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.