Nothing really new here

With the ATTD conference getting underway expect lots of news about all the toys in the toy chest. This morning we learned that Insulet has signed two deals one with Dexcom and the other Abbott both regarding integrating their CGM systems into the coming Horizon system. None of this should come as a surprise given how all the toys are talking with all the other toys.

The other piece of non-shocking news come from the folks at DarioHealth who per a press release state:

“DarioHealth Corp. (Nasdaq: DRIO) (“DarioHealth” or “Dario”), a pioneer in the global digital therapeutics market, today presented a new clinical study at the Advanced Technologies & Treatments for Diabetes (“ATTD”) conference in Madrid, Spain, which showed significant reductions of both hypoglycemic and high glycemic events in people with type 1 and insulin dependent type 2 diabetes using Dario’s digital therapeutics platform.”

Now those who may be unfamiliar with DarioHealth, think OneDrop without all the social media posts. Yes, it’s yet another conventional finger stick glucose monitor which attaches to a smartphone which sends readings to an app which then analyzes the data and then using this analyzed data attempts to coach the patient. If all this sounds familiar it should as this is what every digital diabetes company is trying to do.

Rather than go into our normal rant about whether or not any of these companies can actually make any real money, or whether these results are sustainable over the long term – let’s make something perfectly clear as there is no doubt that coaching works. This has never been in dispute. We all know that any help given to the patient is appreciated. What’s in dispute here is whether there is a commercially viable business model.

What Dario, OneDrop, Livongo and Onduo all attempt to do is transform patient data into actionable information. The theory is the patient will act upon the advice/coaching and therefore will achieve better outcomes. These companies target employers who have seen their healthcare costs skyrocket especially for their employees with chronic diseases such as diabetes. Basically what all the digital players say is the cost of their program is offset by the savings generated by improved outcomes. This really isn’t all that complex and, on the surface, seems logical.

The issue comes in how cost savings are defined and whether these results are sustainable over the long term. In the old days of disease management, the platform that the digital players are based on, disease management companies made the same claims the digital players are making today. Namely the cost of their programs would be offset by the savings they generate. Back then the shortest distance between two points was eliminating costly emergency room visits for insulin using diabetics.

The same is true today the difference being that instead of calling and coaching the patient as the disease management companies did today’s digital players use the patient’s smartphone to relay their information. Yes, there are still humans involved but much of the heavy lifting all the analytics is done using artificial intelligence (AI) combined with algorithms. Digital diabetes is the same as disease management only with lower costs thanks to new technology. Digital diabetes has eliminated much of the very costly human element.

Yet with all this competition for the patient with diabetes these digital players face a problem the disease management companies didn’t, at risk contracting. Back when disease management was all the rage there weren’t as many players as there are today in digital diabetes. The high human costs stifled competition unlike today when practically anyone can start a digital diabetes company using new and more sophisticated technology.

Also back in the day the concept for going 100% at risk was just started and difficult to implement given the then existing technology. Today thanks to new technology it’s pretty easy to see if a program is working or not. Since the patient is sharing everything with the cloud results can be verified. Additionally digital companies have become more sophisticated understanding that proven verifiable results will garner larger payments from employers. Simply put rather than have the employer pay anything upfront, all the payments are made AFTER results are achieved. As we noted before the employer has everything to gain here and really not much to lose as the digital player is taking all the risk.

So far none of the digital players have ventured down this road of going 100% at risk but given all the competition it’s just a matter of time before this happens. This same scenario actually occurred many moons ago in the early days of BGM when Bayer in an attempt to garner share in a crowded market became the first company to give away the glucose meter for FREE, capturing the patient and then making money from the continual sale of test strips. With everyone jumping into the digital health/diabetes space it’s just a matter of time before one of these players follows a similar strategy and just as all the other BGM companies followed Bayer’s strategy this will force all the other digital players to play in the 100% at risk sandbox.

Now there is nothing wrong with this strategy and we believe it’s better for all concerned. However the issue is what it always is, money. Going 100% at risk and getting paid only after producing real and verifiable results means the digital player must be well capitalized. The burden falls on the digital player to get patients enrolled, provide all the toys and perform all the analytics/coaching etc. While these items aren’t enormously expensive, they do add up.

Just by way of example let’s say there are 100 patients enrolled, that’s 100 glucose meters and all the test strips they use. Throw in patient support, coaching, apps and web sites and the costs start to mount. But this is just the beginning as the burden of producing better outcomes is now squarely on the shoulders of the digital player. What happens if say 30% or 30 of the 100 patients see no improvements, 30% stay the same and only 40% see real improvements is that enough to cover not just the startup costs but the ongoing costs.

This turned out to be the Achilles heel of disease management as employers quickly discovered that 80% of the savings were generated by just 20% of the patient population. They correctly reasoned there was no need to pay for the 80% of the patients who were not generating savings when the 20% who were could be easily identified and targeted. As the old saying goes why pay for the whole cow when you can get the milk for free.

Our many years in this wacky world tell us this exact same scenario will play out in the digital space as digital diabetes is just disease management with newer technology. While the digital players will not talk about it conceptually what they are attempting is behavior change. Something that rarely works which is why they don’t say they are changing the patient’s behavior rather they are empowering the patient.

Let’s be very clear here we have no doubt that a certain percentage of patients will respond favorably to this approach. We just aren’t sure if that’s a big enough percentage to run a commercially viable digital diabetes company. Throw in all the players in digital diabetes and we aren’t sure if digital diabetes won’t turn into what we said about the insulin pump market where there aren’t enough insulin pump patients to support all the existing players let alone the many who want to enter the market.

Diabetes may be growing at epidemic rates but that does not mean there are more than enough patients to support all these companies. The fact is 20% of the patient population won’t respond to their efforts, 10% don’t need them and of the 70% remaining the majority are comfortable with how they are managing their diabetes. This group may try coaching for a while but likely won’t excuse the expression stick with it.

Diabetes is not like chronic pain; better outcomes are not achieved quickly plus achieving better outcomes requires work. This is the reason so many patients who try coaching leave the program as they aren’t seeing real tangible results. And in many cases their lives haven’t gotten easier but more complex due to the demands of good diabetes management.

Listen we are all for anything that helps the patient and having against what these companies are trying to do. However when looked at as a business combined with human nature this just doesn’t add up no matter how whiz band and way cool the technology is.