One of the largest health services businesses in the U.S. dropped Livongo from preferred status in its digital formulary Wednesday, with the move coming as the digital health startup’s ongoing merger with telehealth provider Teladoc Health reportedly hits bumps in the road.
Cigna’s $98.6 billion Evernorth, which houses its Express Scripts pharmacy benefit manager, prioritized rival Omada Health over Livongo for chronic disease management in its annual formulary review of digital health apps and therapeutics.
The company developed the Evernorth Digital Health Formulary in 2019 to help customers differentiate among the thousands of digital health products available on the market. the service allows the PBM’s employers and health plan customers to easily integrate its preferred products into their pharmacy services. Livongo and LifeScan will now be listed as alternatives to Omada Health, which has 1,600 employer and health plan customers. Evernorth counted 103.6 million lives on its platform during the third quarter.
“It’s been transformational to some of the companies that have held the preferred slot,” Omada Health CEO Dr. Sean Duffy said. Cigna and Livongo did not respond to interview requests.
Teledoc Health downplayed the significance of Cigna’s decision. “Thousands of digital solutions apply to be on Evernorth’s digital health formulary every year,” a spokesperson wrote in an email. “We decided against paying the premium for preferred status next year.”
Livongo has held the top spot for diabetes management since the formulary’s inception and, at the time, pointed to its inclusion as proof that it helped drive better clinical and financial outcomes. A 2019 study by Express Scripts found that patients who actively used Livongo for three to 12 months increased medication adherence by 6.4%, and decreased medical costs by 24%. The company has partnered with Express Scripts for diabetes management since October 2015.
Like Livongo, Omada Health helps users manage chronic conditions. The company has raised $256.5 million in total venture funding, with participation from Cigna’s venture arm and other large healthcare companies, according to Modern Healthcare’s Digital Health Business & Technology.
Unlike Livongo, Omada is not owned by a telehealth parent company that directly competes with MDLive, which Cigna paid an undisclosed sum to acquire earlier this year, said Ari Gottlieb, a principal at A2 Strategy Group.
Cigna’s desire not to prop up digital health competitors like Teladoc Health drove the decision, he said. Other insurers such as UnitedHealth Group that have in-house telehealth tools likely will do the same, he said.
“It’s probably a recognition that many of these services are not highly differentiated in the market, and so you can likely replace them without much impact,” Gottlieb said. “Why help your competitor?”
In August 2020, Livongo and Teladoc Health announced an $18.5 billion merger, a record deal in digital health. The aim was to create the largest virtual-care company in the industry and allow Livongo patients to receive at-home coaching for conditions such as diabetes and, if necessary, refer them to a digital specialist at Teladoc Health, where they could receive more advanced care and get prescriptions.
Teladoc Health paid a 10% premium for the startup, with some analysts at the time saying the businesses’ valuations were overinflated. Since the deal closed in October 2020, the company’s stock price has dropped about 53%. That trend goes beyond Teladoc Health, Gottlieb said. Wall Street “went to irrational hikes at their peak, and now there’s been a revaluation,” he said.
The fall in the share price could also be a sign that investors are rethinking the value these types of services provide, Gottlieb said. Ideally, most patients with diabetes or other chronic conditions have already been diagnosed and are under the care of a primary care clinician, he said. The idea that Livongo users could then easily transfer to a specialist through an integrated platform does not offer much benefit to users since the services Teladoc Health provides are not clinically intensive, he said. The platform’s primary value for these users is that its clinicians can write a prescription, he said.
“They’re still relatively immature in the sophistication they offer,” Gottlieb said. “They’re trying to build for the future, and where they think the market is going, and not necessarily where it is today,” he said.
During its third quarter, Teladoc Health counted 76.8 million covered lives on its platform, with just 725,000 enrollees eligible for chronic condition services. But of the millions eligible for Teladoc Health’s virtual services, only 5% actually used the service to schedule 3.9 million total visits. The majority of these users likely scheduled mental health visits, Gottlieb said.
“You could argue that there’s a ton of upside, you’re starting from a small base,” Gottlieb said. “It’s also just important to acknowledge that the base we’re starting from is really small.”