One of the most promising trends accelerating in digital health is the verticalization of digital health. Historically, the healthcare market has been regional, limited by the in-person nature of care delivery. Telemedicine is game-changing as it opens up the possibility of addressing a national market, so long as you have a network of providers licensed to practice in specific states. Consequently, it is now feasible to build a large business by becoming a focused vertical provider that delivers superior care and patient experience in your specialty.
That being said, not every speciality or medical concern has the right existing dynamics to allow for new entrants to provide a vastly superior experience via telemedicine. The two most important vectors to consider when evaluating whether a sector is ripe for telemedical disruption are accessibility and the potential for care model reinvention.
One of the key promises of telemedicine is its ability to provide increased flexibility and accessibility across various steps in a patient or provider’s healthcare journey. Today, various forces make the traditional in-person care model inaccessible to certain populations, providing an opening for new digital entrants if they can appropriately leverage telehealth for care delivery.
Provider Supply Constraints
For certain conditions, there is a structural imbalance of available providers in the US vs the number of patients needing care, from hyperthyroidism (25M patients vs. 6,500 endocrinologists in the US) to sleep apnea (22M patients vs. 7,500 sleep specialists).
The supply vs demand mismatch is further exacerbated by existing supply concentration in certain geographies (often big cities). Much has been written about the challenges rural communities face in accessing quality care, and the gap between rural and urban healthcare access only widens beyond primary care.
Telemedicine provides a unique opportunity to expand the capacity of the existing provider pool by increasing the efficiency and modularity of available provider hours. By removing physical boundaries, the care delivery modality provides an obvious advantage to more efficiently match geographically unbalanced provider supply with patient demand.
Patient-facing cost is a key driver of healthcare accessibility. Despite the structural and historical factors behind the incumbent cost structure of the US healthcare system, there are opportunities for new digital entrants to innovate around the cost stack and deliver more affordable care.
With the ability to provide care “anywhere, anytime” (both synchronously and asynchronously) while also removing logistical frictions, schedule rigidity, and the physical footprint of a doctor’s office, telemedicine is inherently more efficient for providers. Some situations even welcome opportunities to deploy medical resources in a more targeted fashion by leveraging an entire “care team” consisting of not only physicians but also nurse practitioners and other specialists — a model providers such as FireFly Health follow to bringing down the blended cost of care while maintaining (and sometimes even increasing) care quality. Technology also presents the opportunity to further turbocharge such “targeted care” by offloading certain care deliveries to much more scalable modalities such as text-based behavioral nudges and in-app content libraries. All these dynamics allow for a much more interesting cost structure, which translates to patient savings.
While not apparent first glance, there are many logistical frictions embedded in the traditional in-person care model. From scheduling and travel time to the lack of transportation options for certain populations, these seemingly trivial inconveniences add up to a poor patient experience. Dear Brightly (a NextView portfolio company) provides a telemedicine-powered ecommerce experience for prescription-grade retinoids so consumers no longer need to take time off work to go see a dermatologist for 10 minutes just to obtain a prescription for the serum. The nature of telemedicine helps remove these logistical frictions and enhance access to care for a broad swath of the patient population.
Potential for Care Model Reinvention
In many cases, telehealth has the potential to dramatically enhance, if not completely reinvent, the care delivery model and patient experience. In alcohol addiction, Monument (a NextView portfolio company) is taking a fundamentally different approach to traditional AA groups by creating a holistic online alcohol treatment program with specialized therapy and medication with physician guidance. Form Health (another NextView portfolio company) takes advantage of the various modalities available (synchronous video visits, messaging touch points, photo logging for food tracking) to construct a personalized medical weight loss path for each patient.
Telehealth’s flexibility combined with the companionship of one’s smartphone allow for ample design flexibility around care models. The potential is not limited to an enhanced patient experience — when you have higher patient satisfaction and adherence, you have a chance to improve efficacy and patient outcome.
The opportunities and excitement around the verticalization of digital health aside, challenges exist for many new entrants as they look to scale and expand their addressable market. Among them, insurance reimbursement, scaling provider pool, and scalable go-to-market are the most challenging to overcome.
Payer relationships will inevitably take time — if not years — to develop. Insurance plans are fragmented and regional in nature, so the amount of BD effort required as you race to provide service to a national market is not trivial; it’s a hand-to-hand combat exercise of striking deals one-by-one with each regional plan.
The dynamic around care model reinvention discussed earlier can sometimes become a hindrance when attempting to make insurance reimbursement eligible. The more room you have to completely reimagine your care model with a digital-first approach, the more likely you can deliver superior patient experience and thus help win patients away from traditional providers. However, the more similar your care model is to the traditionally billable service, the more likely you can just bill on existing codes vs having to persuade payers to introduce new codes (which can take years).
Scaling Provider Pool
The other challenge around scaling is ensuring your provider pool is growing in synchrony with your demand — a classic marketplace challenge with some unique wrinkles of complexity due to digital health. For one, providers need to be licensed in a particular state to see and prescribe patients from that state. Adding to such dynamic is the need to onboard and train providers “your way of providing care” that could go beyond the simple task of providing telemedicine consultations and prescribing medications.
Depending on the business model, some hire providers as full-time W2 workers and some assemble a network of part-time providers with disperse distribution of available hours. Either way, you’re bound to face a challenging balancing between scaling supply too slowly and having ample providers ready-trained to match geo-specific demand.
Securing insurance reimbursement and scaling provider pool are operationally taxing but solvable – there’s a playbook on how to do so overtime. On the other hand, scalable and efficient GTM remains to be the biggest unknown and unproven piece of the puzzle as the verticalization and fragmentation in digital health continues.
For certain players that have high LTV supported by a long tail of recurring sessions/payment events and/or high insurance reimbursement, acquiring patients through DTC paid marketing could be viable. For others, provider relationship and referral might have to be the answer, especially if the patient journey naturally starts from a PCP who usually refers out to a specialist. The jury is still out in terms of how to build out such relationships in a cost-effective fashion given the fragmentation of PCPs.
Another possible growth channel is through employers, though competing with other benefits is never easy. Players such as Spring Health have seen success in this channel as employers increasingly view mental health/mental wellness as an important issue to address among their employee base.
At the end of the day, if the promise of digital health verticalization is to provide more accessible care that delivers on a better patient experience, these new providers must find an effective way to educate and convey their unique value proposition directly or indirectly.
Why is 2021 Different
Profoundly unfortunate as the COVID-19 pandemic has been nationally and across the globe, every crisis presents opportunities. The government quickly changed certain telehealth guidelines in light of COVID-19, and many in the industry believe that the increased regulatory flexibility is here to stay post-pandemic.
Similar to e-commerce and food/grocery deliveries, the future of telehealth has been pulled forward by years in a matter of months as millions of Americans try telemedicine for the first time. Trying something drastically new is always a massive marketing challenge, and now that telehealth services have gained popularity, their customers may be more receptive to digital health providers in the future.
What’s the End Game
Many investors and operators (ourselves included) wonder what happens in the long run with all these vertical telehealth solutions. It’s hard to imagine they all continue in perpetuity, independently blossoming into massive businesses. Perhaps a few winners emerge at scale and become “platforms” that absorb the others. Or maybe large-scale traditional providers such as hospital systems will feel the pressure to bolt on some condition-specific digital health to accelerate their ability to connect and care for patients digitally. Another plausible scenario could be partnership and consolidation earlier in the life cycle of some vertical telehealth providers, in search for shared operating efficiencies across patient acquisition, technology, and back-office operations.
We are probably still too early in the development of digital health verticalization to confidently predict the eventual outcome. Nonetheless, this unique time is part of the fuel behind our excitement about NextView’s recently announced Health and Sustainability Accelerator. As the landscape continues to evolve, we look forward to working with founders bringing unique perspectives and innovations in digital health.