Telehealth — Going Mainstream or Bubble Waiting to Burst?

Tiasha Ayumi Shafiq
Aug 4, 2020 · 12 min read

Applications in telehealth have been on the rise and are poised to explode over the next few years. According to a report by Global Market Insights, the telemedicine market was valued at $45B in 2019 and is expected to multiply to $175.5B by 2026 [1]. Initially used as a means to connect patients located in rural areas with access to remote healthcare providers, the field of telehealth is now increasing into mainstream usage and popularity to provide all types of populations with remote diagnosis and treatment.

Representative Startups in the Telehealth Industry (Source: Pitchbook)

Today the coronavirus pandemic has pushed telehealth to the forefront of healthcare innovation, due to healthcare providers reserving hospital services for people who are seriously ill after contracting the virus. This unprecedented boom in telehealth services have raised concerns on the sustained growth and demand of these services after the pandemic winds down. However, analysts predict that it is here to stay [2,3].

In a survey conducted by SageGrowth/Blackbook Research, 59% of respondents would use telehealth services in the future vs only 25% in the past [2,3]. In March 2020, Doctors on Demand, a telehealth platform that connects patients with providers, saw a 50% increase in demand [4,5]. This indicates the growing demand of telehealth services that has been matched by the growing number of startups and investments in this space. Just in recent weeks, six telehealth startups have raised $190M in total [4,5].

This momentum is predicted to continue even after the pandemic subsides (albeit at lower levels during the pandemic but at higher levels pre-covid), as observed by consumer surveys reporting positively changed attitudes towards telehealth services . This suggests a major shift in the provision of services in the healthcare industry [1,2].

Key StakeHolders Driving Growth in TeleHealth

The key stakeholders in this industry include:

  • Patients and Healthcare Providers that are seeking to adopt telehealth platforms

The illustration below outlines the key drivers that influence each of these stakeholders. Presently, insurance providers and the regulatory board are the limiting stakeholders in the rapid growth of this industry. These stakeholders relaxed their rules during the coronavirus pandemic, which accelerated the growth of telehealth services. The industry anticipates that the advantages of telehealth services identified during the pandemic will cause a telehealth friendly modified version of these rules to be put in place after the pandemic ends.

What factors drive the growth of each of these stakeholders? (Multiple Sources)

Startups to Watch

Telehealth platforms can be classified into three categories: Synchronous, Asynchronous and Remote Monitoring.

Synchronous and Asynchronous Telehealth Platforms

Synchronous and Asynchronous are the most popular classes amongst consumers since they allow either a real-time consultation or simply transmission of data (store and forward), respectively. These were the first classes of telehealth platforms to emerge in the market since the early 2000s and have steadily increased their customer volume over the years. The consumer behavior in these classes are driven by convenience/ease-of-use of the platforms, quality of physicians that are available in a short wait time, and patient costs (pay-per-visit or subscription based).

The coronavirus pandemic exposed the needs of the customers, pushing the industry towards innovations in these classes include introducing AI technology to diagnose and match patients better to streamline the increased load on these platforms; building specialized platforms that cater to specific segments of healthcare, like mental health (the pandemic led to a spike in mental health cases). Next, in this industry are startups with platforms that integrate a holistic approach to healthcare.

Investors Watch Segment For: The industry is moving away from traditional telehealth platforms towards ones that are AI powered and are catered towards specific disease segments such as mental health or integrated medicine.

Traditional TeleHealth Platform:

Teladoc (HQ:NY): Teladoc has been at the forefront of telehealth for the past several years (Founded 2002). Previously VC backed and now publicly traded, Teladoc offers 24/7 real-time connection between patients and physicians through phone calls or video options, with a wait time of less than 20 minutes. It offers general care, urgent care, pediatric, mental health services and others. This platform captures the fundamental aspect of accessible and convenient telehealth. It ended March with $43M US Paid Customers and is expected to have a sustained growth of 20% this year [6].

Watch Teladoc For: Rising brand value leading to a larger market share globally.

AI-powered Telehealth:

98Point6 (HQ: Washington): Founded in 2015, this is a mobile-app AI-based chatbot that provides primary care to screen for symptoms and direct patients to physicians as needed. Touted as the “Amazon Prime of Healthcare”, it has reported a 200% increase in patient volume since January and has cemented partnerships with major corporations such as Chipotle. Recently, it raised $43M Series D funding in April, 2020 from renowned investors (CEO Goldman Sachs, Blackrock) [8].

Watch 98point6 For: Builds partnerships with major corporations that cater to GenZ and Millenials who are comfortable with texting technology.

Specialized TeleHealth Platform:

Behavioral Services TeleHealth:

Sondermind (HQ: Colorado): Founded in 2017, this is a platform dedicated to mental health services by connecting patients and therapists online and in-person. It launched in Colorado and is now expanding to Texas and Arizona. It raised $27M in a Series B round in April, 2020 by General Catalyst, F-prime Capital and others. As society normalizes mental health services, demand for platforms like Sondermind are predicted to increase [9].

Watch Sondermind For: It expands into new markets across the US, as it adds more healthcare professionals to its network. An IPO could be possible in the near future.

Holistic Telehealth Platform:

Goodpath (HQ: MA): Founded in 2019 by a serial entrepreneur, the platform offers a holistic personalized treatment for chronic conditions by connecting patients with virtual nutritionists, behavioral therapists, physical therapists, yoga teachers, etc. It has taken an integrated approach to healthcare that will be appealing to consumers who have to manage lifelong chronic health conditions. It recently raised a seed round of $4M in April 2020 [10].

Watch Goodpath For: Gains customer traction and launches in other states.

Remote Monitoring Telehealth Platforms

The next generation of startups in this space are ones that provide remote monitoring, supported by a telehealth platform. The coronavirus pandemic has led to a surge in the use of remote monitoring platforms that offer on-demand at home toolkits to examine a patient’s symptoms. The data is then transmitted to physicians/hospitals for accurate diagnosis through the connected digital platform.

Since during the pandemic, access to hospitals and physician offices were limited since they were being reserved for critically ill patients their popularity increased as the remote monitoring toolkit led to a more accurate diagnosis by physicians using these diagnostic test data instead of just video consultations and elimination of an in person clinic visit by the patients.

Investors Watch Segment For: Innovations in these devices for different parts of the body (for example at home eye checkup), that will lead to their widespread use and cheaper prices.

TytoCare (HQ: NY,USA and Israel): Founded in 2012, this company offers an on-demand medical examination toolkit to remotely diagnose diseases related to heart, lungs, skin, ears, throat, abdomen, and body temperature; the data is seamlessly transmitted to their telehealth platform to a healthcare provider for an online diagnosis. It can be currently purchased at Best Buy for $300 in the US and has rolled out in multiple countries as well. It has seen a threefold growth in its sale over the past year and recently raised $50M in April 2020 in VC funds [11].

Watch TytoCare for: Partnerships with hospitals and corporations. An IPO could be possible in the future given its rapid increase in valuation.

Livongo (HQ:CA): Founded in 2008, the company offers remote blood glucose meters connected to their platform that can help manage diabetes, weight and hypertension. Their platform provides feedback on lifestyle changes and alerts physicians to changes in the patient’s levels. They have seen a 100% increase in customer volume to 328,000 in 2020 versus 2019 [13]. They have also shown that regular platform users achieved better glycemic control. All these factors have caused Livongo’s stock to see an unprecedented increase in price since the start of the pandemic.

Watch Livongo for: Stock prices in the near future; Additional development of the platform to capture a larger diabetic market share.

Spotlight: Wellness Platform

Besides telehealth platforms, customers are showing an avid interest in wellness platforms that could address their sleep patterns, anxiety and stress. To meet that demand there are startups that provide content for meditation, better sleep, and reducing stress and anxiety. Since the pandemic led to an increase in anxiety and stress symptoms, the available apps in the market have seen a spike in downloaded rates [19].

Investors Watch Segment For: Platforms that include at home workouts, at home relaxation activities, activities to improve mental health without therapy consultations and others that increase overall health and wellness. These platforms would be seeking a wider distribution channel to increase their market penetrance to promote their services that are more easily adapted by the self-aware younger generation.

Headspace (HQ: CA): Founded in 2010, Headspace is a mindfulness and guided meditation app that recently raised $93M in a Series C Round. It has $65M customers in over 190 countries and recently partnered with Spotify to provide a bundle package. Headspace has seen a sustained growth in its customer base by developing their platform to provide more personalized content [15].

Watch Headspace for: Increase in valuation as it expands internationally through strategic partnerships. It will also invest to integrate meditation in the healthcare segment.

Future Challenges in TeleHealth

Despite the plethora of telehealth platforms available in the market, we have still yet to overcome many challenges in the field. Over the next couple of years, telehealth vendors have to rise to these challenges if they expect to maintain their momentum.

HIPAA Compliance of Telehealth Platforms

All telehealth platforms need to be HIPAA compliant to ensure privacy of patient data. During the pandemic these standards were loosened, which is not sustainable in the long term. To avoid this, there are startups that are attempting to provide solutions to privacy compliance requirements. Some examples of startups include MedStack, Datica and TrueVault.

HealthCare Plans Reimbursement

Reimbursement of Telehealth services is one of the main barriers to the growth of this sector. There is confusion regarding policies across states and different insurance providers. During the pandemic, the government relaxed reimbursement policies to provide a wide coverage of telehealth services. Moving forward, policies regarding reimbursement have to be streamlined and standardized to ensure efficient use of telehealth services.

Telehealth Fraud

As telehealth becomes mainstream, there has been an increase in fraudulent activities in this sector. In September 2019, Medicare lost $2.1B to telehealth fraudulent schemes [17]. Therefore, we should expect new policies to be enacted to counter these activities. Additionally, there are startups that provide medical billing solutions to be integrated with telehealth platforms that comply with HealthCare Plan Providers billing compliance: AdvancedMD and drchrono

Widening the Digital Gap

Telehealth services have highlighted the disparity that exists between people who have access to technology and those who don’t. As the use of telehealth services increases, we will see a widening in this digital gap. Therefore, innovations to increase digital access to the disadvantaged have to keep up for telehealth to reach its maximum potential.

What Should Investors Look For?

These past couple of months have seen a flux of investment being poured into this sector. Venture Capital and Angels have realized the potential of the telehealth market, as seen by the number of startups that have recently been funded. The good news for investors is that this sector has seen a lot of M&A activity and IPOs. The major VC players in this field are Plug and Play, StartUp Health, Qualcomm Ventures, and Lux Capital to name a few.

With the dozens of telehealth startups being developed, it is becoming difficult to differentiate one service from another. Many of these recent telehealth platforms cannot differentiate themselves based on technology unless it has a specific disease remote diagnostic tool attached to it. What we do know is that any innovation that can eliminate an in-person visit to the clinic furthers the future of this field, which includes services from remote monitoring and diagnosis to online prescription fulfillment and delivery. The trend we are observing is that a telehealth platform that has a remote diagnostic tool attached to it is attractive to investors. Other innovative technologies to look out for are inclusion of AI and Virtual Reality to platforms.

Others try to differentiate themselves by the type of customer service provided, the quality of available specialized physicians, and the cost and reimbursement structure of the platform. Furthermore, the marketing strategy of the startup to attract customers influences the growth and traction of the platform. Like most tech based industries, the expertise of the team and steady growth is crucial to raising capital and building a sustainable platform.

However, is this the Right Time to Invest?

Change in Stock price of Livongo in the past 6 months (Source: xxx)

Investors should be wary of an unprecedented increase in valuation of these startups. Due to Covid-19, the valuation of these startups have risen pretty rapidly in the last few months. For example Livongo’s stock has increased from $25/share in January to $74/share in July (Figure to Left). The rise in stock prices can be attributed to its increased customer volume and hence profitability. Some analysts predict that the market share of Livongo will see an exponential increase over the next few years as they attract more customers to their platform.

However, one question to ask yourself: Can the increased valuation be sustained once the pandemic winds down? [18] The prediction is that customer volume would decrease after the pandemic subsides, but not to the levels of pre-pandemic. The rapid growth that these telehealth platforms have seen over the past few months cannot be sustained as clinics for in-patient visits open up. The percentage growth will decrease over the next few months, leading to lower revenues from the first two quarters of 2020.

That being said, it is my opinion that this is the right time to invest in telehealth startups. The demand for these services is increasing, and the most differentiated startups will be able to capture a large market share or be acquired by the larger telehealth companies that are seeking to maintain their market share positions.

Conclusion: TeleHealth is Going Mainstream!

Covid-19 has accelerated the telehealth industry, pushing it to the forefront and going mainstream. It has changed the way we envision healthcare delivery, in the same way it has changed our workplaces. Even though there are some challenges to overcome, dozens of startups are working towards providing accessible healthcare through their platforms. Overall, this is a promising industry that is just getting started!

Disclosure: I have purchased stocks of Livongo.

References:

[1]https://www.statnews.com/2020/03/17/telehealth-services-overwhelmed-amid-coronavirus-pandemic/

[2]https://www.gminsights.com/industry-analysis/telemedicine-market

[3]https://blackbookmarketresearch.com/administrator/img/0188_SGP_COVID-19%20Market%20Pulse_r2.pdf

[4]https://www.ortholive.com/blog/telehealth-adoption-tackling-physician-reluctance

[5]https://www.inc.com/kevin-j-ryan/telehealth-companies-venture-capital-funding-covid-19.html

https://www.insider.com/best-telemedicine-services

[6]https://www.healthcareitnews.com/news/comparing-11-top-telehealth-platforms-company-execs-tout-quality-safety-ehr-integrations

[7]https://www.computerworld.com/article/3029222/lifting-telemedicine-limits-would-save-medicare-18b-over-10-years.html

[8] Telehealth startup 98point6 grows membership 16% with 4 major employer deals

[9]https://www.mobihealthnews.com/news/sondermind-lands-27m-expand-its-therapist-matching-scheduling-services

[10]http://www.finsmes.com/2020/04/goodpath-raises-4m-in-seed-funding.html

[11]https://www.prnewswire.com/news-releases/tyto-care-raises-50m-to-expand-its-telehealth-exam-and-diagnosis-offering-globally-301036842.html

[12]https://medicalxpress.com/news/2020-06-remote-devices-telehealth-surge-demand.html

[13]https://www.fiercehealthcare.com/hospitals-health-systems/bucking-current-trend-livongo-raises-2020-guidance-as-q1-revenue-jumps-115

[14]https://www.theverge.com/2020/3/16/21181773/headspace-free-health-care-provider-public-health

[15]https://news.crunchbase.com/news/meditation-app-headspace-secures-47-7m-more-in-funding-filing-shows/

[16]https://www.siterocket.com/blog/2017/12/12/top-5-hipaa-compliant-application-hosting-and-service-providers/

[17]https://www.modernhealthcare.com/technology/coronavirus-fuels-explosive-growth-telehealth-and-concern-about-fraud

[18]https://www.fool.com/investing/2020/06/25/3-revolutionary-healthcare-stocks-that-can-make-in.aspx

[19]https://www.adweek.com/brand-marketing/as-anxiety-over-coronavirus-grows-meditation-apps-see-a-spike-in-downloads/

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