Telehealth in the Time of COVID-19: Boom or Bust?

Scheduling a video call with your doctor or conducting your own physical exam from home felt like a distant future before the coronavirus pandemic, but it is now becoming the new normal for patients around the world. In what can only be described as the largest experiment the healthcare sector has ever seen, the telehealth industry has rapidly expanded to support the transition to virtual care in an effort to limit the spread of COVID-19 – at a rate and scale previously thought impossible.

Since April, telehealth companies have seen their subscriber counts soar as fast as their stock prices. However, investors and public health officials warn that this telehealth boom may not outlast the pandemic and that its rapid expansion leaves many of the most vulnerable patients behind.

Historically strict regulations and financial roadblocks significantly impeded the expansion of telehealth use before the pandemic. The United States’ Health Insurance Portability and Accountability Act (HIPAA) requires doctors to secure electronic health information in order to protect patient data; before COVID-19, tech companies entering a business agreement with healthcare providers had to adhere to the same security standards as doctors. Minor HIPAA violations can cost doctors tens of thousands of dollars; for many, even licensed telehealth software wasn’t worth the risk. What’s more, public and private insurers only reimbursed virtual consultations for patients in rural areas or with rare diseases, impeding the integration of telemedicine into the traditional healthcare delivery model.

Responding to lockdown measures and stay-at-home orders, the Department of Health and Human Services (HHS) loosened HIPAA regulatory roadblocks to telehealth through an $8.3 billion pandemic relief bill. The bill expanded virtual care coverage by Medicare and Medicaid, and even allowed doctors to use video conferencing platforms like Zoom and Skype to get in touch with patients without risking massive HIPAA fines. Consequently, telehealth companies have seen their popularity grow in line with the ever-increasing number of COVID-19 cases in the United States; already valued at $45 billion in 2019, the telemedicine market is expected to grow by over 60% this year alone and could reach $175 billion by 2026.

In light of the pandemic, investors have favored a number of key players in telemedicine capitalizing on the need for remote healthcare. Despite recording $26 million in losses last quarter, Teladoc Health Inc. (NYSE: TDOC), valued at $12.2 billion, leads the virtual care industry as the only publicly traded telehealth company. Boasting a team of affiliated medical practitioners, the telemedicine giant has developed telephone and video conferencing software, which allows for online medical consultations ranging from mental health to primary care. Privately-held companies like Amwell, MeMd, and iCliniq should provide healthy competition to Teladoc in the future, as Amwell has recently applied to list its common stock on the New York Stock Exchange. A number of publicly-traded health service companies such as UnitedHealth Group Inc. (NYSE: UNH) and Humana Inc. (NYSE: HUM) are also branching into telemedicine themselves.

Emboldened by interest from deep-pocketed VCs and skyrocketing demand, a number of telehealth companies have been embarking on massive deals to secure larger portions of the seductive market. In what might be the biggest digital health deal of all time, Teladoc recently announced the acquisition of Livongo Health Inc (NASDAQ: LVGO), a company that delivers personalised digital health guidance to patients with chronic conditions by tracking their biometric data. The $18.5 billion megamerger eclipses Google’s $2.1 billion acquisition of FitBit earlier this year, combining one of the largest telemedicine providers in the U.S. with the biggest name in chronic disease management.

The deal will form a digital health entity valued just shy of $40 billion and allow Teladoc to dive into the colossal market of chronic diseases, which affect roughly 40% of Americans and represent 90% of annual healthcare spending. Due to the overlap between patients managing chronic conditions and those with behavioral health issues, the union of Teladoc and Livongo could also exert significant influence in the realm of online mental health services.

However, skeptical investors quickly balked at the deal’s extraordinarily high valuation of Livongo: at almost $160 a share, Teladoc values Livongo at almost 30 times higher than their projected revenues for 2021, which raises concerns of a potential telehealth bubble inflated by COVID-19. Reflecting these uncertainties, shares in Teladoc and Livongo slumped by 19% and 11% respectively in the following days. However, before the deal announcement, Teladoc and Livongo were among the hottest stocks of 2020, up 200% and 473% year-to-date, respectively. Both companies have yet to fully restore investors’ confidence in the megadeal, judged by skeptics as premature and overzealous.

Seemingly undeterred by critics of the telehealth boom, some of the biggest names in tech have reaffirmed their position in the digital health market over the course of the pandemic. Just weeks after the Teladoc/Livongo deal made headlines, Google announced it would invest $100 million in Amwell, another American digital health giant, making it the primary telehealth provider on the Google Cloud platform. Amazon, already knee-deep in the online healthcare market through the $750 million acquisition of PillPack in 2018, launched the private telemedicine platform Amazon Care just last year for its Seattle employees, and the COVID-induced telehealth boom will likely accelerate a future public rollout. This string of deals, at far more reasonable valuations than the Teladoc-Livongo megamerger, hints that digital health is here for the long haul – especially considering the Trump administration has started making some of the temporary HIPAA amendments permanent.

However, doctors and patients alike are voicing their concerns over the accessibility, effectiveness, and security of virtual care, casting a shadow on Wall Street’s momentum. Looser regulations surrounding telehealth puts online patient data at risk for foreign and domestic cyberattacks: the simple assurance of privacy and the deeply personal nature of an in-person visit disappear with telehealth. And according to a study on 4500-plus Americans published in the Journal of American Medical Association (JAMA), a major accessibility roadblock is that at least two-thirds of Americans display one or more characteristics of telehealth “unreadiness.” This umbrella term encompasses the impact of lack of access to technology, age-associated dementia, and social isolation on the quality of virtual care. 

The impacts of telehealth unreadiness are far-reaching: older adults represent over a quarter of physician visits and the majority of healthcare spending. “Telemedicine is not inherently accessible, and mandating its use leaves many older adults without access to their medical care,” highlights lead author of the study, Kenneth Lam, M.D., in a UCSF press release. “We need further innovation in devices, services, and policy to make sure older adults are not left behind during this migration.” 

An equally striking negative correlation between access to technology and poverty – and by extension, between poverty and health fragility – will deepen widespread health divides as telemedicine disrupts the traditional healthcare market.

Although not quite a bubble, the telehealth boom has certainly taken the stock market by storm. A dip in public and investor interest is a near certainty as the pandemic slows; nonetheless, the world has seen how beneficial widespread virtual care can be, as well as the many challenges the industry will face. Looking ahead, serious discussions about digital divides, technological literacy, and online data protection will be essential to transform telehealth into a long-term innovative approach to medical care.