Telehealth and the shift to demand-driven healthcare
Telehealth represents a tectonic shift in our healthcare system: demand-driven healthcare.
This was originally published as a part of the weekly Create The Customer newsletter: a discussion of the business of healthcare. To see more and subscribe, visit createthecustomer.com
Last week Doctor on Demand announced $74 million in new investment in a round led by Goldman Sachs. The company offers remote physician visits via video, text, and phone call, and does so through agreements with health plans (insurance companies, large employers, etc.)
Telehealth is something of a controversial element in our healthcare system. The value to consumers is clear: vastly more convenient access to healthcare services. But does it deliver value on a systemic level? Why exactly is Goldman Sachs plunking down such a large bet on a telehealth company?
Before we get too deep, a note on terminology: telehealth and telemedicine are used somewhat interchangeably, and both refer to a wide variety of healthcare services delivered remotely. It can mean a patient text chatting with his doctor about his sore throat, or a specialist oncologist performing a nurse-assisted consult via inter-hospital videoconference. The focus today is on the segment of the industry using remote communication to address the primary care arena: the 1.2 billion annual ambulatory visits made to primary care, emergency rooms, urgent care, and hospital outpatient facilities.
Supply Driven vs Demand Driven
Our healthcare system is supply driven. It has grown, over a century, around the physician as a central hub. When patients need care, they must find a physician, make an appointment, go to the office, wait, be seen, and then arrange for follow ups if necessary. Weeks later, they’ll get an EOB in the mail and potentially a bill from the provider’s office.
Supply — the physician — dictates the terms of the entire interaction. It’s in his office, when it fits into his schedule during normal working hours, and payment is on terms he’s negotiated with the insurance company. Demand — the patient needing care — is forced to conform entirely to the terms of the supplier (to the point where they don’t even know the price beforehand!)
(Note: I am in no way laying blame on physicians for this system. They are as much locked into it as patients, and without much agency to escape it.)
Demand driven healthcare, on the other hand, forces supply to conform to the needs of demand.
When a patient needs care, they are able to choose how they would like to access it, and they are aware of the tradeoffs they might be making with their choices. This compels suppliers to alter how they deliver services to meet the needs of those patients in order to gain their business.
Demand driven primary care has manifested in the form of urgent care centers, retail clinics, and telehealth services. The surest sign that these are demand-driven is they are open before and after regular working hours — you don’t have to skip work to have a provider check out your sore throat. They prioritize minimized wait times, ensuring that patients get care when they want it. And they typically try to be in convenient locations, like high traffic areas or on your smartphone.
Another important facet of these demand driven healthcare providers: they aren’t centered around the physician. One artifact of supply driven, physician-centered care is that all roads lead to the doctor, even when the doctor’s training & skills aren’t necessary. Retail clinics provide the services typically performed in primary care that don’t require a physician, and thus do it on a lower cost basis (as reimbursement is tied to provider type). Effectively, patients are getting a more appropriate level of care rather than just seeing a doctor for everything. I discussed these phenomena in relation to the disruption of primary care a couple weeks ago.
Furthermore, as you consider the need for better chronic care management, demand driven providers are much better suited to conform to the type of low-complexity, high-frequency check-in care to help patients manage their diabetes or heart disease.
Any business that wants to operate in a demand driven marketplace would do well to lock-up as much of that demand as possible. For telehealth companies, this means creating relationships with patient demand aggregators like health insurance plans and large employers. Teladoc claims to have 20 million members, which means that 20 million people have access to Teladoc’s services through their employer or health plan.
Telehealth as an overall concept is still relatively new. This means that even though Teladoc has 20 million members today, their utilization rate — the percentage of those members who actually use the service — is low. When they filed their S-1 to go public in 2015, that utilization rate sat at just 3.7%.
While this isn’t the rosiest picture, if you’re a moneyed investor looking to place a bet on the future of telehealth as a category, you’re going to focus much less on the utilization rate than you are on the overall membership number. It’s really not that different than regular tech startups that focus on attaining a widespread user base first, and then figure out how to monetize those users later. You can’t monetize users you don’t have.
Teladoc’s big push now is on boosting that utilization rate, and they seem to be doing a good job of it. On their Q1 2018 earnings call they reported a utilization rate of around 10%, representing a huge increase over the past two years.
In addition to growth via increased utilization of primary care services, Teladoc and other telehealth platforms can also bolster revenues by adding new services. The heavy lifting, and the major spending, is in creating technology and acquiring populations. Once you have the populations — the demand — and the means to reach them, adding more ways to serve that population can be a cost-sparing way to boost revenue.
The Wider View of Telehealth
It’s important to note that the virtual visit telehealth model is just a subset of the overall segment. The basic notion of telehealth is that providers and patients can be in contact outside of the formal bounds of a visit.
There are a number of HIPAA compliant chat solutions, free of any telehealth suite, that patients can use to chat with their doctors. The reason this isn’t a more regular mode of care sadly comes back to reimbursement. Doctors don’t get reimbursed for conversing with patients via text messages. As we see more and more primary care providers embracing value based care, where they are compensated on overall patient health rather than fee for service, this paradigm is sure to shift.
It can be argued that the greatest benefits of telehealth accrue to the payers. Having more convenient primary care access leads to increased utilization of low level services, which can help reduce unnecessary and costly visits to specialists and hospital based care. Oscar Health, the young & hip health insurance startup, incorporates some telehealth services into their basic insurance offering with this goal in mind.
As much of the overall ROI for telehealth includes the avoidance of high-cost services, it’s much more challenging to attain a reliable ROI measure. If the industry does continue down the path towards value based care, this metric may become more readily available.
It’s also not hard to see, not far down the road, some of these telehealth companies getting scooped up and vertically integrated into larger health conglomerates. CVS/Aetna, and Walmart/Humana (if it happens) would be natural fits to further embrace this demand driven mode of care.
A Note: Evaluating Innovation
Evaluating the long term prospects of any innovative approach or technology is a hard thing to do. In healthcare, where everyone agrees the system is broken from top to bottom, this evaluation becomes fraught with the hope that this innovation will be the one to right the ship.
When you place such a burden on any singular innovation, it will 99.9% of the time be found lacking.
Disruptive innovation is a long and drawn out process. It, by definition, incubates on the fringe, catering to the needs of the few, in order to learn how to cater the needs of the many. Even once the disruptor has sprung into action and brought value to the mainstream customer, no service and no innovation will solve every customer’s needs.
As we evaluate telehealth, and really any innovation in the healthcare world, it’s important to remember that no single company will “fix” healthcare. No single change or innovation will alone right the ship. There is no “one size fits all” solution to our healthcare problems, or even to the wide world of primary care.
Perhaps the question should be, instead, will this innovation help us move in the right direction? In regards to telehealth, I’d argue it’s almost certainly yes.