Insight

Alternative Payment Models: How emerging digital health solutions can deliver full value

Nadeem Fazal

By Nadeem Fazal, Chris Plance

The integration of digital solutions to enhance care delivery is transforming the healthcare industry.

Digital health can take the form of advanced diagnostic solutions that detect disease years earlier than conventional tests, behavioural health solutions to address high-impact comorbidities, data and analytics solutions that provide patient-level insights to personalise care regimens, and much more. In short, the opportunity to deliver greater value throughout the healthcare system and directly improve patient outcomes has never been clearer.

However, the low uptake of these solutions has left digital health companies stumbling. The traditional route to market for any healthcare product or service targets reimbursement – filing for a reimbursement code that a physician or other healthcare provider can use to submit for a service they have delivered and then get paid for, a model otherwise known as fee-for-service. However straightforward it may seem, this reimbursement model presents numerous commercialisation constraints for digital health solutions. Digital health solutions offer benefits such as better inpatient care, reduced frequency of inpatient visits, and cost reductions, but the fee-for-service model hinders companies’ ability to deliver and scale.

So, what can digital health companies do today to commercialise and scale their digital health solutions to deliver more value to patients in the US? To start, they can focus on the commercial models that reward the full value proposition of their solutions, such as alternative payment models (APMs) that financially incentivise providers and payers to shift from the fee-for-service model.

APMs are well-suited to deliver digital health solutions

The commonly made argument about value-based care is that the US health system isn't ready, and more specifically that the necessary payment models are not yet available to deliver digital health solutions. On the contrary, the APMs needed to commercialise digital health solutions are active today and are much more aligned to promote the benefits of digital health solutions than what the fee-for-service model rewards for. Under the fee-for-service model, payment is driven by maximising volume rather than efficiency and restricts care delivery decisions by patient visits. Digital health solutions continue to struggle scaling in this environment as many solutions aim to reduce unnecessary care, improve the quality of care, and lower costs. These benefits are left undervalued or even unrewarded under the fee-for-service model, which reduces the commercial opportunity a digital health solution has, despite it delivering more long-term value than a non-digital health solution.

Under APMs, payment is driven by maximising efficiency and encourages care delivery decisions that reduce volume. For example, equipping a patient with a device that shifts the site of care away from an inpatient setting into the patient’s home, is exactly what APMs seek to reward. Creating long-term healthcare savings while simultaneously improving health outcomes is what many digital health solutions can achieve but remain unrewarded, which is what makes APMs an appropriate pathway for commercialisation.

US healthcare providers are ready to adopt APMs to deliver digital health solutions

In the existing fee-for-service model, healthcare providers are financially successful only if they maximise volumes – more volume leads to more patient visits, which leads to more revenue. However, as care delivery becomes more complex and providers’ capacity to treat patients lessens, a volume-driven care delivery system becomes unsustainable. The increased strain on healthcare providers is one of the factors causing the payment landscape to shift away from the fee-for-service model. Data supports this notion, indicating that APM adoption rose from 30.1 percent of payments in 2018 to 35.5 percent in 2020. During 2020, 40.9 percent of all healthcare payments were covered by an APM. Increasingly so, data show 50 percent of healthcare payments in 2025 are expected to be tied to an alternative payment model, highlighting the importance of commercialising digital health solutions.

Digital health companies have an opportunity to support providers that aim to maximise rewards under alternative payment models by providing them the tools to shift the site of care. In addition to helping providers achieve financial gains, the delivery of digital health solutions under these new commercial models helps providers reduce cognitive load. By leveraging tools that help providers make a faster and more accurate diagnosis, better understand disease progression, and standardise care delivery in complex disease areas, digital health solutions can play a role reducing the total cost of care with less time in the provider’s office and fewer hospital visits.

US payers are ready to adopt APMs to deliver digital health solutions

Just as the fee-for-service model is not a sustainable environment for providers, it's also no longer an option for payers. Under the fee-for-service model, payers encourage higher volume, which leads to higher insurance premiums for its members. The rise in premiums in the US health system is primarily driven by US cost-shifting from payers onto patients to cover increasing their medical costs. With national health spending nearing 20 percent of the overall economy and health outcomes continuing to worsen due to less accessible care, payers need to take a more preventative approach to keep members healthy. Payers have reached a position where cost-shifting is no longer financially sustainable, requiring reductions in volume and total cost of care that are only feasible via collaboration with providers. The incentives between payers and providers are now closely aligned, signalling the need for adoption of an outcomes-focused care delivery approach. However, payers must also consider a method that specifically incentivises providers to move away from the traditional volume-driven care delivery approach. The delivery of digital health solutions under APMs presents a unique opportunity to build a unified approach to improving long-term health outcomes and an opportunity for more payer-provider agreements.

Alignment between payers and providers is critical to reducing costs long-term and ultimately building a care delivery system that values solutions that improve health outcomes. In addition to having the right tools and commercial model in place to become outcomes-focused, digital health solutions also provide payers the opportunity for better data. By having advanced data and analytics, which most digital health solutions collect, payers will be able to understand the efficacy of their population health initiatives and interventions as well as the performance of their APMs, allowing them to become more effective in the long-term. 

Considerations for future commercialisation of digital health solutions 

The US health system is reaching an inflection point where care delivery needs to evolve reimbursement and how it impacts patient outcomes. To deliver a real impact on patient outcomes, digital health companies need to be proactive and intentional in the product development process for digital health solutions, primarily considering how they can create value by:

1. Emphasising data capture and exchange

Data is one of the biggest assets to leverage with digital health solutions and is essential to evaluate treatment efficacy and quality of care delivered. More data to understand gaps in the care pathway will be a differentiator for every stakeholder in the healthcare ecosystem, especially as payers and providers implement more preventative interventions.

2. Understanding the clinical needs to target eligibility

Defining a clear and narrow eligibility target would be beneficial in solving the unmet patient needs. Digital health solutions can focus on leveraging the abundance of clinical data and the decreased patient volume for providers to optimise the efficacy of treatments. Being precise in the application of the solution helps solve a patient’s specific condition and can reduce the frequency of patient visits.

3. Highlighting the benefits of risk reduction

Clarify the value add of the quality of care to underline the commercial roles of payers and providers in adopting digital health solutions. Address the question of “How does our solution fit in the patient care pathway?” and highlight that directly so that payers and providers can implement solutions immediately to maximise incentives towards meeting their APM quality metrics.

As we enter an era where APMs continue to rise in adoption and become the desired commercial model for care delivery in the US, an outcomes-focused environment is the future. Digital health companies have a real opportunity to completely shift care delivery and spearhead the implementation of innovative go-to-market models to commercialise digital health solutions. By leveraging the appropriate commercial pathways, digital health companies will be able to scale their digital health solutions and realise their full value proposition across the end-to-end care pathway, and ultimately create a positive long-term impact on patient outcomes.

About the authors

Nadeem Fazal
Nadeem Fazal PA healthcare expert Nadeem specializes in product strategy and business model innovation for innovative solutions across the healthcare ecosystem.
Chris Plance PA healthcare expert Chris specializes in strategy and operations for mid- to large-sized organizations.

Explore more

Contact the team

We look forward to hearing from you.

Get actionable insight straight to your inbox via our monthly newsletter.