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Health Affairs This Week places listeners at the center of health policy’s proverbial water cooler. Join editors from Health Affairs, the leading journal of health policy research, and special guests as they discuss this week’s most pressing health policy news. All in 15 minutes or less.
Hello, and welcome to Health Affairs This Week. I'm your host, Jeff Byers. We're recording on 05/22/2025. This week, we released our first trend report to insiders. It's on the use of AI in health care, and we've been told it's, quote, a really helpful resource as someone who works in the AI regulatory space, unquote.
Jeff Byers:Join insider for a hundred and $80 a year, and you can get that trend report as well as exclusive access to our May 29 event on the changes at the FDA, and our June 17 event where Jay Michael McWilliams will explain risk adjustment trends. Today on the pod, we have Christina Farr, managing director at Manat, founder and GP at Scrub, and editor in chief at Second Opinion Media to talk about the state of the digital health industry and more. When the news dropped that Hinge Health was going to IPO, Christina was the first person I thought of to have on this pod to discuss, and then we were blessed with the news that Omada Health dropped its s one filing to make this an even more timely conversation. And on top of that, we're recording on the day when Hinge is expected to open on the New York Stock Exchange at $32 a share upon open. Christine and I have known each other for a little bit in the digital space, but this is our first time speaking face to face virtually, much like our conversation with Bob Herman, which you can check out in the archives.
Jeff Byers:I'm looking forward to this. Christina, welcome to the program.
Christina Farr:Oh my gosh. Thanks for having me on, and so much to talk about.
Jeff Byers:Yeah. Yeah. I you know, as I mentioned, you were the first person I thought of. You do such a great job of explaining your insights in your second opinion newsletter, and it kinda seems like digital health is kinda having a moment again. So taking the Omada and the Hinge Health developments, you know, what's a narrative you can give our listeners for digital health industry at this time?
Christina Farr:Yeah. So this was, really important news for the industry because we had just not had a lot of exit activity for quite a while. Was very, I called it kind of like the IPO winter for digital health. And it went on for several years. And so what does that mean?
Christina Farr:Well, for
Jeff Byers:the
Christina Farr:venture market, for venture all the way through to you know, growth equity and beyond, is all the funding that happens before a company goes public. A lot of that a lot of that gets impacted because investors need to know in the private markets how to value these businesses based on how the public markets will react to them. And there was just so little data out there, and so no one really knew. And I think that uncertainty has created some problems with getting companies in this in this space funded. And now I think we've got these two upcoming IPOs that will really test investors in the public market's interest in this category.
Christina Farr:How much do they understand this category? It's still very emergent and very nascent. And no one, I mean, think the other challenge is, are these tech companies or are they healthcare companies? And because they sit right in the middle, it's really questionable. And you have to go into the fundamentals of each business to determine where it sits.
Christina Farr:And that has an impact which we could talk about on revenue multiples, which you're starting to see now with both Hinge and Omada. So I've been tracking both of these really closely for that reason. And it's also why you see all these hilarious jokes from industry operators and digital health CEOs on social media saying, like, everybody, we all need to, like, rally and buy shares in Hinge and Armada because how these companies perform will dictate how everybody else will be able to raise capital in the next couple of years.
Jeff Byers:Yeah. Hold the line. Right?
Christina Farr:Exactly. Exactly. So important.
Jeff Byers:You noted Omada in your newsletter was very much part of the second wave of digital health companies. And you kinda already mentioned this in what you're talking about. Like, just for listeners that may not be aware of the digital health space, so we mostly focus to a health policy realm, What can you tell us about what that second wave is? So you talked about the is it a tech company? Is it a health care company?
Jeff Byers:What are the main features of the second wave?
Christina Farr:Yeah. So I would think of the first wave as as like your sort of one point o telehealth company. You know, the innovation there was let's take a typical kind of visit that happens between a doctor and a patient and put it online. And I would argue that, you know, these businesses ultimately struggled because it's just there's no defensibility, there's no moat. So anyone could come along, you know, in theory and start a telehealth business.
Christina Farr:And then that creates a lot of pricing pressure over time, which is really what happened to many of the companies in sort of this gen one space. And then this, I would say the next generation is really the true blue digital health companies that tend to take the interventions and try to provide them as conveniently as possible with the focus on really a new buyer, which has historically been more health plans and even systems. And is now for this generation increasingly the employer was the purchaser, which you saw both with Hinge and Omada, and it's really where they got their start. And they're not just telehealth businesses. They use a variety of different interventions.
Christina Farr:It could be a wearable device, it could be a physical therapy session augmented with AI, which is what Hinge offers. And then they try to provide these interventions in a cost effective way and ensure that they actually do work. And now there are questions around that too, which we can get into. But they are more sophisticated offerings. And I would say both Hedge and Armada, you know, I would refer to as classic digital health companies really from the start.
Jeff Byers:Yeah. Let's dive into that. Both companies take this approach of, like, trying to get patients or individuals to do something. Right? Trying to change their behavior.
Christina Farr:Yes. Yes. Exactly.
Jeff Byers:And I don't know about you, but I know it's really hard to can change my behavior as well. So, like, getting a large group of people to change their behaviors, especially under the notion of, like, this is gonna be healthier for you, I think is a is a noble task. So, like, how have they been performing?
Christina Farr:So I think your question is a is a really good one, and it's also complicated because behavior change is is very hard. And, you know, we all know that from those of of your listeners in the policy world certainly do know that. But then there are conditions where it's, you know, not as challenging as others. I would say for Omada, which is really in this sort of area of chronic disease, you know, diabetes, prediabetes, I would say that is a much harder task because you're dealing with something that is chronic. And that individual may have had that condition because of certain lifestyle choices.
Christina Farr:And those lifestyle choices can, there's so many social factors. And other factors outside of even healthcare that contribute to that. And so being able to reach these people effectively with tech is just tough. And meanwhile, something like a hinge, is in this musculoskeletal area, people who have suddenly got very severe, like a good friend of mine just recently had back surgery, and it was absolutely crippling what he went through, the level of pain. So it's very acute when it happens.
Christina Farr:And if you're indicated for surgery, in the cases where you are indicated, you can have fairly quick relief. If there is a path with physical therapy, which there often is, then can also over time get that relief. And you go from something that feels very acute and very episodic to feeling like you can be productive again and get back to your life. And so I think Hinge chose a category where the behavior change aspect was, I wouldn't say easier, but where it's just much more clear how to be able to reach the the individual in that moment and then, you know, make sure that they're on a path that that can get them quick results.
Jeff Byers:So you say get productive and get back to your life. I I love that phrase because it makes me think these companies are selling to employers. Right? So if you can get productive and get back on with your life, that's a lot of a lot of that has work for a lot of people than be productive for for companies. So pretty big case point for selling to the employer market.
Jeff Byers:Is this what the digital land health landscape is currently of, like, trying to find the employer point solutions to sell into? Or, like, given these two companies, what does that say about the digital health market?
Christina Farr:Yeah. So so taking a step back, I would say most of these companies did start with the employer. And the reason for that was like fifteen years ago, you know, employers started to be more willing to accept some of these point solutions for their members. They were starting to, so many of them were self insured. So because they were taking on the financial risk, they were able to be more flexible with the benefits they offered.
Christina Farr:And the digital health companies came along and said, you know, here are some of your biggest areas of spend. You know, we have offerings in these exact areas and we can really move the needle. And in some cases they have and in others they haven't. And I think we're still learning kind of what the best practices are here and employers have moved from kind of styles of contracting that were much more kind of sweeping to contracting based on who's actually using the product and if the product is even working as described. So, you know, things have changed over the last kind of ten to fifteen years.
Christina Farr:But for both companies and really the landscape overall, the employer is where they started. In theory, you know, cycles were a little bit quicker and easier than selling into health plans. And these were big contracts in the case of the jumbo employers. You could see that you can get to hundreds of millions in revenue with just kind of a relatively small number of very large contracts. The challenge is there's only so many of these big employers to go around.
Christina Farr:And when we continue to invest in these businesses and create categories with, you know, say four, five, six companies in each category, what happens next? Pricing pressure. And that, of course, affects the financial trajectory of these businesses. So where do they go next? And I think that's the big question as this next generation is hitting the public markets.
Christina Farr:Can they crack Medicaid? Can they crack Medicare? How about health plans? What about consumers? What are the other pathways open to them to make money outside of the employer?
Christina Farr:And it's incumbent on all these businesses to prove they can do it, I believe, to have real sustainability.
Jeff Byers:So we touched on the where they could go next. I did wanna ask you, you're the founder and GP at Scrub. When you look or take pitches, what does it take for companies to stand out from a digital health perspective when you're in that room?
Christina Farr:Yeah. It's a great question. I actually just wrote a book about storytelling, and that the book's coming out in the fall. We can we can talk more about it closer to the time. But I I'm actually really interested in in backing good storytellers.
Christina Farr:I think if you can tell a good story to an investor, you're more likely to be able to tell a good story to all the other stakeholders that you need on on your side to be effective, whether that's, you know, customers, whether it's potential hires, whether it's the media. So if I find myself riveted by a presentation, then to me that's a good sign for the business overall. So so I am looking for that. And then I'm looking for, you know, things that are new and different that I haven't seen a million times before. I'm looking for companies that are not just kind of greasing the wheels and, you know, making the existing existing system even worse than it is.
Christina Farr:I'm interested in companies that are trying to change health care and make it better. And then, you know, beyond that, it's like all the obvious stuff. Like, you want decent metrics and growth and, you know, all the things that financial investors look for. So if I can find that that trifecta of good story, big impact, and solid business fundamentals, then I'm in.
Jeff Byers:That's great to hear about the storytelling. Yeah. I think storytelling is such a fantastic part, in a company's life cycle because if you in some ways, you know, reality is perception. So if you can tell a story that changes the perception of your company and sell that idea to Wall Street, I'm sure it makes a handy a handier investment down the line.
Christina Farr:Yes. I agree with that. And I think sometimes, which is why I wrote the book, people say, Oh, you're a good storyteller, so therefore you're not a good operator. And I just think that's a false dichotomy. I've met plenty of good operators who are also good storytellers.
Christina Farr:And guess what? It's like having a superpower. You just you stand out in the category. And, you know, for me, like, if I can find somebody who's got both skill sets, then I just I ultimately just see a winner.
Jeff Byers:And what's the book called?
Christina Farr:The Storyteller's Advantage.
Jeff Byers:Is that out for preorder yet?
Christina Farr:It is out for preorder as of literally this week. So, yeah, I haven't haven't announced it yet, but it's it's out for preorder. For yeah. As you all know, for for authors, pre preorders are are everything. So if anybody's interested in the book, then then let me know.
Jeff Byers:Well, fantastic. We'll put the link in the show notes, and hopefully we can have you back on to talk about that when it's released later this fall. You know, one question two questions before we go. One, on Hinge and Omada, is there anything that we didn't touch on about how this relates to the state of digital health industry? I know we had a wide range in conversation there.
Christina Farr:Yeah. I think it's interesting to sort of compare the two businesses. Know, they're wildly different. They're in different categories. But I had an interesting afternoon just kind of looking at both S1s and thinking about the differences between the two, because it's inevitable that they they will be compared against each other, both being kind of from the same category and in digital health and and whatnot.
Christina Farr:I do think it's really interesting that that Omada is an an older company, started in 2011 while Hinge was right around 2014. So it got me thinking a lot about this kind of fallacy of the first mover advantage in digital health. And I actually I actually think there's value in the second or even third or fourth movers advantage. And that's that's in you know, because this space is so new, like, Omada had to write so many of the playbooks. Like, they had to figure out they just spent a lot of money and time figuring out how to make that business work.
Christina Farr:And I think ultimately, they they made some huge realizations, like, you have to be a virtual clinic. You gotta be a provider. You can't just be a vendor. And that was something they had to learn in the course of building this business because it was such a new area. And so anyone who came along later like Hinge would have been able to look at Omada and basically spend years less making the same mistakes and just piggyback off of a lot of that learning and growth that Omada had to do.
Christina Farr:I can think of many other examples in different categories, but I think it's like in this space, it's actually very helpful to not be first. And I think that'll be continued to be true for a while until we we reach some kind of maturity.
Jeff Byers:Yeah. I'm so glad you touched on that because I was wondering if you so it's 2025. People can do the math. It's like fourteen years for Omada, thirteen, you know, the other number, for Hinge Health. When you're with clients and advising, them or in the room with founders, you know, do you give them a sense that this is a long game or is there a push to like get to 10 x as quickly as possible or like for digital health specifically?
Christina Farr:Yeah. I mean, I I tell them it's a long game. If you if you wanna make money quickly, then I can think of quite a lot of other ways to do that. That is not starting a venture backed digital health business. I also spend a lot of time with founders, whether they be clients or any just people I know, thinking through kind of how do you want to build this business?
Christina Farr:And I think a lot of people, because of the low interest rate era, sort of jump immediately to this idea of venture capital as the B end all. And they believe that you need this kind of money in order to build a business in health care. But a lot of companies don't and shouldn't. You know, if you wanna build something that has hockey stick style kind of revenue growth, and scale it as quickly as possible, and you don't mind that, like, you have to continue to fundraise every eighteen months to two years for the, like, foreseeable future, then sure, you should raise VC money. And by the way, you're also gonna get diluted.
Christina Farr:You know, you're not gonna own as much of the business by the end of it. You might own very little of Mean meanwhile, like, lot of people actually don't wanna do that. They'd rather just, like, maybe raise a couple million from friends and family and then run a business that, like, maybe just, like, makes good money. And they own most of it. And that's fine too.
Christina Farr:And I I don't think we talk enough about just different ways of running businesses in this space because I see so much stuff take venture money and get venture funded where in my mind, like, it didn't really didn't need to be that way.
Jeff Byers:I don't know if we have the time to touch on it, but there can be a hive mind mentality of, like, if you're hearing what other people are doing and they're like, well, that's what I'm supposed to be doing as well.
Christina Farr:Exactly. And nobody really shares the lows. They only share the highs. We get such a skewed view of, you know, what's going on in the market. And that's that's basically the thesis behind second opinion that, like, I'm I'm not interested in just, you know, providing a catalog of company wins.
Christina Farr:I'm interested in, like, what does it really take to make a business successful in this space?
Jeff Byers:Yeah. Well, that's a perfect segue as we wrap up. Let the listeners know what do you what do you have going on these days.
Christina Farr:Yeah. I mean, subscribe to secondopinion.media. You'll get my newsletter. I I promise I won't spam you. It's a couple of times a week, and I do kind of deep analysis on the industry.
Christina Farr:I ask hard questions. Just before I spoke with with you, I was just writing one on how, you know, the question of how how much time to spend with VCs before a capital raise. So I like kind of asking these sorts of operational questions and then kind of diving into the tactics and not just kind of the high level view, you know, down to the level of, well, what percentage of time and how and why and when and all of these questions. So I'm trying to make it a little bit easier to build a digital health business by kind of exposing lessons from others in the industry who've had to learn it the hard way. So that's second opinion dot media.
Christina Farr:And then if you need, you know, my help on the consulting side, reach out to me. I I do a bit of work with companies as well. And and then I also invest through through Scrub Capital. So if you're raising a a pre seed or a seed, reach out to me as well.
Jeff Byers:Well, fantastic. Christina Farr, thanks for joining us today on Health Fairs this week. And to you, the listener, if you enjoyed this episode, send it to the friend. Send it to a friend, and we'll just leave it at that today. Well, thanks, and see you next week.