Pelago, a virtual substance use disorder (SUD) clinic working with payers and employers, has clinched $58 million in a series C round.
The company will use the capital to expand its programs across the continuum of care, particularly for earlier stages, advance its clinical research efforts and explore expansions into additional substance areas. New investors included Eight Roads and GreyMatter Capital, alongside existing investors Atomico, Kinnevik AB, Octopus Ventures and Y Combinator.
Pelago offers integrated SUD management for employers and payers with specialized treatment for tobacco, alcohol and opioid use disorders. It also began supporting teens ages 15-17 years in all three areas in 2023.
“Pelago's ability to expand and accelerate access to best-in-class substance use care results in a major improvement in clinical outcomes and costs with clear and material ROI for employers,” Atomico Partner Laura Connell said in an announcement.
The annual attributable medical expense for someone with an SUD on employer-sponsored insurance was $15,640 in 2018, or more than $35 billion overall. Alcohol- and opioid-related disorders were the most costly, and a large percentage of patients with illicit drug use disorders go undetected.
A 2023 Pelago SUD management trend report found nearly half of all U.S. workers have experienced personal or family problems involving substance or alcohol use. The consequences in financial and productivity terms greatly impact a company’s bottom line, Pelago executives said.
“We know that this is an area that’s very expensive for employers and payers,” Yusuf Sherwani, M.D., co-founder and CEO of Pelago, told Fierce Healthcare.
The company, founded in 2017, operates entirely at-risk. Every contract has performance guarantees, meaning Pelago only gets paid when successful clinical outcomes on a population basis are achieved, Sherwani said.
The fee-for-service (FFS) system, which incentivizes volume, never made sense to Sherwani, who studied medicine in the U.K. Critical components of Pelago’s care model—like asynchronous support between visits—are not reimbursed under FFS.
“If we can set the incentive on day one … we can actually solve the care delivery problem we see in SUD today,” Sherwani said.
Since inception, Pelago has focused on the commercial population because those payers are more open to innovative models of care, whereas the more rules-oriented Medicaid has been slower to adopt risk-based contracts, Sherwani said. Nonetheless, Pelago does plan to eventually support Medicaid populations.
SUD affects both blue collar and white collar workforces, from mining to construction to financial services and education. Today, Pelago works with more than a dozen industries. “Addiction affects everybody,” Sherwani said.
But what Pelago treats most often is alcohol use disorder, the fastest-growing need among the commercial population, per Sherwani. A 2022 SAMHSA trends report found that the number of Americans with alcohol use disorder exceeded those with drug use disorder. There is also an overlap of 8 million Americans who have both.
When it comes to prevention, the steps are similar to maintenance, Sherwani explained. It involves long-term habit management that entails seeing a therapist regularly and measuring patient-reported outcomes. Pelago offers digital cognitive behavioral therapy journeys, personalized to a person’s triggers.
Patients go through check-ins that ask, for instance, if they drank yesterday and what their trigger was. Those insights are then sent to their therapist ahead of their next session and linked back to each patient’s goals. Perhaps they want to see how much money they’re saving on healthcare costs or how their health has improved, Sherwani said.
In 2023, Pelago saw 287% revenue growth and 100% client retention. It works with major companies like AT&T, GE Appliances, HP and Philips as well as with regional Blue Cross Blue Shield plans and Cigna Evernorth. More than 3.4 million have access to Pelago today.
According to its own claims analysis, Pelago says its program reduces medical claims on an annual basis by $9,367 per participant compared to a control group, totaling a 3x ROI. More than 80% of cost savings were attributable to lower medical spend, according to the analysis, with the rest tied to lower behavioral health costs.
The company also says its program is validated in 13 peer-reviewed studies, including a randomized controlled trial. These studies have demonstrated Pelago’s efficacy in facilitating smoking cessation, reducing alcohol and opioid use and producing improvements in mental health, resilience and overall functioning, according to a company press release.
Among competitors, Sherwani sees service in multiple addiction areas beyond opioids across the continuum of care and the fact that the virtual clinic operates in all 50 states as Pelago's greatest differentiators.