In today's Exponential Investor...- A $250 billion market opportunity
- Demand is 38 times higher than it was prior to the Covid-19 pandemic
- Venture capital (VC) investment is rising
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For a moment, consider how technology could improve the day-to-day life of someone with diabetes…
They could use a mobile phone to upload blood sugar levels, details of food eaten and medications taken: the nurse to whom all the details are sent would respond electronically.
Apps on the phone would advise them on carbohydrate counting or provide estimates (on the basis of diet and exercise) how much insulin they need.
An online portal would allow them to schedule appointments, see test results, order more prescriptions or contact their doctor.
Meanwhile, reminders for flu jabs, foot exams and other preventative care would come via email, text or phone.
These are all examples provided by the Mayo Clinic, a research focused group of hospitals and other medical facilities in the United States, of telehealth.
Regardless of the technology that is used, the key feature of telehealth is that services are provided remotely. The medical professional and the patient are not in the same place at the moment that the services are delivered.
Why the remote delivery of healthcare services matters
According to the US National Library of Medicine, the benefits of telehealth are varied. People can get care at home, which is useful if they can't get to the doctor's clinic or hospital easily. There is more communication between the relevant organisations that are providing and/or insuring the care. The patient may have access to a specialist whose office is not close by.
The importance of this last-mentioned benefit should not be under-estimated. Over half of all counties in the United States – 56% – are without a psychiatrist. Nearly two-thirds of US counties have a shortage of mental health providers. In 70% of counties, there is no child psychiatrist.
Crucially, for a country where affordability of healthcare is an issue, telehealth is often cheaper than in-person visits. Providers use data science, video conferencing and mobile apps to cut costs relative to traditional medicine.
In the United States, telehealth is already big business. In mid-2020, consultancy firm McKinsey estimated that some $250 billion that was being spent on conventional healthcare (i.e. where the patient has to meet a medical professional in person) could potentially be transferred to telehealth. McKinsey calculated that the total revenues of the top 60 telehealth players in the United States rose from $3 billion in 2019 to $5.5 billion in 2020. As of April 2021, 84% of physicians were offering virtual visits through telehealth and 57% said that they would prefer to continue offering telehealth services in the future.
Covid-19 gave a major boost to the telehealth growth trend
The Covid-19 pandemic has provided a huge impetus for the development of telehealth. In fact, by mid-2021, the use of telehealth services was 38 times greater than it had been in 2019, prior to the pandemic. In the immediate aftermath of the pandemic's arrival, usage of telehealth for office visits and outpatient care was 78 times higher in April 2020 than it had been in February.
And telehealth is here to stay. In fact, last year McKinsey estimated that the sector could grow by another 50% by capturing market share from conventional medicine.
Across all medical specialties, about 15% of visits by patients to medical professionals are handled by telehealth. The figures vary from 50% for psychiatry and 30% for substance abuse treatment to about 2% for orthopaedic surgery and ophthalmology.
One analysis of telehealth groups in the United States in October 2021 identified 27 different organisations active in the sector. Companies such as Doximity, Lemonaid Health, GoodRx, 98point6, Talkspace, Zocdoc, Honor, Sesame, MeMD and Teladoc are not really household names in the UK. In the same month, an article on the website of Nasdaq (a US stock market in which technology-related companies feature prominently) identified "three telehealth stocks to buy in 2021 and beyond": Humana, Doximity and CVS Health.
The general sell-off in technology-related stocks in the United States and elsewhere has hit the share prices of a number of listed telehealth companies hard, with double-digit falls not uncommon. Nevertheless, money continues to flow towards the sector. Per Rock Health's 1H21 digital health funding report, total venture capital (VC) investment in digital health in the first six months of last year amounted to $14.7 billion. This was more than all investment in 2020 ($14.6 billion) and nearly twice the investment in 2019 ($7.7 billion).
Follow the VC money…
Telehealth has been growing in the United States for three reasons. The first is that people want it. One survey found that about 40% of consumers interviewed expected to use telehealth services in the future. Prior to the pandemic, the equivalent figure was 11%.
The second reason is that medical professionals are enthusiastic as well. Recent research found that 58% of physicians have a more favourable view of telehealth than they did prior to the pandemic. Interestingly, the figure was even higher
– at 64% – in September 2020.
Finally, the companies which provide healthcare (and health insurance) like telehealth because – as noted above – it is often cheaper than the conventional alternative.
The story is similar in other countries. The need for social distancing at a time that Covid-19 is rampant has provided a huge boost in demand for telehealth. One survey found that almost two-thirds of healthcare providers across 14 markets globally are investing heavily in telehealth.
As in the United States, telehealth has been expanding in the UK and across the European Union (EU) since well before the arrival of Covid-19. According to industry website
pharmaceutical-technology.com, "the primary factors triggering the shift to digitalisation of healthcare in the EU include aging population, workforce shortages, increased prevalence of chronic diseases, and increased spending on public healthcare". Regulations in the EU have been changing since 2018 in order to accommodate the greater demand for (and supply of telehealth).
The UK is generally seen as being one of the most established markets for telehealth. France also has an established market, where many telehealth services can be reimbursed. Germany and Spain are some way behind in terms of the development of telehealth. Of the larger EU countries, Italy is something of a laggard, with no legislative framework yet in place.
One certainty about the coming years is that telehealth will receive a lot more publicity – if only because more people will have used it. There will also be attractive investment opportunities, not least because the share prices of many of the leading companies have retreated in recent months.
Until next time,
Andrew Hutchings,
Contributing Editor,
Exponential Investor
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