Source: Forbes
When we say healthcare operates in silos, we mean a patient’s cardiologist, psychiatrist and general practitioner have no idea what each other are doing. Or that the individual departments in a hospital have no idea what each other are doing. Or your new family doctor has no idea what former doctors did to you, and you have to fill in a sheet on a clipboard in the waiting room with decades-old information you barely remember or even understood when former doctors told you.
“Connected care” is supposed to break down these silos. Is telehealth doing it? Probably not. Let me illustrate with an alternative history of consumer banking. Suppose I told you (sometime in the 1970s) that you would no longer have to go to a branch during bankers’ hours to withdraw cash. You could do it 24/7 at a machine called an ATM. However, the ATMS would be operated by different banks than the branches. You would need to have at least one account at a bank with branches and one other account at a bank with ATMs. That would not be very efficient. However, that seems to be the way telehealth is evolving.
Teladoc, Inc. will release its quarterly and annual earnings after the closing bell today. Founded in 2002, Teladoc is the longest established telemedicine provider in the U.S. Its business is to offer video consultations with physicians and psychotherapists. Enterprises like Teladoc have attracted a lot of funding over the last few years.
In a recent report, Accenture estimates the number of (what it calls) “on-demand” health service companies grew from four in 2010 to 42 in 2014, while investment grew at a compound annual growth rate of 224%. During the period, on-demand health ventures have attracted about three quarters of a billion dollars of investment, of which $639 million was in primary care.
Teladoc has a number of interesting competitors: Doctor on Demand, Sherpaa and MD Live are generalist services that have attracted venture funding. There are also specialty services, such as Spruce for dermatology or TalkSpace for talk therapy. There is even the I.V. Doc, which offers a quick online consultation with a physician, followed by a mobile nurse showing up to administer intravenous hydration with medication and vitamins. The I.V. Doc happily promotes its service as a therapy for hangover, among other ailments.
However, Teladoc is the only one to have gone public, so we know more about Teladoc than the others. It went public last July at $19, popped 50% to $28.50 the same day, and drifted back down to its offering price by October. At time of writing, it was trading around $13.50. Although still unprofitable, Teladoc’s business is growing fast. In January, the company gave earnings guidance for the year. Total revenues were forecast at around $77 million to 77.5 million, a 77% increase over 2014. Visits in 2015 were more than 575,000, a 92% increase over 2014. For 2016, Teladoc forecasts both revenues and visits will increase by over half in this afternoon’s earnings report.
So, things seem to be going smoothly for Teladoc and the industry generally. Most of Teladoc’s revenue is from recurring large-group subscriptions, and its peers seem to have similar business models. When employers and health insurers contract with telehealth providers, they are offering their beneficiaries the opportunity to consult with doctors who are not their primary doctors, outside doctors’ normal hours.
Is that “Connected Care”? Not really. Telehealth providers appear to be willing to send you a note that you can carry to your primary doctor, but not to collaborate substantively with primary-care doctors. In a properly functioning market, it is unlikely telehealth providers would contract with employers and insurers and promote their own brands to patients. Instead, they would contract with primary-care providers. The telehealth physician and the primary-care physician would make a team. (Similarly, ATMs are often not owned and operated by banks, but leased from white-label third parties.)
There are a few examples of telehealth being integrated into primary care, illustrated recently by a number of case studies highlighted by the Council of Accountable Physician Practices. However, it does not appear to be emerging as the consensus model.
Telehealth services are clearly beneficial. The odd way the market is developing is due to our over-reliance on third-party payers, especially employers, insurers and government, to determine who gets paid in healthcare. If patients controlled more health spending directly, the market for telehealth would surely grow in a more obviously efficient and effective way.
Investors’ Note: Teladoc (NYSE: TDOC) is the only pure-play telehealth provider listed on the U.S. public markets.