Given the recent COVID-driven explosion in tele-health visits, lots of investors are newly keen on making bets in telemedicine platforms. Not me. I’ll tell you why.
What’s to like about telemedicine:
- Patients like not having to travel to the doctor and wait in a dreary waiting room for doctors who are inevitably running very late.
- Physicians (many who were doubtful that telemedicine could deliver adequate care) were pleasantly surprised as how easy the process was and how much they and patients liked it.
- Administrators like that the privacy / security regulations have been loosened, allowing them to use many familiar platforms, like Zoom or FaceTime to interact with patients.
- Medicare changed its policies to reimburse many telemedicine visits at the same rate as in-office visits. Commercial payers often follow Medicare.
So, won’t most visits that can transition to telemedicine do so? If so, shouldn’t this be a good place to invest?
In short: Yes, and No.
Yes, we think that the transition to telemedicine is here to stay. We think volumes will be meaningfully increased from the past several years.
But, No. It’s not a good place to invest.
Why we don’t like telemedicine:
Telemedicine is really a service business. Like Uber or Lyft.
There are some strictly “pipes” companies — like VSee, SecureVideo, Klara, Trillian, Spruce, and others — that simply provide a HIPAA compliant videoconference solution, with the opportunity to customize to your electronic health record (EHR). These are commodities. It’s tough to make money here because the product simply increases the privacy / security of a basic videochat platform, and the entire potential user-base is the 1.5m doctors, NPs, and PAs in the US (compared to Zoom and Microsoft Teams/Skype with greater than 100m and 85m daily active users, respectively).
When most people think of telemedicine, however, they think of companies like Teladoc or Doctor On Demand. These companies are turn-key solutions; in addition to the ‘pipe’, they employ physicians and other clinicians, curating a network of doctors that will be available to patients. There are over 40 startups also in this space, generalist as well as therapeutic area-specific. These companies don’t compete on their technology — hence, there’s no “product-win.” Rather, they compete based on their geographic coverage, convenience, cost, etc.
Thus, these are service businesses, not product or technology businesses. It’s a network play. They need to provide enough ‘density’ of doctors available to patients based on many vectors like: time, insurance plan coverage, cash cost, specialty, etc.
There are two big issues with this model:
1. Not only is the structure similar to a service business, the margins are too. Margins are driven down by:
· High CACs as providers first sell to employers and payers to get their services “covered.”
· Difficult communication to members — platforms need to somehow ensure that the patients who are eligible know they have this benefit and call in to use it; yet, the telemedicine companies don’t control the marketing channel to the patients!
· Low utilization — partially as a result of the above, only 2–4% of patients who have the benefit ever use telemedicine.
(Teledoc has gone through all of these challenges, detailed in their 10-Ks. For example, in order to retain some contracts, they had to change their pricing from PMPM to per-use because employers were finding their employees only used it 1–5% of the time and, with a PMPM fee, their effective payment per episode of care was dramatically higher than what it should be.)
2. Similar to the Uber and Lyft models, where drivers usually drive for both: doctors can contract with every service and just do the calls that bring them the highest value. So, the platforms have less pricing power on their take rate as labor will migrate to the platform that is most advantageous to them. Prices get competed down. Unit economics (per visit) are challenged.
Telemedicine in a Post COVID-19 World:
Since Medicare will reimburse telemedicine visits the same as in-office visits (a massive change), more providers will provide telemedicine within their own practices. Counterintuitively, this won’t be great for the “Telemedicine” Teledoc / American Well model because those rely on patients going outside of their normal doctors for convenience.
Now, a patient can stay with their regular doctor and system and get telemedicine treatment. Thus, for patients with regular doctors, we don’t expect them to go out-of-system to these telemedicine providers.
Yet, for patients without regular doctors, or who are underinsured / uninsured, these telemedicine services are a good option, especially if their prices are transparent for cash-paying consumers.
Where are interesting places to invest around the telemedicine trend:
While we don’t like telemedicine companies per se, we do like the second-order opportunities arising from an increase in telemedicine usage. As a thought exercise, imagine that telemedicine accounts for half of all medical visits. What will be required? We will need:
- Auditing tools to detect fraud and payment integrity tools to ensure visits are properly billed. With telemedicine, it will be much easier to commit fraud, and much more difficult to appropriately bill for complex patients when the interface is disconnected from the EMR. Thus, companies like FraudScope will be necessary.
- Patient billing / collections companies that are integrated into the EMRs and RCMs. These will thrive if they can introduce virtual waiting rooms and incorporate the telemedicine workflow. Effectively, they can instantaneously turn a traditional practice into a virtual one. Companies like Health iPASS will flourish.
Other solutions that will be needed are:
- digital asynchronous patient onboarding
- automatic eligibility checking
- price transparency
- real-time medical records transfer
- digital device and app “prescriptions” to be delivered to the patients at their home
The first several cannot be point-solutions, however. They must be integrated into the practice management and EMR, similar to how Health iPASS works. Otherwise, it just adds workflow complexity to a process that is already too complicated.
Other interesting areas to invest right now:
We think the trend towards Distributed Care will not go away. More care will happen off-campus at ambulatory sites, remote offices, and even telemedicine visits with traditional providers (as described above). Networks will broaden and will begin to include specific “convenience” providers like Hims or Roman for routine drug prescriptions. In order to facilitate this federation of providers, there are still major needs in data pipes / sharing and dynamic access to information. Home health will keep growing as skilled nursing facilities’ volumes fall. We’ll also continue to see the atomization of care as patients seek convenience, driving growth in primary care clinics (like One Medical or Carbon Health) and online direct-to-consumer providers for access to popular drugs like birth control.
With 40m now unemployed, we expect a significant increase in the uninsured and Medicaid populations. As a result, we think that companies that Increase Access to Care will do well. This will enable new opportunities like robotic process automation applied to clinical care (the ultimate goal of Pluto Health) and buying clubs that will provide a menu of clinical services at known discounted rates (like Mira).
Patient attitudes have changed, with many open to these fragmented care options. Not only does this upend the current network-design in health insurance, but it also requires a robust eligibility and adjudication process, which doesn’t exist today. We are actively looking at opportunities like this.
Finally, the clinical experience of treating COVID19 has highlighted for everyone what experts have long known: One drug does not fit all. Patients response to different chronic or infectious diseases and response to different treatments are unique. We finally have the potential to get the data necessary to treat patients like individuals, not populations. Data pipes, particularly those that combine health information with socio-demographic information, and allow patients to opt-in like SubjectWell, will be big winners.
This will drive a greater need for an absolutely higher number of clinical trials as well as re-imagining the implementation of clinical trials that aren’t bound by physical limitations to also include data from the ‘real world’.
Opportunities we’re looking to invest in include: patient-driven trial protocol designs for better completion of trials, workflow / CRM tools to better support patient activation / retention, platforms to calibrate and asset-manage disparate data input devices, and transportation and production logistics for smaller batches of more personalized drugs.’
* We’re not actually short telemedicine companies. But we’re also not long, nor looking to make new investments in direct telemedicine providers right now.
 Telemedicine volume exploded in March, April, and May. Overall, the volume of telemedicine visits is up over 10x. Among traditional telemedicine companies (e.g., Teladoc, American Well, Doctor-on-Demand, MDLive), volume increased by 50%. Among traditional providers, like NYU Langone Medical Center and Kaiser Permanente, volume is up 20x and 15x, respectively. Forrester Research estimates that total 2020 virtual medical care visits will be 200m, up from 32m in 2019, an increase of almost 7x.