Digital health has a new strategy: ‘First, get in-network!’

Oshi Health has employees from many of the largest companies around the country using its on-demand gastrointestinal care to diagnose and treat conditions ranging from celiac disease to irritable bowel syndrome. But unlike its predecessors in digital health, Oshi has very few direct contracts with employers. Instead, Oshi, which is backed by venture firms like Oak and Flare, is part of a new generation of digital health companies that have pursued a very different go-to-market strategy. 

Let’s break it down. Think of the first generation of digital health companies – Omada Health, Hinge Health and Livongo (now owned by Teladoc) – as “care management” companies that contract with employers. Think of these companies as filling in gaps in the network, like diabetes or musculoskeletal care, but sitting above the network. These are part of the care management portfolio, versus the medical network. They are either paid via claims, meaning out of the medical budget for the year with an additional administrative fee or out of a separate corporate budget. Building the cost into the medical plan budget is a better option for these companies though in our view, particularly if there is an ROI which will impact the total cost of care. These companies compete hotly with each other for direct contracts with employers. 

The second generation – inclusive of Oshi, NOCD, Midi Health, Brightline, Rula and others - operate as nationwide virtual clinics that are getting in-network with payers, which can be done relatively quickly, and billing just like any other in-network provider. These companies have friendly relationships with employers, and we’ll discuss how they have driven co-marketing campaigns, but for the most part do not have many or any direct contracts with them. 

You might be wondering if there’s any difference between what the newer digital health companies are doing, versus any other medical provider that bills through claims. So let’s unpack that — with a spotlight on Oshi. This is admittedly wonky stuff, but understanding Oshi’s model and why it’s different is also key to understanding how digital health companies will make money - both today and in the future. 

Unlike most other medical providers, Oshi doesn’t take the standard rates that a health plan offers via the typical fee-for-service fee schedule. Even if it takes longer, the company has opted instead to work with payers on a more custom arrangement that allows its clinical team to care for patients in ways that historically haven’t been well reimbursed, like providing care between visits (that’s very important for patients with chronic GI issues). This is more like a value-based arrangement than a typical fee-for-service model, but it’s not value-based care per se. There’s no perfect definition for what Oshi does yet, so a lot of people in the industry are now calling it an “outcomes-linked case rate.” It’s meaningful because Oshi isn’t incentivized to do more testing or care than the patient needs, and it can pursue care that drives outcomes without worrying about whether every piece is billable. (This big announcement from Sword is similar). 

A decade or two ago, digital health companies viewed employers as the ideal commercial target, relative to health plans (poor reimbursement rates) and health systems (slow). As we’ve discussed often Second Opinion (see article from Peter Hames about the challenges of employer-focused GTM) , that’s started to change. More employers are demanding ROI from the vendors they work with, and not seeing value for their populations. So newer digital health companies are thinking outside the box, and finding creative new ways to work with them. 

Amidst this backdrop, competition between digital health companies in the employer channel is continuing to heat up. The first generation of vendors – the care management companies – are moving quickly to expand from being “Point Solutions,” with one condition they treat to now tackling a large number of conditions (Omada Health, as an example, moved from pre-diabetes to diabetes, obesity, hypertension, musculoskeletal and more). That has left less room in the market for new entrants to directly contract with employers, even as they might have a superior clinical approach or solving for a real patient need

So companies like Oshi are now racing to get in-network with health plans, and building relationships with employers once they have traction with their employees. These companies are also investing heavily into direct-to-consumer marketing (the beauty of that approach is that people find these services via Facebook, SEO and elsewhere, and then discover the provider is covered by insurance). The new strategy involves “hunting to recruit patients wherever makes sense for their population,” notes Rebecca Mitchell, the Managing Partner at Scrub Capital¹, which invested in Oshi and Midi, versus spending the early years bidding for enterprise contracts. These new players are also different because they don’t need to go broad in terms of the conditions they treat, said Mitchell. Instead, they’re going very deep into one condition or patient population, like GI, obesity, behavioral health or women’s health, and finding ways to recruit a much higher percentage of those patients than their predecessors. 

For Oshi Health, the decision to get in-network was deliberate. According to its CEO Sam Holliday, once the company got its first payer contract and the billing structure figured out, the team heard consistently from brokers and employers that it would be easier to avoid any extra contracting. So Oshi pursued that path, and hasn’t looked back since (the company raised a $60 million series C in the fall of 2024). And now, it’s far from alone with more than a dozen companies that we’re aware of pursuing a similar strategy with varying degrees of success. 

So what are the pros? Employees can use these digital health services anytime and it’s affordable, assuming there’s in-network coverage. Employers benefit from that, and most seem to appreciate it. One employer I spoke to described their direct contracting process as an “absolute beast,” and noted that this route – just being in-network – is a much faster way to get up and running and paid. Those who sell into employers should ready themselves for a very slow sales process. Many large employers have locked down 2026 and are already thinking about 2027. In this environment, it’s hard to imagine funding a company that wouldn’t get paid for two years - so just getting in-network is a much faster path to revenue. Being in-network also means employers don’t have to budget for annual cycles, and can instead “launch” off cycle. Companies also don’t have to get buried in all the annual enrollment materials, and employers can also communicate the offering to employees off-cycle. 

There are also downsides. It’s not clear who will be on the hook to build marketing and awareness for this subset of companies, even if they’ve got broad in-network coverage. Should it be the employer, payer or the vendor - or a combination of the three? Direct-to-consumer spend is expensive, and should not be the only strategy to get the word out. But as we’ll discuss, this new generation is still approaching employers and finding ways to build successful marketing campaigns with them. 

Another meaningful con: There may be less reliable revenue to report back to investors, versus direct contracts. The set of companies that just went public - Hinge Health and Omada Health - have that going for them, because the contracts they have with employers are very large. 

Another challenge? Some startups are also finding that the plan to get in-network with base fee-for-service rates and then later negotiate premium rates is taking longer than first anticipated – unless there are major access issues for the plan. As Mitchell notes, VCs are “wisening” up to this and are increasingly underwriting investments assuming the standard rates are as good as it gets without more proof. It really comes down to the margin that the startup can generate off of the rates they have, versus assuming future premium rates. For that reason, Oshi, as one example, has made the decision not to take standard FFS (fee for service) rates and optimize for the good coverage even if it takes longer (the downside to that is it’s also more slow to get in-network with every payer as some plans are slower than others). 

One more con that should not be understated: Health plans have occasionally decided to bring the service in-house or use a more traditional service and cut the relationship with the digital health company. We’ve both seen examples of this happening over the years. And without a relationship with the self-insured or fully-insured employer, there’s less of an obvious way to claw the business back. One former health plan executive I spoke to described this as a “whole kettle of fish,” and said that it happens more often for care management programs with PMPM pricing, versus fee-for-service – and that’s another reason why vendors need to ensure their ROI is “100% tight,” they said. Health plans will try to sell their own care management portfolio as part of ASO offerings to self-insured employers, so digital health companies are often viewed as competitive unless they also deliver value to the health plan. 

Lastly, as more employers are thinking about value-based strategies, it can be very challenging - but not impossible - to innovate on the payment model as employers and other entities think of this in-network strategy as just part of the fee schedule. For instance, it is very difficult to do a claims-based economic study under this arrangement. That said, Holliday from Oshi thinks there are also benefits to billing via the plan because it’s possible for the payer to see every claim for its service and all the associated medical and pharmacy costs. If the payer and/or employer has the capability and staff to do the required measurement, they can truly see the utilization and cost savings impact. But not all employers are digging in deeply to value-based care. In theory, a digital health company could also be paid in-network via claims but have a risk arrangement on the side with the employer. 

This new set of digital health companies are figuring all of this out in real time as their companies grow. 

“We’re doing it all,” said Oshi CEO Sam Holliday. “As employers learn about our care and proven cost savings, they are asking their health plans to create a custom network to enable us. As plans who don’t have us fully in-network see more of their accounts say they need a GI solution and want Oshi… We’re seeing payors think, ‘this is inefficient, I should just look at contracting with Oshi more scalably.” 

“And given we have broad in-network coverage with the largest BUCAs (Blues, United, Cigna, Aetna), we’re also scaling up direct-to-consumer marketing (paid and organic) at the same time to build awareness with members, and build our brand in GI,” he explained. 

Let’s take a step back and explain in more detail how digital health companies have historically sold into the employer channel. Understanding the distinction between in-network versus care management is critical for anyone in health-tech. We hear Omada’s Sean Duffy has explained these distinctions to many fellow digital health founders via a whiteboard in San Francisco at the Rock Health offices. 

Care management programs require major stakeholder buy-in and some degree of steering volume, while in-network does not - unless there’s something in it for the health plan. Digital health vendors over time realized they needed to be “preferred” vendors of a set of partners, which may include the health plan, the pharmacy benefits manager, navigation solution or the broker/benefits consultant. Think of this cohort as distribution partners. That meant they might be recommended to an employer or provide an employer access without having to go through a lengthy procurement process. Employers could simply, “turn on” a vendor through their health partner, on that partner’s paper. 

In theory, this is a faster, easier path, but as Julia Cohen Sebastien, CEO of Grayce, a company that focuses on social care navigation for patients and caregivers, points out, there may be “proof point requirements” for each of these that come with their own level of difficulty. 

Soon, health plans recognized a business opportunity. So vendors are now paying hefty administrative and marketing fees for that - as is explained very effectively here in Out of Pocket. Vendors have lost significant margin on these partner relationships, and many were highly reliant on them to win business in the employer channel. When it comes to companies that are in-network only, it’s not clear how health plans will take a cut. We have both heard through our networks that many health plans are thinking about how to generate additional revenue via this new breed of virtual providers that still benefit from close alliances with these entities, but it is not yet clear how they can do so. They don’t usually get any kind of cut from medical providers that are in-network, unless it’s an add on program. Care management programs, as we discussed, have a baseline Utilization Management and Case Management fee that is a required purchase for payers, and programs that can be carved in or out. 

To recap, the upside of relying on distribution channels such as health plans, navigation solutions and brokers is it’s a faster path to revenue growth due to economic upside for the partner to sell the solution and implementation is theoretically easier (although more challenging in practice than it may seem on paper). The downside is these relationships are often exclusive or limited and a vendor can find themselves on the outside looking in, unable to compete for an employer’s business. 

Now, let’s take the new batch, which are in-network but don’t have many or any direct contracts with employers. That doesn’t mean they don’t have strong relationships with employers though. 

It’s long been Brian’s view that vendor solutions who become in-network providers should be doubling down on their network contracting strategy. Many large employers offer several health plan options to their employees, so companies taking on this strategy should ensure they are a provider in multiple health plans, if not all (the Blues plans seem to be the slowest, according to most digital health companies we talk to). Otherwise, it’s far more challenging to reach an employer that may offer a variety of health plan options to employees. Imagine a company in digital health is available to some swaths of employees, but not others. It might be a non-starter. 

Startups that succeed in becoming an in-network provider in all the major BUCAs for example (such as, BCBS plans, United Health Care, Cigna and Aetna), have ticked one box. But a challenge lies ahead. It’s no longer about contracting, it’s about making employers and employees aware of the solution’s availability as an in-network provider. And that is easier said than done. 

“There’s a lot to think about when it comes to communicating with patients,” notes Cohen Sebastien, who previously worked at Aetna. Some employers and payers will encourage companies to do so and make it easier for them, while others will not. Regardless of whether vendors have a direct contract or not, it is often a requirement to spend marketing dollars reaching out directly to patients. And companies still need to think about how they fit into the care delivery ecosystem, she explains, and whether they’re filling gaps for underserved populations. If so, is there a smart strategy that might involve getting referrals from local care delivery networks? Digital health companies should think deeply about who is incentivized to drive volume to them, versus thinking of them as a competitor. 

For companies like Oshi and Midi, it makes a lot of sense to go hard on direct-to-consumer marketing, and assume that individuals who find out about the service will also be in the network. In those circumstances, it often boosts retention because people are more likely to avail themselves of their in-network coverage. For both GI and menopause, this strategy makes sense as it can be challenging to find an in-network specialist and there’s enormous prevalence in both populations. 

As a result, many digital health solutions will get employee traffic even if the employer is unaware of their network availability. So a very large company like AT&T or Microsoft might suddenly see a big uptick in their employee base using a service, and then find out that it’s actually covered (a win!). Oshi said it’s even built a dashboard to show employers how many of their employees have been seen via network contracts (this is done via the group ID on the insurance card), as the first step to building a relationship. Brian often recommends that companies spend some time figuring out how many employees are already using their solutions as an in-network benefit. Then capture and share utilization and outcomes data with the employer to immediately establish credibility with them. If the employer is impressed, they might assist in marketing to their employees to create awareness of a network solution they didn’t know they had. 

If it’s early days and a digital health solution’s network contracting strategy has only contracted with a few of the BUCAs, a “do it all” go to market strategy (e.g., direct employer contracting, establishing distribution channels and network contracting) is necessary. One of the big challenges for startups is that every employer is different. An employer, for example, with a nationwide footprint and multiple health plan partners, may want to directly contract or “turn on” a solution through a health partner if a digital health solution isn’t in each of its health plans.  This will allow them to simplify communications and access. Some might be totally happy with the flexibility of the status quo. Other employers may elect a combination of approaches.  

Regardless of the approach, the challenge of communication, access and engagement is always a top concern for companies that rely on being in-network without a big contract. Those who directly contract with employers often find that it’s easier to understand the value of the contract, although that depends on whether the billing is done based on utilization and outcomes versus per employee or PMPM. The newer generation may not benefit as much from that. 

The general rule is that engagement with employees gets more difficult with more distance from the direct employer relationship. So if an employer turns on the solution through a health plan or partner, Brian often tells companies to push for a contract that includes marketing of the solution as an in-network benefit to employers (Oshi does some version of that). Companies could consider tying their own ROI guarantees to employers based on a certain level of support through awareness building. There must be a clear reason for the payer on the other side though, either in the form of increased satisfaction or cost savings. 

The last thing a digital health solution wants is to be, “lost in-network,” buried on a health plan’s website. The BUCAs are not known as being the most proactive players in the market, even when there is a “win-win” opportunity for the health plan and employer. When a health plan goes through the work of putting a high-quality, evidence-based digital health company in-network, that’s in theory worth touting to the employer. But it hasn’t necessarily happened like that, particularly as health plans face bandwidth challenges and grapple with what to do with these new players in the market. 

Midi Health’s CEO Joanna Strober is one of the companies that hasn’t built up a base of menopause patients via directly contracting with employers. But what she has done is partner with the Accolades of the world, which do work with lots of big employers, to co-market Midi. Midi has also invested heavily and successfully in building brand awareness independent of any channel partner or third-party payer, and a huge portion of the company’s growth now comes from word of mouth and increasingly clinician referrals. 

There’s always going to be a subset of employees that would opt in to virtual care if they could. We also think there’s potential for this new set of digital health companies to integrate better with brick and mortar providers, because one concern we consistently hear from employers about Point Solutions is that it might increase fragmentation in an already fragmented delivery system. Although that may depend on the solution, and whether traditional providers feel it’s complementary or competitive to their scope of practice, or (and we hate to say it), if a relationship with the digital health company can help them drive revenue. We’ve been saying this for years but we’d also love to see more investment in care coordination between different digital health companies. 

Ultimately, we think the strategies that will have the best shot at success - and don’t involve a lot of direct contracting - are multi-pronged. There must be a mix of marketing, including paid, organic and referrals. There should be relationship building with employers to let them know that employees are already using the service as a covered benefit, whether they’re aware of that or not. And there’s still alliances worth forging with the brokers, consultants, PBMs, navigation companies and more. 

Given that investors may be reluctant to put capital into companies that don’t generate revenue for years until they can convince an employer to sign a contract with them, this strategy seems like a viable alternative to us. It still takes time to become an in-network provider with all the large health plans, but companies are getting it done once they can prove that the solution is both desired by patients (ideally they’re filling a gap), that there’s evidence around the intervention, and that there’s ROI. 

Overall, most employers we spoke to seem to like how this new generation is willing to work with them. As one jumbo employer, who requested anonymity, put it: “Just get in-network with our health plans, but build a relationship with us so that we can let our employees know about you, and go to the health plan on your behalf.” This new generation are not care management programs, but they’re also fundamentally different from some of the telemedicine players we’ve seen in the past that struggled due to commodification. They’re negotiating new contracts, evolving care models, and working in highly specialized areas with big patient needs. Where they go from here will be fascinating to watch. 

We’re eager to hear from companies that are on the frontlines, pursuing either of the strategies we outlined - or some combination. Reach out to Brian at [email protected] and Chrissy at [email protected] 

Special thanks for reading and sharing feedback: Rebecca Mitchell, Brett Goldman.

1. Scrub Capital, where I am a GP, led SPVs in Oshi and Midi Health.