Is telemedicine the way of the future?

October 08, 2020 | Simbul-Lezon Wealth Management Group


As more people access virtual health care while working from home, telehealth providers are a growing part of the health care sector.

New normal, new opportunities

We are launching a new blog series featuring articles published by the team of analysts in our Portfolio Advisory Group. The series, "New normal, new opportunities", will examine secular trends in a post-COVID-19 world. The series will cover a range of themes that are emerging as a result of social distancing, the work-from-home imperative, health care developments, corporate implications, and broader societal change. We believe identifying these trends and understanding their investment implications will be critical to navigating the road ahead.

This week we start off by looking at the growth of telemedicine and the ways it will shape the future of our health care systems with "Telemedicine - Stepping out of the shadows to take centre stage". 

Prior to COVID-19, telemedicine was gradually coming into its own as patients, health insurance payors, and health care providers gained comfort with the technology to realize the convenience and cost savings of using virtual channels for receiving and providing care. The pandemic has accelerated the shift towards telemedicine as social distancing and work-from-home mandates have created greater awareness and utilization of the technology. This shift has been further boosted by the convergence of advancements in cloud security and high-quality video conferencing.

Utilization is growing as acceptance rates increase

The COVID-19 pandemic and resulting containment measures have, in our opinion, created an awareness and need for telemedicine that has led to increased utilization of a technology that is in the early stages of adoption. The convergence of enhanced cloud security and high-quality video conferencing has also been integral to ensuring privacy regulations are upheld and a positive user experience is delivered. An analysis of one of the industry players, Teladoc Health, Inc. (TDOC), by RBC Capital Markets revealed that data traffic originating from Teladoc’s digital channels spiked in Q1 2020 as patients discovered the dual advantages of faster diagnosis and convenience of virtual visits with a physician. Utilization trends have moderated after a large number of early adopters, but are still up from the prior year.

Quarter-over-quarter change in Teladoc Web traffic

Note: Q2 2020E data is based on company-provided guidance of expected website visits

Source - Company reports, SimilarWeb, and RBC Capital Markets

A survey by the Kaiser Family Foundation revealed that roughly 82 percent of large employers offered telemedicine to their employees in 2019, a dramatic jump from 27 percent in 2015. Health insurers (payors) are realizing the cost benefits of using virtual channels and are increasingly designing benefit plans to motivate members to utilize telemedicine as a first step to getting assessed and treated instead of visiting traditional brick-and-mortar providers. Payors typically offer financial inducements to encourage members to adopt telemedicine. These practices include lowering the deductibles and co-pays of health plans and reducing the out-of-pocket costs for prescription drugs or to see a specialist.

Proportion of large employers offering and incentivizing telemedicine utilization

Note: Data on incentives for the use of telemedicine in 2015 not available

Source - Kaiser Family Foundation and RBC Capital Markets

Patient confidentiality must be ensured

Any medical professional or health care organization providing remote service is required to be compliant with the Health Insurance Portability and Accountability Act (HIPAA). Under HIPAA, a patient’s paper and digital information has to be protected at all times. Physicians and health care providers have to ensure their cloud providers use special safeguards such as biometric scans, electronic IDs, and encryption to protect a patient’s medical data from being hacked, copied, and transmitted. By using multiple safeguards, providers can protect electronic health information at all times and ensure that if the data is intercepted, it cannot be read. Failure to comply with HIPAA will result in severe penalties.

Virtual health care: Looking ahead

Telemedicine is a practical option for people on the go and those who are either house-bound or live in underserved areas lacking access to quality care. Moreover, telemedicine allows hospitals and doctors to easily follow up with patients to monitor their progress, change their course of treatment as required, and determine if in-person attention is needed for more urgent care. Given the frequent monitoring, health issues can be detected earlier in the process thereby keeping treatment costs down.

In a post-COVID-19 environment, we envision stable long-term growth for vendors as more people choose to work from home, existing patients grow more comfortable with the technology, and an expansion of services is offered to cultivate greater member loyalty. We also expect the landscape to become more competitive as we think the pandemic will likely attract an influx of new telemedicine competitors looking to capitalize on what we view as a secular growth opportunity. We anticipate health insurers and non-health-care technology vendors becoming more prominent players in this space over time.

This article was initially published on 7/20/20 by Gopa Nair, CFA.

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Your investment team

Marita Simbul-Lezon
Mary Rose Simbul
George Tsolakidis
Scott Donovan