Strategic Pricing for Digital Health Startups in Value-Based Care: Per Member Per Month (PMPM) Frameworks
Introduction
The shift from fee-for-service to value-based care models has significant implications for digital health startups. As these entities evolve, a pivotal strategic decision involves when and how to transition to a Per Member Per Month (PMPM) pricing framework. PMPM pricing strategies serve as cornerstone in the advancement towards value-based care. PMPM isn't just a billing model but a strategy designed to usher in a new era of healthcare where efficiency, quality, and patient satisfaction are paramount.
This paper explores the real-world application of PMPM strategy and evaluates key determinants of pricing strategy for maturing digital health startups looking to expand their value-based revenues.
Per Member Per Month Pricing
Per Member Per Month (PMPM) pricing is a payment model where healthcare providers or insurers receive a fixed amount of money for each member enrolled in a healthcare plan or program every month, regardless of the services utilized by that member. Digital health, Remote Patient Monitoring, digital therapeutics, and population health management platforms offer an array of solutions to improve the health outcomes of target populations. PMPM pricing framework allows these organizations to charge risk bearing entities a fixed fee per member per month for access to their company’s solutions, as a bundle of features of population health interventions, telehealth, monitoring, software as a service, or care coordination.
This model not only enables payers to optimally manage the health of their members, but may also enable them to account for the entire solution as medical expenses instead of itemizing implementation or program fees.
Young digital health companies often start off with a Fee For Service or a la carte model to demonstrate their clinical effectiveness. As they show early signs of impact, they aim to transition to PMPM payment models due to the strategic predictable revenue streams. Further risk can eventually be taken off PMPM structure to align to risk bearing entities' goal of improved quality, affordability or experience in desired populations.
Pricing and Population Segment Tradeoffs
Population health programs can offer different interventions to sub-groups of patients based on risk levels. This could include education, digital engagement, virtual care, and/or high-intensity support. As companies transition from a la carte to bundled pricing for these services, they must carefully evaluate the trade-offs in contracted population segments. Companies need to assess their core value add, distinguishing features among numerous competing solutions, and the buyer's short-term priorities to determine which services are needed for each patient population sub-group.
Here are simply a few considerations as one decides between a low fee applied to the entire plan’s membership vs. progressively higher fees in smaller target and enrolled populations.
1. Very Small PMPM Fee for All Plan Members (~$0.30 to $0.50 PMPM)
Pros:
Market Penetration: Low-cost barriers can accelerate market entry and adoption, securing a competitive foothold.
Data Access: Universal access to the entire membership allows for risk stratification and enrollment into the program sub-lanes.
Cons:
Competitive Landscape: The broader the approach, the more competition one can expect by well-funded solutions that aim to drive value through other mechanisms.
Resource Strain: Universal access may strain patient analytics and intervention resources, potentially diluting the quality of care.
2. Low PMPM Fee for Disease-Specific Populations (~$3-5 PMPM)
Pros:
Targeted Approach: This model ensures services are offered to populations with a defined need, increasing the potential for positive health outcomes.
Risk Stratification: By focusing on disease-specific groups, the startup can risk stratify and tailor interventions more effectively to sub-segments of the population.
Ex: Providing digital engagement and education for the entire population and only offer high intensity interventions for high-risk members.
Cons:
Market Limitation: Narrowing the target population by a disease may limit your market size and peripheral impact the program could have on their other priorities
Ex: May not be powered to see readmission improvements in Diabetic cohort
Competitive Dynamics: Accurately identifying and enrolling disease-specific populations in core programs requires sophisticated data analytics. Well-funded competitors may drive similar value by focusing on a broad population instead of high risk patients.
3. Higher PMPM Fee for High-Risk Disease-Specific Patients (~$15-20 PMPM)
Pros:
Alignment with core population health Interventions: This option focuses on high-risk high-cost patients with open quality gaps and aligns program interventions to those most likely to benefit from them.
Demonstrating ROI: When demonstrating impact on program utilization and HEDIS measures related revenue, this option focuses on those with highest utilization and directly addresses open gaps.
Cons:
Challenges in Risk Stratification: Dependent on payer methodology, staff resources, and future financial constraints on qualified target lists.
Dependency on Outcomes: Potential enrollment of less-ideal patients changes the ability to demonstrate maximum clear financial ROI.
Ex: enrolling lower risk patients with open gaps improves quality but may dilute affordability impact.
4. Premium PMPM Fee for Enrolled Patients in Intensive Offerings (~$150-200 PEMPM)
Pros:
Market Positioning: High Value for High Needs core solutions differentially offers a unique service compared to competition.
Enhanced Focus: By limiting the program into subsegments with competitive advantage, startups can fine tune their patient engagement strategy, drive optimal clinical performance for appropriate patients, and create a differential brand.
Cons:
Impact on Sales: Most payers are reluctant to add another point solution to their long list of vendors if their program only impacts a small number of patients.
Enrollment Risk: Per Enrolled Member Per Month frameworks push the entire enrollment risk to the vendor. Local healthcare ecosystem dynamics may significantly impact enrollment and actual revenue realized.
Conclusion
On the journey towards value-based care, PMPM contracting will play a growing role in the future of virtual care and population health solutions. PMPM pricing isn't just about numbers; it's about aligning value-based outcomes at a reasonable price point. In crafting a PMPM pricing strategy, digital health startups must carefully consider their target market, competitive advantages, resource capabilities, and ability to drive client value for population segments. Differential attributes of each contracting framework must be assessed in selection of initial PMPM pricing strategy. Proactive planning can mitigate expected side effects of each framework. With growing success, startups may subsequently take downside risk on their PMPM fees, in exchange for upside on Part A Affordability or HEDIS measures.
Quintuple Aim is committed to exploring and implementing PMPM strategies to ensure our clients are at the forefront of this transformation, providing the best possible care to their patients while navigating the complexities of modern healthcare financing.
Written By:
Reza Alavi, MD, MHS, MBA; reza@quintupleaim.com
Shreya Jain, MBS; shreya@quintupleaim.com
Quintuple Aim Solutions accelerates the path towards value by consulting, advising, and investing in innovative solutions.
To learn more, email us at info@QuintupleAim.com.
