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Teach Now or Treat Later: Wellness Educator Omada Raises $48M

Xconomy San Francisco — 

[Updated 9/17/15, 9:52 am. See below.] Health insurance plans are avidly searching for ways to reduce the cost of medical treatment, such as favoring generic drugs over brand name pharmaceuticals. San Francisco-based digital health company Omada Health approaches the cost problem from a different direction, by trying to prevent serious, chronic diseases from developing in the first place.

In a $48 million funding round Omada announced today, the lifestyle coaching company got a vote of confidence from prominent new investors. They include two of its health care industry customers that are steering their at-risk patients into Omada’s technology-enhanced program, Prevent, to lose weight and stave off Type 2 diabetes and other obesity-related disorders.

Omada’s Series C round was led by new investor Norwest Venture Partners, joined by major health insurer Humana (NYSE: HUM), Providence Health & Services, a large non-profit health system, and additional new investors GE Ventures and dRx Capital. Previous investors US Venture Partners, Rock Health, and Andreessen Horowitz also participated. Omada’s total fundraising now adds up to $77.5 million. [Rock Health added as an investor.]

Since its founding in 2011, Omada has enrolled 20,000 active participants from healthcare companies—including Humana, Providence, and Kaiser Permanente—and from self-insured employers such as Costco, Iron Mountain, and Lowe’s. The company says it is raising money to meet market demand. Its goal is to start 10,000 more participants on the program by the end of the year, and serve hundreds of thousands by the end of 2016.

Omada CEO and co-founder Sean Duffy says the company aims to deliver, at scale, the evidence-based coaching methods found most effective in research studies. Prevent’s 16-week core program starts with a month-long re-education about food. Under standards set by the Centers for Disease Control and Prevention (CDC), Omada doesn’t push any single diet ideology, such as the low-carb “paleo” regimen. Instead, it gradually encourages overweight people to replace low-value junk foods with meals that have “less fat, more nutrition, and fewer processed carbs,” Duffy says.

The next two modules in the online Prevent curriculum cover exercise and the psychology of weight loss, such as how participants can forgive themselves when they stray off their healthy food plans, Duffy says. Omada makes use of behavioral insights and online networking to keep participants motivated. It hooks them up with a peer support group, and a personal lifestyle coach to consult via e-mail or personal phone call.

Those coaches are based in the participants’ geographic regions, so they know what specific diet pitfalls to target. In New Orleans, for example, it’s the habit of drinking sweet tea, which can pack on the pounds over time.

Although millions of dollars are being invested in digital health products that range from wellness coaching to fitness tracking devices, the effectiveness of these solutions is often questioned. Duffy says Omada’s business customers pay based on the actual outcomes of the Prevent program—that is, whether its participants lose weight.

“We can shift a lot of the risk onto us,” Duffy says. Each participant is sent a scale that wirelessly sends the results of each weigh-in to Omada. Each one also gets a pedometer to track their activity levels.

The potential payoff for health insurance plans and self-insured employers comes when patients get healthier, rather than developing chronic conditions like diabetes and cardiovascular disease that are expensive to treat.

Duffy estimates that national cost at more than $500 billion a year. Each at-risk patient who develops a chronic disorder can cost an insurer as much as $10,000 a year more than a healthier person, Omada estimates.

Among digital health companies developing products along similar lines is New York-based Noom, which offers personalized weight loss plans and monitoring via smartphones. Noom also partners with health care providers and payers.

Omada vies for customers by publishing the outcomes of its wellness program in peer-reviewed journals. The company has grown its staff count from 75 to 185 in the past year, and it’s now hiring more people to keep up with anticipated demand, Duffy says. Many of the new hires will work in San Francisco, he says.

Casper de Clercq, a partner at Palo Alto-based Norwest Venture Partners, says the VC firm was impressed with Omada’s published results.

“We are confident that Omada can help the millions of individuals who are susceptible to chronic conditions like diabetes and cardiovascular disease,” de Clercq said in statement about the fundraising round announced today. “The new capital will allow Omada to continue to expand and broadly deploy its programs.”