Telehealth is dialing up the dollars

As the COVID-19 pandemic has pushed much of life — including healthcare — in a digital, virtual direction, companies that provide telehealth services have prospered, raking in major investments in initial public offerings (IPOs). Telehealth provider Amwell raised $742 million in September 2020, after bumping up both the number of shares it planned to sell and its price because of strong demand, while GoodRx, which helps consumers find deals on prescription drug prices and has a telehealth operation, raised $1.1 billion with a stock price well above what was initially anticipated. The following month, telehealth giant Teladoc Health completed its $18.5 billion merger with Livongo, a digital health company that helps patients monitor chronic conditions.

Already this year, the healthcare sector has seen almost $30 billion in merger activity, with more than half coming from Teladoc and Livongo. The activity already exceeds the previous five years, according to Brian O’Rourke, senior analyst at S&P Global Market Intelligence.

The financial moves in the healthcare sector mark “a realization that consumers are going to start to really drive healthcare in a way they haven’t been able to before,” says Bill Fera, M.D., a principal at Deloitte.

The pandemic has meant a sea change for telehealth, which “had been the technology of the future for decades,” O’Rourke says. But with COVID-19, many consumers have been reluctant to get in-person healthcare and, instead, flocked to virtual care. A study of telehealth visits by Epic Health Research Network, using electronic medical records from 22 health systems covering 7 million patients, found telehealth visits increased 300-fold from spring 2019 to spring 2020. An updated study by Epic released in August 2020 — ahead of the fall spike in COVID-19 cases — found that in mid-April, telehealth made up 69% of total visits but by late summer accounted for 21% of all visits. Still, that is a sharp contrast from pre-pandemic usage, when less than 0.01% of visits were virtual.

Much was driven by changes at CMS, which expanded telehealth access for Medicare beneficiaries under an emergency declaration because of the pandemic. State-level rules have also had an effect, with some states mandating private insurers reimburse for virtual visits at the same rate as in-person care. Several major insurers — Florida Blue and Humana, to name just two — began offering virtual visits with no copayments, and a number are continuing to offer telehealth with no copayments for 2021. Clarifying that providers can be reimbursed for offering telehealth services “added lighter fluid to the smoldering fire that was telehealth,” says Kristen Hallam, healthcare news desk manager for S&P Global Market Intelligence.

Amwell advances

As a result of the pandemic, telehealth is “very quickly maturing from a sideshow to the mainstream,” says Ido Schoenberg, chairman and CEO of Boston-based Amwell. “Telehealth was not born because of COVID-19, and it will not die after COVID-19.” Amwell offers telehealth technology solutions for providers and has its own virtual doctor’s visits for $79, covering a wide range of medical and behavioral health conditions. With its IPO, Amwell originally had planned to sell 35 million shares at $14 to $16 each, according to its filings with the Securities and Exchange Commission.

Instead, it offered 41.2 million class A shares at $18 each, and the stock price opened at $25.51 per share. Shortly before its IPO, Amwell announced that Google Cloud was investing $100 million in the company and that the two would partner on technology and innovation. In a press release, the companies said they see room to improve telehealth experiences by doing everything from automating waiting rooms and checkout to assisting payers and providers with routine tasks to triaging cases.

Amwell’s dealings will be more transparent as a public company, Schoenberg says, and that creates “an increased level of confidence to very large customers. They know who you are, what you do.” During Amwell’s conference call for third quarter 2020, Schoenberg said that the company had more than 1.4 million virtual visits for the quarter, compared with 255,000 the year before, and that revenue soared 80%, to $62.6 million. The number of providers offering telehealth on its platform also soared — to 62,000, from just 6,000 the previous year.

He also talked about a hybrid healthcare model with patients consulting with their own physicians either in person or virtually: “They won’t focus on your sore throat; they focus on your full continuum of care.” Telehealth will also open up the possibility that anyone, including those in rural areas, will have access to high-quality care. “Care is divorced from location,” he says.

Other deals

GoodRx, the online prescription-drug bargain finder, also went public in late 2020. The company planned to sell 34.6 million shares at $24 to $28 per share; instead, they sold for $33. GoodRx, which is headquartered in Santa Monica, California, had third-quarter 2020 revenue of $140.5 million, an increase of 38% compared with the previous year. Almost 90% of revenue came from prescription transactions.

In September 2019, GoodRx acquired telemedicine company HeyDoctor. Terms of the deal were not disclosed. Visits start at just $20, and consumers don’t need health insurance to get care. HeyDoctor providers saw more than 1,000 patients per day last summer for conditions ranging from primary care services to behavioral health care, and prescriptions can be mailed to a patient’s home.

The company says more than 15 million consumers each month use GoodRx to find discounts and prices for their healthcare needs. “The huge growth in usage creates more investor enthusiasm. It has a bit of a snowball effect,” Hallam says.

At least one more telehealth company is expected to go public soon. Charles Jones, chairman and CEO of MDLive, told Stat that he expected his company would go public in January or February. That news came after the company announced in September 2020 a $50 million crossover equity investment from Sixth Street Growth, which will primarily be used to expand MDLive’s virtual primary care platform.

Headquartered in Miramar, Florida, MDLive also secured $25 million in debt expansion from other investors. Because of the pandemic, MDLive’s virtual visits almost doubled during the first half of 2020. Through July 2020, it handled almost 1 million patient visits — a 500% increase for behavioral health and a 350% increase for dermatology.

In a conference call with analysts before the Livongo merger was completed, Teladoc CEO Jason Gorevic said the companies would join forces “to deliver a level of patient insight that has been previously unavailable. Combining meaningful, data-driven insights with clinical expertise will enable better care delivery, better outcomes and lower costs.”

Teladoc providers conducted more than 2.8 million virtual visits in the third quarter of 2020, more than triple the number of visits provided in 2019, Gorevic said.

The company, which is based in Purchase, New York, said revenue for the third quarter of 2020 was $289 million, up almost 110% from the previous year. For the year, Gorevic said he expected revenue to top $1 billion. Just five years ago, when Teladoc went public, it raised a fraction of that amount: $156.8 million.

Depends on reimbursement

Healthcare’s pivot to telehealth is remarkable; collectively, American healthcare is saying, “Why didn’t we think of this before?” But the future of telehealth depends on whether public payers — especially Medicare, as the largest buyer of healthcare — are willing to pay for it. If the government continues to reimburse for virtual care, O’Rourke at S&P Global Market Intelligence says he expects telehealth to continue to grow, but if the government doesn’t continue its reimbursement, “that could have a really adverse impact.”

Reimbursement remains an open issue. When CMS released its annual physician fee schedule in December 2020, it permanently expanded only the telehealth services that covered Medicare patients in rural areas, although CMS officials said they were commissioning a study to look at creating more telehealth flexibilities.

Fera at Deloitte says value-based care may accelerate the adoption of telehealth because of its cost effectiveness, noting that people with chronic conditions such as diabetes can be monitored more or less constantly with telehealth: “You’re getting care every day, potentially.” Schoenberg says he sees these new care models as a way to monitor conditions and “use artificial intelligence to raise very sophisticated (red) flags.”

The days of scrappy startups may be dwindling in telehealth. As the telehealth market matures, Fera expects to see more consolidation: “Larger companies are really going to start taking hold of the market and acquiring other companies.” Schoenberg, now leading one of those larger companies, says, “Telehealth is not a playground for small, niche startups. You need serious investments.”

Susan Ladika is a health and business writer in Tampa, Florida.