Table of Contents
Introduction: Navigating the Opportunities and Challenges in Digital Health
Unit Economics for Care Delivery
a. Tracking and Incentivizing Clinician Productivity
b. Utilizing 1099 and W-2 Clinicians
c. Extending Capacity with non-clinicians and Technology
Balancing Growth and Profitability
Achieving Key Outcomes
Conclusion: A Path to Sustainable Success
In Part 2, we examined the trade-offs between growth and profitability and how tech-enabled services businesses can track performance and evaluate common dilemmas on the path to building a large sustainable enterprise. In Part 3, we’ll examine which operational, clinical, and financial outcomes companies should track and generate to achieve their goals.
Achieving Key Outcomes
When marketing a new healthcare service offering, a company’s value proposition is defined by the outcomes delivered by the solution. While there are myriad endpoints one can measure, we believe the three key outcomes to monitor are patient engagement and activation, clinical effectiveness, and the economic outcomes for key enterprise stakeholders.
Patient Engagement and Activation Outcomes
Engagement outcomes in tech-enabled services focus on the measurable aspects of patient activation, the process of identifying eligible individuals and facilitating their active participation in revenue-generating and value-creating clinical interventions. This step is critical for health tech companies utilizing B2B channels, which typically involve collaborations with payers, employers, or providers, to target specific eligible populations. Successful engagement means converting a substantial portion of eligible individuals from these populations into active healthcare service participants.
Optimizing engagement and activation requires a deep understanding of referral channels and control mechanisms. Ideally, referrals come from trusted entities familiar to the patient, such as primary care providers, specialists, or payer case managers. Yet, it’s central for companies not to rely solely on these partnerships for patient acquisition. Instead, they should actively develop their own internal patient activation engine and set of capabilities. Direct outreach efforts like email campaigns, mailers, phone calls, or home visits should be strategically chosen for their effectiveness and cost-efficiency, all underpinned by robust LTV:CAC ratio analysis to ensure they contribute positively to financial goals.
Forming referral partnerships demands a strategic approach, recognizing that organizations often prioritize their internal objectives over referring to external services. This involves setting up clear and defined referral workflows and identifying champions within the partner organizations who can advocate for the partnership. Such efforts help ensure that the collaboration aligns with the goals of both parties, maximizing the potential benefits of the referral system.
A frequent mistake among emerging companies is prematurely celebrating enterprise contracts without establishing a strong mechanism for patient activation. Despite securing lists of eligible patients from payers, actual activation rates can fall far short of expectations, resulting in disappointing revenue and potential financial strain – especially if operations were expanded in anticipation of higher engagement. If a company fails to engage this population effectively, both the overall contract value and the business’s efficiency and profitability can be severely impacted.
In our experience, patient activation and engagement rates can run the gamut between 5% and 75%, with most companies achieving rates between 10â40% of an eligible population. To determine effectiveness, the activation / engagement rate must be evaluated against the enterprise customer’s goals and the financial model of the business. Some Medicaid health plan partners may be very satisfied with 5-10% activation and enrollment rates, while a risk-bearing provider partner or Medicare Advantage plan looking to close care gaps may be appalled by a 50% activation rate. Finally, the Revenue and LTV / CAC of a business will be defined by a company’s engagement / activation rate so this will drive the ultimate revenue potential and profitability of the model.
Clinical Outcomes through Evidence-Based Practice
Clinical outcomes are fundamental in assessing the effectiveness of digital health interventions, as they measure tangible improvements in patient health and overall well-being. These outcomes are used to evaluate the ability of tech-enabled services to deliver real-world health benefits beyond merely enhancing engagement.
Many digital health companies face challenges in demonstrating significant clinical outcomes. Studies by Finn Ventures and Rock Health/JMIR reveal that a majority of these ventures fail to exhibit strong clinical robustness, underscoring a notable disparity between their potential and proven impact. This gap highlights the need for enhanced methodologies and validation in digital health interventions to ensure they effectively improve clinical outcomes.
To enhance clinical outcomes, tech-enabled service providers must first understand evidence-based practices and established outcome metrics, identifying where existing care does not meet these standards. This understanding allows them to pinpoint opportunities for applying improved practices through digitally enabled clinical models, thus addressing gaps and elevating the standard of care provided.
For instance, the Healthcare Effectiveness Data and Information Set (HEDIS), utilized by over 90% of US health plans, includes metrics that assess the performance of health plans across various dimensions of healthcare delivery and quality. Similarly, the performance metrics that underpin the Centers for Medicare & Medicaid Services (CMS) Star Ratings are publicly accessible online. Tech-enabled service startups can benchmark their clinical models against these established performance measures to evaluate and enhance their own service quality.
Omada Health’s inception at IDEO illustrates the effective use of existing clinical evidence to develop impactful digital health interventions. Founded on the guiding principles of the National Institutes of Health’s Diabetes Prevention Program (DPP), Omada transformed the program’s evidence-based lifestyle modification strategies into a digital platform. The DPP’s established approach to reducing type 2 diabetes risk through diet, exercise, and behavioral changes laid a solid clinical foundation for Omada. By digitizing these interventions, Omada has successfully bridged a gap in prediabetes management, underscoring the potential of translating rigorous research into scalable tech-enabled services.
Tech-enabled services can differentiate themselves by achieving condition-specific outcomes, which necessitate effective collaboration with domain experts to customize interventions precisely. Startups should engage domain experts early in the process of developing their care models. Clinicians on staff, individual physician advisors, or medical advisory board members can all offer valuable insights into designing impactful interventions. This approach not only boosts the effectiveness of the interventions but also enhances credibility and confidence among potential investors.
Economic Outcomes: Cost Avoidance, Cost Savings, and Return on Investment
A comprehensive analysis of economic outcomes is essential for building a sustainable business and securing needed financing in tech-enabled services. These outcomes reflect whether the addition of digital health solutions produce a net positive impact in our existing costly healthcare system.
Cost avoidance and cost savings are distinct economic benefits of digital health solutions. Cost avoidance, or impact on cost trend, refers to preventing or mitigating future expenses that would otherwise occur, thus helping maintain or lower overall healthcare costs year over year. In contrast, cost savings involve reductions in existing costs from prior syears. Various enterprise customers have different economic outcome goals relative to their sespective business models. Health Plan customers will often be focused on Medical Loss Ratio (MLR) goals, which factor in cost savings relative to the insurance premium paid or received for a specific population. In contrast, an ACO customer or self-insured employer may be focused on actual cost savings generated against a historical benchmark of prior performance.
Oshi Health, a Flare Capital portfolio company, offers a virtual multidisciplinary clinic for gastrointestinal disorders. Utilizing an in-house team of gastrointestinal clinicians, Oshi Health delivers a range of services, including making diagnoses, nutritional guidance, psychological interventions, and medication as part of personalized care plans â primarily via telehealth and asynchronously. Oshi’s model provides a clear example of significant cost savings. In a clinical study conducted over six months, the program reduced GI-related healthcare costs by $6,724 per patient and overall healthcare costs by $10,292 per patient. These savings were achieved through a tech-enabled approach that delivered patient care via telehealth alongside coordinating in-person care, reducing overall healthcare utilization.
Sam Holliday, CEO at Oshi, explained, “Many early-stage health services companies focused on B2B business models feel like they need to raise large amounts of capital to grow their teams to acquire customers and patients, then deploy their clinical model at scale to show outcomes. It becomes a chicken or egg phenomenon, where you need the money to demonstrate the outcomes, but you need the outcomes to gain the customers and patients to generate the outcomes. The first thing we did at Oshi with our seed capital was deploy our clinical model in a pilot trial with a national payer to prove the financial and clinical value. That small study has served us well in convincing large enterprises to partner with us.”
Somatus, another Flare portfolio company, offers Transitions of Care Assessment (TCA) services for patients with chronic kidney disease (CKD) and demonstrates substantial cost savings and cost avoidance. In a study validated by the Validation Institute, it was found that patients receiving TCA services were 49% less likely to experience hospital readmissions compared to similar patients who did not receive these services. These cost savings were achieved through the direct reduction in hospital readmission rates, leading to immediate savings on hospital costs. Additionally, the proactive care coordination and comprehensive assessment provided by Somatus can be considered cost avoidance, as it prevents the occurrence of unplanned readmissions and the associated future costs. By integrating a whole-person care model and leveraging advanced care coordination, Somatus significantly lowers healthcare expenditures, showcasing the economic benefits of their value-based kidney care approach.
All forms of economic benefit delivered to an enterprise customer can be summarized in the familiar Return on investment (ROI) calculation. Effective ROI calculations include direct benefits, such as new revenue from new services and / or cost savings / avoidance from interventions. Companies should also contemplate and quantify potential indirect benefits from their solutions, such as enhanced patient engagement and satisfaction that may boost retention rates. Ideally, introducing a tech-enabled service should yield an ROI of 3:1 to 5:1, meaning every dollar invested into the solution returns three to five dollars in economic value, combining direct benefits and potentially indirect benefits.
Accurately calculating ROI necessitates a deep understanding of how to attribute specific outcomes to the implemented tech-enabled service. To ensure transparency and accountability, companies should define the savings calculation ahead of time with their enterprise customers to prevent disputes and renegotiations over value creation claims. Companies should also be tracking performance against ROI targets throughout the contract year and be communicating with enterprise customers how to positively impact intra-year results, instead of waiting until potentially adversarial year-end readouts. Digital Health vendors often rely on enterprise customers for data, referrals, and agency to impact results. It’s important to strategically align incentives and work closely with customers to achieve these mutually beneficial ROI goals.
A Path to Sustainable Success
In the rapidly evolving digital health sector, achieving sustainable growth and profitability requires long-term vision combined with near-term execution. Tech-enabled service companies must accurately define and optimize their unit economics while aggressively managing their clinician and operational costs through leveraging technology, monitoring and reporting. These businesses must develop a sustainable patient acquisition engine and service model that continually creates economic value. Leadership teams must understand the drivers of financial performance by de-averaging overall experience into the profitability of customer and patient cohorts. Combining this financial discipline with excellent clinical outcomes that drive customer economic goals is the secret to building a large and sustainable business.
As we enter the 2nd decade of digital health, successful teams will learn from both the successes and missteps of the past and adopt an iterative approach to building sustainable value. We believe by adhering to these principles, companies can navigate the complexities of the digital health landscape, delivering scalable, high-quality care and sustainable financial outcomes that meet the evolving needs of the healthcare venture market.
Straight to the Source
To go a click deeper, we are convening these voices around the virtual table for our next expert roundtable webinar. Join us on June 10th at 12PM ET alongside this brilliant group of innovators, executives, and investors who will share their hard-won lessons and tactical strategies. Register here.
