A startup for diabetes patients rolls out a new model: Insurers only pay if the service works

SAN FRANCISCO — An ambitious startup that uses digital coaching and monitoring to try to help patients reverse type 2 diabetes, is making a big change to the way it makes money: Insurers and employers will now only pay Virta if its service works.

Under Virta Health‘s new business model, announced on Wednesday, a health plan or employer will pay Virta a fee only if the patient is sufficiently engaged with its program after one month. The second payment comes after a year, only if patients lower their A1C, a measure of glucose in the blood, to a certain level determined on a case-by-case basis.

“If we don’t deliver results, and make our patients healthier and in most cases reverse their type 2 diabetes, we don’t get paid,” Virta CEO and co-founder Sami Inkinen said in a phone interview with STAT. “Literally, we can enroll a patient, and get paid $0, on an individual patient level.”

With its new business model, Virta joins a number of other medical companies that are experimenting with payment structures tied to how well patients fare. These outcomes-based contracts between payers and manufacturers, as they’re called, are increasingly being pitched to try to persuade a reluctant insurer to take the plunge on covering a pricey new therapy, device, or service.

Spark Therapeutics, for example, said it would offer rebates to payers if patients didn’t respond to its $850,000 gene therapy meant to treat a rare, inherited form of blindness. Such contracts are emerging in the diabetes world, too: The device giant Medtronic announced last year that it had struck such a deal with the insurer Aetna to promote adoption of its new insulin pump. 

Unlike many other companies working on diabetes, Virta does not market a medication or a diet; instead, the San Francisco startup is pitching an approach to controlling type 2 diabetes. Patients who enroll in the program get access to a digital messaging platform where Virta’s clinicians provide coaching. Patients also get equipment that helps Virta keep tabs on them, like a smart bodyweight scale, a device for measuring levels of glucose and ketone in the blood, and lancets for blood sampling.

Virta itself has long had agreements with its customers that tied some payments to whether patients achieved certain progress milestones. But the company’s bet that it can make money even by risking all of the revenue it generates from payers is more unusual.

The company says it will define patient engagement 30 days in by how often users respond to digital messages, send the company data on the levels of glucose and ketone in their blood, and report back on their symptoms, energy level, and hunger. In linking payments after a year to patients’ A1C levels, Virta picked a metric commonly used to assess the health of diabetes patients. That’s because the higher patients’ A1C levels, the more likely they are to experience complications. (On the other hand, patients who lower their A1C can sometimes cut back on their medications.)

Virta boasts that its model can save payers an estimated $9,600 in medical expenses per patient in the first two years. It’s not clear whether the company can deliver on that projection. And even if it can, it’s not clear who will get to benefit from those savings.

“From a system perspective, ideally you really want this type of technology to be a big cost saver for the payer, for the system,” said Elizabeth Seeley, an adjunct lecturer at Harvard’s T.H. Chan School of Public Health who studies outcomes-based contracts.

Seeley floated a hypothetical: “Let’s say there’s $10,000 of savings per patient. If Virta Health is charging $9,000 per patient, that’s not a huge savings for the system.”

A minority of the diabetes patients enrolled in Virta’s program pay out of pocket, and Virta’s new business model won’t apply to them. For these patients, Virta charges a one-time $500 upfront fee, and then $370 per month for the first year and $199 per month for subsequent years.

Virta hasn’t disclosed how many insurers and employers it counts as customers. The company’s website features a partial list: Among them are Purdue University, the food distributor US Foods, the city of Layafette, Ind., and the Oklahoma-based Native American tribe Chickasaw Nation. For the most part, patients whose employer or insurer covers Virta don’t pay anything out of pocket.

The company doesn’t endorse a particular diet, though its coaches do encourage many of its patients to stick to a diet high on fat and low on carbohydrates, similar to the popular keto diet.

Virta defines type 2 diabetes reversal as reaching an A1C level below 6.5 percent and eliminating all diabetes medications. (In the type 2 form of the disease, patients often do not need insulin but tend to be on other diabetes drugs.) There is debate about whether the condition is truly reversible, especially because patients who lose weight and lower their A1C levels may over time regress.

To test whether its approach works, the company is conducting a five-year clinical trial that’s enrolled 465 patients. Earlier this year, the company published promising results from the first year of that study.

But not everyone is sold. Virta’s trial is not randomized, an element considered to be a gold standard for medical research. And there are questions about how Virta’s patients will fare in the long term — as well as how well its model will work on a broad scale.

“This is a newer approach based on something that’s been around for a while. I think whether it will be effective on mass is something that’s yet to be seen,” said Dr. Robert Gabbay, chief medical officer at the Joslin Diabetes Center in Boston.