Credit Suisse https://www.credit-suisse.com caught up with Teladoc’s (TDOC) https://www.teladoc.com management on Omada Health’s https://www.omadahealth.com announcement they have earned preferred status on Evernorth’s Digital Health Formulary for their cardiometabolic digital chronic care solutions, including Diabetes, Hypertension, and Diabetes Prevention.
TDOC emphasized that the change in preferred status from Livongo to Omada was TDOC’s decision and Livongo did not necessarily “lose” the preferred status. Instead, TDOC simply chose not to pay the required fee to maintain preferred status with Express Scripts, as management did not see the value.
While TDOC can’t disclose the size of the “preferred” fees, the company noted that it is “very significant” as a percentage of the revenue that comes through the channel. TDOC noted that 2020 was the first year Livongo had paid for the preferred status on the formulary. With the preference payment going away, management noted that there will be a sizable benefit to Livongo’s profitability on the ESI book, although it won’t be enough to move the needle on a consolidated basis.
As discussed after the initiation of Livongo back in 2020, the analyst’s understanding was that Livongo gave up HSD% of revenue in commission when utilizing a channel partner, which the preferred status fee could push that number even higher.
As Credit Suisse has highlighted in their digital health primer, digital formularies can serve as an important way to help scale new-to-market solutions, especially when the underlying category for virtual care is nascent. Therefore, Livongo having had “preferred” status since the inception of the DH formulary (in addition to partnering with Express Scripts for diabetes management since 2015) certainly played a role in achieving their position as the leader in the then nascent category.
Now, however, Livongo is almost synonymous with virtual care for chronic condition management, benefit managers, brokers, etc. don’t need a stamp of approval from a PBM to know the value.
Further due to the TDOC/Livongo merger, Livongo can essentially leverage TDOC as a de facto channel partner. Additionally, Livongo is remaining the DH formulary as the solutions will continue to be available through & integrated with Express Scripts. Further management has indicated that they would be expanding the number of chronic offerings available through Express Scripts in the near future.
Some other tidbits on Livongo/Express Scripts. In 2019, Livongo generated ~$50 min through their channel partnership with Express Scripts, which represented 29% of Livongo’s total revenue. The last disclosure came in 2Q20 where Express Scripts represented~$16 min of Livongo’s quarterly revenue, or 17%. Annualizing the 2Q20 figure would put Express Scripts affiliated revenues at ~$60-$65 min for 2020, compared to the actual total revenue for Livongo of ~$380 min.
For 2021, Express Scripts revenues would be slightly higher on an absolute basis given the growing nature of the solutions. However, TDOC management noted that the company has direct relationships with a significant majority of these clients but doesn’t necessarily need Express Scripts as an intermediary to maintain these relationships-akin to how Livongo was able to maintain the vast majority of clients coming through the CVS channel partnership.
As a result, revenues from Livongo’s channel partnership with Express Scripts (in addition to Livongo’s scaling down partnership with CVS) has become less prevalent over time as the company has diversifies into direct-to-employer, health plan, and broker relationships.
Importantly, Livongo’s revenue coming through the Express Scripts channel for 2022 should not be assumed to be at risk of going away, given the continuation of Livongo as one of a select number of solutions for each category on the formulary.
The fundamental change being made on the Digital Health formulary comes down to the “preferred” icon switching over to Omada beginning in 2022. Notably if there is any impact to Livongo from a marketing standpoint, it would show up in 2023, given the near completed selling season for 2022 at this point.
TDOC has also announced that they have expanded their exclusive relationship with the National Labor Alliance (NLA) to provide their full suite of whole person care services. The NLA will now offer TDOC’s general medical, specialty care, mental health, expert medical services, chronic condition management, and virtual primary care programs as part of the exclusive endorsement to NLA’s Coalitions and their member Funds and their 6 min members across 50 states.
As part of TDOC’s stepped-care mental health solution and virtual primary care product, respectively, TDOC’s leading experiences especially in one-to-many care delivery models, whole person care focus, engagement and data at scale continues to serve as key differentiators to their peers and drive new large sized contract wins/expansions such as NLA.
To ask questions, or to provide feedback, or news, email Jailendra Singh at jailendra.singh@credit-suisse.com or call 212-325-8121.