OVERVIEW
We spoke with a veteran of the employer benefits industry who presently covers >10k employee groups across the US (his ~15 core clients operate in industries ranging from travel to health care). We came away from the discussion thinking that there may be a longer runway for Teladoc to figure out how to maximize the value of Livongo before there's a deceleration in top line revenue. Momentum for its core business (especially BetterHelp) likely continues through 2021. Evidence that Livongo will carry the momentum into 2022 needs to be building now, and this call is reasonably supportive of a positive outlook.
A few takeaways:
- Employer demand for telehealth will remain strong into 2022, mental health particularly.
- Longer-term integration is needed, but its currently a low priority.
- Livongo penetration is low, as are the hurdles to adoption. ROI calculations are subjective.
CALL NOTES
Is the future image of Teladoc believable? How do you think about the ROI on Livongo and/or demand for Livongo?
- Telehealth is here to stay – Teladoc is a vendor of choice for 2021. The regulators are making it easier for Medicare & Medicaid to pay for it and are allowing Medicare Advantage plans to pay for transportation etc. - think about things as simple as $40-$50 savings on an Uber round trip for a 75-year-old patient going back and forth to the doctor (save $, avoid exposure, etc.).
- The complaint that data isn’t integrated into health records/EMRs has been valid, but those discussions are taking place and progress is being made toward integration. It’s only logical - it’s going to happen.
- As an aside, watch Walmart and what it is doing w/ its clinics. Historically, they didn’t buy modules that were interoperable (focus was on cost). Software for clinics, vision, etc. didn’t talk to each other. That’s changed under Marcus Osborne, and if Walmart is willing to make that investment, others must.
- Clients love the concept of telehealth and Livongo, and they are buying it. Livongo has had success because there’s no losing if/when you buy it - it’s not all that expensive and people like the PPPM model - per participant per month (vs. per member per month). Diabetes is one of the more expensive chronic diseases to manage, and it’s not much cost to give tackling that a shot.
- Companies have wasted billions on wellness programs over the years. That’s where telehealth/monitoring/coaching comes in. HR (human resources) likes telehealth because you take something that’s been a waste of time and money and turn it into something with measurable/better compliance rates.
- The downside of going with Livongo is you/an employer won’t get a lot out of it if the employee base is 55 and over, overweight, etc. already. They probably won’t get a lot better w/ Livongo; however, for a younger population (under 40), that’s where the ROI is – avoiding type 2 diabetes and managing things like asthma and weight. As a general rule of thumb, it’s a good add-on. If an employer hasn’t had success controlling things Livongo can help with, it’s worth a try.
- For the 20-30-40-year-olds, anyone w/ high blood pressure, type 2 diabetes, etc. - that’s where the market is. They are an open market for this (chronic risk/avoidance).
- 3 of my clients use Livongo – it’s not more because “jumbo” accounts move slower and there are other priorities. So, this is a skewed view, but it could easily be 4-5 looking out to next year (for 2022). Yes, Livongo would be much bigger if I were representative of the market.
Is Livongo an easy cross-sell?
- No – but diabetes is easier because it’s hard to lose and you prevent people from moving to high-cost. Populations where employees are sensitive to looking good may like it too (airlines, for example). Older employees are more worried about their jobs than engaging with something like Livongo – it’s an old habits die hard kind of thing. And It’s hard to sell because of the uniqueness of each call point, but adding incremental coverage makes sense over time.
- Right now, HR managers have different priorities – it’s been a challenging selling season. Clients are more worried about: IT security, keeping people working, and raises next year. If raises are smaller on average - 1.3% vs. 3.1%, or companies are putting off raises completely or laying off thousands of employees, those are the priorities. Look at health systems that employ 10s of thousands of people…they are more worried about how to maintain revenue while delaying procedures.
- Adding benefits is a retention and attraction issue … but if people get a 1% raise, they are upset for two years. Doing something like telehealth or diabetes coaching takes a back seat to paying off employees’ student loans.
- Will there be huge growth? No. But telehealth is here to stay (incl. Livongo). Metformin is a cheap drug that does what it’s supposed to, but it take time for people to tolerate it and there are a double-digit % of people that won’t pick it up from the pharmacy or take it. Livongo could be a huge win anywhere you have a population like that.
- Outside of diabetes, I see asthma as more likely than COPD, and perhaps cardiac is an opportunity –> anywhere you can monitor a patient and tracking simple things like weight gain can help avoid an ER visit. Coaching helps in those scenarios and it’s “lighter” duty (you need contact every 60-90 days and the clinical/diagnostic support is relatively easy w/ Bluetooth devices).
What’s the ROI on Teladoc or Livongo?
- Remember that these are bought by large employers separately, so long as “it” isn’t too expensive to add as an option there is likely a positive ROI.
- There are various formulas employed for wellness revolving around medical costs, cost avoidance, opportunity costs/productivity and employee satisfaction (qualitative). So, ROI will vary. With a diabetic population, it’s usually easier to show cost avoidance. The benefit of allowing an employee to have a virtual visit from a private room is harder to value, but companies were and are setting up private rooms for virtual visits (for convenience).
- More people are working from home now, obviously, where telehealth is a valuable benefit.
- The math is tricky, but with larger populations it’s easier to show/work with the actuaries to show the benefit of avoiding hospitalizations/ED visits and improved productivity.
- Livongo will show other stats or their data in combination with others. If you help someone with a chronic illness, you’re likely to have a positive outcome.
Part of the ROI is employee satisfaction?
- Absolutely. When contracting w/ outside vendors, there’s usually a list of service/performance requirements – e.g., answering calls quickly, time-to-resolution, etc. Those are a big deal for employers.
- Service and satisfaction are separate. It took time to change the trajectory of outpatient surgery, right? Think about Teladoc – that concept is here to stay. We may be able to get to the point where only the top 3-5% of issues are seen “physically.” For the most part, the technology exists and we don’t need to reeducate a population - so it should be faster.
Do you think Teladoc will be successful?
- They have a name/brand and telehealth is a logical expansion for payers… they should be successful. Seeing the same doctor with virtual primary care (i.e., Teladoc’s next leg) could hook employers w/ younger employees b/c that story makes perfect sense. It’s a good story to tell HR directors.
How about startups/competition?
- I’ve come across a number of new players recently – some examples:
- Highlight Health – The whole model is based on going to a telehealth provider first. You can’t see a doctor physically to start. Once you go through that, they have a network of MDs around the country that are part of the model.
- Bind is another one/new plan model using telehealth entry and proving access for members. Their focus seems to be increasing price transparency and certain procedures - musculoskeletal, for example.
- SimplySmart is another new plan option.
- MediOrbis - Global telehealth startup – “Providing Value-Based Speciality Telemedicine Services Worldwide” – covering the spectrum of specialty medicine; it’s an end-to-end telemedicine platform includes chronic disease management programs.
- Rx Savings Solutions – An example on the pharmacy side – offering a discount card, adding in telehealth, etc. It looks like a derivative of GoodRx.
- I’m not sure who the telehealth back-end is on all these, but telehealth is a component of all of them.
- Mental Health standalones have exploded over the last nine months. The thing with BetterHelp is that members don’t always have the same therapist. Not clear as to why, but it’s more episodic and a good EAP version - employee assistance plan. Employees/members get anywhere from 1-5 visits with a psychiatrist to get through an episode. There’s so much news about the stress on families and kids with schooling at home, etc. Demand for mental health coverage via telehealth will continue into 2021 (demand “exploded” in May) – this is another reason there’s at least another year of people being comfortable with Teladoc’s approach.
Is GoodRx in the mix?
- It’s not their main market – they have a harder time with employers because all PBMs offer services/data around copay cards to employers.
- GoodRx recently bought Scriptcycle, which could be a precursor for getting into the PBM business (it helps pharmacies bill and farm out certain types of claims but doesn’t represent a lot of money today).
Policy Changes & Rebates
- What would employers need from a PBM if there’s a discount at point of service? Administrative and compliance services. They make money on network management, but employers hire them because they know they are compliant and can hold the PBM accountable.
- A lot of fully insured premium-based small products, $1/mo per employee, are growing – look at all the cancer policies that people have been selling – “optional insurance.” If a member has poor insurance and is making $60k per year, they might pay $3/mo for specific cancer coverage to cover the risk of high out of pocket expenses. That’s incredibly profitable business (all the majors are offering this – MetLife, Colonial Life, etc.).
How does telehealth evolve?
- I think we’ll see local health systems that own practices have it in the insurance contracts (this is starting to happen). For example, there will be some minimal level of accessibility built into a contract between UNH and a health system – i.e., telehealth could be required or the system won’t be in network and risks losing 2% of reimbursement.
- That’s when Amwell or TDOC, which are embedded, matter. The telehealth provider must be integrated. This will be a “cost of entry” - employers will trust carriers to make sure it’s done.
- Tom pointed out the battle between Epic & Cerner, noting that Amwell is close w/ Cerner (community hospitals aside), and Epic’s myChart is used by CVS too. The doctor supply is Teladoc for CVS. That software is where relationships are building. Amwell enables doctor to provide virtual care and integrates the notes back; TDOC must do the same.
- The cost of telehealth is not material – there’s a lot of value. If the average American costs $10k per year, what’s telehealth? $100? $30? It’s a fraction of other costs (Rx or hospital).
- Another issue: think about the closure of community hospitals. In rural Georgia, 8 community hospitals closed and employers left the region – there was no healthcare coverage. With good telehealth coverage, employers can move to inexpensive areas. It allows for basic healthcare to be provided.
What about CVS?
- They become Incrementally more important. Then, what happens w/ Express/Cigna or Amazon – does Amazon need to buy Rite Aid or does someone buy Walgreens to have the pharmacy footprint?
- ONEM and Oak Street have interesting models. For now, ONEM is too small/local for national employers, but it can be successful for smaller companies or executives at companies with higher average salaries. For Oak Street, most employers have walked away from retiree health care (-> defined benefit).
Thoughts on COVID-19 testing (in the context of large employers and employee benefits)?
- The PBMs are announcing how they’ll handle it – it looks like the government pays for the vaccine, it’s distributed, and there’s an administration fee charged to the company. Those fees will be anywhere from $10 to $25. That said, we haven’t had discussions about mandating the vaccine yet (w/ employers for employees in ’21). I think those discussions will happen in January.
- Employers may not want to pay for and give it to everyone or say, “You can’t come in if you’re not vaccinated.” However, there is a liability issue – i.e., an employer may need to have something saying, “We tried to protect you from catching a deadly disease.”
- From a corporate perspective, with employees working remotely, everyone is thinking about whether they need to be paying rent for large office space.
Please reach out to with any feedback or inquiries, questions for future field checks, or requests for underlying data.
Thomas Tobin
Managing Director
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