Digital Therapeutics Business Models
Digital therapeutics or DTx is a term used to describe the use of clinically-validated digital technologies to support health and well-being. The definition of DTx encompasses both behavioral interventions (e.g., online coaching, weight loss programs, etc.) as well as systems involving wearable devices, artificial intelligence (AI), big data analytics, and other modern technological advancements.
The potential for DTx to be used together with or alternatively to drug therapies has gained interest, even outside traditional health care and life sciences companies, including digital health startups and large technology players.
The digital therapeutics market size and estimated grow
The digital therapeutics market was estimated to be worth $ 4.2 billion worlwide in 2021, and it is projected to grow at a compound annual growth rate (CAGR) of 26.1 percent from 2022 to 2030. However, the number of solutions that are actually making a difference in people’s lives remains limited due to fragmentation and complexity in product development.
Unsurprisingly, the current largest market for DTx is represented by the USA.
Why digital therapeutics?
The promise of digital therapeutics, leveraging clinically-validated technology-enabled solutions, lies non only in their ability to promote health, improving patient outcomes.
DTx companies may also play a major role facilitating access to care for underserved or remote populations.
Moreover, digital therapies also have the potential for reducing overall costs associated with healthcare delivery.
Which digital therapeutics business model?
The novelty of the digital therapeutics market bears great potential but also results in uncertainty regarding the best business models to pursue.
Value proposition will change with DTx and digital health in general
To date, business models in healthcare have been primarily focused on the actual drug or device, and only subsequently on the offered value. With DTx the focus will shift including also patients’ needs and a holistic integration of stakeholders and data usage.
Prescription Digital Therapeutics (PDTs)
For digital therapeutics solutions to be reimbursed by payers, a demonstration of clinical, economic and quality of life (QoL) value is required. This will vary depending on the disease area being targeted and the solution. There are typically multiple stakeholders involved in this decision process and most have their own requirements for which evidence needs to be provided: robust data from randomized controlled trials; budget-impact and cost-effectiveness studies using claims databases and real world evidence (RWE) studies; patient advocacy groups may request specific outcome measures such as improvements in quality of life; etc.
Prescription Digital Therapeutics (US traditional reimbursement model)
In a world of increasing healthcare costs and budget constraints, digital therapeutic approaches are gaining traction among payers and providers. Both the U.S. Food and Drug Administration (FDA) and European Medicines Agency (EMA) have recently released regulatory frameworks to help accelerate evaluations of digital therapeutics.
In the United States, prescription digital therapeutics (PDTs) most frequently receive third-party payment through employers, Pharmacy Benefit Managers (PBM), insurers, or other third-party payors.
Some digital therapeutics companies have already been able to secure coverage for their therapy by working directly with payors on a case-by-case basis but this is difficult to scale given varying provider networks across different insurers and the peculiarities of each country at a global level.
Even with new regulatory frameworks in place, there remain significant challenges associated with reimbursement for such products under traditional reimbursement models that may be best addressed at the level of policy or even public health initiatives.
Prescription Digital Therapeutics (statutory/universal health coverage model)
PDTs in Germany
DTx in Europe seems to lead in this direction. In Germany, since 2020, the Digital Healthcare Act (DVG) granted to doctors the ability to prescribe Digital Health Applications (DiGAs) to any of the citizens insured through the statutory healthcare system.
The I.DiGA project (funded by the German Federal Ministry of Health) developed concepts to categorize, evaluate, and price digital health applications for reimbursement.
It uses a categorization matrix that groups these apps according to:
- application area (derived from the 3-digit International Classification of Diseases ICD 10 code)
- target group (from “healthy without known risk factors” to highly vulnerable people)
- function (diagnosis, simple or complex monitoring, self-management, direct intervention)
- user (patients/caregivers, service providers, both)
The required evidence level for each is determined by the target group and function. Non-health outcomes can be also evaluated to determine reimbursement, provided that health effects are maintained.
PDTs in the rest of Europe
Belgium, UK and France are also moving in the direction taken by Germany.
In Belgium a 3-level validation pyramid exists. The first level is represented by the CE marking, while mHealth solutions that reach level M3 are reimbursed by the National Institute for Health and Disability Insurance. This reimbursement pathway will include also DTx.
In the UK, the NICE framework with evidence requirements and pricing options for digital health technologies exists since 2019.
In France, at the end of July 2020, Sivan’s Moovcare (a prescription-based app for oncological patients to manage symptoms and communicate with the medical team) became their first reimbursed digital therapeutics.
Other countries, like Italy, also refer to medical devices regulation, however to date there aren’t approved DTx yet.
PDTs universal coverage possible also in the USA?
In the USA, the Medicare Coverage of Innovative Technology (MCIT) and Definition of ‘Reasonable and Necessary’, effective since December 2021 provide nationwide coverage for FDA-designated breakthrough devices for four years from launch.
Employee wellness programs (B2B)
Employers have an incentive to pay for digital therapeutics that would reduce their medical health care costs (in countries where they provide access to medical insurance) and enhance nonclinical outcomes such as reduced absenteeism and increased productivity by improving employees’ wellbeing.
Some employers may decide to promote some digital therapy products on top of existing coverage. This reimbursement model may be suited for DTx aimed to prevention in absence of relevant health coverage deals which already promote their adoption.
“Patient as a consumer” DTx business model
A direct-to consumer (D2C) or self-directed model is one in which a digital therapeutic product is available for sale directly to patients instead than relying on prescriptions (if allowed by local regulations).
Parallels can be drawn between DTx solutions targeting mental health conditions and pharmaceutically developed drugs for depression treatment – with these two areas sharing many similarities including high levels of unmet need among patients, increased demand for D2C services.
Paradigmatically, there are three ways of structuring this kind of business:
- The company directly sells a DTx that has already been validated by traditional clinical trials with a D2C model.
- The DTx product, approved through the traditional validation process, could be sold widely on channels other than direct sales (e.g. Apple store, Google Play Store or via online retailers like Amazon).
- Aspiring digital therapeutics companies, start selling their product since the “beginning” to generate revenues and scale while collecting data from consumers and patients in order to obtain the clinical evidence needed for regulatory approval. However, please note that until clinical validation these digital products cannot qualify as digital therapeutics (they’re candidate DTx at best, if clinical trials are ongoing)
Ecosystem approach toward digital therapeutics
DTx solutions are gaining substantial traction in the market, but there is still a lot of work to be done before patients can benefit from these new treatments. There’s a need to consider how they can fit into users’ lives in order to become part of their overall routine. One way to increase adoption and encourage user engagement is through the use of an ecosystem approach that enables all stakeholders (payors, healthcare providers, pharma/DTx companies and start-ups) to collaborate on delivering better patient outcomes.
These ecosystems are based on technology platforms that act as a digital backbone, ensuring connection (and interoperability) among all stakeholders, facilitating both historical and real-time data exchange and enabling a smoothness patients access to new services.
Since the goal of such ecosystem is, ultimately, to improve healthcare outcomes, it is reasonable to expect that also (prescription) digital therapeutics will be included.
The key to success for DTx solutions with this model lies in creating an ecosystem around these solutions that will help improve awareness of them, increase adoption by both patients and clinicians and promote engagement and consistent use over time.
Patient advocacy organizations as well as continuing medical education can play important roles in promoting awareness about DTx therapies at multiple levels.
New policies adoption, evaluation frameworks for pricing/reimbursement of DTx apps together with the improved digital transformation of healthcare facilities hopefully will do the rest.
Not an easy path but we’ll get there.
- Digital Therapeutics Market Size, Share & Trends Analysis Report 2022-2030 (Accessed 25 Apr 2022)
- Lantzsch H, Panteli D, Martino F, et al. Benefit Assessment and Reimbursement of Digital Health Applications: Concepts for Setting Up a New System for Public Coverage. Public Health 2022;10:832870.
- Hackett A, Hung A, Leclerc O, Velamoor S. The promise of digital therapeutics. McKinsey (Accessed 25 Apr 2022)
- National Institute for Health Care Excellence (NICE). Evidence Standards Framework for Digital Health Technologies. 2019 (Accessed 25 Apr 2022).
- Medicare Program; Medicare Coverage of Innovative Technology (MCIT) and Definition of “Reasonable and Necessary”