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Coronavirus Propels Telemedicine into the Spotlight
Contributed Opinion

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 McAlinden Research Partners McAlinden Research Partners takes a look at how telemedicine companies are positioned to profit both during and in the wake of the current pandemic, and offers a couple of options for investors.

Summary: Coronavirus could be the game changer that propels telemedicine into the mainstream. Virtual clinical services have been around since the '90s but had failed to catch on. Now, a concerted effort by healthcare providers, insurance companies, the federal government and individuals to manage the COVID-19 pandemic has put telemedicine at the frontline of healthcare. Telemedicine companies have seen their usage volumes surge this year, along with their stock prices.

Telemedicine, a subset of telehealth, is hardly a new concept. Not only have virtual visits been around these past two decades, telemedicine is the most well-funded segment of digital health startups, having attracted billions of dollars to develop apps and websites that facilitate remote consultations with physicians. Telemedicine technology exists for follow-up visits, management of chronic conditions, medication management, specialist consultation and a host of other clinical services that can be provided remotely via secure video and audio connections.

At this point, most large health plans are on board with the notion. A 2019 Kaiser Family Foundation survey revealed that 82% of big U.S. employers include such a service in their biggest health plan, up from 27% in 2015. Yet, fewer than 10% of eligible employees have used a telemedicine service.

The biggest obstacles on the demand side have been the ingrained habit of people preferring in-person doctor visits, uncertainty about insurance reimbursement policies and lack of awareness by most people that they can connect with healthcare providers virtually.

There have been supply-side restrictions as well, one of them pertaining to physician licensing requirements. Most states, for example, will not allow physicians to practice across state lines, so a physician who wants to consult with patients residing in other states must be licensed to practice in those states.

While telemedicine has been slow to catch on so far, that's about to change due to a concerted effort by the healthcare industry, government officials and individuals to stop the spread of the new coronavirus. As we noted in our EdTech report, black swan events can change the adoption rate of new technologies. The SARS crisis of 2003, for instance, contributed to the birth of China's e-commerce industry, as quarantines and travel restrictions drove people to shop online. So too could the current pandemic mark a turning point for the telemedicine industry.

Health systems are deploying virtual services that can serve as their front line for coronavirus patients during the current crisis. The Centers for Disease Control & Prevention (CDC) has urged doctors and hospitals to conduct the initial triage of potentially infected patients remotely.

The CDC is also suggesting that patients with mild symptoms from COVID-19 be cared for at home when possible, but monitored closely using virtual check-ins. The goal is to avoid a run on the healthcare system. If the healthiest people don't show up in emergency rooms, that could mean more resources are available to treat the sickest and most vulnerable patients.

Michigan-based Spectrum Health, which features 15 hospitals and 11 urgent care centers, began free telemedicine screenings for COVID-19 last week. The video-based visits determine whether a patient is at low risk or high risk of infection. Ideally, if a patient is deemed high risk, testing for the virus can be conducted at his/her home.

Members of Kaiser Permanente—the big, integrated healthcare provider and insurer based in California—are receiving care and instructions from their doctors via video, phone and text-style messaging. For these patients, telemedicine provides faster care and helps them avoid hospitals, where they risk either infecting others. Healthcare providers are also moving routine care (those unrelated to COVID-19) to virtual visits to free up capacity at hospitals and mitigate the risk of exposing patients to infection.

Telemedicine also received an additional boost under the $8.3 billion emergency funding measure from Congress, which eased restrictions on its use to treat people covered under the federal Medicare program. Until now, coverage of telemedicine had been limited primarily to residents of rural areas facing long road trips for treatment from specialists. The new bill, approved by Congress and signed by the president on March 6, extends that coverage to all 60 million Medicare enrollees.

Telemedicine companies in the U.S. are already benefitting from the disruption. Helped in part by a push from the federal government and health insurers, demand for their services have surged. Part of the increase is from people worried about COVID-19, but the surge was also driven by patients with other conditions seeking to avoid getting infected.

The volume of virtual visits has roughly doubled for artificial intelligence (AI)-enabled telehealth platform 98point6. Virtual clinic usage at Amwell (fka American Well) has surged roughly 40% above normal in recent days, and startup Ro said it has seen "significant" growth in coronavirus-related online visits. Shares of Teladoc Health Inc. (TDOC:NYSE), one of the rare publicly listed telemedicine companies, have skyrocketed since the start of the year.

If telemedicine establishes its worth during this period, that could accelerate the adoption of virtual health care nationally.

The same is true in other markets. Last year, China's National Healthcare Security Administration (NHSA)—the agency that oversees state-backed health insurance plans—released new guidelines on pricing and insurance coverage for internet medical services. The move marked a significant milestone for telemedicine adoption in China, as it opened the way for local governments to provide reimbursement coverage for internet-based medical services.

How to Invest

The ETF that most closely captures this opportunity is the Robo Global Healthcare Technology and Innovation ETF (HTEC), which launched in June 2019. HTEC was a laggard last year, returning just +7% during the second half of 2019, while the SPY and U.S. Healthcare Providers ETF (IHF) posted respective returns of +10% and +17%. This year, HTEC's performance is on par with SPY and a smidgeon better than IHF. With telemedicine catching on, HTECH could get a boost as well.

Investors seeking stock-specific exposure will quickly discover that most pureplay telemedicine companies are still private start-ups. There are two publicly listed companies: US-based Teladoc Health (TDOC) and China-based Ping An Healthcare and Technology Co. Ltd. (1833:HK). Year-to-date, Teladoc is up 42%, while Ping An is up 26%. Together, the two companies make up just 4.80% of HTEC's portfolio, which is why they have had only a muted impact on the ETF's performance.

This content was delivered to McAlinden Research Partners clients on March 16. To receive all of MRP's insights in your inbox Monday - Friday, follow this link for a free 30-day trial.

McAlinden Research Partners (MRP) provides independent investment strategy research to investors worldwide. The firm's mission is to identify alpha-generating investment themes early in their unfolding and bring them to its clients' attention. MRP's research process reflects founder Joe McAlinden's 50 years of experience on Wall Street. The methodologies he developed as chief investment officer of Morgan Stanley Investment Management, where he oversaw more than $400 billion in assets, provide the foundation for the strategy research MRP now brings to hedge funds, pension funds, sovereign wealth funds and other asset managers around the globe.


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