April 20, 2014

Who Will Pay for mHealth Apps?

By: On February 4, 2013

Guest Blog by Michael Esquivel, Partner, Fenwick & West

The question of whether or not smartphone apps can play an important role in the delivery of healthcare services has been more or less answered with a resounding yes. From weight loss to diabetes monitoring to diagnosing ear infections, successful digital health models and pilot programs have provided compelling proof of concept that there is potential to improve users’ well being and health through the use of these apps.

The remaining questions are: who will pay for these apps, and how will the developers make money? For now, the partial answer is that individual patients and consumers are the buyers of these mobile health apps. In today’s healthcare market, consumers do not typically pay directly for products or services; nor do they usually pay for 100% of the actual cost. Those expenses are borne by payers, a combination of private insurance providers, public insurers (e.g., Medicare and Medicaid), and employers who either pay a significant portion of the cost of private healthcare insurance for their employees or are self-insured.

Developers often assume that insurance companies will be their ultimate customers. But insurers require proof of effectiveness before they are willing to extend coverage to a new class of products. The insurance industry is also large, relatively slow moving, and tends to follow the lead of large public insurers when it comes to granting a product a reimbursement code.

That fact that many mobile health apps are aimed at wellness or prevention may also be viewed as an obstacle. Most private insurance in the U.S. is tied to employment, and patients move from one insurance carrier to another on average every seven years. This creates a potential disincentive for insurers to invest in prevention as they likely will not reap the long-term benefits of any investment in wellness, including prevention apps and related technology.

This historic disincentive, fortunately, is beginning to wane. The Affordable Care Act is shifting the payment paradigm from a fee-for-service model to payment for outcomes, and it is this fundamental shift that will put more of an emphasis on prevention and disease management, which is exactly where digital health apps have been initially successful.

So what does all of this mean for developers looking for revenue? In the short-term there are three key customers:

  • Individual consumers/ patients who will pay out-of-pocket for apps that demonstrate value to them in terms of quality of life;
  • Employers who want to reduce or manage healthcare costs by improving the health of their employees; and
  • Integrated payer/ providers (e.g., HMOs) who have a long-term stake in their members’ health.

In the longer term, a combination of payers and providers will likely become the primary buyers for mobile health technologies through Accountable Care Organizations (ACOs). These organizations will have greater financial incentives to maximize their members’ long-term health. Even so, developers should anticipate that these organizations will, as noted above, require proof of effectiveness that their digital and mobile health apps and technologies are improving patients and consumers’ health and well being before they should expect their apps to be purchased and integrated into ACOs’ preventative and wellness platforms.

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2 Comments So Far

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  1. ben chodor
    435 days ago

    Michael, really good posting, and from point of view as the CEO of Happtique, I truly believe that APPS are going ...

  2. Kevin Pereau
    435 days ago

    I believe the question of who will pay has also been answered. There are now over 15,000 health care apps ...

 

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