One of the fastest-growing frontiers of healthcare is Digital Therapeutics (DTx), which utilizes clinically tested software to prevent, treat, and manage a growing range of medical conditions. During Covid-19, governing agencies loosened regulatory requirements and increased incentives for DTx. Fortunately, this propelled innovation, and transitioned DTx from up-and-coming to a high-demand field. The goal was simple: provide access and focused support to patients remotely while simultaneously relieving overtaxed healthcare facilities.

An added benefit was the application of decentralized clinical trials (DCTs) to DTx. Combined, DTx and DCTs improve patient recruitment, retention, and access, allowing researchers to pull from underserved communities, including rural populations. The result was more diverse and inclusive data. However, as pandemic-based restrictions end, lawmakers are scrambling to not only appropriately regulate but also categorize and medically code this burgeoning field. This stagnation has caused frustrating commercialization delays, lack of market access, and significant industry losses.

Pear Therapeutics, a pioneer in the digital therapeutic field, is one example of great loss. Bringing the very first prescription digital therapeutic (PDT) to market in 2017, Pear Therapeutics went above and beyond to follow suggested regulatory guidelines, obtained Food & Drug Administration (FDA) clearance, and provided solid clinical study evidence. Despite healthcare providers prescribing their product to patients, payers failed to reimburse them, as medical codes do not exist. In April, Pear Therapeutics declared Chapter 11 bankruptcy, leaving a dark cloud hovering ominously over the entire industry as their loss leaves other start-ups pushing against headwinds.

One headwind is uncertainty around the right business model for DTx products. The conventional pharmaceutical approach failed an industry leader due to government inaction and lack of private payer support. However, there has been some success with alternative strategies such as direct-to-consumer (DTC) and partnerships with individual companies to provide DTx as an employee benefit.

These evolved models have maintained profitability while bypassing government so companies can retain valuable employees while pushing innovation to provide healthcare to those in need. Many businesses are now taking a second, and even third look, at their current strategy – especially now, as venture capitalists are posing the question, “how are you different than Pear Therapeutics?”

Many are considering switching from an FDA approach to a DTC model. In this model, the product would be sold on websites and pharmacies such as Amazon and CVS – the same way you might purchase vitamins or cosmeceuticals. This strategy eliminates the per-unit sticker price, but at the cost of losing the FDA credibility. If you can get treatment without a prescription, the product price plummets so the seller must make up for that hole with significantly greater sales volume.

DTX companies are left facing a dilemma to choose between two less-than-ideal options:

1. Determine if it is to their best advantage to accelerate the FDA approval process even though they are uncertain about reimbursement.
2. Pursue the DTC route with the Federal Trade Commission (FTC) and not worry about reimbursement.

Orexo is a Swedish company that makes good money selling a drug called Zubsolv for opioid use disorder in the United States. In 2019, it decided to invest some of its profits into building a DTx pipeline. Despite very hard work by lots of smart people and solid clinical evidence, the company has been unable to find a viable way to commercialize its three software-based treatments. In January, it started pulling back after losing some $60 million on the effort. On the company’s earnings call, CEO Nikolaj Sørensen attributed this to the company’s ongoing difficulty securing reimbursement for digital therapeutics.

A second headwind DTx companies are facing is the shaky economy. Not only are pandemic mandates ending but there is also a noticeable reduction in available funding. Venture capital has dried up and there is no end in sight. Many digital therapeutic enterprises are cash-strapped and unable to allocate funds towards more innovative products. They are proceeding with caution to protect the resources they have and maximize their return on investment.

Protect DTx at least For our mental health

A 2022 study looked at DTx reimbursement around the world. While not all countries are as progressive as Germany or Japan, most will negotiate on a case-by-case basis such as the UK and Australia. The U.S., while acknowledging the necessity, lacks long-lasting support – even though DTx offers a proven, medication-less help for a therapeutic area that is on the rise: mental illness. Nearly 20% of U.S. adults in 2022 are experiencing a mental illness or nearly 50 million Americans – a 1.5 million increase over 2021.

According to a recent PharmaExec article, “Medicaid is the single largest payer for mental health services in the country, and Medicare is not far behind—nearly 25% of Medicare beneficiaries are receiving treatment for a mental health condition. These figures have been exacerbated by the pandemic, but there are not enough licensed clinicians to provide care to those seeking treatment.”

Achieving mental and behavioral health fairness requires Medicare and Medicaid to adopt DTx reimbursement codes. DTx solutions can close not only the psychotherapist access gap, but also other health specialists as well. The Access to Prescription Digital Therapeutics Act of 2023 will give disadvantaged populations nationwide access to promising behavioral and mental health technology and treatments. Digital therapeutic firms will have the ability to treat multiple illnesses afflicting society.

No one doubts that DTx will become a viable industry – this innovative therapeutic is a major win for patients. The question is the best path to profitability and is a classic growing pain for any industry breaking new ground. Join the Digital Therapeutics Alliance in advocating for establishing Medicare and Medicaid benefit categories for prescription digital therapeutics, so evidence-based clinically validated therapeutics reach the people who need them.

Photo: Bulat Silvia, Getty Images