Virta now places 100% of fees at risk, tied to initial engagement milestone and one-year A1c reduction; strong payer move for the diabetes reversal clinic – November 15, 2018

Executive Highlights

  • Virta announced that it will now place 100% of its fees at risk, a strong move to align incentives (deliver outcomes or don’t get paid) and to drive payer uptake. First-year payments will be delivered in two installments: (i) an enrollment fee after one month (only if 30-day engagement metrics are met); and (ii) subsequent payments only if pre-specified A1c reductions are met. The magnitude of these payments was not shared. Virta’s cash pricing is currently $500 upfront, $370/month in year 1, and $199/month thereafter; we’re not sure if payers pay less.

  • Previously, Virta was placing ~50% of fees at risk based on clinical outcomes (primarily A1c reduction).  Virta Advisor and former ADA CSO/CMO Dr. Robert Ratner is quoted in the press release, noting that this level of risk-sharing is “extremely rare in the healthcare industry.” Indeed, outcomes-based commitments such as Virta’s are needed in diabetes and still far from the norm – beyond aligning incentives, they give payers a no-risk safety net to deploy new technologies.

  • See below for a brief Q&A on the announcement with CEO Mr. Sami Inkinen. We discuss the ambitious goal to reverse 100 million cases of type 2 diabetes by 2025, the role of Virta’s continuous care and coaching in driving outcomes, and more.

  • Virta also presented encouraging two-year data at Obesity Week today, which continues to test its continuous remote care and low-carb/high-fat approach. The data shows sustained engagement (74% continuing in the program), a solid -0.9% A1c reduction (baseline 7.7%), 10% body weight loss from a baseline of 250 lbs, and a notable 55% of completers achieving diabetes reversal (A1c <6.5% on no meds except metformin). In the most challenging intent-to-treat analysis – treating missing data as a “failure” – 38% of patients still achieved reversal at two years. Notably, the results comes with a >50% reduction in diabetes medication use relative to baseline.

Virta Health announced in a press release and a blog post from CEO Mr. Sami Inkinen that it now places 100% of its individual participant fees at risk for health plan and employer clients – we see this as a compelling and bold move to align its business model fully with delivering outcomes.

Payers will only be billed an initial enrollment fee if 30-day engagement – measured by frequency of digital message response, glucose/ketone checking, and reporting of symptoms/energy level/hunger in the app – meets pre-defined thresholds. Subsequent payments come if the participant’s A1c declines by a pre-defined amount (decided on a case-by-case basis, presumably from the baseline level). Payment beyond one year is still at-risk, though the exact formula wasn’t divulged. Wow!

We first heard an inkling of this exciting news from Head of Research Dr. James McCarter at Rock Health, and more details on the low-carb/high-fat diet (to induce nutritional ketosis) and tech-enabled remote care company were included in a STAT article. Virta will host a webinar on December 12th to discuss further.

It’s not clear how much Virta will be paid for delivering said outcomes. One-year trial results, headlined by 60% diabetes “reversal” (defined as A1c <6.5% and elimination of all medications except metformin), fed into Virta’s estimate that its program saves ~$9,600 per patient per two years – much of this comes from eliminating expensive medications. One could imagine that Virta has to propose revenue of <$4,800 per patient per year to make this cost saving to clients, though the company hasn’t confirmed that. The actual figure could theoretically be tailored to the customer’s population.

Prior to this development, Virta was placing ~50% of its B2B2C payments at risk based on clinical outcomes (primarily A1c reductions). Cash-pay pricing for those without insurance coverage remains untied to outcomes – $500 upfront to start the program, $370 per month for year one, and then $199 per month for subsequent years. That pricing puts year one cost at $4,940, quite close to the <$4,800 threshold noted above.

Former ADA CMO/CSO (and current Virta Advisor) Dr. Robert Ratner remarked in the press release, “this is extremely rare in the healthcare industry, where maximizing profits has historically driven costs.” Joslin CMO Dr. Robert Gabbay took a less enthusiastic tone in the STAT article, commenting, “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.”

Virta has presented a host of positive data from its program at one year (+ CVD biomarker results), two years as of today (late-breaking poster at Obesity Week showed benefits continue, with minimal tapering), and in prediabetes at ADA. Virta hasn’t been evaluated in a true RCT yet, and the question of scalability – particularly in reaching the ambitious goal of 100 million people by 2025 – is still an unknown. However, the results are very strong so far, especially since payers can try the program without risk. It’s fantastic to see the commitment to longer-term data, especially because this is the first question ketogenic diet skeptics ask.

  • Virta’s payment structure seems in line with Omada Health, which puts 100% of fees at risk – depending on monthly weight loss – following an enrollment fee to cover the costs of customer acquisition and materials. Arguably Virta’s model is higher pressure, since it only gets the enrollment fee if there is initial engagement. The companies are not directly comparable, but it is an interesting thought experiment: which outcomes-based payment structure is tougher on the company – A1c or weight as the main endpoint? Obviously weight loss helps drive A1c in type 2 diabetes, though it’s possible to have either one without the other – e.g., one could improve A1c without changing weight, and one could improve weight without changing A1c. In most cases, however, these endpoints will need to move together, especially if the goal is making someone with type 2 diabetes holistically healthier and less expensive.

  • Other companies in diabetes are tiptoeing into shared savings and outcomes-based contracts at various levels, but have been less forthcoming about specific payment formula. Medtronic has an outcomes-based program for 670G and agreements with Aetna and with UHC; Dexcom is running a pilot with UHC of CGM in type 2; Onduo markets its type 2 diabetes virtual clinic as outcomes-based; Livongo has “some” shared savings agreements; and Novo Nordisk and Lilly/BI both have value-based contracts with Prime Therapeutics. PBMs such as Express Scripts are also moving toward value.

Selected Q&A with Virta CEO Mr. Sami Inkinen

Close Concerns: Can you talk more about what health outcomes payment will be tied to?

Mr. Sami Inkinen: The health outcomes are related to diabetes reversal metrics, and specifically HbA1c reductions. As for why this is significant, as you know with our approach to diabetes reversal, we are improving HbA1c while actually removing medications. This means that our customers are paying only when patients get healthy, creating complete alignment from patient to payer to Virta. Our ability to adopt this model underscores why reversal is completely different compared to other approaches to treating type 2 diabetes.

CC: When you say 100 million people by 2025, presumably that’s a model that allows the “everyday person” to access Virta. Is that correct or would this continue to be employer-based? Or would the government be able to join in and pay Virta for health outcomes?

Mr. Inkinen: Our business model to date has addressed employers and health plans because this is the fastest way to reach as many people as possible. Most Americans receive their health care this way, and we can get to scale fast. With this approach we’ve already been able to treat everyone from truck drivers to warehouse workers to office workers, all across the US. As for the future, we are looking forward to working with government as well to expand Virta’s reach even further. 100% access has always been our goal.

CC: To what degree do you think the Virta Health Clinic delivery system accounts for success of patients?

Mr. Inkinen: There is no way to deliver diabetes reversal at scale safely and sustainably without continuous remote care. You have to start with the right intervention, but patients who are on a complex regimen of blood glucose lowering medications need always-on medical care to make sure that removal of medications is done safely and at the right moments. Continuous remote care is also critical to individualize our intervention, and to provide the right behavioral nudges to keep a patient on track. 

CC: Do you have any new employer customers?

Mr. Inkinen: We are quickly expanding our customer base and bringing the Virta Treatment to more and more people. As a few examples of the customers we can publicly reference, US Foods has been a great partner and we were excited to have Hassan Azar, SVP of Total Rewards, share his enthusiasm for our fees-at-risk approach as part of our announcement. [Editor’s note: US Foods has nearly 25,000 employees.]

We have also been fortunate to have a long-term partnership with the Chickasaw Nation, a Native American nation in Oklahoma. Diabetes hits Native American populations particularly hard, and to see our patients there having success is providing much needed hope in the community while validating that we can deliver results anywhere in the US.

CC: What does the payment structure look like beyond one year?

Mr. Inkinen: Beyond one year we are still at-risk based on health outcomes. What we are doing is about long-term, sustainable diabetes reversal, and as long as patients are under our care, we want our incentives to be aligned around keeping them healthy.

Editor’s note: 1) metformin is a diabetes medicine so purists may not perceive patients who are on metformin as having fully “reversed” diabetes (though we do acknowledge some are taking it purely for anti-cancer reasons or anti-aging, etc.) – “remission” is certainly happening, however, which has major value; and 2) regarding “expensive” medicines, given the cardioprotection and renal protection proven by some, we also don’t see “stopping all expensive medicines” as necessarily an only positive long-term outcome. In some cases, adding medicine as well as Virta could be a positive. While removing drugs is a positive move in the short-term as it removes costs, only time will tell the degree of value that comes from avoiding heart attacks, strokes, dialysis, etc. (stemming from cardio protection and renal protection).


-- by Brian Levine, Adam Brown, and Kelly Close