How a high-stakes merger delivers on the promise of telehealth

As if to punctuate the growing shift to on-demand healthcare spurred by the pandemic, Teladoc and Livongo have announced the merger of their two companies, creating the first end-to-end virtual health delivery “system.” With a combined estimated valuation of over $38 billion and over 70 million lives under management, the merger will create the first digital health company to achieve the requisite scale and size to address primary care for patients with chronic illness.

Teladoc provides on-demand video consultations for primary and (through its recent acquisition of InTouch) specialty care. Livongo is a chronic care management company that provides coaching for diabetes and behavioral health.

At first glance, this seems like an unlikely merger. Teladoc services are used on an as-needed basis, functioning as more of a "backup service" to primary and urgent care, whereas Livongo plays a very active role in the daily lives of its members by assisting them with frequent nudges to monitor their condition.

Early on, both companies figured out the right market entry and per-member/per-month pricing – selling to HR benefits managers who focused on employee satisfaction and access. With just a 25% common customer base, there’s plenty of cross-selling opportunity. However, that’s not the whole story here.

Building on the telehealth trend

This merger is capitalizing on a growing trend of on-demand healthcare by building an end-to-end digital health platform to improve the access, delivery and experience of healthcare for consumers. The pandemic has become a forcing function to accelerate that trend.

COVID-19 has spurred telehealth to become an essential service, driving its overall utilization to unprecedented levels. In April, 13.7% of total claims were telehealth-related, according to FAIR Health, a nonprofit group that analyzes private health insurance claims. Although that volume fell to 8.7% in May, a 40% dip, that is still a whopping 5,680% more than the volume in May 2019, which was 0.15%.

Several factors are boosting the interest in telehealth, including:

• Reimbursement: At the beginning of the pandemic, private insurers and the Centers for Medicare & Medicaid Services (CMS) relaxed their telehealth payment rules, paying the same rate as a regular in-person visit for all telehealth services, thus removing the previous parity of reimbursement. The CMS also approved 80 new services for reimbursement, including remote monitoring. President Trump recently signed an executive order directing the administration to permanently extend Medicare's telehealth reimbursement, and the Senate Health Committee introduced the Telehealth Modernization Act to make these changes permanent.
• Policy changes: The relaxation of medical licensure requirements (stipulating that a physician must be licensed in the state where the patient is located at the time of treatment) is also driving telehealth adoption.
• Consumer demand: The need for these services is quite high across all demographics, according to a recent Amwell survey. Even among seniors, most (84%) don’t find the technology to be a barrier to their use of telehealth. For some health consumers, the use of telehealth was already on the rise even before the pandemic. In a study conducted by AARP in June 2020, roughly two-thirds of respondents said they’re interested in telehealth services, and 85% said they would use it to renew prescriptions. A large number said they would use telehealth for help in caregiving (79%), discussing a new medical issue (76%) and for a routine visit to the doctor (74%).

From patchwork to platform

While the future of digital health is bright, however, the industry needs to move from its current patchwork of point solutions to a truly digital health platform that is integrated with clinical workflows across the continuum of care to deliver a seamless experience.

The resulting service (often referred to as “the digital front door”) enables health consumers to more easily communicate with care professionals and access the most appropriate level of care while boosting autonomy and transparency via technology.

Delivering a frictionless experience to providers and patients will require innovations and product changes, including the following:

1. Digital triage. This is the ability to input symptoms and determine through artificial intelligence/machine language-based analytics whether the right site of care is a virtual or in-person visit and then assist with scheduling.
2. More seamless virtual visits. While Teladoc already offers this functionality, additional features are needed to enable deeper clinical workflow integration for onboarding, billing and reimbursement. Another needed feature is the ability to collect patient vitals remotely from home. Numerous companies (e.g., Tytocare) have developed consumer-oriented, medical-grade devices for the collection of temperature, pulse and other vitals, while still others (e.g., Binah.AI) are using mobile phone devices such as the phone’s camera to collect these vitals. The next step is to not just collect these vitals but also integrate them into the clinical flow.
3. Remote monitoring. Telehealth systems need to include the ability to monitor patients at home and make necessary clinical interventions to avoid unnecessary ER visits. Livongo is one of the leaders in this category, covering both diabetes and behavioral health, but a natural product extension would be to include other conditions such as congestive heart failure and COPD.
4. More integrated patient care. Another product gap to fill is the integration of patient services, including wellness, coaching, behavioral health, care coordination and the ordering of durable medical equipment or diabetic supplies, easily and conveniently. This requires building a healthcare API layer to connect to other health systems.

Providing a seamless experience means more than the development of these features – it’s also about creating the connective tissue that brings these features together and integrates them into a clinical workflow. According to a recent McKinsey analysis, roughly 20% of the total ambulatory and home healthcare in the U.S. could be virtualized with the right technology platform, creating a new value pool of $246 billion just in 2020 alone.

The combined company of Teladoc and Livongo, with its collective pool of R&D dollars, seems well-suited to drive product innovation and capitalize on the opportunity.

An emerging model of care

Will telehealth reduce costs and improve care quality? Or will it suffer from the same Baumol’s cost disease that has been inflicted on other areas of healthcare? While the proof points have yet to emerge, it stands to reason that the increased access and reduced wait times that telehealth offers, among other benefits, will tip the scales in the right direction.

What’s certain is that while virtual care may never completely replace the gold standard of in-person care and is not the solution for all illnesses and health conditions, industry mergers like Teladoc and Livongo shine a light on the way forward. There’s no doubt that telehealth will represent a significant share of healthcare services in the U.S. for the foreseeable future.