Established companies in the life sciences, technology, and retail sectors are among the businesses entering the digital health market, along with thousands of start-ups. All seek to create value by applying technology to address the current issues in the delivery and management of healthcare. From our experience in business-model innovation and business building, we believe there are six interconnected building blocks required to build a scalable business (Exhibit 1). To illustrate how these elements apply to digital health, we interviewed six leaders of digital health companies to distill their experiences into key learnings.
Define a clear value proposition to address customers’ unmet needs
Although many digital health products and services feature cutting-edge technology, innovative technology alone does not ensure success. The starting point, therefore, must be to identify an unmet need of a stakeholder within the healthcare system.
The online-therapy platform developed by Ieso Digital Health, for example, addresses a shortage of cognitive behavioral therapists in the United Kingdom, where waiting lists for appointments have been as long as 18 months. Hello Heart, an app designed to help patients manage hypertension and overall heart health, was born out of the experience of its founder, Maayan Cohen, who struggled to find easily digestible healthcare information personalized to her specific needs while caring for a loved one. Recognizing the need for such functionality in managing cardiovascular disease, her company set out to help people by presenting them clear, personalized information. “We started with heart health because it is one of the biggest problems in the world,” explained Jesus Bermudez, head of strategic planning. “It [heart disease] is a silent disease; you don’t feel it, you don’t see it, but 42 percent of adults suffer from it, and it’s the number one cause of death worldwide.” Meanwhile, uMotif, which captures the health data of patients on clinical trials, emerged from the need for closer and easier scrutiny of patients’ symptoms and adherence to treatment.
Design a delightful product and experience for users
Effective digital health solutions are carefully designed for end users—patients, caregivers, healthcare providers, and payers.
Pear Therapeutics had physicians as well as patients in mind when it designed reSET, a product that applies cognitive behavioral therapy to the treatment of addiction. Dashboards enable doctors to track patients’ treatment and progress easily by displaying information such as the number of sessions completed, drug-screening results, and patient-reported substance use, cravings, and triggers.
Human-centered design is crucial to ensuring patients engage with a solution and continue to use it. Key to uMotif’s approach, for example, is a user-friendly interface that collects clinical trial data, replacing the excessive amounts of paperwork that patients had to complete previously and simplifying the overall process. “Our design makes people smile,” said cofounder and CEO Bruce Hellman. Furthermore, uMotif’s partnerships with device companies such as Fitbit enables the integration of sensor data with electronic patient-reported-outcome (ePRO) and electronic clinical-outcome-assessment (eCOA) tools, creating a more seamless experience for the user and a more holistic view of their data.
Personalization is key to engagement, too. Happify Health, an evidence-based digital health platform for managing depression, uses “Ana,” an AI coach and therapist, to create a set of exercises based on the particular needs of its users. DarioHealth, which offers a digital therapeutics solution for people with diabetes and hypertension—including its proprietary blood-glucose monitoring system—personalizes the program according to users’ answers to a set of questions, then tailors the level of interaction and tone of its messages as it learns how users typically respond. Gaming—using quizzes, avatars, and rewards to engage users—can also be an important element. Happify Health thinks of its product as “therapeutic entertainment,” said president and cofounder Ofer Leidner. “The leading design thought is, can we create experiences that are enjoyable and that people want to engage in?”
User-centric design is a continuous process throughout a product’s life cycle. All of the companies we interviewed have adopted an agile working model, developing software in short, iterative cycles, testing it, and adapting it.
Combine healthcare and technical expertise to develop robust, compliant products
It is imperative that companies employ individuals with strong medical and clinical capabilities, an understanding of the underlying disease and treatment paradigms, and an ability to navigate the healthcare landscape. DarioHealth, Hello Heart, and uMotif all have disease and industry specialists to help design their products, while others have disease educators to support patients. If the aim is to seek regulatory approval for a product, the relevant expertise must be at hand to guide product development. DarioHealth, for example, hired the former regulatory head of a leading global healthcare company, while Happify Health hired a regulatory lead with US FDA experience, to assist with its development efforts.
The companies we interviewed have equally strong technology expertise, including in back-end architecture development, data management, and advanced analytics. They also recruit with an eye to the expectations of digital consumers. DarioHealth hires software engineers from companies such as Wix, Waze, and getTaxi, and all companies have strong user-experience skills and know-how to engage consumers. It is also noteworthy that Happify Health’s founders come from the gaming industry, while uMotif cofounder Ben James is a designer.
The two worlds—medical/clinical and technological—do not always sit comfortably together given their divergent working methods and cultures. Medical and clinical staff are accustomed to working in companies with structured functional departments and lengthy development processes—developing a new drug over the course of years, releasing it on the back of robust clinical trials, and then never changing it. Technology companies, on the other hand, work fast, in cross-functional, agile teams, often releasing a minimum viable product that is refined after launch. “You need a team that can fail five times per day, not five times per year,” is how Corey McCann, founder and CEO of Pear Therapeutics, sees it. It can be difficult to marry the two approaches, but doing so is critical for success. A hybrid model that adopts the technical world’s cross-functional working approach and culture is the way forward, but with the appropriate clinical and regulatory safeguards learned from the life sciences industry.
Proven value: Choose a regulatory path with care
There are clear benefits to winning regulatory approval for digital health products, including credibility and market access; although, according to our interviewees, significant effort is required to gain and maintain approval, during both development and commercialization. For example, in the United States, all software updates to products with regulatory approval require extensive documentation, and any changes to the underlying mechanism require a new regulatory submission, leading some digital health businesses to opt against seeking approval.
The first strategic choice, therefore, is whether or not to seek regulatory approval, a process that differs by country. For purposes of this discussion, we will focus on the process in the United States in order to indicate the additional strategic choices companies will need to make and the implications that may arise as a result of their decision to seek approval.
A critical first step is to define the nature of the approval sought. There are several options, including approval for a product that treats a health condition, approval for a product that makes medication dosage recommendations, or approval for a product that supports a physician treating a patient.
The FDA stipulates a different burden of proof for each option. Products that treat a health condition present the greatest risks in terms of their potential to cause harm, including still-undiscovered risks that might be unique to the digital treatment platform. These products, therefore, carry the highest burden of proof and must be clinically mandated, the result of which is commercial benefit. A product that supports a physician carries the lowest burden of proof, as it involves less risk.
The second strategic choice is deciding which regulatory pathway to follow: the De Novo pathway (for novel technology and medical devices), the 510(k) submission pathway, or the FDA’s new precertification pathway. The De Novo pathway requires clinical evidence that the benefit/risk profile of the product is superior to the current standard of care. Generating that evidence carries a burden of investment, time, and technical risk, but delivers the reward of securing a unique position in the market. The 510(k) pathway requires proof of equivalency to an existing therapy, which can be achieved more simply than demonstrating outcomes, but potentially limits the scope of the approval.1
The precertification pathway, known as the Digital Health Software Precertification Program,2 is a pilot program that recognizes the speed and frequency of software updates and the noniterative nature of the conventional approval process. It aims to streamline the granting of approval for digital health products by primarily reviewing companies rather than individual products. If the FDA is satisfied that a company is responsible and safe in its development, then regulatory oversight of a released product can be retrospective, based on data submitted when it is already on the market.
Given the various benefits and hurdles attached to each of these options, companies must exercise great care in choosing between them. Pear Therapeutics made treatment claims for its reSET and reSET-O products, aiming for them to become prescribed digital therapeutics. reSET followed a De Novo pathway while reSET-O claimed reSET as its predicate device. Both products included randomized clinical data to satisfy FDA Special Controls. In parallel, however, the company joined the precertification program, hoping that in due course it will be able to receive approval for software updates more quickly.
Noteworthy, too, is the fact that even if a company seeks regulatory approval for its product, it can launch the product preapproval—to get to market quickly and to help gather the necessary data for approval. Happify Health went straight to consumers, gathering real-world data in the process. That data is now being used to seek regulatory clearance for the product as a medical device that helps physicians treat patients.
Develop a core asset that will create a sustainable advantage and scalable model
All of the interviewees felt it was important to define a core asset and develop proprietary technology that afforded a competitive advantage. In a McKinsey CEO survey conducted in October 2019, 67 percent of companies reported having a digital solution as a core asset (for example, an app or software), while approximately 20 percent reported having data or hardware as a core asset (Exhibit 2). While approximately 85 percent of players have the technical and legal ability to monetize data, companies may find that data monetization does not fit within their current business model or that data fragmentation presents significant challenges.
For the companies that have pursued data as their core asset, benchmarks and predictive insights are the most common offering (40 percent offer benchmark data and 30 percent offer AI-based predictive forecasting). Furthermore, 75 percent of these data-driven business models are enabled by data provided by patients and providers in exchange for analytics, software, and/or tracking support, making it critical for companies to ensure data integrity (Exhibit 3).
Proprietary data may also provide a competitive advantage by helping companies to improve existing products or to develop new ones. Ieso Digital Health, for example, has been able to improve its therapy by tracking the conversations therapists have with patients against the treatment results. As CEO Nigel Pitchford explains, “We can manage quality control and improve the therapy experience in a way that you can’t with live therapy.” The company is also using the data generated on its platform to develop AI-driven cognitive behavioral therapy. Some companies see a competitive advantage in developing proprietary hardware, too. DarioHealth created its own smart glucose meter, trading the faster time to market that partnering with a company with a ready-made product would have achieved, for control over product specifications and the user experience. The strategy proved valuable when Apple replaced the iPhone audio jack with lightning connectors, requiring a change to DarioHealth’s hardware connection. Aware that a jack replacement was likely, DarioHealth developed solutions to cover potential new specifications. As a result, when the new connectors were introduced, it took the company just eight weeks to finalize the appropriate device and gain FDA approval. This would have been more difficult if not impossible had it relied on a vendor to develop the connectors.
Several companies highlighted the competitive advantage gained from building their own quality-management systems (QMS) for data and technology. Off-the-shelf QMS solutions are not designed for evolving technology. Hence, developing a proprietary system that enables agile development can reduce effort and risk in the long run. In addition, evolving regulation and rapid corporate growth can require faster adaptation of QMS than a third-party system might allow. Pear Therapeutics, uMotif, and Happify Health believe that their proprietary QMS offers commercial advantage, enabling them to work more quickly and efficiently.
It is not a requirement, however, that system components be designed exclusively in-house. Technology that is not a core competency or does not deliver a competitive edge could easily be outsourced, such as cloud platforms.
Scalable model: Explore different business models, perhaps simultaneously
The companies we interviewed use five different business models:
- Prescription digital therapeutics (PDTs). Physicians prescribe a course of treatment that is paid for by the patient’s health insurance. Pear Therapeutics and Ieso Digital Health use this model.
- Employer as the customer. This model lends itself to solutions that improve employee productivity by addressing chronic diseases or that reduce costs for self-insured employers. The employer typically pays a set fee per month for each employee on the program, although outcome-based payments are also used. Hello Heart puts fees at risk based on their ability to measurably lower blood pressure for their users and deliver a return on investment (ROI) to their clients.
- Payer as the customer. Payers offer the solution to policyholders, paying a set monthly fee to the solution provider for each member that uses it. Fees can also be based on outcomes. Happify Health uses this model.
- Healthcare or pharmaceutical companies as the customer. This can take two forms: a service is offered to patients free of charge, then monetized either by a healthcare or pharmaceutical company paying for insights generated by the patient data, or by paying for a service that improves patient engagement or adherence. An alternative form—the model used by uMotif—is where pharmaceutical companies license technology for research, usually on a software-as-a-service (SaaS) basis to enable clinical trials. This is commonly known as eClinical technology or the pharma services market.
- Direct to consumer. Here, the solution is sold directly to consumers who pay out of pocket. Selling to consumers can be difficult, however, as many are reluctant to pay additional health-related costs on top of health insurance. Moreover, in the nonhealthcare world, app subscriptions tend to cost between 99 cents and $10 a month. This limits consumers’ willingness to pay, as they view this range as the comparator. That said, the direct-to-consumer model can be an effective way to test a new product rapidly. Erez Raphael, CEO of DarioHealth, says the company chose this model to further its goal of product excellence—shortening the sales cycle and collecting user data rapidly, then applying the information into the product-development life cycle to create continuous improvement on the product side.
Companies do not necessarily choose a single model and stick to it. Some find the right model through trial and error, and some transition to a new model as they build the business. For example, uMotif’s initial model targeted healthcare providers wanting to engage with patients. Because healthcare providers operate separately from each other, the model proved difficult to monetize and the company shifted its focus onto pharmaceutical customers using their product to engage and capture patient data during clinical trials. As Bruce Hellman of uMotif explains, “We decided to shift to a market where we are a must-have rather than a nice-to-have.”
In DarioHealth’s case, early success with a direct-to-consumer model—that generated up to 8,000 consumer reviews averaging 4.9 stars (out of five) over a three-year period—helped it later expand into the employer-as-customer and payer-as-customer models. Consequently, DarioHealth now uses more than one model—an approach advocated by several interviewees as it enables companies to tap into different markets. Each requires its own go-to-market capabilities, though, which can make it hard to manage several models simultaneously.
Stay focused at launch, gain traction, and only then expand
The commercial model is typically tested with a small customer base before expansion. Hello Heart began with a partnership with one large employer, Ieso Digital Health, and focused on a few clinical commissioning groups within the United Kingdom’s National Health Service, and Pear Therapeutics started with addiction treatment centers.
Many companies focus initially on one therapeutic area. When the first product gains traction, they expand to others. For example, Happify Health first addressed the challenges of stress, anxiety, and depressive symptoms and is now expanding to chronic conditions such as multiple sclerosis and psoriasis. Pear Therapeutics tackled addiction treatment before developing a pipeline of products in different disease areas. Hello Heart started with hypertension and is expanding to all things related to heart health and arrhythmia management, hyperlipidemia (cholesterol) management, as well as diabetes management. And uMotif, which started with Parkinson’s disease, now supports trials in more than 25 disease areas.
Digital health is here to stay and will continue to play an increasingly critical role in improving healthcare. With average projected growth at approximately 12 percent per year and a minimum of 8 percent growth across all value pools through 2024, digital health value pools provide a significant opportunity for both new entrants and established players to capture value. To build a successful digital health business, each of the six building blocks should be considered. Every company’s journey will be unique, and past success does not guarantee future success. Nevertheless, those just setting out can learn from those that have gone before.
Jesus Bermudez, head of strategic planning, Hello Heart
Hello Heart is based in the United States and offers a solution to help patients manage hypertension. The company was founded in 2013.
Bruce Hellman, CEO and cofounder, uMotif
uMotif, based in the United Kingdom, offers a patient-centric software solution that captures data for clinical-research initiatives. The company was founded in 2012.
Ofer Leidner, president and cofounder, Happify Health
Happify Health improves access to mental, physical, and chronic care through a single digital self-care platform, while helping drive mass-market adoption of digital therapeutics. The company was founded in 2012.
Corey McCann, president and CEO, Pear Therapeutics
Pear Therapeutics is based in the United States and offers clinically validated digital therapeutics across a wide range of indications. The company was founded in 2013.
Nigel Pitchford, CEO, Ieso Digital Health
Ieso Digital Health is based in the United Kingdom and delivers text-based, online cognitive behavioral therapy. The company was founded in 2000.
Erez Raphael, CEO, DarioHealth
DarioHealth, based in Israel and the United States, makes Dario, which helps patients with chronic conditions, such as diabetes and hypertension, manage their lives. The company was founded in 2011.