The healthcare startup market has always had the unique challenge of selling its innovations almost exclusively to major businesses. Although recent years have seen a rise in digital health offerings focused on patient satisfaction, if not on selling their product directly to the consumer, the reality of the industry is that insurers, pharmacy benefit managers, large employers, health systems, public payers and other massive, entrenched businesses will most likely be on the other end of the transaction.
"There's really not a small and medium business, an SMB landscape, in healthcare that you serve," Jeffrey Margolis, a health tech industry vet and the longtime chairman of the board for Welltok, said during a Bio Digital session. "As we're all innovating out there – and there's massive, tremendous, terrific innovation going on in the healthcare industry – what you're doing is ultimately ... making it into the procurement cycle of these large entities. And the procurement cycle of these large entities tend to create a gating effect on how innovation comes into these entities."
Despite what they may say to the public, the existing healthcare industry aren't often rushing to adopt outside innovations into their businesses, Livongo founder and executive chairman Glen Tullman said. Large businesses have a natural aversion to risk, and doubly so when those who might benefit most from innovation, the patients, are excluded from the decision-making process.
"The existing industry doesn't love innovation," he said during the virtual session. "They talk about it, but they don't really love innovation."
Enter COVID-19, and the mountain of economic and care-delivery challenges riding in its wake. On the one hand, Tullman said, an existing push toward virtual, patient-friendly products has been "dramatically accelerated" by demands tied to the virus. On the other, it has thrust those same large entities into unknown waters – meaning that most health service purchasers will be looking to established digital health vendors over the smaller, unproven startups.
"The challenge is for small innovative companies. If you weren't already at scale then it's going to be harder and harder to get through to people because they have so much to deal with," he said. "If we were starting [Livongo] today like we were six years ago, I think it'd be very tough in this environment."
During the session, Tullman acknowledged that this preference for safety has played a key role in Livongo's recent earnings successes, as has the breadth of digital health programs and capabilities his company has built up over the past few years.
Again, this puts smaller innovators only offering point solutions at a clear disadvantage in the current market. For health tech innovations with less capital or flexibility aiming to reach these customers, Margolis said that their best shot could be to fall in with some kind of curation service (such as his company recently launched alongside the Health Transformation Alliance) that can reduce the burden on health service shoppers.
"If you're the head of HR, or you're running a health plan, or Medicare, or Medicaid, or commercial, or if you're a health system or even a large physician group trying to do population health management – how do you pick and curate the right resources [and] put them into some common information platform?" He asked. "To me, the only way you can pull together lower-capitalized innovation, together with higher capitalized innovation, is on a platform that would allow that agnostic capability to exist so that everyone can put together the pieces that are right for their population. And unless you can get that democratization of resources, innovation cannot see the light of day."
Tullman's Livongo was the first participant selected to join Welltok's curated marketplace, and over the past few months was named as an early member of two "digital health formulary" services offered by PBMs Express Scripts and CVS Caremark.
Livongo's inclusion in these three services could, once more, be seen as a result of the company's new status as the "safe" digital disease-management platform. But it's also part of the company's efforts to make its services as easy to discover, purchase and implement as possible – a strategy that will serve digital health innovators of all sizes in the current market ecosystem.
"The way we're approaching this ecosystem is to say we'll meet the patient, aka the health consumer, where they are and give them a great experience – and we'll make it easy for you to buy," Tullman said. "So, if you want to buy it directly through us, that's okay. If you want to buy through a PBM, that's okay. If you want to buy through a health plan, that's okay. If you want to buy through an aggregator like WellTok or others, that's okay. Whatever you want, we're going to make it easy to do business."
By necessity, many digital health companies will need to be especially mindful of how they can cater to major customers during the coming months. But among Margolis' advice to less-established innovators during this time was a reminder not to place too many eggs into a customer's basket.
"Don't get too customer concentrated," he said. "It gets very exciting when you can win a big contract with XYZ organization, but XYZ organization can reprice you or move that contract. That can put a lot of pressure on you."
Corey McCann, CEO and founder of digital therapeutics company Pear Therapeutics, echoed Margolis' COVID-era advice with an additional warning for unestablished startups who may become too engrossed in the volatile market.
"Entrepreneurs, be steadfast in your mission but be agile in your approach," he said near the end of the virtual session. "I think this is a space where there is an incredible amount of noise, and I think if you follow the news too closely you'd have the opportunity to pivot your business three times a week right now. ... What we need to do is to balance the incredibly long sales cycles and the war of attrition that is healthcare commercialization with all of the volatility that we hear in the news in regard to COVID and other things."