While the path to value-based care is necessarily a slow one for hospitals and health systems, prevention programs – focused on a single outcome measure for a single condition – are in a position to lead the way in charging for outcomes.
Omada Health, the first digital diabetes prevention program, has been charging only for successful outcomes for a while. Noom announced yesterday that it will do the same, not only for diabetes but also for obesity, prediabetes, and hypertension.
“From my perspective as a CFO, to pay PMPM (per member per month) made no sense to me,” Noom CFO and COO Adam Fawer told Babyforyou.net.ua. “Because what that means is if you work for an organization and that organization has 10,000 employees and they have a 10 cent PMPM, that means they’re paying $1,000 regardless of whether people are enrolling, participating, or getting results. It made no sense to me.”
The argument is that PMPM creates a misaligned incentive, where low engagement leads to higher profits for the company offering the prevention program. Noom first made the move from PMPM to charging only based on the employees who enrolled in the platform, but Fawer said that results were consistent enough that it made sense to take the next step and charge only for employees who actually benefit from the program. The combination of high success rates and the ability to measure outcomes easily and accurately — because of connected devices — created an ideal environment for outcomes-based pricing, Fawer said.
Noom has different outcome measures for different conditions where the pricing kicks in. For the company’s obesity program, they charge their employer customers when a user hits 5 percent weight loss, when they hit 10 percent, and when they keep the 5 percent off for a year. For diabetes and hypertension, they use blood pressure or blood glucose baselines for particular patients based on demographic information and charge when they maintain or reduce those levels.
Fawer sees outcomes-based pricing in the prevention and wellness world as an inevitable path for the industry.
“I do think the industry will have to move to more outcomes-based pricing, simply because healthcare expenses are so high, are still increasing, really with no end in sight from what I’ve seen,” Fawer said. “As the costs of healthcare increase more and more and there are scalable tech companies that can use technology to lower their cost base, it’s going to be more effective to do programs that are outcomes-based than not. It’s going to be just like [advertising on the] Internet, where Google and Facebook don’t charge on cost per impression anymore, they charge per click. Are they getting someone to do an action?”
Noom and Omada are significant leaders, but prevention programs – especially diabetes prevention programs – are a quickly blossoming industry.
“[How fast this trend moves] will depend on if other large players move in this direction,” Fawer said. “We’re relatively small now. I don’t think just because we’re doing it we’ll move the industry, but I think we’ll be another straw on the camel’s back.”