Teladoc plans to take on risk in primary care, expand program to hospital clients

Dive Brief:

• Teladoc plans to take on financial risk for its offerings in the future, including its virtual-first primary service, in a bid to expand revenue per member, the CEO of the New York-based virtual care giant said Wednesday.
• The telehealth vendor made that program, called Primary360, available nationwide earlier this month, and it will be available through CVS Health-owned payer Aetna and Centene’s marketplace plans in Michigan, Mississippi, South Caroline and Texas early next year. And Teladoc is also beginning to talk with health systems about using Primary360 as a white-labeled digital front door to care for their populations, CFO Mala Murphy told investors on a call.
• In its third quarter financial results also released Wednesday, Teladoc beat Wall Street expectations on earnings and revenue, with a topline of $522 million, up 81% year over year due to strength in multi-product sales and behavioral health, management said. The 19-year-old vendor saw 3.9 million visits in the quarter, representing 37% year-over-year growth.

Dive Insight:

Like other virtual care vendors, Teladoc benefited enormously from surging demand for telehealth last year as COVID-19 spread. Some skeptics questioned whether telehealth companies could keep up the momentum, a concern that’s dinged the stock of publicly traded vendors even as many report sustained utilization.

But hybrid care models combining physical and virtual elements are attracting ongoing interest, especially from payers and employers looking to lower costs without sacrificing access to care, while pivoting away from point solutions.

To remain competitive in the red-hot market, Teladoc has increasingly highlighted its whole-person care portfolio and integrated care platform as differentiators from its peers.

The Primary360 program is a key prong of that strategy. Since it takes advantage of multiple Teladoc products, the economics are greater than its traditional general medical programs, or even the combination of its general medical and mental health programs, CEO Jason Gorevic told investors.

“We expect to see substantial growth off an admittedly small base in [2022] and in 2023 and beyond we expect it to have a meaningful impact on our financials as a company,” Gorevic said.

And management said Teladoc plans to take on risk in the program in the future, as part of its push to address the entirety of clients’ populations’ needs. That will allow the company to capture a bigger portion of any savings generated.

It’s unlikely the vendor will step into fully capitated contracts right away, but Gorevic said there are degrees of risk Teladoc will take on: moving from clinical measures of care, to risk corridors and ultimately into capitation.

“I do see us taking risk and I think we’ll step into that,” Gorevic said.

However, the competition in virtual care, especially virtual-first primary care offerings, is heating up from multiple angles.

Diversified healthcare behemoth UnitedHealth, e-commerce giant Amazon and health insurer Cigna have all recently announced plans to launch or expand their virtual-first primary care services.

Meanwhile, health benefits platform Accolade is acquiring virtual primary care company PlushCare for $450 million, and, in August, J.P. Morgan’s health-focused venture arm Morgan Health invested $50 million in value-based primary care model Vera Whole Health.

However, Gorevic said most health plans aren’t looking to roll out their own offerings single handedly in the space, as few have the network and provider assets needed to sustain a nationwide virtual primary care offering. And the recent big announcements on virtual-first plans is upping pressure on local plans to provide similar benefits, which could be a tailwind for Teladoc’s own sales and result in new pipeline opportunities.

In a note, Jefferies analyst David Windley said he agrees many of those players have limited capability, and “head-to-head, TDOC likely wins. However, we think the market has underappreciated the competitive enablement of others,” including managed care organizations and healthcare IT companies.

In the third quarter, Teladoc’s mental health unit BetterHealth was a key driver of revenue, but core trends improved, too, bolstered by the spread of the highly infectious delta variant in the U.S. However, the vendor had mixed segment results, with underperformance in its chronic care Livongo and hospital businesses.

That contributed to a slower year-over-year revenue growth in the third quarter as compared to the second this year.

Teladoc ended the quarter with U.S. paid membership of 52.5 million, and 725,000 people enrolled in its Livongo chronic care management programs. That’s only slightly higher than the 52 million and 715,000 people notched in the second quarter, when analysts dinged the vendor for stale membership.

The Livongo enrollment figures were softer than analysts expected while its “other revenues,” which are primarily hardware revenues from the InTouch hospital-facing business, missed expectations, in line with investor fears around chronic care enrollment and competition in the hospital-facing business, SVB Leerink analyst Stephanie Davis said.

Teladoc, which has yet to be profitable since going public in 2015, posted a net loss of $84.3 million, more than double the loss of $35.9 million same time last year.

Teladoc’s shares have had a rough year after 2020’s historic boom, and are down about 31% year to date.

For the full year, Teladoc expects to bring in revenue between $2.015 billion and $2.025 billion, representing year-over-year growth of 85% at the midrange.

Management also provided a rare look at 2022 before their November investment day, telling investors Wednesday the company expects to bring in around $2.6 billion in revenue next year.

Teladoc’s stock dipped aftermarket following the results, but was up more than 8% in Thursday morning trading.