Lack of access to healthcare and rapidly growing healthcare costs are two critical issues impacting the US economy, and they remain consistent topics of debate among policy makers. Telemedicine, a service that connects a patient to a doctor remotely, has seen rapid growth in the last few years because it addresses both of these issues. Teladoc Health, a ROBO Global Healthcare Technology & Innovation Index (HTEC) member, pioneered the telemedicine industry and now operates over 130 countries. The telemedicine industry has only recently hit an inflection point in adoption, so there remains a long runway for growth, and Teladoc continues to blaze a trail of disruption of the healthcare status quo.
Lack of access to healthcare is a concern that no one is debating
In efforts to help public and private sectors manage the growing physician shortage, the Association of American Medical Colleges (AAMC) has committed to annually updating its projections. Its most recent study reaffirms past estimates, and it continues to expect demand for physician services to outpace supply such that by 2032, the US will be short 47,000-122,000 physicians. That said, not everyone believes there is a physician shortage today. Some believe that there is a sufficient supply of physicians, but rather a shortage in healthcare services, driven by inefficient use of physician time and uneven distribution of resources.That said, no one is debating that there are inefficiencies in the healthcare system, that costs are growing unsustainably, and that the supply and demand trends will continue to impact healthcare access in the long run. Several factors are expected to drive the increase in demand for healthcare services. Primarily, there is a growing aging population. The US Census Bureau expects the US population to grow by 10% by 2032, and that the number of people over age 65 will increase by 48%. The achievement of certain public health goals, such as weight reduction and smoking cessation, and ongoing innovation in technology and treatments, will extend average life spans, and be driving factors in the growth of the 65+ age group. The aging population will also impact the supply side of the equation, as 1/3 of all active doctors today will be over 65 in the next decade, and many will likely retire.
Telemedicine is at the intersection of improving access to healthcare while reducing costs
Telehealth is a broad term describing the use of technology by providers and patients to remotely manage care, either through live communication or other digital information exchange, such as small ECG monitors that can track a patient’s heart rate from home. Telemedicine, a subclassification of telehealth, specifically refers to a virtual doctor appointment between a patient and physician—via phone or computer, using video, talk, or text. Telemedicine addresses two of the most critical unmet needs in our economy: access to care, and healthcare cost reduction. Because of this, it’s one of the fastest growing themes in healthcare, and Teladoc is leading the way.
Teladoc connects excess supply of physician time to patients that need it, 24/7
Teladoc’s core telemedicine service is meant to be utilized for non-life-threatening common illnesses, such as sinus infections, allergies, or urinary tract infections. Often people suffering from these illnesses can’t get an appointment to see their regular physician for weeks. However, some physicians may have downtime due to a surplus of physicians in their area. Because these visits are conducted remotely, the physicians can be “distributed” more effectively across a wider reach of patients. When a doctor is needed, the patient logs in, requests an appointment, and can typically get one within 10 minutes. Teladoc offers these visits via phone, computer, or smart devices. Behavioral health patients can even have appointments with a therapist through texting. If the patient needs a prescription, the physician can have it ordered to the nearest pharmacy immediately. This entire process saves the patient a trip to the doctor. By staying home, the patient also reduces exposure to the illnesses of other patients in the waiting room.
Another benefit of telemedicine is significant cost savings. Telemedicine services act as a substitute for in-person visits to the doctor’s office, emergency room, or urgent care facility. One telemedicine visit costs $40-60, depending on the company and type of visit. When compared with a visit to the emergency room, the patient or health insurance company can save an estimated $500 or more per telemedicine visit. Although this service can’t replace all ER visits, it can replace the unnecessary ones. For example, sinusitis, allergies, and inhaler prescription refills, can all be treated remotely. The Agency for Healthcare Research and Quality (AHRQ.gov) estimates that 13%-27% of ER visits didn’t need to take place in the ER, and could have saved $4.4B annually if they took place in a more efficient setting.
Teladoc is the market leader, and has built a wide moat of competitive barriers
Teladoc was first to market with telemedicine and the first to go public. It continues to maintain its market position by innovating and expanding into new markets, both domestically and internationally. Today the company has over 37 million members through its client base. The client base itself boasts marquis accounts such as Aetna, United Healthcare, and several of the Blue Cross Blue Shield plans, as well as 40% of the Fortune 500 companies, thousands of small employers, and over 300 hospitals and counting. They are also becoming a global market leader, with clients in over 130 countries driving 20% of Teladoc’s revenue.Although competition is intensifying, the industry has high barriers to entry. For example, there are extensive regulatory hurdles that need to be achieved in order to practice medicine remotely while securing the patients’ privacy. Additionally, in order to ensure an adequate supply of physician time, the company needs an extensive network. Teladoc has amassed a network of over 3,000 certified clinicians, similar to the way Uber has built its supply of drivers. Teladoc also uses a sophisticated predictive analytics system to ensure that the appropriate level of help is on hand and able to fill an appointment quickly, depending on the peak times and seasonal variability. It’s this level of service that helps Teladoc generate member satisfaction of 95%. Telemedicine companies also need a scalable platform that they can leverage to meet the growing needs of consumers. To put this in perspective, Teladoc invested over $100M over the course of a decade to build its platform to scale. This year the company expects to conduct four million virtual visits, up from one million just two years ago. It has additional capacity that would enable it to take on 10x its peak volume at any given time. It would be very difficult for another company to replicate this scale without a high degree of capital investment.
Teladoc’s market leadership and sustainable long-term growth make it a strong fit for the HTEC Index
Overall, we believe Teladoc remains well positioned to achieve its organic growth target of 20-30% for the next 5+ years, driven by several factors. First, Teladoc is growing by adding more clients across its market segments, and expanding the number of visits (utilization rate) within those clients. Second, the company is expanding into brand new market segments. Namely, the Centers for Medicare & Medicaid Services (CMS) has jumped on the telemedicine adoption bandwagon and will cover virtual visits for Medicare Advantage members beginning in 2020. This will take time to ramp up, but Teladoc already has relationships with several health plans that offer Medicare Advantage, and is already in discussion with them about implementing telemedicine services. Another new segment is the direct-to-consumer channel. Until recently, most members only got access to virtual visits through their health insurance company or employer, who pays a fee on their behalf to provide them with a membership. Last year Teladoc partnered with CVS to launch virtual visits through its MinuteClinic app, and they are launching the program in several states at a time.Teladoc is also cross-selling new products to its existing base. For example, it offers specialties such as behavioral health and dermatology. It also offers second opinion services for those who want to speak to another provider about a serious condition before undergoing surgery. The company has been actively selling these additional services to its existing client base and, as a result, is increasing its average revenue per client. Today, 40% of the base uses more than one product (up from 10% two years ago), and only 13% of the base uses 3 products, so there is a large runway for cross-selling. Finally, the company is growing internationally. Thus far, much of that growth has been inorganic, but as global demand for telemedicine increases, Teladoc is well positioned for that trend. To illustrate, the addressable market recently expanded due to a regulatory change in France. Teladoc acquired Médecin Direct SAS, a French-based healthcare company this year to capitalize on this opportunity.In terms of competition, there are a handful of companies that have surpassed the high barriers to entry and continue to gain share. In the United States, American Well, MDLIVE, and Doctor on Demand have made notable strides in the last several years. Telemedicine is also gaining speed outside of the US because access to care is a global concern as well. The World Health Organization estimates the global shortage of healthcare professionals to reach 15 million by 2030. In China, Ping An Good Doctor, another ROBO Global HTEC Index member, is the market leader. Ping An boasts 289 million registered users, an active user base of 63 million, and, like Teladoc, is one of the only publicly traded pure play telemedicine companies in the world.Related:
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