US Telehealth sees international response – does regulatory support overcome first-mover advantage?

The problematic promiseof telehealth for matching supply and demand of medical services has been an often-revisited topic over the past decade, particularly after passage of the Affordable Care Act.  Since then, telehealth has represented the certain promise of scaling the scarce resource of licensed, specialist healthcare providers.  It has been an archetype of the general transformation of hospital-based care delivery away from that which is tied to the physical hospital infrastructure to that which can be scale beyond its walls.  However, this transformation of hospital care to the community or ‘home hospital’ has been slow in the face regulatory reform, market consolidation, and entrenched stakeholders with brand equity.  In many way, telehealth has been similar to many other technologies promising new market(for those consuming healthcare resources with telehealth for the first time) orlow-end market(for those previously under-utilizing healthcare resources) disruptions.  Akin to technological change outpacing current practice in any industry, telehealth demonstrates the perplexing interplay between digital transformation and regulatory oversight in a case study that is instructive for how technology can emerge in slow-moving, heavily regulated industries.

To paraphrase Ido Schoenberg, CEO of US telehealth incumbent American Well telehealth may be considered in 3 technological iterations: (a) video exchange for non-urgent medical care, mental health, dermatology, etc (b) acute-care export of expert providers via image-assisted robotics to low-resource settings for use case like stroke (e.g. ‘telestroke’) (c) integration with wearable or implantable sensors to support home care for acute conditions.  Focusing on the first and most prominent of these iterations, lack of clarity on federal regulation for telehealth services has lead to piecemeal regulatory solutions at the state level in the US.  Like American Well, the ‘winners’ to date in the telehealth ecosystem have been those that have skirted regulatory or provider-sided adoption barriers to find new use cases for their technology that (a) diminish workflow friction for providers in large delivery systems (b) create new revenue streams for independent providers utilizing the platform with cash-based reimbursement (c) promote employee wellness and access to services for large employers (d) create member benefits for large payers.  AmWell has pursued these diverse revenue streams while engaged in regulatory advocacy for telehealth reimbursement at the federal level, leading to first-mover inefficiencies.  This effort, together with other large first-movers, has yielded policy change as the Center for Medicare & Medicaid (CMS) now reimburses telehealth within these criteria:

1. the beneficiary is located in a qualifying rural area
2. the beneficiary is located at one of eight qualifying originating sites
3. the services are provided by one of ten distant site practitioners eligible to furnish and receive Medicare payment for Telehealth services
4. the beneficiary and distant site practitioner communicate via an interactive audio and video telecommunications systems that permits real-time communication between them; and
5. the CPT/HCPCs code for the service itself is named on the list of covered Medicare Telehealth services

Source: https://www.healthcarelawtoday.com/2018/08/07/medicare-proposes-and-rejects-new-telehealth-services-for-2019/

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Regulation has promoted telehealth adoption outside of the US market, where ‘winners’ in places like Canada (e.g. Dialogue, Maple) and the U.K. (e.g. babylon health) enjoy first-mover advantage at earlier stages with clearer paths to profitability. For these, nationalized healthcare spend has created large RFP-based distribution channels with long sales cycles and sticky contracts.  For example, Montreal-based Dialogue Health contracts with Canadian provinces for reimbursement of clinical services provided by its telehealth platform providers, while contracting with employers to provide SAAS-type clinical ‘wrap-around’ and triage service to their employees.  In this way, Canadian healthcare reimbursement infrastructure supports larger scale telehealth reimbursement that allows Dialogue to focus on its servicing of employer-based contracts, narrowing its customer focus and amplifying its ability to create valuable, modular software add-ons that have economies of scope across employers.  Dialogue is able to not only provide video exchange with providers for non-acute services, but is also able to intelligently triage patients to local acute care settings.  In this way, Dialogue’s business motives are aligned with federal interests– lower overall cost of care by providing timely triage, use of asset-light service strategies for low acuity conditions, improve absenteeism at work.

While the case of Dialogue Health is demonstrative of how regulatory alignment on reimbursement allows telehealth services to integrate naturally into existing care delivery systems to match provider-patient supply-demand, the case of Babylon health in the U.K. is instructive of how regulatory support of digital healthcare delivery can promote category support of an evolving field.  In Summer 2017, the National Health Service (NHS) agreed to large-scale trials of Babylon’s messaging app to provide chatbot-based medical advice via artificial intelligence alongside Babylon’s 24/7 access to clinical services via its telehealth offering. In this way, without directly funding this promising and emerging application of artificial intelligence as a complement to telehealth, the NHS supported growth of its evidence base in a way that will hopefully smooth further adoption (Source: https://www.neowin.net/news/nhs-trials-an-ai-powered-messaging-app-to-offer-medical-advice).  Thus the role of government in this case demonstrates less the need for clarity on process and more the infrastructure to derive data from longitudinal studies exploring safety and efficacy for telehealth and AI healthcare services.  As evidenced in the DIGIT case on Zebra, the appropriate bias toward demonstration of safety via large-scale trials makes government support for approved trials on patient or claims data crucial to the growth of these fledgling technologies.

Digital transformation of healthcare services occurs slowly, for good reason.  An abundance of large incumbents and institutional stakeholders creates significant barriers to entry, given the desire of these incumbents to not become ‘losers’ in the game of technological transformation. Compounding this issue in the space of healthcare information technology is privacy of patient data and the housing of said data by providers (clinical) and payors (claims) disparately.  In fact, HIPAA stipulates that patients own their data and are entitled to healthcare data at their request.  Of course, arcane data entry techniques create significant friction in this process.  Meanwhile, large entrants into the electronic medical record (EMR) space (e.g. EPIC, Cerner) do not view themselves as stewards of patient data; rather, they view themselves as complements to existing provider workflows and claims processing.  These additional factors point to an additional theoretical benefit of telehealth.  While it will require new patient and provider behaviors in addition to new reimbursement paradigms, telehealth data storage (facilitated by third-party, cloud-based infrastructure) is entirely digital and ‘discoverable’ in ways that could aid patients’ transitions of care across provider systems or between in-network providers.

As we have learned from the telehealth case studies above, this theoretical benefit is balanced by inertia in setting regulatory frameworks for reimbursement or investigation of telehealth and its costs or benefits.  Several nations like Canada and the UK have taken progressive stances to telehealth (as well as artificial intelligence in the case of Babylon) that will allow their markets to quickly overcome any first-mover advantage of firms founded in the US.  From the perspective of go-to-market strategy for health-tech ventures, perhaps the appropriate proving ground is not where much of their VC backing is geographically located, but where regulatory reform is most progressive and patient demand outweighs stakeholder inertia.