How Digital Therapeutics Are Paid For Has Huge Implications

Digital Therapeutics (DTx) have been increasingly popular since smartphones and wearable tech have become ubiquitous. The pandemic has set them on a trajectory for massive growth and mainstream adoption.

Currently, there is inconsistency in how DTx are handled by payers and health plans. We are at a critical juncture to set precedents that make sense and prevent problems in the future.

What DTx is and isn’t

Digital therapeutics are one aspect of digital health. DTx differ from telehealth in that they are generally clinically proven tools patients use on an ongoing basis to affect behavioral change and achieve health outcomes. While a provider typically recommends a DTx solution and may check in with a patient on the results, the patient is interacting with the technology on their own on a daily basis.

Devices that track heart rate and sleep patterns aren’t DTx, though the data they provide can be useful in tracking the effectiveness of DTx. DTx are generally apps or software that guide patients through a process. While behavioral health conditions such as depression, ADHD and substance abuse are the focus of many DTx solutions, they can also be used to treat a range of conditions such as asthma, insomnia and cancer.

How DTx are covered and paid for now

The cost of DTx solutions varies quite a bit, but a total price of $1,000 (split between a patient copay and their health plan or employer group) would not be uncommon. The cost is not insignificant, though in the long-term may help lower healthcare costs. DTx solutions are approved only after studies showing they produce positive outcomes. Other interventions, such as surgery or medication, are often more expensive. 

Some DTx providers have successfully made agreements with PBMs (pharmacy benefit managers) to add their solutions to formularies, which list and categorize drugs that are covered by insurance plans. As a result, DTx might be covered under the patient’s pharmacy benefit. But other DTx solutions are covered under the medical benefit. This split is where things get tricky.

Skewed data and reporting

In our extremely complex system for pricing drugs, data is the key to identifying how payers can lower costs without compromising care. Categorizing DTx on the pharmacy side of the benefit (or both sides) can skew data, making it harder for employer groups and health plans to track outcomes and identify opportunities.

While currently DTx are a very small portion of the pharmacy benefit, as they increase it’s easy to envision an impact in trend reporting. Payers could see their pharmacy benefit costs increase as a result of something that really has nothing to do with drug therapy or drugs. It could make other cost-cutting measures more difficult to track.

Plus, if there should be utilization management restrictions on DTx, PBMs aren’t set up to do that. PBM utilization management programs are established to assure appropriate medication use. Since DTx are in effect behavioral modification solutions, utilization is more appropriately managed by medical benefit administrators.

While not everything on a formulary is a drug — needles for injectables, for instance — it’s clear that DTx really don’t fit. They’re better categorized under the medical benefit, and in fact, codes already exist for billing DTx through the medical benefit. The cost to the patient and payer is likely to be similar, without the resulting headaches down the line.

Employer groups and health plans can ask their broker or consultant if DTx are included in the formulary. If so, they can ask the PBM to remove them or for them not to be authorized. The goal isn’t for DTx to not be covered, but to ensure they are covered under the medical benefit where their use can scale without creating issues.

Compounded medications: A cautionary tale

Taking a look at the history of compounded medications shows why categorizing DTx correctly from the outset is so important. Compounded medications combine multiple drugs into a single pill, cream, etc. It’s a simple concept that has been around for decades, but in recent years, prices began to skyrocket. A compounded medication with three ingredients that are all individually quite affordable might be billed at $10,000.

This problem could have been avoided from the outset with clearer rules about only covering compounded medications that are priced in line with their individual ingredients. Instead, it has been addressed retroactively, which has been much more difficult.

It’s easy to imagine that DTx could create a similar problem within a few years. It seems inevitable that DTx will not be categorized as drug therapies in the future. Organizations that make that change for themselves now will be ahead of the curve and avoid having years of data that has to be adjusted to be useful.

Beckie Fenrick is chief pharmacy officer at AlignRx, a consulting practice that advises benefit consultants, employers and health plans on pharmacy benefits. AlignRx is part of Goodroot, a community of companies reinventing healthcare one system at a time.