With Outcomes-Based Pricing, Noom Ties Its Fortunes to Participants’ Success

by | Jan 2, 2017

The last time I went to a gym in January, it didn’t go well.

For months, I had worked with a personal trainer—at $80 an hour—and battled mall traffic to barely make my weekly 6 p.m. appointment. Then New Year’s Day arrived, and I learned the hard way it would take another 10 minutes just to park the car.

By the second week of January, I arrived red-faced, furious that I’d lost $1.33 for every minute spent driving in circles.

Don’t worry, the trainer said with a smirk. In a month, half these people will be gone.

Appeased? Hardly. I nearly exploded at his admission: the gym’s business model didn’t just assume people would fail. It depended on failure. The calculus of gym memberships and parking spaces required some unknown share of these New Year’s hopefuls to disappear, but keep paying their fee.

It made me angry. And I’m not alone. As American employers look for ways to cut healthcare costs, most have tried something to get their workers to adopt good habits—68% of companies with 200 employees had programs to help employees lose weight in 2016, and 32% offered incentives to take part.1  But that doesn’t mean employers are happy with these programs, or that they’re working. A 2015 article in The American Journal of Managed Care, led by wellness industry critic Alfred Lewis,2 argued that workplace weight loss programs should be scrapped because most workers don’t benefit.

Enter Noom, whose founders spent more than 7 years perfecting the technology and curriculum for a mobile health platform that combines artificial intelligence (AI) with human coaching, as well as support from like-minded peers. Noom’s co-founders, CEO Saeju Jeong, an entrepreneur, and President Artem Petakov, who worked at Google after earning a computer science degree from Princeton University,3 want to disrupt the healthcare market by taking aim at employer discontent.

“Most wellness programs are like most gym memberships,” Adam Fawer, Noom’s chief operating officer, said in an interview. Employers have spent lots of money on programs that fail to help or even reach most of the staff, he said. “They feel like they’ve been burned.”

The culprit is the per member per month (PMPM) payment model, which Fawer said initially appeals to companies because it’s predictable, despite a fundamental flaw: wellness providers make the most from employees who don’t participate, because they don’t generate any expenses.

“The incentives are completely misaligned,” Fawer explained. Under PMPM, “I would be excited about the client that I’m helping the least, because I’ll make money from that person. And I’ll be least excited about the client I’m helping the most.”

In early December, Noom unveiled a new payment model for employers: clients will only pay for staff who achieved “transformational” weight loss—at least 5% of their starting body weight—or who lowered their blood pressure or improved blood glucose levels, depending on their health condition.

The idea comes as wellness programs are at a crossroads. While the Affordable Care Act (ACA) encouraged employers to improve worker health, the concept has come under fire from both liberal and conservative critics.4,5 Lewis, of the Disease Management Purchasing Consortium, pulled 2015 data from the Population Health Alliance—which includes insurers and wellness providers—to argue that programs don’t provide meaningful return on investment.6,7

More pushback involved worker privacy. In May, the Equal Employment Opportunity Commission (EEOC) said companies that wrap wellness programs within a health plan must cap incentives at 30% of coverage costs. EEOC also barred incentives that demand disclosure of children’s health status or any genetic information.8

Noom’s model aligns with CMS’ plan to offer Medicare reimbursement for the Diabetes Prevention Program (DPP), starting January 1, 2018. 9 CMS wants at least part of DPP payments to be outcomes-based, although some people have asked whether traditional community providers can pull this off financially.10 Petakov said that Noom was hard at work on its curriculum before becoming aware of the possibilities that DPP offered, but the core program—which is also 16 weeks—was easily adjusted to meet recognition by CDC, which evaluates whether programs meet evidence-based standards. Noom also offers programs with core curricula that last 24 weeks for participants with higher-level medical needs. Will it work? In the past year, an article on Noom’s results appeared in BMJ, showing that 56% of all who start the program and 64% of those who finish it achieve 5% weight loss, and most lose more.11

A larger study involving employees and clients of a major US health insurer is in the works, Fawer said. In the meantime, the new payment model is a hit with employers, he said. “This pricing method has yielded such a positive reaction from our clients that we instantly knew we were on to something,” Dan Poch, Noom’s senior vice president of sales, said in statement.12