Health IT, Patient Engagement

Castlight Health President Derek Newell on what it takes to succeed in corporate wellness (Q&A)

Newell shared insights from his experience at Jiff and subsequent aquisition by Castlight Health in the runup to the MedCity ENGAGE conference where he will be part of a panel discussion on investing in corporate wellness and patient engagement businesses.

Castlight’s acquisition of Jiff at the start of the year was one of the largest employer wellness M&A deals of 2017. Derek Newell, previously CEO and cofounder of Jiff, has served as president of Castlight Health since the acquisition. In the runup to the MedCity ENGAGE conference where he will be part of a panel discussion on investing in corporate wellness and patient engagement businesses, Newell shared his perspective of the corporate wellness market and investment trends in a Q&A via email.

This exchange has been lightly edited.

Since you got involved in the employer wellness space, have you seen a wide variety of companies enter this subsector of healthcare?

Definitely on the consumer side. This is an exciting time in wellness and in healthcare — we’re in the midst of a digital health revolution with new apps, tools, and services hitting the market every day that is showing no signs of slowing. We are on track for 2017 to break records for investment in digital health.

A lot of these innovations are technologies that give people the power to manage their health in new ways, by adopting healthy behaviors, better managing a condition, or making smarter care decisions. Employers have seen promise in these innovations. These are tools their employees want to use, and they have the potential to improve the health of the workforce, lower costs, and increase employee satisfaction. Employers are offering more and more wellness point solutions and such a wide variety, each helping employees manage an aspect of their health.

From the perspective of new corporate wellness companies like Jiff, not as much. Jiff, Sharecare and Welltok are the only ones that have entered and found scale and traction in the past four to five years. Welltok and Sharecare primarily through buying wellness 1.0 assets and wrapping them in a digital health “veneer” and Jiff through building a new kind of technology platform organically.

What kinds of business models for corporate wellness have succeeded?

As the corporate wellness market, and digital health overall, matures, we are beginning to see what works and what doesn’t. Employers now know that it is not enough to just offer these great new technologies like wearables or telemedicine, or a biometric screening, or transparency tools — you have to get people to use them. The companies that have figured out that equation — how to make people engage — are ultimately successful.

The business models traditionally have been per employee per month fees (PEPM). This is easy to administer and predictable. These two are incredibly important in a world of constrained resources and where being on budget matters. However, it doesn’t adequately align incentives between the purchaser and the vendor (less users = more profit for vendors in many cases with this payment model). As a result we see more and more per participant contracting (the vendor only gets paid when a user uses the service). This is more true of point solutions that offer a specific fix to a specific condition (like weight loss) than platform solutions like Castlight (we have no such payment structures).

What does it take to succeed as a corporate wellness business? What do employers want? 

We are certainly seeing a shift in what employers are seeking. They want to offer employees a tool that will address their complete healthcare journey, all within a single platform, and help them become smarter about their healthcare decisions. They also want point solutions, like pregnancy, diabetes and weight loss that will tackle specific problems and deliver true results. The one-size-fits-all corporate wellness solution is being replaced by platforms that can integrate with the highest quality point solutions, ease the administration and connect all of them to benefit design.

Some of the most interesting companies emerging and really growing are the companies that are tackling specific clinical conditions. They offer new digital ways to manage and monitor chronic conditions. Combining this with the information Castlight has about their benefit design and provider network can really move the needle on outcomes.

What is a common misconception about corporate wellness programs?

One misconception that we run into time and time again is that the only employees who take advantage of corporate wellness programs are people who are young and already healthy. There is a narrative that these programs do not really reach the employees who have the greatest or most complex health needs, like chronic conditions. While this is true of some programs, it is largely dependent on how the program is structured. When it is a one-size-fits-all program that rewards healthy people, then that selects healthy people.

When you have something for everyone that helps them improve their health that is targeted and personalized to them and provides a great consumer experience, you can engage a much larger percentage of the population. There will always be a small percentage of people that do not engage, but the majority can be engaged with a well-designed platform.

In fact last year at Jiff, we did a study with fourteen large employers focusing only on wearable fitness trackers. We found that while younger employees are more likely to use wearables offered by their employer, all age groups participated at high rates.

What are some of the investment trends you see with corporate wellness companies? 

Investment does not seem to be slowing down. What we have seen is employers are getting really smart about what will work for their workforce and creating health benefits programs that meet the unique needs of their workforce. Employers are especially active as they look for ways to control costs. We are probably due for a rationalization in the market and may be over-invested from a returns point of view, but there is not a lack of demand for solutions that lower cost and improve quality.

Castlight’s acquisition of Jiff, a business which you cofounded, was a significant digital health deal but did it have any impact on how investors regard this subsector of healthcare?

Consolidation is coming, that I know. As I mentioned, employers need solutions, but they can not deal with the complexity of administering and getting all the point solutions to inter-operate. They need a platform partner like Castlight to do that. In cases where the two solutions must interoperate to a very deep degree to create a compelling user experience, consolidation will occur. This is what drove the Jiff-Castlight consolidation. We were one of the first ones to realize this. You can’t create a compelling user experience for a healthcare journey when for every part of the journey they have to use a different app/service/platform.

There are two paths on the consolidation front – companies that want to go long and transform the industry and companies that want to sell to get a financial return. With most of the companies being private, some market cap rationalization needs to occur or else those with valuation that are too high will have to sell to huge companies at a small improvement to their current valuation. Their unrealistic valuations will prevent consolidation with others and they will have to trade on their strategic value to a much larger strategic buyer. Once sold, their potential to transform the industry will be gone. Those that want to really transform the industry will have to combine. As usually happens within these markets, many, many companies will fade into the ether.

The Castlight-Jiff deal shows that the enterprise digital health sector is maturing. When Jiff and Castlight came together, we were two companies both working toward the same mission: making it as easy as humanly possible to navigate healthcare and live happier, healthier, and more productive lives. Our joining forces resulted in significant technological, market, and product advantages that help us execute on that goal. We’re likely to see more of these combinations as the industry matures.

Critics of corporate wellness programs claim they don’t save money and unfairly single out employees who are out of shape. Do you agree or disagree? Why?

Measuring whether a corporate wellness program saves money, especially within a one-year period, is very, very hard. Many credible people have tried and come to opposing answers. What we do know from large public health studies is that there is well-documented research that lifestyle changes improve health, increase longevity and lower costs. Whether that gets captured by the employer that implemented them (or the next one the employee goes to work for) is one open question. The second is over what period of time the return occurs. We believe if an employer has a relatively stable workforce, can get broad participation, the benefits in productivity, employee turnover and medical costs more than pays for a wellness program.

The issue of singling out any employee is a real issue. It largely depends on how you implement the design and Castlight has deep expertise in benefit design to get broad based participation. In addition, we work with experts at our partners like Willis Towers Watson and Mercer to design effective programs that intertwine with the clients benefits design.

One of the primary drivers of the merger with Castlight was to provide a comprehensive set of tools for the entire healthcare journey. For an employer health program to be successful, it has to truly help employees navigate their healthcare. That includes surfacing benefits, even before employees need to act on them, helping them stay healthy, helping them get health and helping them find and access appropriate, high-quality care.

How is the integration of Jiff with Castlight going?

This has been an exciting time at Castlight. Since the deal closed, we have debuted new offerings to existing customers and begun to develop joint solutions. We’ve also refined our mission and introduced our new brand and website. Our joint product offering is being well received by new and existing customers alike. The original premise is paying off nicely.

We did a lot of things right, including making hard decisions about the management team and org structure early and fast. We also underestimated some things, like the impact of the consolidation on some specific customer deliverables. It’s always a learning process. I have been part of five different mergers and this one is going really, really well.

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