Teladoc: Saving Lives or Just a Dime?

Teladoc, the largest telemedicine provider in the U.S., is on a mission to transform how patients receive health care.¹ Through an online two-sided marketplace, Teladoc connects 13 million patients with ~3,000 licensed physicians to provide affordable consultations on demand via phone or video. ²

Why Telemedicine?

When people get sick, they have three broad options:

• Self-treatment: best for common, low-risk ailments like colds and mild fevers that can be treated without prescription drugs
• Emergency room / urgent care: best for most serious situations such as major accidents, high fevers, etc.
• See your physician: best for cases that lie in between the above two extremes

It seems the current system is set up for success, spanning the gamut from low to high acuity. However, many common symptoms blur the lines between these options. Is your chest pain a result of indigestion or is it an early sign of a blocked artery requiring surgery? You don’t want to go to the emergency room and risk a multi-thousand-dollar bill when a simple physician visit could suffice. Similarly, you don’t want to wait until next Tuesday for an appointment with your physician if a complex surgery may be required. What to do? Enter telemedicine.

How Does Teladoc Add Value for Patients and Physicians on its Platform?

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Teladoc’s promise to patients is three-pronged: ³

• Unparalleled access & convenience: 24/7/365 access to a physician within 10 minutes of request
• Affordable care: ~$40 per consultation, significantly cheaper than existing alternatives (see Exhibit 1 below)
• Quality care: network of ~3,000 physicians is accredited by the NCQA (a well-established independent healthcare accrediting organization)

Exhibit 1: Savings Generated Using Teladoc vs. Alternatives ⁴

Similarly, Teladoc seeks to create value for physicians via: ⁵

• Increased flexibility: see patients whenever, from wherever
• Reduced overhead vs. in-person visit: fewer support functions required (receptionists, nurses, etc.)
• Increased patient volume: supplements slow daytime hours or allows a physician to earn extra money during nights/weekends

How Does Teladoc Deliver on its Customer Promise?

Teladoc has made several key decisions to be able to deliver on its promises, each with different tradeoffs:

All consultations are provided via video or phone. ⁶ First and foremost, this greatly increases access and convenience for patients vs. an in-person visit. Further, physician overhead costs are reduced, but critics would note that IT investments are still required. ⁷ However, phone/video consultations pose added risk for physicians, who are forced to make decisions with less information than a traditional in-person visit. ⁸ Given a doctor-patient relationship is established upon a single phone consultation, physicians are exposed to malpractice risk if their recommendation proves unsuitable. ⁹ To mitigate malpractice risk, Teladoc explicitly states that it only treats non-emergent conditions. ¹⁰

Physicians are contractors. ¹¹ Pros include flexibility for physicians, ease of adding physicians to the platform, and eliminating the need for Teladoc to pay benefits to physicians. However, there could be adverse selection for lower-quality physicians who have poor reputations and thus require the supplemental patient volume. ¹²

Consultations are billed at a flat rate with no time limit. ¹³ Patients don’t feel like they are “on the clock”, thus they can take the time to get the care they need. However, this provides an incentive for physicians to speed through visits to maximize their revenue generation.

Patients cannot request physicians. ¹⁴ This preserves the homogeneity of demand, so physicians can have flexible hours while the system still maintains quick response times. The main drawback is that patients who use Teladoc as a replacement for primary care have little continuity of care. Additionally, the lack of repeat business combined with a flat consultation rate could lead to physicians providing lower quality care. ¹⁵

Is Telemedicine the Next Big Wave in Healthcare?

While using technology to increase access and convenience to health care while lowering costs seems compelling, skeptics question the efficacy of telemedicine. ¹⁶ In a world where continuity of care is constantly preached, are snippets of advice from rotating on-demand doctors good for us? Teladoc would argue that their services are a boon to the 62 million Americans who have inadequate access to primary care. ¹⁷ Regardless, the company should demonstrate the efficacy of its services through randomized controlled trials to establish credibility in both the medical and patient community.

There is an additional carrot looming down the road if telemedicine players can break through the trust barrier: partnering with insurers and acting as a gateway for the healthcare system. There’s huge value to be added by funneling patients to the most efficient site of care, vs. the status quo where patients routinely overconsume services to the financial detriment of insurers themselves. ¹⁸ Can telemedicine be the solution to ballooning healthcare costs?

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Sources:

1. Teladoc, Form 10-K (filed May 26, 2016)
2. Ibid
3. Ibid
4. CRAWFORD, MARK. “Technology Opens Promising Portals.”Health progress (Saint Louis, Mo.) 1 (2014): 18-21.
5. Teladoc, Form 10-K (filed May 26, 2016)
6. https://www.teladoc.com/how-does-it-work/
7. CRAWFORD, MARK. “Technology Opens Promising Portals.”Health progress (Saint Louis, Mo.) 1 (2014): 18-21.
8. http://www.modernhealthcare.com/article/20150221/MAGAZINE/302219981
9. Scott, Ronald L. “TelaDoc Offers Telephone Consultations with Physicians.”
10. https://www.teladoc.com/how-does-it-work/
11. Teladoc, Form 10-K (filed May 26, 2016)
12. Greene, Jan. “Emergency Physicians Among Specialties Seeking Part of the Telemedicine Pie.”Annals of Emergency Medicine 3 (2016): A20-A23.
13. https://www.teladoc.com/frequently-asked-questions/
14. Ibid
15. http://www.modernhealthcare.com/article/20150221/MAGAZINE/302219981
16. Greene, Jan. “Emergency Physicians Among Specialties Seeking Part of the Telemedicine Pie.”Annals of Emergency Medicine 3 (2016): A20-A23.
17. Teladoc, Form 10-K (filed May 26, 2016)
18. Petersen, Laura A., et al. “Nonurgent emergency department visits: the effect of having a regular doctor.”Medical care 8 (1998): 1249-1255.