Should New Entrants Bother With Selling Point Solutions To Employers?

In the employer space, point solution fatigue seems to be growing steadily over the years. Employers are balancing multiple point solutions from different vendors that target specific conditions and populations, and managing all of these solutions at once can be a challenge.

So should newer solutions still expend time and resources to convert self-funded employers to customers? According to Christina Farr, author of the Second Opinion newsletter and a health tech investor, startups should maybe think twice before targeting employers as potential customers.

In a recent edition of Second Opinion, Farr and Big Health Co-founder Peter Hames detailed the reasons why solutions should largely steer away from employers, including the fact that there is too much competition and many aren’t addressing a broad enough need. As with all pronouncements, this also came with an exception: those who address major cost issues or offer navigation services should continue to sell to employers.

Not surprisingly, others disagreed with the notion that startups should abandon the employer market.

“I think it would be a shame if solutions stopped trying to sell to employers, in part because employers tend to be more open to and aggressive with … trying out new avenues to try to deliver better care for employees at a better cost,” said Shawn Gremminger, president and CEO of the National Alliance of Healthcare Purchaser Coalitions, in an interview. The National Alliance has 40 coalition members that represent self-insured employers, nonprofits and labor unions.

The challenges employers are facing

The employer landscape has changed over the years. About a decade ago, the employer market was attractive for several reasons, according to Farr. As employers battled inflation and costs, there was “an increased willingness to take this issue on” and offer a set of different solutions. In addition, they wanted to provide attractive benefits to recruit and retain employees. For the solutions, employers could move faster than insurers and they manage large populations. Several older digital health companies gained success going down this route, including Omada, Maven Clinic and Hinge Health.

But now, there are many more digital health companies than there used to be, and employers can’t evaluate them all, according to Chirag Shah, partner at Define Ventures. 

“Ten years ago, when there really weren’t a whole lot of point solutions, there weren’t a whole lot of decisions for benefits leaders to make,” he said. “They’d pick their health plan, their PBM, maybe a virtual care vendor, maybe one or two [point solutions], and that was it. … Now, there’s solutions covering every single piece of the medical spend and pharmacy spend under the sun. The number of decisions that folks have to make, as well as the proliferation of vendors, is absolutely fatiguing.”

In fact, half of employers manage 10 or more vendor relationships, according to a survey from WTW, a consulting firm.

It’s not just the sheer volume that is overwhelming at times. There isn’t always high engagement in these solutions either, Farr added. Sometimes there is even overlap between the solutions, and not all of them have clear data on whether or not they’re actually working. She told the story of one employer she spoke with and the company’s issues with vendors.

“Nobody had a way to figure out which of these vendors were even working because they would ask for data … and then the companies would cherry-pick data,” Farr said in an interview. “So there was no way to look across different companies and see which one was working best.”

In the Second Opinion newsletter, Farr and Hames added that oftentimes, these solutions address conditions (such as sleep or migraines) that don’t affect enough employees and aren’t expensive enough to warrant a dedicated remedy. And even if newer startups do focus on a broad enough condition — like mental health, diabetes or reproductive health — there are already well-known digital health companies in the space that would be difficult to take on. 

“The likes of Omada and Maven have already had more than a decade to grow their businesses, shore up their position through capturing the key sales channels, and expand their offerings to become larger platforms,” they said. “The challenge for new entrants now is not just convincing employers of the value and quality of the solution but unseating a well-loved and trusted incumbent with massive resources. That is incredibly expensive to achieve, even with a stellar product.”

The other challenge is getting attention from the people making the decisions. 

Gremminger noted that people are often surprised by how small benefits teams are within employers. Sometimes there are just one or two people and at most a half-dozen, and they have to manage “lots and lots and lots of contracts.”

Given the challenges employers are facing right now, Farr advises startups with newer solutions to mostly steer clear of employers. Instead, they should consider the consumer option. While experts have been “writing off” consumers, she said that the consumer companies in her portfolio are actually doing quite well right now. One of these companies is Summer Health, which connects consumers to a pediatrician via text within 15 minutes.

Startups could also target insurers in a fee-for-service contract though they should be aware that this is a path that takes a while to materialize. In addition, they can go to health systems.

“And then a lot of companies are trying it all,” Farr said. “They’re just doing all of the above: trying to sell to the employer, trying to get in-network and do fee-for-service and then just kind of seeing what happens first and what seems to be picking up momentum.”

Does this mean startups should stop selling to employers altogether?

While there is no doubt that the employer market is different than it once was, that doesn’t mean there isn’t space for new entrants, according to Gremminger and Shah.

“Fundamentally, I absolutely think the employer market is a great place for startups to be going to,” Shah said. “I’ve personally met lots of entrepreneurs who are going after that market that I’m very excited about and are certainly on the earlier stage of the spectrum.”

Gremminger added that pulling away from employers “ultimately just puts the same set of incumbent health plans back in the middle, which is going the opposite direction of where employers would like.” These include large insurance companies like UnitedHealthcare, Cigna and Aetna. He said the reason point solutions grew in the first place is because the major health plans were failing the needs of employers and families.

However, there is no denying that employers have different standards now. Employers want companies that can really deliver an ROI, Shah said. He added that solutions can no longer use employers as a testing ground for their products. Instead, employers expect them to already have experience, such as in the consumer market.

Gremminger echoed the need for startups to prove their benefits.

“Employers tend to be increasingly impatient with solutions that don’t work. So I think you’ve got to demonstrate value pretty quickly and have really clear measurables that the employer can point to,” he said.

While Farr believes that the employer market isn’t the best outlet for startups, she noted that there are some exceptions. This includes startups that are focused on high-cost conditions, like cancer. Companies that integrate an existing network of solutions and offer navigation services are also beneficial for employers, like Quantum Health and Accolade.

Another navigation company is Personify Health, which was created through the $3 billion merger between Virgin Pulse and HealthComp. Laura Walmsley, chief commercial officer of the company, said Personify Health “has a great opportunity to help employers support their workforce in a way that also makes sense for their business — by consolidating their numerous and cumbersome benefits offerings into a unified, hyper-personalized platform that is engaging and drives outcomes.” The company’s services include care management, claims review, chronic care and benefit and care navigation.

What do vendors say

Unsurprisingly, many digital health companies argue that the employer space is still a viable market. However, they agreed that it’s a changing landscape and that solutions need to prove their worth.

This “comes down to demonstrating meaningful enrollment, measurable clinical outcomes and ultimately translating that to a positive ROI in the first year. Employers want to know that the point solutions they are procuring are driving medical savings,” said Yusuf Sherwani, co-founder and CEO of Pelago, a virtual clinic for substance use management.

Christine Hsu Evans, president of mental health company Headspace, echoed these thoughts.

“The current economic environment means that employers need to be more selective with their buying decisions due to tightened budgets and pressures to prove ROI, all while balancing the administrative and logistical burdens of many point solutions,” she said. 

Ellen Rudolph, co-founder and CEO of autoimmune care company WellTheory, agreed that the employer market has become crowded. However, “there’s still whitespace when it comes to point solutions being offered through employers — autoimmune diseases being one of them,” she said. She noted that high-cost specialty drug spend is a top priority for most employers and 50% of that spend is driven by autoimmune patients.

What’s ahead? 

Farr said she expects to see employers create advisory boards and “try to figure out which of the vendors to fire essentially.” So watch out startups with solutions that don’t work and/or overlap with another product.

She added that she anticipates more value-based arrangements in which “there’s no downside for the employer to using this vendor, but there is upside and there’s a willingness to kind of share in that upside. If you’re not doing anything and no one’s using you, then the employer is not paying for it.”

Neil Patel, head of new ventures at Redesign Health, believes there will be more consolidation. Point solutions will have to figure out how to partner with other companies so that care is more “seamless” for the employer. Eventually, those partnerships will likely turn into acquisitions. Redesign Health is a company that helps build and launch startups in the healthcare space.

Gremminger said he hopes to see more engaged and empowered employers.

“I think in the next five to 10 years, you’re going to see employers really stepping to the plate and saying, ‘Look, I’m the one cutting the check. I’m the one who now increasingly has the focus on me as a fiduciary of our health plans … and I’m going to be asking for a lot more and a lot more means everything from better data, better transparency, access to real quality and patient safety information,’” he said.

Photo: sdecoret, Getty Images