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A Chat With Pelago's Co-founder and CEO

Pelago is the leading digital clinic partner to U.S. businesses and health plans for substance use management, and Kinnevik first invested in the company in 2021. In March 2024, Pelago successfully closed a USD 58m Series C funding round led by Atomico with participation from Kinnevik and other all existing investors.

We had a chat with Pelago’s Co-Founder and CEO Yusuf Sherwani, MD, about the importance of effective substance use management for companies and what sets Palago’s approach apart from other methods.

Why is it important for companies to prioritize substance management?

Prioritizing substance use management has a direct impact on the workforce as well as broader implications for a company's culture, productivity, and financial health.

 Pelago was founded on the premise that substance use is a treatable chronic condition. We’re directly addressing the rising rates and costs of substance misuse head-on through a 100% fees-at-risk care model that delivers improved outcomes and demonstrated ROI. A medical claims analysis of our substance use management program recently demonstrated – on an annual basis – a cost reduction of $9,367 per participant compared to a control group, with a 3.0x ROI.

 Companies that prioritize effective, dedicated substance use management are in a unique position to improve the health and well-being of the workforce. Companies that strategically select and manage their substance use benefits, can expect substantial cost savings, robust ROI, and productivity gains.

What are the greater effects of doing so?

From our extensive experience in the industry, we know that employees grappling with SUDs often exhibit higher absenteeism and turnover rates and decreased productivity. Effective substance use management programs can reduce absenteeism and boost workplace safety, leading to significant additional cost savings.

Pelago saves employers money by eliminating what has become routine overpayment for ineffective treatments unsupported by clinical evidence. More importantly, by normalizing substance use treatment and behavior modification, employers facilitate earlier interventions that eliminate the costly health problems that typically stem from substance use disorders (SUDs), including gastrointestinal, musculoskeletal, and cardiovascular conditions.

What makes Pelago's approach unique within substance management? How is it different from traditional methods?

Pelago is the largest and fastest-growing substance use management company in the U.S. and the only virtual clinic with nationwide reach. We’ve been able to achieve this by dramatically improving how we measure and achieve clinical outcomes, as evidenced by the above medical claims analysis for our combined tobacco and alcohol programs.

Being one of the first virtual providers in the substance use management category, we have transformed substance use management from a niche solution to an essential benefit. Pelago has seen a 500% increase in substance use disorder-specific RFPs from employers and payers in the past twelve months, and the strength of our position enabled us to drive revenue growth by 287% in 2023, leading to a platform that covers more than 3.4 million eligible lives. We’ve maintained 100% client retention since our founding, and now have more commercial clients than all of our SUD competitors combined.

Unlike traditional providers with long wait times and high costs, Pelago provides immediate access (within 24 hours) to specialized SUD care at a fraction of the cost. By reducing inpatient and intensive outpatient utilization, we’ve been able to cut SUD treatment costs by more than 75% for many of our clients. In short, Pelago’s solution is purpose built to quickly reach people with the specialized care needed for positive experiences and outcomes.

Pelago works to break the stigma around substance use disorders, what is your strategy to succeed in doing so?

The stigma surrounding SUDs is one of the biggest barriers to getting effective treatment. That’s why we have developed an intentional communications process with our clients that works to educate our members and raise awareness of the tools available to them through their employers and health plans.

 Key aspects to breaking the stigma of SUDs include:

  • Destigmatizing the language
  • Educating and informing members about available substance use benefits
  • Fostering a judgment-free work environment through open dialogue about SUDs while respecting individual members’ confidentiality
  • Supporting a recovery-friendly workplace while encouraging top-down leadership support
  • Communicating that substance use disorder is a chronic but treatable medical condition—just like diabetes or high blood pressure—for which people should not be ashamed to ask for help

What is your advice to other founders in the healthcare industry, what areas should they focus on to make actual change?

Choosing the right north star, and avoiding vanity metrics, is critical as a health-tech entrepreneur. The healthcare landscape is rife with bloated expenses, inefficiencies, and suboptimal care pathways that more often than not lead to poor outcomes and exorbitant costs for patients, providers, and payers alike. Ultimately, the companies that thrive are those that can demonstrate tangible, measurable improvements in patient outcomes while simultaneously reducing the overall cost of care delivery.

Where are Pelago and the substance management field heading next? Any new solutions, target groups or issues that will be influential going forward?

In the coming year, we will accelerate our product roadmap, including the addition of SUD care for cannabis. We’ll also be working to build out advanced care coordination, optimize digital engagement, and expand our clinical research validation efforts.

 In terms of the behavioral health industry, value-based care models will continue to grow in importance. In the current economic environment, employers and payers are looking for pricing and ROI transparency, with rigorous studies and validation that clearly demonstrate the practical impact of digital health tools in terms of cost savings, patient health outcomes and healthcare delivery. Our clients and prospects, understandably, want to see results demonstrating actual clinical value and patient and clinician benefit – and that’s something we’re well-positioned to deliver on.

 Additionally, look for the industry to continue its rapid adoption of AI solutions that support both patients and caregivers by optimizing patient engagement and bringing more value to actual human interactions.

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