Image credit: ‘Platonic Solids’ by Ashley Zelinskie
COVID-19’s Impact on Virtual Care
The proliferation of COVID-19 and the resulting response from the US government have accelerated the flow of capital into both virtual care and healthtech platforms. Consumers have been opting for and experimenting with online visits while the government has relaxed healthcare regulations in favor of virtual care.
The effects of the pandemic are causing a behavior shift in both patients and providers. The pandemic has catalyzed patient downloads of virtual care applications several years earlier than anticipated, and providers are becoming accustomed to videoconferencing with patients and diagnosing online. This accelerating adoption of virtual care applies not just to urgent care, but to primary care as well.
The two most significant regulatory changes influencing virtual care are 1) expanding licensure rules to allow providers to care for patients across state lines and 2) instituting equal reimbursements for telehealth and in-person visits. Software enables massive distribution and, amid reduced regulation, is unlocking supply (providers) in the healthcare space. To what extent payers continue to reimburse for virtual visits after the pandemic ends will depend on a data-driven analysis of their ROI over an extended period of time.
Greater access to virtual care providers and improved economics, however, is necessary but insufficient for virtual primary care to reach a comparable quality of care than its in-person alternative. It will require a significant buildout of technological infrastructure over the next decade. Founders are well positioned to build these new companies that are focused on the virtual primary care market from day one.
The State of Virtual Urgent Care
This trend toward virtual care will continue to take an increasingly large cut out of traditional brick and mortar practices. The rate will depend on the advancement of foundational technology like videoconference networking and internet connectivity, which still proves problematic, especially in rural markets. Both will be improved with the expansion of 5G and fiber internet. Physicians diagnosing virtually also require the ability to measure vitals at discrete times. And fortunately, thermometers and blood pressure cuffs are becoming more common in US consumer households.
The next layer of technology virtual care companies need to provide a high quality of care includes tools such as: revenue cycle management; prescription ordering and management; a smart EHR system. Companies selling primarily to traditional health systems have been formed to build these products for several years now. And although there is room to vastly improve product experiences, the technology is somewhat commoditized.
Virtual care companies exist somewhere on the spectrum between a technology company and a medical practice. Their physicians operate on an independent contractor model similar to ride-sharing companies, deriving their defensibility from localized network effects, as patients want to see a board-certified physician as quickly as possible and at the lowest cost. This is at least the case for urgent care, a market where most virtual care companies currently reside. For years, though, these companies have thought about how to climb up into a more complex and less tested, but larger market: primary care.
The Shift to Virtual Primary Care
In primary care, the patient-physician relationship, the quality of care (both actual and perceived), and the costs become increasingly complex and magnified. Being quickly connected to a random physician no longer holds much value here. In this new paradigm, significant differentiation between virtual care providers could stem from the core technology, as there’s significantly more potential to leverage software than in urgent care. Treating chronic conditions is inherently more complex than treating seasonal colds and flus and requires a longitudinal perspective on the patient.
As the primary care market is remarkably larger than the urgent care market, a more lucrative opportunity exists for a new generation of software companies to 1) create the building blocks that primary care virtual practices will rely on and 2) build businesses that sell to virtual care companies rather than brick and mortar health systems. These are the building blocks that would have otherwise been endlessly replicated across virtual primary care companies, and probably not particularly well.
There is a significant need for the technology infrastructure for virtual primary care to be built out to reach a comparable, and perhaps one day higher, quality of care to the in-person alternative. Primary care uniquely requires more complex tools, such as: a continuous measurement of vitals through clinically validated sensors; data science capabilities to collect and manage patient data over a long period of time; machine learning capabilities to learn how to reinforce health behaviors; increased data interoperability to allow for frictionless referrals.
The Livongo-Teladoc merger is a significant step in enabling virtual platforms to solve the chronic care problem, and it provides some early market validation for the business model. Livongo provides Teladoc with some of the building blocks necessary to create a virtual primary care platform that is better equipped to treat chronic conditions.
Briefly: Teladoc is a virtual urgent care platform that provides patients access to physicians through calls and messages. Livongo is a chronic care management platform with data science capabilities that provides personalized recommendations to patients. Livongo also collects biometric data through its remote patient monitoring devices and offers health coaching.
The combined entity and the resulting decrease in friction of virtual care will provide a more accessible, and perhaps more comprehensive, verison of chronic care. Teladoc by itself would be a shallow and ineffective primary care platform. Virtual care companies try to find a balance between accessibility and quality of care, as they can be antagonistic in many business and product decisions. And Teladoc’s platform and strategic decisions historically favor urgent care and access of care over quality of care. Livongo partnered with two other virtual care platforms, Doctor on Demand and MDLive, just last year to offer telehealth services to its members, perhaps as part of diligence for the future merger.
Teladoc is not well positioned as a virtual care provider to easily integrate primary care functionality, and I’m speculating that they’ll need to do a massive overhaul of the product architecture to utilize Livongo properly. The existing platform is already the result of an amalgamation of smaller virtual care companies that they’ve combined together through many acquisitions. But from Livongo’s point of view, this issue is probably highly mitigated by Teladoc’s ability to drive the highest patient volume in the virtual urgent care space.
As a result of the merger, Teladoc gains the opportunity to become a virtual chronic care platform, which radically increases both its customers LTV and total addressable market. They also gain defensible data science technology. Livongo primarily gets customer acquisition from this deal, as the urgent care business is a natural channel for the chronic care one, as well as a significant amount of patient data from Teladoc’s visits. Physicians are the most scarce labor resource in healthcare, so the ability to triage patients to Livongo’s coaches also makes the combined platform more scalable.
Many health systems will need to gain capabilities to be able to effectively treat chronic conditions in a virtual manner, and they’ll need the proper technological infrastructure in order to do so. To what extent payers will reimburse for virtual chronic care services, which chronic conditions providers will be able to treat effectively over a virtual environment, and how consumers will perceive the quality of care are all crucial pieces to examine to determine the long-term commercial success of virtual primary care businesses going forward.