As Washington continues to war over “Repeal and Replace” of the Affordable Care Act, one thing is certain: the need for affordable and accessible healthcare that is patient-centered and personalized. Millions of women, senior citizens, employees and independent business professionals will be affected by the expected changes to Obamacare, including, but not limited to, reduced health benefits and preventative services, discontinued subsidies, and rollback of Medicaid.
Waiting for sweeping government changes is not the solution, and development of innovative health solutions have already been underway. There’s no question that the future of healthcare is digital, where individuals are equipped to self diagnose, doctor communication is remote and timely, medication is on-demand, and data is empowering prevention, drug discovery and development. Concern and curiosity motivated me to explore our current healthcare progress and available solutions.
Remote care delivery will evolve to become the first point of contact for everything healthcare
There have been a number of telehealth startups that have entered the space in the last ten years, spanning doctor discovery and scheduling, remote care delivery, prescription management, patient monitoring and education, and more. However, remote care delivery proves to be a unique entry point with strong network effects that will enable it to quickly scale and evolve to offer services and products across the healthcare space.
While the barriers to entry are low, new entrants’ will face a difficult and costly uphill battle as they attempt to bring on high quality providers onto their platforms, and compete to secure employers and health plan contracts in advance of leaders like Teladoc, MDLive, American Well and Doctor on Demand, who are already expending significant costs to capture market share of these customers. A robust salesforce and brand awareness are key to penetration, but also not effective without offering ease of product implementation & interoperability, billing & claim filing, and regulatory compliance (HIPAA, NCQA). The strategy to secure employers and health plan contracts is an attempt to capture mass membership quickly and establish high switching costs as many self-insured employers (ASO) and insurers may only adopt one telehealth platform; according to a 2016 analysis released by the Congressional Budget Office, ~155 million Americans have employer-based health insurance coverage.
However, there is room for certain specialist-focused telehealth startups, such as Spruce, who is primarily focused on the dermatology market, which remains untapped by incumbents and accounts for >5% of annual visits, or 56 million visits. This type of specialist visit is recurring and typically costs higher (up to 3x – 4x the cost of a primary care visit).
The existing focus among players remains client growth, but the future indicator of market dominance will be member conversion and [recurring] utilization to drive PMPM, visit fees and secure client relationships. Achieving these future indicators will rely on management, business models, consumer-centered & mobile-optimized products, and seamless integration of concentric mergers.
Why now? – Political
This future of healthcare has been accelerated because of easing regulation on telemedicine definition, reimbursements and coverage. Already in 32 states and the District of Columbia there are parity laws that require private insurers to cover telemedicine visits the same way they cover in-person encounters, and in 49 states and District of Columbia reimbursements are now provided for video visits in Medicaid fee-for-service programs.
Additionally, more states have removed the requirement for a tele-presenter to be present during a virtual consultation. Finally, 18 states have enacted laws to join the Interstate Medical Licensure Compact, which will begin to grant crossborder licenses.
Why now? – Social
Easing regulation complements today’s consumer needs. Consumers no longer want to pay high costs for healthcare and are looking for more personalized care at a time when many of the other decisions they make on a daily basis have been empowered with technology and made more affordable, accessible and personalized (i.e. food, wealth management, online streaming, transportation, travel, shopping). Early direct-to-consumer fitness trackers and health apps invited consumers to increasingly value and invest in their health, and track their own progress and symptoms.
Telehealth will continue to gain traction especially at a time when Repeal and Replace Obamacare risks exacerbating lack of access and rising costs. Approximately 1/3 of all ambulatory care visits, or 417M, are treatable via telehealth, which would result in an annual saving of $6 billion in U.S. healthcare costs. Cost saving opportunities via telehealth are also true for other specialist services.
Big 4 Telehealth
The four largest telehealth players are Teladoc (NYSE: TDOC), MDLive, American Well, and Doctor on Demand. Despite Teadoc’s current leading market position with ~17M members, it still represents only a minority of the whole market.
Of these four, Doctor on Demand (DoD) is unique as it does not charge a “Per Member, Per Month” (PMPM) subscription fee, which typically costs $1 PMPM. Unlike the other three, DoD only charges visit fees, which they keep ~25%:
$49 for a 15 min consultation
$79 for a 25 min consultation
$119 for a 50 min consultation
$99 for a 25 min consultation
$229 for a 45 min consultation
As telehealth platforms compete for employers, DoD offers an affordable option without the PMPM fee. While DoD’s model lacks the initial recurring revenue from PMPM fees, it is able to more easily align with the cost savings and ROI incentives of employers, drawing evidence that utilization rates are below 5% with other major players; Compared to Teladoc’s 5%< utilization rate, DoD boasts a much higher utilization rate of 25%-30%.
In other words, the cost per visit with Teladoc is significantly higher than $49 when factoring in PMPM. This strategy has had promising evidence as DoD now has about 400 employers (200% increase YoY) including Comcast and Union Bank & Trust, covers more than 45 million Americans and has secured relationships with UnitedHealth, Highmark*, Humana, and a number of Blue Cross Blue Shields.
*Highmark ended $1.5M contract last year with Teladoc to switch over to DoD and American Well. Most Teladoc contracts are only 1-year old…
Adoption goes both ways.
Slack, Dropbox, LinkedIn and many others have demonstrated that adoption goes both ways. And similarly, monetizing the B2B becomes much easier to achieve if you’re able to demonstrate success with B2C. DoD has since introduced a Per Provider Subscription Fee…(I don’t have numbers around this).
This is a defining time for healthcare – the winners have yet to take all and new entrants will need to be thoughtful about their unique entry point and resourceful with acquisition.