The explosion of telehealth is one of the few silver linings to occur in the healthcare industry during the COVID-19 pandemic. The maturity of the virtual care model is being realized in fits and starts, and the reimbursement picture is still messy — with a lack of clarity about what will remain reimbursable by the end of the crisis — but the writing is on the wall: People like it. Hospitals like it. And increasingly, investors are liking it too.
The only caveat is that investment can’t occur without capital, and capital is difficult to come by, according to Christopher McFadden, the San Francisco-based managing director of healthcare at global investment firm KKR & Co.
Market adoption certainly isn’t the issue. Telehealth is showing consistent year-over-year growth. And while many providers were still working their way toward a standard of care for most use cases as recently as last year, the pandemic has accelerated the process and it’s now accepted as a standard of care.
“From an investment point of view, the market remains quite barbelled,” said McFadden. “You have some very large, well-capitalized telehealth providers, like Amwell and TelaDoc, and then you have scores of smaller organizations who are often single-speciality or single-site-of-care focused, who are smaller but growing very rapidly. So the investment opportunity is in some regard the chasm between those two end points.”
It can’t be understated how accelerated the adoption has been over the past several months, and this rapid expansion of its use has highlighted where it may be most effective. In places such as ambulatory surgery centers, it likely has had a modest effect on the ability to expand and enhance care. But for providers or urgent or chronic care, it’s expected to have a more profound effect, cueing investors on where to sink their dollars.
“Obviously there are some exciting and fast-growing segments,” said McFadden. “Telehealth for psychiatry is maturing, very good patient use cases and satisfaction, and it can address some supply and demand inequities when it comes to access to mental health services. Now businesses will need capital to grow and solidity their market position.”
Psychiatry is a particularly strong example of a use case, he said, because traditionally access to psychiatric professionals has been largely based on geography, with factors such as wait times and network adequacy posing more challenges in Midwestern states as compared to coastal states, typically. Telepsychiatry has done well in striking the right balance between supply and demand, and can serve as a template of sorts for other use cases.
As awareness and acceptance of telehealth grows, inspection does too — meaning regulatory inspection around such things as data security and payment integrity. Those are all relatively standard considerations for typical healthcare companies, and telehealth outfits will be held to those same standards as they edge their way into the mainstream.
“The good news is there are very large pools of private capital that are focused on digital health or innovation, and obviously telehealth bridges over those two investment strategies very naturally,” said McFadden. “You’ll see in a number of places here digital health capital is being deployed. Digital health includes wearables and interactive tools, but certainly telehealth is participating in that general trend line. There’s more and more integration of virtual care into existing providers.”
Strong support from Medicare and strong reimbursement has been a tipping point, he said, because it supports the notion that telehealth is entering into a standard-of-care stage of adoption, which in turn is expected to draw more investment dollars.
The question that remains is whether a given business looking to implement virtual care has reached a level of maturity at which they can have operational investors. For well-run organizations that have good business propositions, and have identified third-party reimbursement or are on a glide path for reimbursement, the outlook is quite strong — and it won’t be a limiting factor either for entrepreneurs or early investors. Both will feel the tailwind.
Along with telehealth’s inherent benefits, McFadden expects 2021 to see a continuation of both its growth and investor interest.
“There’s a lot of cost savings to the system to be achieved by helping patients with chronic diseases with their health status,” he said. “Those certainly seem very well-suited both to wearables and the monitoring devices in tandem with a telehealth solution. It allows for lower costs, for fewer touches with the clinician. It doesn’t force the person to come to a medical center. It allows for more continuous integration with medical records so you’re getting a more longitudinal view of a patient’s health status. All of that will be attractive to investors.”