Field Notes I TDOC I Employers May Have Rotated Faster Than Teladoc Could Acquire/Evolve

Overview

On August 19, we spoke with a benefits consultant that manages his own "book" of business (~50k employees in total across a mid-single-digits number of core clients) at one of the leading national benefits consultancies. He has the most experience with slightly larger employers (~10k employees) and larger mid-market employers (sub-5k employees) in the tech, pharma, and financial services sectors. It seems as though there's some friction for Teladoc/Livongo (TDOC) on the chronic care side in the enterprise market, and while it should be ideally positioned with BetterHelp, myStrength Complete (TDOC's employer and health plan solution) may be a little late to the party (launched in July). Why? Because employers' focus shifted to mental health as this year progressed, which may help DRIO's "platform" pitch. As of now, Teladoc remains on our short bias list, and DarioHealth (DRIO) remains on the Best Ideas list (Long).  

Highlights

1. Mid-market employers (up to 5k employees) may still be interested in adopting chronic care solutions (platforms vs. point) but it sounds like larger, more sophisticated employers are less of a sell-through opportunity for TDOC.
2. Our contact thinks about 40% - 50% of employers have rolled something out for metabolic and there's a greater focus on mental health now. He commented, "Not many employers are trying to do more metabolic, but Fertility is an area of interest/focus as well."
3. Livongo was seen as best-in-class and Teladoc has a strong brand and scale, but our contact said there’s recognition that the market is catching up, and "Livongo's edge has eroded."
4. That said, Livongo is always at the final table (usually with one or two others) for metabolic RFPs, and Dario is popping up more (contact had + anecdotal feedback on DRIO). He had not seen myStrength Complete yet. 

Call Notes

Edited lightly for length and clarity.

• It’s 100% true that a ton of calls are being aimed at the C-level. Billions of dollars have flowed into digital health solutions, and almost all the companies want to sell into the enterprise market. The salespeople are also targeting buyer-level compensation and benefits executives, directors, etc. It’s a lot to organize, figure out, identify what overlaps, rank what’s best in class, and think about what solutions fit with the organization - it's quite a charge.
• Employers rode the initial tele/digital boom because of the pandemic, but virtual can only tackle so much of what in-person care can. We are seeing some repeat claims so the employer feels like they are paying 2x. These visits are still reimbursed for self-funded at the same level – there are advantages, but up until there's universal recognition that it’s lower cost for the model/platform, there's going to be some friction/disagreement.
• Telehealth vs. telemedicine - it's important to distinguish. For me/us and this discussion, it's telemed = sore throat, quick dial in, true lower cost (prevents urgent care). Telehealth is the move from in-person to other, reimbursed at the same rate, and that's where we are seeing second claims = not a unit cost advantage.
• Employers want to get into MSK and do better with behavioral etc. I can see the lightbulbs in employers’ eyes given the spend categories: high disease burden, mental health, lower acuity MSK issues, etc. They think, "We can impact that spend w/ telehealth."

• Yes, size and scale matter for user experience – are you getting appointments quickly?  Wait times are important. So that helps – TDOC does better than some of the D2C ones. Any excess demand = longer wait times.
• There's name-brand recognition w/ TDOC, which is + for the platform as they acquire more companies.
• In the mid-market segment (under 5k employees) – TDOC can serve as a first point of contact before accessing more medical or chronic care services in the program - having data that supports a program's utility is always helpful/valuable.
• While not firm yet, TDOC can gain an edge here by being able to service employees outside the US – international. Nobody is there yet with that sort of scale. A turnkey approach to tackling more geographies.

• The trend around digital precedes the pandemic and TDOC’s acquisitions.
• There are a lot of tailwinds. Livongo, Gluco – frontrunners, scalable, put power in employees' hands vs. old school coaching model – those programs had good success – good initial run and adoption.
• Those emerged as best-in-class – my perspective and view of other consultants, that lightbulb for employers - "If we haven’t taken advantage of a solution like this for chronic – diabetes or MSK – why aren’t we doing it? Why do it now?" Well, carry that forward, uncertainty about variants etc. people wonder if more digital solutions are the way to go. For a certain class of employers, platform-to-point solution play is attractive. Mid-market doesn’t want a lot of contracting, easy deployment turn on turn off – not just diabetes or hypertension, maybe mental health as well. They see it as a slick way to deploy. Plus some cost advantages.
• Larger employers are much more sophisticated purchasers of digital health – not tied to TDOC, Livongo, etc. They are fine on a direct contract basis.

• Straightforward – comes down to – can a vendor do it, most are willing to be flexible. They want the dollars to be the same or more, roughly.
• Of that, the way to think about it - program success - is about 30% adoption is a nice, solid place to get to in the first 2 years of any program. Most often we see way less, but sometimes more.
• You can back into the numbers from there, cost to administer to 30% of total eligible, what’s the cost, add in fixed, back into PEMPM number.
• Per participant - $67 per mo, cost-plus, what else is out there?
• It's different because it’s who is using – employers or benefits buyers look at these cost centers as successful if there’s high engagement. Per [active] participant models have incentives aligned.

• 100% meaningful – all a cost center, but the question is, what’s the ROI – more sophistication and analytics to show value, engaged members resonates.
• Are ROIs still inconsistent/arbitrary? ROIs – whatever actuary – someone will have a bone to pick with it. With diabetes – universally recognized as a cost driver – there are good independent studies out there. Most of the time you can point to X program and for 16-20 weeks it saves $4k ($3k - $5k range) in healthcare costs. Keeping members engaged is key.

• I've been getting quotes for Livongo and subs since 2016 – all-in consistently in that $60-$70 range… the market agrees that that’s fair, but maybe there’s a little pressure.
• The 30% engagement number is the gold standard/bar for engagement. We get way lower often – many vendors don’t generate behavior change in employer populations – have anecdotally heard professional and personal – “I like the Dario product” or “found it convenient.”
• One program – Vida Health – launched w/ an employer that had all the stars aligned, real appeal program, claims-based, etc. self-funded, w/ Kaiser Insured population. Leadership alignment, big push, annual enrollment, to HR managers, site level, massive adoption – 30% engagement in the first quarter – was great.
• Most of the time – Livongo – the reason for resistance is change, members have a device they are used to, used to getting their strips somewhere, don’t want to change.
• Vida – employer-paid, smart scale, smart blood pressure cuff, strips paid, Vida doesn't have its own devices – may be some overlap with what members use already. Livongo asks you to change vs. BYOD.

• Livongo, Omada, Vida – see Virta thrown in -tracking but a little different, total lifestyle change. DRIO popping up a little bit. Gluco used to see a lot more. That’s been the last 3-4-5 years, some decisions were deferred/delayed.

• I'm not super deep on Primary360. Was hearing about data more than chronic conditions, then [TDOC] changed the narrative again. Most of these solutions pivoted well. If someone has a chronic condition, there’s all this stuff layered on top.
• Mental health is almost always there – more than just stressors – financial or other.
• Employers pivoted to mental health and the right way to deal with it.
• Teladoc has done pretty well there, but there's a lot of good stuff in the market – replace vs. supplement. myStrength – employers are learning a lot more about lower acuity vs. anxiety and stress, what are turnkey self-service things vs. Lyra, Modern Health.
• Employers are skeptical though.
• Why is that? Members will use whatever – employers are being thoughtful about adding covered benefits.  Some fall in-network already like Talkspace (TALK) is in-network under UNH. People were using it before, now even more.
• Employers are keen to purchase mental health solutions, but it’s a lot to bite off and many realized they were spending money w/ out better outcomes, and mental health spend keeps going up.
• Generally, if an employer sponsors, captive audience, greater adoption because subsidized. Employers get more bang for the buck because of data and can manage it.
• However, there's no real integration, health records siloed, no insight. But if start sponsoring highly valued benefits, engagement and spend are good things, control spend better.
• But these are real challenges – employers are dealing with it, deployment of programs is tricky because of D2C – it’s client by client, it’s a list of issues. Hard to launch, validate and have it stick.

• One name Lyra Health – coming up all the time – first to do innovative EAP model, traditional sucks, prepaid care, PEPM, super low utilization 1-3%, nobody valued employee assistance programs (EAP) – traffic redirection, some counseling.
• Lyra – curated an awesome network of therapists – outpatient, pay the higher than market rates. Took its custom network, accepted benefit status, keep as EAP, offer on 100% paid basis, employees will love it – they love it. Have provider shortage, out of network, access (3-mo wait), now have Lyra, all employer-paid, get 10-12-16 visits for free with high-quality provider w/ beautiful tech stack. Frictionless
• EAP – traditionally, non-clinical, Lyra made it all clinical w/ licensed therapists.
• The problem, that model was/is not sustainable – lower cost EAP – switched to self-funded claims model. Pass on the cost of provider use in-network, collect networks access fees. Employers were like, "Whoa, that was $200k, it's now $2.5M." It's not "bad spend," but everyone is using it.
• Lyra – switched to triage mental health better, not everyone needs it – self-service, coaching non-clinical.. revision in the market to adapt.
• Modern Health, Spring Health, Optum responding too.
• Lyra best in class, Modern Health Spring Health building out network – hybrids of prepaid vs. self-funded – great job.
• Stress management, building resiliency, Calm, Headspace.

• I don't have a sense of it, not more current updated – I'm assuming the same y/y with actuaries for budgeting. There’s a push, physician groups, lobbying, etc. But, some people are saying it doesn’t cost as much…see more patients per hour. Within a year or two, will probably see a lower rate.

• We're talking about deploying solutions, and many aren't for everyone – it’s diabetes, lifestyle management, DPP…
• In the smaller, mid-market – if you segment the ~50MM to isolate smaller vs. larger employee members, and then further delineate by the level of sophistication and motivation, you can see that the smaller/mid-market will adopt it more - just my gut instinct. I'm not sure about conversion.
• With large, sophisticated buyers, I don’t think it’s going to move the needle.
• These larger employers have money and time to look at multiple vendors, they are comfortable doing pilots, etc.
• There's a greater focus on mental health now - not many employers are trying to do more metabolic. Fertility is an area of interest/focus as well.
• For a long time, Livongo was seen as best-in-class – there’s recognition that the market is catching up, its edge has eroded. But, couldn’t have that conversation without inviting Livongo to the table.

• Sure, they've had success in consumer –> to enterprise side. Livongo is entrenched employer space, but DRIO seems to have a physical product, good use case, and track record to talk about. They will still encounter headwinds in the larger employer market segment.
• 5k and below, + impact, again, that's what I call mid-market. I haven't seen a proposal from/for DRIO, but it's interesting.

• I haven't seen it.

• 40-50% have deployed something for chronic. It seemed like time was going to be faster adoption, all this transparency, and coverage, but mental health is the focus right now. The narrative has changed. Hard to say how long it’s going to take.

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Thomas Tobin
Managing Director


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Justin Venneri
Director, Primary Research


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William McMahon
Analyst


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