The COVID-19 Crisis has compressed the adoption cycles for a slew of disruptive innovations into a matter of weeks instead of years. Telehealth is one good example, as lockdowns limited people’s access to visit their doctors. Here’s some background on this burgeoning industry:
- What it is: Telehealth enables patients to voice call or videoconference doctors remotely. Doctors or nurses can prescribe medications, monitor patients, give home care advice or recommend additional medical care such as a clinic or emergency room visit. They can treat or diagnose everything from the flu and infections to dermatological conditions and mental health issues.
- Growth: 11% of US consumers used telehealth in 2019, but this year so far 46% have done so in order to replace cancelled healthcare visits according to McKinsey. Providers are also “seeing 50 to 175 times the number of patients via telehealth than they did before”.
- Market size: Before COVID, the “total annual revenues of US telehealth players were an estimated $3 billion, with the largest vendors focused in the “virtual urgent care” segment: helping consumers get on-demand instant telehealth visits with physicians (most likely, with a physician they have no relationship with)” according to McKinsey.
The consulting firm also forecasts $250 billion of current US health care spend could be virtualized given the “acceleration of consumer and provider adoption of telehealth and extension of telehealth beyond virtual urgent care.” That represents “20% of all office, outpatient, and home health spend across Medicare, Medicaid, and commercially insured populations.”
- Major players in the space: There are large public companies that offer telehealth services, such as UnitedHealth, Humana and Anthem. Teladoc Health (TDOC) is a purer play, connecting medical professionals with patients over a phone, tablet or computer. The stock is up +168% year-to-date and has a $17.7 billion market cap.
There are also a slew of private telehealth companies in various stages of funding. Just today digital pharmacy Truepill raised a $25 million Series B round, its biggest capital raise to date. Telehealth provider American Well or “Amwell” secured $194 million in a series C funding round in May and digital care provider Omada Health raised $57 million during the same month. Lastly, virtual mental health companies Mind Strong and LifeStance brought in $100 million and $1.2 billion respectively this spring.
Here are our investment takeaways:
#1: Easing government regulation is turbocharging the initial tranche of telehealth industry growth due to the COVID Crisis. For example, many states are making it easier for doctors to practice across state lines without requiring additional licenses. The Federal government also said it would reimburse doctors equally for virtual and physical visits. Given recent flare-ups in the virus and a vaccine still months away, the government and Americans will increasingly rely on telehealth services to keep people from exposing themselves or others unnecessarily to the disease at doctor offices, hospitals and clinics. Bottom line: health care is a notoriously heavily regulated industry, so relaxing these rules provides helpful and presumably long-lasting tailwinds.
#2: Telehealth follows Clayton Christensen’s classic “Innovator’s Dilemma” paradigm by leveraging technology to address a market more efficiently. These services enable doctors to connect with patients remotely no matter where they live. Not only can Telehealth expand access, but also potentially provide a more cost-effective solution to delivering patient care.
#3: Disruptive innovations like telehealth drive long-term US equity returns. Much of the gains in US stocks over the past ten years have come from tech startups created over a decade ago that eventually grew large enough to go public. We expect the same over the next ten years, and the large amount of recent funding for private telehealth companies reflects a vote of confidence in this relatively new industry. It also offers IPO candidates for the future. For example, Amwell – competitor of public company Teledoc – confidentially filed to go public with the SEC last month.
In sum, the pandemic sped up the growth of the telehealth industry, but it has still only scratched the surface. COVID-19 put telehealth companies on consumers’ radars and forced them to adapt their behaviors. Of course, in-person visits are still required for physicals, serious illnesses or emergencies, but there’s still many use cases for virtual care.