The Peloton buzz. There is no doubt Peloton provides a great indoor exercise experience. The reviews, while mixed, are mostly positive. And since other companies like Tonal are following in Peloton’s footsteps (the highest form of flattery) it’s clear the company has a winning formula. Peloton’s stock price soared in 2020 as the pandemic kept gyms closed and health-conscious people searched for new ways to stay fit. The stock plummeted in March 2021 amid the belief that, following mass vaccination in the US, consumers will soon return to gyms and cancel their (rather expensive) Peloton subscriptions. But as of this writing, the company’s revenue is growing and the share price is rebounding. It may be too early to say with certainty, but I believe Peloton is here to stay. I only wonder what Peloton will look like in the near future.
Can Peloton support healthcare delivery? From what I can tell by Peloton advertisements and some online market research, Peloton is currently marketed to a relatively young and physically active demographic. You might find one pic of a 50-year-old on their website, but the other 100 pics show people aged 20-40 years old. Nonetheless, older people are definitely using Peloton – check out this reddit thread for details.
So my key question is: might Peloton expand its marketing to people over 50 and who are capable of routine exercise? This demographic has the highest healthcare spending, and includes Medicare beneficiaries with and without chronic disease. Keeping these people healthy is a central theme of innovative healthcare delivery models and new digital health technologies. But advances in technology and care coordination can only go so far; reducing our nation’s healthcare spending will require that people lead healthier lifestyles, and that includes regular exercise and maintaining a healthy weight.
In the last section of this article, I lay out a proposal for a financial arrangement between Peloton, health providers and insurers (see “Alternative revenue for Peloton” below). But before I dive into that, I think it’s helpful to share an example of how a little bit of consistent exercise can have a big effect on long-term weight.
All about momentum. Anyone who struggles with weight gain knows that once you put on some weight, it’s much easier to put on more weight. In the absence of exercise and restrained eating, we all move to our high-weight equilibrium (e.g, our fattest selves). People have different reasons for giving up on weight management, but if you dig deep into the reasons for abandoning exercise you will find common drivers.
At least two of them are very common: joint pain and embarrassment. Both of these factors kick in after you cross a critical weight threshold, which is unique to the individual. For myself, that number is 175 lbs. At 175+, my knees start to hurt when I run; so I stop running and lose that exercise benefit. My weight gain after 175 can accelerate more easily, because I abandoned my favorite exercise (running). For my wife, that number is 160. In her case, she gets embarrassed with her appearance at 160 lbs, and refuses to go to the gym or run outside in public. Essentially, weight impacts exercise, and exercise impacts weight.
See the illustration below of my personal exercise-weight dynamics. If I exercise less than 2 times per week, I will start gaining weight. The extra weight makes me less likely to exercise, which in turn leads to faster weight gain. The opposite is true if I exercise more than 2 times per week.
The central idea is that a bit of exercise (or a lack thereof) creates a momentum towards weight loss or weight gain, respectively. Losing weight is not a hopeless endeavor; you just need momentum. If the exercise experience is attractive enough (like a Peloton experience) then people who’ve been overweight for years, including those who are at risk of developing chronic illness, can create that weight loss momentum. Interestingly, I hear that many Peloton users continue using Peloton for more than a year after the initial purchase. This supports the idea of a sustained momentum leading to weight loss and improved health outcomes. Here’s a great article on digital fitness companies, by David Shaywitz.
The graph illustrates 7 simulations of my weight & exercise routine, each lasting 5 years, and each beginning at 175 lbs with an exercise routine of 2 sessions per week. Both weight and exercise are changing throughout the simulation. The arrows reflect the direction of weight change, influenced by different assumptions of my metabolic rate, which is likely to change (slow down) as I get older.
When companies contribute to a “health culture” among seniors, we all benefit – patients, taxpayers, insurers and Peloton. But a Peloton bike with a monthly subscription is not cheap, and seniors (e.g., retirees) may not warm up to the current price tag.
But there could be other ways for seniors to access the Peloton experience.
Alternative revenue for Peloton. Before I describe the revenue strategy, I have to introduce value based healthcare. Value based healthcare incentivizes high-quality healthcare over service volume. Essentially, instead of paying healthcare providers on a per-service basis, providers are paid according to the health outcomes of their patients. Payors (health insurers) including Medicare, Medicare Advantage plans and commercial carriers can pay doctors and hospitals through risk-sharing contracts. Risk sharing assumes a certain expected level of healthcare spending for patients or certain medical events. If healthcare spending is too high, then providers may incur a financial penalty. If healthcare spending undershoots the target, then providers may get a financial bonus. It’s important to note that quality of care must be rigorously measured under risk sharing so that patients are not denied essential care.
We can imagine that health insurers, or healthcare providers, may consider paying Peloton for its contributions to good health outcomes. If a group of patients used Peloton for one year, and: (1) reduced their weight or (2) slowed down chronic disease progression – their healthcare spending may decrease. This decrease is called “shared savings” and is often split across different players in healthcare – primary care doctors, hospitals, insurers, etc. But Peloton could also be one of those recipients. And depending on how the risk-sharing contract is structured, the shared savings revenue would be ongoing.
The first step is demonstrating whether targeted Peloton use will lead to lower healthcare spending, and that requires a pilot study. Conceivably, the pilot would use data analytics and clinical expertise to help target Peloton to certain patients; those who will likely do some exercise, and whose weight loss could lead to lower healthcare spending. Then there’s the time frame to observed improved health outcomes – how long do we expect to wait for before Peloton use will translate into healthcare savings? Another key issue is negotiating a discount with Peloton for their exercise equipment and subscriptions. Essentially, how much would Peloton lower its price under a risk sharing agreement with a health system or insurer, in exchange for a portion of future shared savings?
With the expansion of risk-sharing contracts coinciding with a population that is becoming more health conscious, we have a situation where health systems are being compensated for good health outcomes they’re not responsible for. Companies that operate in the health and wellness space should be paying attention and capitalizing on their own contributions to population health.
~ James
