Telemedicine

A Sustainable Trend or a Stopgap Phenomenon

The telemedicine sector has been steadily gaining momentum over the last few years, but the Pandemic induced stay-at-home restrictions have suddenly put the spotlight on the sector. Backed by VC investors and supported by federal government and health insurers, the telemedicine startups have seen surge in demand for virtual doctor consultations.

While tele health sector has been trying to break into the mainstream by playing a more central role in the broader health care domain, the COVID-19 pandemic has certainly fast-tracked the adoption by at least a 3-5 years. However, will telemedicine prove to be a secular trend and its utility outlive the Pandemic crises or will be slide back into being a niche supportive role is the sixty-four-thousand-dollar question?

Investment in Telemedicine

VC and PE interest can often be construed as good indication of potential of strong growth in a sector. Accordingly, since 2010, over $47 billion has been invested in digital health companies across over 4,900 deals. As mobile and internet connectivity has become ubiquitous, the sector has gained prominence and the investment flow has steadily increased.

Figure 1: Digital health Funding 1Q19-1Q20

Source: Mercom Capital Group

In 4Q19, $1.7 billion in 142 deals flowed into digital health companies and, as concerns around COVID-19 grew, the first quarter of 2020 saw a record total of $3.6 billion being raised across 142 deals. More importantly, startups all along the telemedicine value chain, including communications, billing, analytics, have attracted investor attention, which suggests a strong ecosystem of support services making for a more robust, resilient, and sustainable market.

Figure 2: Key VC Funding Rounds in Telehealth in 1Q20

Source: Mercom Capital Group

Regulatory Landscape Paving the Way for Mass Adoption

In Addition to a number of legislation passed since 2019 to promote telemedicine and extend the coverage of health plans to include telemedicine of telehealth services, regulators and government agencies are proposing to make permanent certain regulations passed during the COVID emergency to help people avail medical care from home to avoid potential infections at hospitals and clinics. For instance CMS has proposed to permanently expand telehealth coverage for home health care services. Similarly, Idaho, among other states, has allowed healthcare providers the freedom to continue using various telehealth and mHealth tools to improve access to care for patients and outcomes.

“Our loosening of healthcare rules since March helped to increase the use of telehealth services, made licensing easier, and strengthened the capacity of our healthcare workforce – all necessary to help our citizens during the global pandemic. We proved we could do it without compromising safety. Now it’s time to make those healthcare advances permanent moving forward.”—Brad Little, Idaho Governor.

These proposals reflect a growing consensus among the industry experts, policy makers, patients, and investors as to the effectiveness of telemedicine and related services in both making medical care more convenient and effective with reduced costs. As per GAO study in 2019, include more telehealth and telemedicine coverage to Medicare Advantage plans could result in enrollees saving around $500 million in 10 years. Accordingly, most hospitals and clinics are using telemedicine to enhance patient experience. In the U.S. roughly, 90% of hospitals are using telehealth to connect with their patients virtually and nearly 60% of healthcare organizations are using technology to triage high-risk patients.

Surging Demand

With strong funding and support from regulators, telemedicine is expected to surge in the next few years. The broader telehealth market is expected to register a seven-fold growth by 2025. This translates into a CAGR of 38.2% between 2020 and 2025 with 64.3% YoY increase in 2020. The telemedicine companies have found themselves being overwhelmed by the sudden surge in demand.

“You can get the technology to support these astounding volumes. But you’re very quickly getting to a point where the supply of medical services isn’t there. We need to have enough clinicians to allow us to handle that incoming volume.”—Roy Schoenberg, CEO, Amwell.

Besides telehealth companies, multiple hospitals have also been inundated with increasing demand for telehealth services. Hospitals including Cleveland Clinic, University of Pennsylvania in Philadelphia, and Jefferson Health have all witnessed many fold increase in demand for virtual care.

With strong secular tailwinds telemedicine seems to be poised to become democratized with potential for both cost savings and better outcomes compared to traditional in-person visits. That said, both hospitals and telemedicine companies would have to ramp up their capacity and upgrade their existing technical capabilities to cater to the rapid surge in demand.

Surging demand has extended from human patients to pets and the adoption has gained massive traction during the COVID-19 pandemic. Nearly 65% of U.S. households have pets and the estimated expenditure on pets in the U.S. is estimated at around $99 billion. To cater to the market potential many startups have come up including Petriage, Anipanion, TeleVet, Linkyvet, TeleTails, VetNOW, PawSquad, Vetoclock, and Petpro Connect.

Virtual Care for Pets

In another validation of the long-term trend, investors are also warming up to the expansion of telemedicine services to niche sector of virtual pet care. Companies that are able to showcase long-term vision and sound business model are attracting investments. Accordingly, Los Angeles-based startup Airvet has raised $14 million from investors including Canvas Ventures e.ventures, Burst Capital, Starting Line, TrueSight Ventures, and individual investors. “COVID has been a massive accelerant to adoption”—Rebecca Lynn, General Partner at Canvas Ventures.