Telehealth demand slows as pandemic eases

As the pandemic eases and more people resume their normal work and leisure routines demand for telehealth services is slowing.

Some stocks that made big gains during strict lockdowns last year have sold off. Others are treading water.  Observers say it doesn’t mean telehealth is going away, just that the sector is taking a breather after a pandemic-led surge.

“The recovery is taking a little bit of the shine off the telehealth stocks,” says Daniel Sacke, vice-president and portfolio manager with The Sacke Wealth Advisory Group at BMO Nesbitt Burns Inc. in Toronto. “As things recover, we’re okay to go into a hospital and we want  to visit our doctor’s office.”

A report by Nashville-based analytics firm Trilliant Health  supports that view. It looked at post-pandemic healthcare trends and concluded demand for telehealth will decrease or remain flat across the U.S. this year. Trilliant’s analysis was based on 309 million healthcare claims  made through healthcare insurers and Medicare.

Trilliant found that even though the industry grew exponentially in 2020 – including a raft of initial public offerings (IPOs) – telehealth use began to taper early this year as the economy reopened. The research found that only about 13 per cent of Americans used telehealth during the pandemic of which most visits were for mental and behavioral health issues.

FAIR Health, an independent New York nonprofit that analyses health insurance data, reports a similar trend, noting that telehealth use fell for the third straight month in April.  It also found that mental health issues account for a majority of visits.

The research suggests that while telehealth has many applications, patients want in-person medical care if they can get it.

Mr. Sacke manages two funds for his clients with a combined $800-million in assets. While last year he liked Teladoc Inc., (NYSE: TDOC) one of the largest telehealth platform providers, this year he sees a more limited upside for its business this year.

“I think it’s a great company and they’ll keep innovating, but am I rushing out to buy the stock now? I can’t say that I am,” Mr. Sacke says.

Teladoc’s shares tumbled from a high of US $294 on Feb. 8 to its current $151.25, a decline of 46 per cent. Part of the selloff was the general rotation out of growth stocks even as the company turned in strong quarterly sales and profits. 

 Another telehealth bellweather, GlobalX Telemedicine and Global Health ETF, (NDQ:EDOC) is down 5% year to-date. The fund has US $742 million in assets and was launched last July. 

Despite these recent declines, Mr. Sacke says telehealth has a bright future.

“The industry is not going away, but for now people want to do more normal things again. That includes a one-on-one consultation with a doctor.”

 In the meantime, he has added other companies that benefitted from the pandemic but are more well-rounded: Abbott Labs Inc. (NYSE:ABT) and Thermo Fisher Scientific Inc., (NYSE:TMO) to his equity fund, both of which dipped recently after strong recent earnings.

For Abbott Labs, the reason for the drop was a projected decline in demand for its COVID-19 testing tools. The news sent the stock   down from a high of US $128 to a low of $105, before a rebound to the current level.  

Mr. Sacke noted that diagnostic tools are only one of four divisions for Abbott and Covid testing is just one part of that division. So, the selloff ignores its other businesses which are pharmaceutical, nutrition and medical devices.  

“We think Abbott is a wonderful position to be initiating,” he said.

He has also added Thermo Fisher, the diversified instrument and testing company for the same reason.

“We think it is a good industrial stock. Thermo Fisher is not just about testing, but instrumentation, specialty diagnostics and laboratory products.”

Meanwhile, Nick Kalivas, Head Factor and Core Equity ETF Strategist at Atlanta-based asset manager Invesco Ltd., views telehealth as a way to invest in technology.

“When investors think about technology they migrate to traditional software and communication services as a broad theme passing over healthcare. Healthcare is seen as an afterthought.

“But health care is another way to play innovation. Their use of technology makes our lives better and is overlaid with some very powerful demographic trends, especially as the developed  world ages.”

 The Invesco S&P SmallCap Health Care ETF (NDQ:PSCH) has about 10 per cent of its holdings in healthcare technology, where many telehealth companies  are found. These companies are developing software to analyze data and help improve efficiencies for doctors, clinics and hospitals. They also connect patients with pharmacies and other medical services.

He agrees with Mr. Sacke that telehealth has a lot of potential.

“The pandemic created this work at home, play at home environment. The technology and potential is going to be there on a longer term basis.

 “If there’s a bright side to Covid it’s really a spotlight on the sector’s ability to use technology to make things better. It showed that society can use technology to overcome a lot of  obstacles, speed up processes and solve problems. And I think that that bodes well for the future.

This is an edited version of an that article appeared in the Globe Advisor section of the Globe & Mail’s Report on Business on July  28, 2021. For reprint information please view this page.