Therapeutics Act 117th Congress (2021-2022) .
Employer: There are many success stories in the employer space, but BE CAREFUL WITH EMPLOYERS! They are not a fail safe when other business models aren’t working. They have a very specific value prop. And people that work in HR benefits departments are not doctors looking at clinical evidence. BigHealth, for example, offers a very clear value proposition to employers: if you don’t sleep at night you won’t be productive during the day (my words, not the words of the BigHealth marketing department). Employers look at benefits around weight management like weight watchers and Noom, general health and wellness like gym memberships, family care, and areas that focus on productivity and employee retention. Landing these contracts are then followed by massive marketing campaigns to ensure that employees use your product. Employers are a great option if you have the right product.
PDTs in the US: OK, so we still have a major gap in reimbursement. If you don’t qualify as DME, then you will be told that SaMD isn’t covered by Medicare. Wait, but isn’t RPM and RTM covered by Medicare? Aren’t some services covered under the “incident to” benefit category? And weren’t we all told that it was impossible to get a HCPCS code if there is no benefit category right before the creation of A9291? (CMS officially separated coding from benefit categories and it turns out that the best way to get an answer from CMS is to do the obvious and just apply).
The PDT bill is stuck in the Congressional Budget Office because nobody knows how much the bill will cost, but the PDT bill has created an incredible amount of positive momentum for the industry regardless of its current status. While many got caught up in the details and worried about the harm of the PDT bill, this bill gave congress and policymakers a platform to drive education around DTx, point out issues with our healthcare system, and to put pressure on CMS. This pressure on CMS is compounded by programs in the FDA like the breakthrough program and TAP and policy like TCET. These programs are demonstrating a massive gap in Medicare coverage for innovative technologies.
And in the middle of all of this federal work, Highmark puts out a medical policy covering PDTs. highmark commercial medical policy – pennsylvania
PDTs are covered by a wide variety of purchasers, including the Veterans Administration, at risk health systems, and commercial payors. Scale in the US isn’t there yet, but we are certainly seeing advancements across the spectrum of payors.
FSA/HSA: And last but not least I guess: yes, DTx do qualify for the FSA/HSA. You just need to apply. Are you an OTC product? Great…allow your patients to pay using pre-tax dollars or company match programs.
These models and partnerships are exciting to VC, Pharma, Employers, at risk health systems, and purchasers in general. Let’s work together to drive these forward and change healthcare.
For next steps, come to our conference to hear DTA’s key initiatives and where you’ll get to talk to the FDA, the head of CPT, commercial payors, the VA, VC, pharma, and more: DTA Summit
And join our mission to make DTx available to all patients: Engage – Digital Therapeutics Alliance