Google and ProMedica Health System are entering the growing digital physical therapy market, as value-based relationships grow and providers look for ways to keep patients’ $213 billion annual spend on the service within their systems.
The companies have partnered with Cincinnati-based IncludeHealth to launch an operating system that any provider can use to offer virtual physical therapy through any device, helping patients adhere to their treatment plans and keeping them from straying outside their health systems’ networks.
More than half of patients referred to physical therapy within a health system end up going to outside providers, with U.S. health systems losing an estimated $2.5 billion in potential revenue from referral leakage, according to a recent report from Luna, a company that offers in-home physical therapy.
“Physical therapy patients are patients that come back, they’re not people that you see once every six months or once every year,” said Adam Block, a health economist and associate professor at New York Medical College. “There are patients that you see once a week, for six months, or in some cases more intensively. Physical therapy maintains that relationship. And that’s what health systems are looking for.”
The COVID-19 pandemic has accelerated the adoption of three-year-old IncludeHealth, which has inked eight new partnerships with health systems in the past year. The company’s contract with ProMedica represents its largest customer yet.
Google and ProMedica’s partnership comes as investment in the industry grows.
In May, Omada Health paid $30 million to acquire Physera, adding virtual physical therapy services to its digital care management services. In April, digital musculoskeletal tool Kaia Health raised a $75 million Series C round, with participation from UnitedHealth Group’s Optum Ventures. In January, Hinge Health raised a $300 million Series D round, bringing the physical therapy telehealth provider’s valuation to $3 billion.
“This sector has been warm to hot for several years,” said Tom Cassels, president of the Rock Health digital consultancy, with investment driven by the high rate of unnecessary spinal surgeries.
The U.S. has the highest rate of spinal surgery in the world, despite reporting a prevalence of spine disorders that are similar to those found in other countries, according to a study published in Spine magazine. Medicare spending for inpatient back surgery more than doubled from 1992 to more than $1 billion in 2003. Patients living in areas with more local surgeons were more likely to have surgery, even if physical therapy or other pain management services may be more appropriate, according to a 2015 study from the Workers Compensation Research Institute.
Today musculoskeletal conditions represent one of the top-five highest sources of employer claims spend, according to a February report from UnitedHealth Group.
“Employers might be more invested in some of these solutions that reduce costs three, four or five years down the road because they expect to have these people on their teams,” said Dr. Vikram Bakhru, a practicing physician at the University of California at San Francisco’s Medical Center and chief medical officer at Medicaid managed-care startup Circulo “Whereas an insurance company has data that says, ‘If I spend this today, I may not realize the benefit later.'”
Most telehealth musculoskeletal startups fall into two categories, Cassels said—those like Hinge Health and SWORD Health that employ providers, and those like IncludeHealth and Kaia Health that focus primarily on providing tools that physical therapists can use to offer virtual care. Employer customers generally require that a startup employ providers, so they can guarantee some continuity of service, whereas insurers and health systems can use their tools to get their own physical therapists online, Cassels said.
He believes tools like IncludeHealth will become more popular since they have a lower operating margin than startups that opt to employ their own providers. Companies that offered providers technology tools also dominated mergers and acquisitions activity during the second quarter, comprising 43 of 73 total transactions, according to market research firm Mercom.
“Using tech as an enabler is considerably more profitable than splitting your business into tech enablement and the actual provision of licensed care because you’re actually moving away from the productivity gains of the digital health solution,” Cassels said.
As the healthcare system moves to value-based care, telehealth musculoskeletal startups also offer a value proposition that health systems that have taken on risk and health insurers can understand, said Block, the health economist.
In 2016, the Center for Medicare and Medicaid Innovation unveiled the comprehensive care for joint replacement program, a bundled payment model that was mandatory for hip and knee replacements in some areas. After two years, the program led to a 3% reduction in spending, without an increase in surgical complications, according to a New England Journal of Medicine analysis. This represents one of just six experiments to ever save the federal government a significant amount of money.
The success of that program has caught the eyes of health system officials who have taken on risk, and who are looking to cut their musculoskeletal spending by avoiding high-cost surgeries, Block said.
“The organization has the incentive to try to get the patient better in the cheapest possible way– they had no incentive to do that beforehand,” Block said. “One way to do that is, ‘wouldn’t it be great if you could substitute some in-person physical therapy visits, that might cost $150 an hour, with a telehealth visit, that costs $115 an hour? They’re all thinking about that stuff now, but only if they’re in a risk arrangement.”