Sometimes a medical condition can be cured with a single surgery or a course of medications. But many illnesses — like diabetes, asthma, and chronic pain — require long-term treatment and management. Recognizing the assistive potential of smart phones and other personal computing devices, some doctors have begun recommending apps to help patients track their treatment schedules, monitor their health data, and even modify their behavior. The market for these digital therapeutics is growing at an astonishing pace (CAGR of 28.1%) and is projected to reach $14.52 billion by 2028. However, despite these rosy projections, Pear Therapeutics, which developed the first FDA-cleared digital therapeutic, filed bankruptcy earlier this year. Success in this market is not guaranteed, and companies seeking to develop profitable digital therapeutics need to understand not only the products themselves, but also the barriers that could prevent a new product from achieving its market potential.

Digital therapeutics (DTx) are software interventions for the management, treatment, and prevention of a broad spectrum of diseases and disorders. The products themselves range from simple tracking apps to virtual reality simulators. For instance, virtual reality programs could aid in pain management, as highlighted by the 2019 BCBA Viewpoints article “A Virtual Supplement to Ease Your Pain”, or they could facilitate psychiatric treatment for substance abuse disorders, as highlighted in the 2023 BCBA Viewpoints article, “Is Alcohol Use Disorder virtually solved?” There is an incredible diversity in the conditions DTx developers are seeking to treat. As of March 2023, current DTx clinical trials by disease area are 31% psychiatric, 22% neurological, 20% endocrine, 11% respiratory, 9% poisoning, and 6% cardiovascular.

Some disease areas make more sense as targets for DTx than others, though. Dr. Yuri Maricich, the former Chief Medical Officer and Head of Development at Pear Therapeutics, says, “DTx can help with a range of diseases, but they are particularly helpful in addressing psychological and central nervous system issues, which have traditionally been difficult to treat with a drug. We already know that behavioral interventions along with pharmaceutical interventions are stronger together than either alone.” Dr. Maricich led the development of Pear’s reSET and reSET-O programs, which are both Prescription Digital Therapeutics (PDTs) that medical providers can incorporate in treatment plans for their patients.

To qualify as PDTs, software interventions must clear several regulatory and logisical hurdles. The first hurdle is obtaining FDA clearance to market the product as therapeutic for a specific medical condition. The FDA classifies DTx under “software as a medical device” (SaMD). As the laws surrounding FDA clearance stand right now, PDTs most often fall under the category of a Class II medical device, meaning these products must meet special requirements around labeling, and submit clinical data demonstrating safety and effectiveness to the FDA for marketing clearance. On the other hand, there are DTx available that do not require a prescription and instead have only pursued FDA authorization for marketing. Examples of non-prescription DTx products are menstrual trackers — such as Natural Cycles and Clue — that can help users prevent pregnancy. But even DTx products that do not require a prescription must demonstrate safety and efficacy with data from randomized, controlled studies or real-world use in order to be marketed as a medical intervention for treating a specific concern.

Collecting data ensures that DTx products have the backing of the FDA and the ability to market themselves as a scientifically sound, but it takes time and money to demonstrate the clinical efficacy of a medical intervention. These costs leave DTx vulnerable to competition from “wellness management” apps, which do not have to demonstrate clinical efficacy. Although wellness apps are not able to directly target a specific patient population or claim to treat a medical condition, they may claim overall health benefits and be downloaded by anyone. Overall, wellness apps addressing a similar customer segment as a given set of DTx will likely beat those DTx to market and be cheaper to develop. So, DTx and especially PDT developers addressing a customer segment with abundant wellness apps already available to them must thoroughly consider the relative pricing and positioning of their product. Furthermore, pharma companies may find it more beneficial to partner with already marketed wellness apps that synergize with pharmaceutical interventions rather than DTx startups struggling to break into the market. For example, Novo Nordisk partnered with Noom, a weight and diet management app, to promote Saxenda, a prescription weight-loss medication. Following the partnership, Saxenda experienced a 28% boost in sales, illustrating the importance of brand recognition even in the health care industry.

In fact, brand recognition aside, a basic lack of awareness among healthcare providers and patients is an issue plaguing DTx that make it to market. For instance, older adults are more likely to benefit from digital healthcare tools, but they are less likely to adopt them because they are less likely to engage with new technology. Some DTx developers are raising awareness by investing in provider education. Boehringer Ingelheim has launched a Digital Health Academy for all National Health Service (NHS) providers in the U.K. to address the fact that 86% of NHS providers say they do not have the resources nor confidence to recommend digital health technologies. But a lack of familiarity with these products is less likely to be an issue as the next generation of doctors and patients age up. Dr. Maricich expects that as more clinicians who grew up as “digital natives” enter practice, the adoption of new digital tools will likely increase.

Still, raising awareness cannot necessarily ensure the profitability of DTx. Pear Therapeutics was known for being the first company to bring a PDT to market. The FDA approved reSET for the treatment of substance use disorder in 2017. In 2021 reSET-O, which was developed to treat opioid use disorder in combination with a pharmaceutical intervention, received Breakthrough Designation. But the company still filed for bankruptcy. In a LinkedIn post explaining Pear’s filing, CEO Corey McCann indicated that payors’ reluctance to cover the cost of DTx contributed to the company’s demise. The average selling price of a Pear app was $1,195, and although Pear researchers demonstrated in multiple real-world studies (here, here, here, and here) that the price of their apps were cost-effective for payors, Pear collected payment for only 41% of filled prescriptions.

Part of the issue may have been that insurers were unsure how to categorize Pear’s product from a benefit standpoint. Jason Parent is a member of the Payor Accelerator Board within the nonprofit trade association Digital Therapeutics Alliance (DTA), which seeks to promote the implementation of DTx products. He says, “It’s not always clear whether payors should categorize these solutions through the medical benefit or a pharmaceutical benefit, which are two separate paths for claims submission and payment.” DTA seeks to advance the adoption of DTx, and their efforts involve advocating for updated policies. Clearly defining DTx in their payment pathways would relieve some confusion for insurance companies, but private insurance companies are often slow to act. They heavily rely on regulatory codes and generally follow the precedents set by government insurance plans. Parent says, “A key piece of the puzzle is with getting the Centers for Medicare & Medicaid Services to establish a clear payment methodology. Then individual private insurers will follow.”

Government-administered plans rely on political will and demonstrated cost-effectiveness to add a service to their formularies, or list of medical services and products they will pay for. So far, these conditions have mostly been met at the state level, where Medicaid is administered. In Massachusetts and Florida — where 10% and 4.6% of Medicaid patients receive treatment for substance use disorder, respectively — state Medicaid plans both cover reSET and reSET-O. These payors have figured out a way to purchase a set number of DTx prescriptions upfront for patients, or reimburse patients once the products have already been purchased. Several other states have also adopted Medicaid coverage of other DTx. In contrast to Medicaid, Medicare coverage is decided at the national level, and plans do not currently have the legal ability to cover DTx. A change in national legislation allowing Medicare coverage of DTx across the entire country would instantly make a large portion of low-income patients able to pay for DTx through their health insurance. Such a change would also set a precedent for private insurers to follow. For this reason, Parent and other members of the DTA will be in Washington, D.C. for an inaugural DTA summit in June 2023. They will also meet with legislators to advocate for policies that enable DTx adoption, such as the bipartisan Access to Prescription Digital Therapeutics Act of 2023 introduced by Senators Jeanne Shaheen (D-NH) and Shelley Moore Capito (R-WV) and Representatives Kevin Hern (OK-01) and Mike Thompson (CA-04).

Beyond helping individual patients, DTx could have huge benefits, and cost savings, for the entire U.S. healthcare system. For example, a peer-reviewed study published in 2022 found that Medicaid patients using reSET-O had on average 12% fewer hospital encounters than patients not using a DTx, ultimately resulting in reduced net costs, increased clinician services, and improved treatment adherence. Dr. Maricich says, “If you consider the savings of preventing even a single emergency room visit, it quickly becomes obvious that digital therapeutics are cost-effective interventions.” On a larger scale, some companies, such as Lyssn, hope to analyze libraries of psychotherapy recordings collected with digital therapeutics to enhance the training, supervision, and quality assurance of mental healthcare. These new approaches to mental healthcare are crucial steps towards addressing the shortage of mental healthcare providers in rural and low-income neighborhoods. Dr. Maricich says, “If we really want to realize the benefits of DTx, we need to get them to the populations that most need them.”