Telehealth medical services were invaluable during the pandemic lockdowns with doctors offices closed and hospitals limiting access.
That sent shares of companies offering these services soaring, especially in the U.S., the largest global healthcare market. Three years later the sector has sagged, even though patients want more of it.
The problem isn’t demand. These services are popular because they are convenient, save time and accessible with an internet connection. The top use, according to US statistics, is for mental health related issues, followed by general office or outpatient visits.
Medical insurance data compiled in the US show that telehealth claims were 1 per cent of total volumes pre-2019 and peaked at 12 per cent in 2020. They are now running in the 5.5 per cent range according to FAIR Health, an independent New York non profit that analyses health insurance data. Given that the value of the US healthcare industry is US $4 trillion a year, the potential is huge.
While that should be good news for the companies providing these services, analysts say challenges stand in he way. These include how doctors are billed, resolving complex rules and regulations surrounding the sharing of information and a lack of integrated healthcare connectivity.
“The take up is going to be slower than people want it to be,” says Jeff Elliott, lead Global Equity Portfolio Manager for Healthcare at BMO Global Asset Management in Toronto. “Patients want it, but physicians are questioning whether they will get paid for it and governments are working towards how to regulate it. From a stock [price] perspective all that has to work its way through.”
The bank markets the BMO Equal Weight U.S. Health Care Index ETF (TSX: ZHU) which holds companies involved in telehealth directly and indirectly. The holdings include insurers such as United Health Group (NYSE:UNH) and Humana Inc. (NYSE:HUM) and DexCom Inc. (NDQ:DXCM), which markets wearable insulin monitors and pumps.
Mr. Elliott, a Ph.D. in molecular biology and biochemistry, says telemedicine has a large role to play because it is accessible and offers preventative care which reduces system costs. It also has a “democratization effect” because all you need is a phone.
He sees challenges with physician uptake if they are required to offer services at a lower rate than in-person visits. In the U.S. a two-year agreement has been reached in most states where insurers are paying the same for virtual visits as in-person ones. There’s no guarantee it will be extended. In Canada, each province decides how much it pays for services.
Physicians must also invest in the technology. They have to pay for it, learn how to use it and change how they interact with patients when compared with in person visits.
Ottawa’s recent warning to the provinces is an example of regulatory complexity. The federal government says it will reduce health care transfers if provinces continue to allow private companies to charge patients for services available for free through the system. The issue is people are paying out of pocket to get faster access in certain provinces and the government doesn’t like that two-tier approach.
This has implications for the growth of domestic telehealth firms such as Vancouver’s WELL Health Technologies Corp. (TSX: WELL) and telecom giant Telus Corp. (TSX:T) which is using its billing and connectivity expertise to build a stand alone health unit. Loblaw Co. Ltd. (TSX:L) is also trying to build a presence via its Shoppers Drug Mart chain.
Mr. Elliott believes a good route for investors is through companies who can influence how telemedicine develops. Teladoc Health Inc. (NDQ:TDOC) is a leader in the technology used to connect doctors to patients, but it has little influence on the speed of adoption. Insurers like United Health and Humana are better placed to navigate the headwinds.
“They are largely aligned with what societally we want out of healthcare, which is to bring the costs down and to make sure that care is being provided in the right place and people have access.”
Arelis Agosto, a healthcare analyst with GlobalX ETFs in New York, says while the most visible aspect of telehealth advances is easier doctor-patient interactions, wearable devices and systems that hospitals and doctors use to improve healthcare delivery are as important.
Global X markets the Telemedicine & Digital Health ETF (NYSE:EDOC) which is more tightly focused on the sector. It dropped 30 per cent in 2022, versus 10 per cent for the BMO Equal Weight U.S. Health Care Index.
Ms. Agosto sees a hybrid approach developing with traditional and digital health combining, particularly as it relates chronic care. For wearables, this includes monitoring blood pressure, diabetes and heart conditions as well as keeping an eye on post-operative patients.
“We think about digital health as the broader benefit of COVID-19 not only from a consumer facing standpoint, but also on the back end, whether its drug discovery or systems for hospitals and physicians.”
She agrees that billing issues are a headwind at the moment, but sees telehealth offering doctors benefits such as lower cancellations and no shows, a streamlining of record keeping and easier prescribing.
Both analysts also point to preventative diabetes care as an example of how technology can improve outcomes.
DexCom markets sensors that attach to the arm or stomach and monitor glucose levels. The sensor alerts patients to changes in blood sugar via an app and can be tied into an insulin pump to deliver the drug. Ms. Agosto says continuous glucose monitors have been shown to reduce hospitalizations by two-thirds.
Another example is chronic cardiac care. One sign of congestive heart failure is rapid weight gain as the heart’s inability to pump properly leads to fluid retention. Humana ran a trial using Bluetooth enabled weigh scales to help patients.
It offered lower premiums to patients who weighed in each morning and maintained their weight. It was monitored remotely and if a spike was noticed, a nurse would contact the patient.
“There are really only two ways to invest well in healthcare,” Mr. Elliott says. “You either save the system money or you come up with novel technologies that improve quality of life. If you can find the intersection of that, then you’ll do really well.”
Ms. Agosto sees several developments to watch. They include devices that transmit data to patients and physicians via apps, the ongoing technology drive to manage doctor billing and client management and a wider integration with online pharmacies.
“Although telemedicine is most familiar [to people], it is by no means the be-all-end-all of the sector or even the portion of the market that could see the greatest growth,” she says
This is a longer version of an article that appeared in the Globe Advisor section of the Globe & Mail’s Report on Business on Apr. 11, 2023. For reprint information please view this page.
Adam Mayers 
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