Digital health companies face time crunch with employer contracts

For digital health companies selling to employers, the work to get a renewal starts before the ink on the first contact is dry.

The average length of a contract for digital health solutions across all purchasers is one to two years, according to an October survey from digital health solutions analyst the Peterson Health Technology Institute. The short period of time is particularly pronounced for companies selling to employers, said Ellen Kelsay, CEO of the Business Group of Health, an industry group that represents large employers.

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“There was rampant growth in adoption of digital health tools with employers over the past three to five years, lots of new solutions added into their portfolio of offerings to their employees,” Kelsay said. “Coming out of the [COVID-19] pandemic, employers are taking a step back to say, ‘Are all these things actually effective? Are employees engaging with them?’ I think there's just this reckoning that employers are having with the number of digital solutions they offer and looking at efficiencies within the solutions they offer.”

Digital health companies selling products to employers are dealing with buyers that are frustrated with low usage rates, increased costs and a minimal affect on outcomes, Kelsay said.

Utilization is the most frequent metric used to evaluate solutions among employers, followed by the financial impact, the survey found. Employers are also opting to work with companies such as Quantum Health or Accolade, which bundle multiple solutions into a comprehensive benefits platform. The bundling process makes it less likely that employers would contract directly with vendors, Kelsay said.

Higher healthcare costs also are affecting the employers' bottom line. forcing them to scale back or eliminate digital health services if employees aren't using them. Employer-sponsored health plan costs are expected to rise 9% in 2025, totaling more than $16,000 per employee before cost-saving measures, according to a report in August from professional services and consulting company Aon.  

“The business time horizons that most employers, large publicly traded companies, are dealing with are constantly getting shorter,” said Paul Marcotullio, a partner at consultancy Yellow Brick Strategic Advisors who previously was the head of benefit plans at TD Ameritrade. “The mandate is to keep costs flat. It’s a pressure-filled request when you have healthcare costs that are going up higher than inflation.”

The abundance of point solution companies, focused on a single area of medical treatment, has given employers the upper hand in contract negotiations, Marcotullio said. They can form contracts on their own terms or move on to the next company in a crowded space.

As a result, digital health companies are accepting less-than-favorable terms. DarioHealth, a tech company that sells diabetes management solutions to employers, would prefer three years to implement its solution, ramp up adoption, get meaningful outcomes and analyze results, said Dr. Omar Manejwala, the company's chief medical officer. Two years doesn't give them enough time to enroll people, change their behavior and alter the program as needed. 

“If a vendor does it for less than three years, they have no clue whether it worked or not,” Manejwala said. “They can pretend like they do, but it takes time to look at those results.”

DarioHealth won’t balk at a shorter contract though because if the offering is working, the employer is going to want to see more results and renew the contract, he said. The company also focus on early indicators of return on investment such as high levels of engagement.

Vendors must share realistic expectations with employers before signing a contract. Too many companies told employers what they wanted to hear when the market started to heat up a few years ago, Manejwala said.

“With employers having been burned before with some digital health companies that have essentially poisoned the well, they now are a little trigger sensitive, and they want the ability to be able to pull out if things aren't going well,” Manejwala said.

Apree Health, a primary care company for employers that formed when Castlight Health and Vera Whole Health merged, discusses return on investment with employers from the onset, said Chief Product and Technology Officer Jonathan Porter. Vendors need to tell employers how they can prove a measurable return within the first couple of years or at least be willing to tie their own fees to various outcomes, he said.

“Putting your fees at risk against that ROI is quite compelling for people,” Porter said. “But that’s a lot harder when you’re a smaller company.”