Inflation has digital health companies shifting gears

It’s not the best economic environment for consumer-driven digital health businesses. 

This has caused some organizations to accelerate a shift toward a business-to-business (B2B) strategy, experts say. In its second quarter earnings call, executives at New York City-based digital health company DarioHealth said they were lessening the focus on its legacy direct-to-consumer business. 

“The B2B opportunity is bigger, the margins are better and the cost of acquisition is lower,” said Richard Anderson, president of DarioHealth, in an interview with Digital Health Business & Technology.  

Anderson said the macroeconomic market went from a growth mentality to one stressing profitability. For DarioHealth, this has meant reducing spending on the business-to-consumer (B2C) side and trying to get it to break-even, while still using it to roll out new products and try new features. The money saved in the bottom line, Anderson said, will be reinvested in the B2B business. 

“The market is the market. You can like it or dislike it, but it’s still the reality,” Anderson said. “If you’re B2C, there’s less interest in spending money. If you’re B2B and your value proposition is that you can make a company’s members healthier and, therefore, you’ll spend less money on them, this resonates even more in economic downturn.” 

Aike Ho, partner at the San Francisco-based venture capital firm ACME Capital, said that direct-to-consumer is hard to pull off in healthcare. 

“To offer a value proposition that is appealing enough for consumers in the direct-to-consumer space, you have to appeal to them in a way where they’re motivated to take action,” Ho said. “The reality is that most people are not motivated to take action.”

Five years ago, nobody would have gone directly to consumers first, Anderson said. However, with some direct-to-consumer companies taking off during the pandemic, more have gone this route. As a result, advertising costs have gone up. 

This was one reason, Teladoc Health CEO Jason Gorevic told Digital Health Business & Technology, that it was cutting spending on advertising, even though he said the company was pleased with its direct-to-consumer offering. 

Noom launches B2B offering

Dario isn’t the only digital health company leaning into an enterprise strategy.  Noom, a New York-based digital weight loss company, rolled out a B2B offering called Noom for Work on Thursday. Firdaus Bhathena, the company’s general manager for healthcare, said the launch came about because users were asking their employers to cover the costs of the service.

“I have to believe that with consumers feeling the pinch of inflation and having less disposable income, having this covered becomes even more attractive,” said Bhathena, who was previously the chief digital officer at CVS Health. 

Bhathena said that employers are interested in using digital health solutions to retain talent in a tight labor market. An August survey from the Business Group on Health, a trade group representing 72 Fortune 100 companies as well as other large public-sector employers, found that expanded virtual health and telehealth services are here to stay for 94% of employers.

Ho said that point solutions, such as ones that target weight loss, are more likely to last in the direct-to-consumer world because people want to solve a certain problem related to their identity.

“A lot of it centers around shame,” Ho said. “If you have blemishes on your face, if you can’t perform sexually with your partner, if you want to lose weight, there’s a shame component that gets people motivated” to address such issues. She added, “A lot of the direct-to-consumer healthcare companies that have taken off are addressing that.”

Even so, Noom is not without difficulties of its own. In April, the company laid off nearly 500 of its health coaches. The company said the move was to scale back text-based coaching and focus on scheduled video coaching. 

Bhathena said most of the company’s revenue still comes in the direct-to-consumer space. Like Dario, Bhathena says Noom's direct-to-consumer success made it easier to launch an enterprise strategy, rather than the other way around. It has more than 150 organizations signed up for the Noom for Work rollout, including a mix of employers and health plans. He said he envisions an even split between the two sides in the future. 

“It will be a while before the B2B side is competitive with the consumer side,” Bhathena said. “The sales cycles are longer. In the long term, we expect an even balance between the two sides.”