Digital Therapeutics: Beyond Coding to Coverage and Evidence Frameworks

"Particularly for payers now, you need to show economic outcomes and savings," says one company founder.

Until fairly recently, digital therapeutics (DTx) simply weren't on healthcare's shelf.

These products "deliver medical interventions directly to patients using evidence-based, clinically evaluated software to treat, manage, and prevent a broad spectrum of diseases and disorders" alongside medication. Examples include mental health applications from BehaVR (virtual reality focus) as well as Big Health, which also targets insomnia, and Pear Therapeutics, which offers additional products for substance abuse and severe persistent mental illnesses such as schizophrenia. 

The epidemic nature of mental illness in the U.S. puts these and other DTx companies well on their way to addressing the Holy Grail of product fit: TAM-SAM-SOM, or the available, serviceable, and obtainable markets for new offerings.

But market demand comes in two forms: those who need your product and those who will pay for it. They may not be the same party.

Insurers, employers, and PBMs are the B2B segments that DTx companies need to grow with scale. As Big Health co-founder Peter Hames notes: the customer is "whoever economically benefits from … [an] individual being healthy as quickly as possible. That customer is, therefore, whoever pays their healthcare costs."

An innovation in search of its SKU

As HealthLeaders covered in December, Big Health is one of several companies pioneering DTx coverage and payment. This is especially important for prescription digital therapeutics (PDT), those DTx interventions that a clinician must order and that have received FDA clearance or approval.

Healthcare codes are an important part of the equation, for prescription and non-prescription DTx alike. These include CPT (Current Procedure Terminology) and HCPCS (Healthcare Common Procedure Coding System). Just as product SKUs revolutionized both early supply chain management and modern e-commerce, diagnosis and billing codes are needed to unlock DTx uptake. And while a limited number exist, there is a lack standardization—and manufacturers would argue variety—to scale DTx use.

To be fair, DTx traction is about more than product classification. It's about product efficacy. Where is the proof that 'x' not only works but is cost-effective? As Aaron Gani, former Humana CTO and now founder and CEO of BehaVR, noted in a recent interview with HealthLeaders: "Randomized controlled trials (RCT)—which are really just tables takes to demonstrate safety and efficacy—are not necessarily enough to convince the key decision makers, whether it's clinicians or payers, that your program should be adopted.

Gani said: "You have to go beyond that to real-world evidence of clinical effectiveness. And, particularly for payers now, you need to show economic outcomes and savings," adding: "It's one thing to prove some set of endpoints in an RCT. But what about outcomes over six or 12 months? Does your solution really change lives in a way that's persistent?"

Coverage categories and novel interpretation are the next frontier

Beyond efficacy, however, DTx will also succeed on its ability to be workflowed. And while progress has been made, Health Affairs notes that next-level adoption will require CMS action: "[C] considering alternative regulatory pathways in the design of future payment rails may lay the groundwork for a path to federal coverage for digital therapeutics."

The current state of DTx coverage and reimbursement could be described as limited, one-off, even creative as payers—mostly self-insured employers—strike individual DTx contracts using a patchwork of codes. These include new CPT and HCPCS PDT-related codes added in 2022.

While these additions are a step forward, Health Affairs notes that "PDT manufacturers … have long pushed for a transition to claims-based reimbursement as a more scalable and repeatable method for selling and distributing these products."

This would require "either a new Medicare benefit category or a revised interpretation of existing benefit categories to incorporate digital health technologies," both tied to evidence standards with the Health Affairs article concluding: "CMS can take advantage of infrequently utilized regulatory pathways to both supplement the evidence base for PDTs and help guide the development of a fair, cost-effective fee schedule for these products in line with the level of clinical value they provide to patients."