Teladoc Reports Strong Q3 on BetterHelp Performance

Teladoc’s third quarter earnings report is in, and it’s looking like the company might finally be hitting its stride on its path toward profitability.

On its investor call, Teladoc told the only story that Wall Street wants to hear: cost management efforts and gross margins are both improving. The narrative helped push Teladoc’s stock up over 20% last week, although its $5B market cap still has a ways to go before getting back to its $45B peak.

Teladoc’s third quarter, by the numbers: 

  • Revenue of $611.4M, up 17% year-over-year
  • Net loss of $73.5M, earnings per share of -$0.45
  • Gross margin of 69.6%
  • Ended the quarter with 57.8M US members, up 10% year-over-year

CEO Jason Gorevic called out four main drivers behind Teladoc’s better than expected Q3 revenue, but its BetterHelp mental health business was definitely a standout.

  • BetterHelp grew over 35% compared to Q3 2021 and it’s now hitting a run rate of $1B annually. 
  • The direct-to-consumer mental health platform was specifically called out for contributing to Teladoc’s gross margin improvement, and its previously reported poor returns on advertising have begun to stabilize.
  • The efficiency gains were primarily due to higher utilization of group therapy sessions and the pivot away from a purely contractor model toward a hybrid model with more full-time employees.
  • Gorevic noted that next year’s outlook for BetterHelp depends in large part on macroeconomic conditions that could cause consumers to tighten their purse strings.

Other highlights from the quarter included 9% membership growth for Chronic Care Complete (now at 791k members), an expanded partnership with HCSC to bring Teladoc’s solution suite to employer groups, and high satisfaction among Primary360 users.

  • It was interesting that Teladoc stuck to NPS scores and some general utilization stats when discussing Primary360, and it’s probably telling that the actual membership count wasn’t deemed noteworthy.

The Takeaway

By all accounts Teladoc delivered a solid third quarter, and the margin improvement stemming from BetterHelp was music to shareholders’ ears. Despite the strong report, Teladoc lowered its full-year guidance to ~$2.4B in revenue, but even that was taken as good news by investors who viewed it as setting up an achievable growth target.

Providers Double Down on Software Investment

A new 2022 Healthcare Provider IT Report from Bain & Company and KLAS Research drew a lot of coverage this week with a headline takeaway that served as a nice break from recent bleak healthcare forecasts:

  • Providers are doubling down on software investments, even in the face of macroeconomic turbulence.

The research includes plenty of interesting data that’s worth checking out if you have half an hour to absorb it all, but here are the highlights for the visual learners with 3 minutes to spare.

  • Over 75% of providers expect to make new software investments next year, and one-third plan to invest more than usual (Figure 1). This signals a turning point in the provider IT market as many orgs who have stayed on the sidelines are now looking to retool software roadmaps for a “new normal.”
  • Of those investing heavily, nearly 80% cite labor shortages, inflation concerns, or restructuring (M&A, change in leadership) as the top catalysts (Figure 2).
  • Providers are particularly interested in revenue cycle management, security, and patient intake solutions as they look to address rising margin pressure and improve the productivity of limited staff (Figure 3).

The other main point that the report drives home is that providers are feeling increasingly overwhelmed by their expanding tech stacks and the proliferation of new vendors.

  • Over half are struggling with the flood of offerings and 24% believe that their existing tech stack keeps them too busy to stay current on new solutions (Figure 4). 
  • As a result, providers are actively trying to streamline their bloated tech stacks, with 72% attempting to expand with existing vendors before considering new ones and 63% looking to cut back on third-party software solutions over the next year (Figure 5).

The Takeaway

The consensus among providers appears to be that falling behind on software investment isn’t the way to turn around struggling performance, and neither is overloading their staff with disjointed products. That seems like a telltale sign that we’re in for more consolidation, especially with the report concluding that software vendors should pursue bolt-on acquisitions and strategic partnerships to create sticky platform offerings in a crowded field.

2022 Trends Shaping the Health Economy

Trilliant Health just released its 2022 Trends Shaping the Health Economy Annual Report, providing a unique perspective on the healthcare market through the lens of supply and demand.

Even though these dynamics don’t play out in healthcare exactly how they would in an “ideal market,” the 147-page report does a good job turning the core principles into a framework for examining 13 different secular trends.   

Perhaps the biggest trend, at least on the demand side, is what looks to be a shrinking total addressable market. The share of Americans with commercial health coverage dropped 0.6 percentage points from 2020 to 2021.

  • On top of this, care forgone during the pandemic appears to be permanently lost rather than delayed. Pandemic-related care is driving the appearance of a rebound, but with COVID treatment and vaccination omitted, healthcare encounters are down 6.2%.
  • The widespread availability of virtual care options hasn’t saved the day either, with Trilliant’s data showing that half of telehealth users in 2021 only used the modality once.

At the same time as demand is contracting, a growing supply of new entrants like CVS, Walmart, and Amazon is making consumer loyalty harder to capture. 

  • Trilliant makes the case that these retailers are commoditizing low-acuity services, leveraging their scale and large customer bases to pressure established players. 
  • This is taking place against a backdrop of burnout among traditional providers, with 9.8% of physicians leaving the field between 2019 and 2022. When accounting for new physicians entering the industry, the U.S. saw a -2% reduction in the physician workforce during the same period.

The Takeaway

If the full report makes one thing clear, it’s that the health economy is quickly turning into a negative-sum game as the number of patients with commercial health coverage decreases and new entrants swarm the field. Even though Trilliant doesn’t set out to give a solution to this problem, its research is a solid tool to help each stakeholder make sure they’re at least asking the right questions.

Inbound Health Connects the Dots for Home Care

Providing patients with at-home care is one thing, but determining which patients would benefit from it is a whole different story. Inbound Health is emerging from stealth to connect the dots.

Equipped with $20M in launch funding, Inbound is spinning out of Minnesota-based Allina Health and Flare Capital Partners to help other health systems establish their own hospital-at-home and skilled nursing-at-home programs.

The first half of Inbound’s platform covers all the bases of a robust at-home care program, including virtual care teams, in-person nursing visits, remote patient monitoring, engagement tech, and a command center to keep it all straight.

  • To help identify patients that would benefit from the program, Inbound provides AI-enabled analytics to filter candidates both medically and functionally in their home life, then confirms the fit with their physicians.
  • To help get those pieces in place, Inbound steps in with operational oversight, a comprehensive supply chain, and of course: performance-based contracts.

The overall partnership structure is flexible, allowing health systems to leverage their existing capabilities while only relying on Inbound to bridge the gaps necessary to scale these programs across their service areas.

  • Since beginning as a temporary program at the start of the pandemic, Inbound has now served over 4k patients across 185 primary diagnoses, reportedly lowering the total cost of care by 30%+ while often achieving better clinical outcomes than facility-based care.
  • While other home care enablers like Medically Home and Contessa Health are pursuing similar strategies, Inbound aims to set itself apart with “full stack of capabilities” that benefit outcomes enough to develop unique episodic-based payor contracts.

The Takeaway

At-home care is undoubtedly a hot corner of the market, attracting plenty of attention with its promise of lowering costs while increasing patient satisfaction. By bringing everything under one roof and tying its own success to its partners’ success, Inbound seems like it’s on the right path to making that promise a reality.

DHW Q&A: The New Staffing Landscape With connectRN

With Ted Jeanloz
connectRN, CEO

Nurse staffing and burnout issues existed long before the pandemic, but they’ve taken center stage as nursing becomes more challenging as a profession. 

In this Digital Health Wire Q&A, we sat down with connectRN CEO Ted Jeanloz to discuss technology’s role in solving these problems and the new ways that human-centered design can help support healthcare staff.

Let’s kick things off with some background. Can you tell us a little bit about yourself and connectRN’s overall strategy?

Since our early days in 2018, our hypothesis has been that nurses were being squeezed out of the profession because of the rigidity of their schedules. They might be going back to school and need to make time for exams, or they might have a child and need more time for them. What they all have in common is that they need schedules built around their lives, not around work.

We initially thought maybe 10% of nurses would fall in that category of really wanting more flexibility. And with 6.5 million nurses and CNAs in the country, 10% of those would be a solid total addressable market. 

We quickly learned that our assumption that only 10% of nurses want flexibility was way off base. It turns out that 100% of nurses want flexibility. Back in 2019 we just weren’t programmed to realize it was possible, but the pandemic helped show us that flexibility and productivity aren’t mutually exclusive.

That’s at the core of what drives connectRN.

Can you share more about the platform? What are some of the ways that you create this flexibility?

As far as creating flexibility, there’s a bedside component and a virtual component. As far as in-person care we bring flexibility to that part of the equation by first and foremost giving nurses the ability to choose their shifts – timing, care setting, and anything in between.

They can also use the social component of our platform to elect to work with friends. They can say “these are the people I like working with,” coordinate with them on the details, then make the shift happen. That’s been working really well for a lot of our nurses.

We’re also moving towards a world where more care is delivered outside of facilities through things like RPM or telephone triage. If a nurse doesn’t have time for a full shift on Saturday, now they can do a home health visit for someone in their community. We have nurses licensed in all 50 states, so we’ll effectively be able to create an environment where nurses can contribute wherever the system needs them.

It seems like the platform is designed around the nurses in many ways outside of shift matching. Can you talk us through some of that?

One of the key ways that we’re focused on building around the nurses themselves is by facilitating their education. We have a ton of data coming in from both the supply side with the nurses and the demand side with the facilities. This gives us a lot of visibility into what the market is calling for and where there’s a gap.

That allows us to cross-check the skills that are needed with what’s in short supply, then give our nurses a list of next-step credentials that might immediately help their career. If a nurse has a certain set of shifts available to them based on their current qualifications, we can show them exactly how much their opportunity set would expand if they added what’s often a single certification.

By helping nurses get a little bit of training, we can hopefully increase their value in the market, increase the talent pool for providers, and if we can get all that aligned then it’ll move us to a place where nurses are truly better off.

Burnout is one of the bigger themes we cover, and adding more flexibility to the system probably helps with that. What are your views on if there’s a long term solution?

One of the problems with burnout is that there was this big pandemic shock, and it shocked us into a spiral that’s going to be really hard to get out of. It led to short staffing and a lot of nurses getting burnt out, so they ended up leaving, so there’s even fewer people, which creates more burnout and a pretty brutal cycle.

Our perspective is that giving nurses more options for how they work is a way that we can really help. Almost every nurse we talk to, when you ask them why they chose nursing, they all love their job. They all love patient care. It’s universal, but many of them say, “I love it, but I just can’t do it anymore.”

If there’s a long term solution, part of it is creating a way to keep them contributing but at a different scale. If we can let them pick their hours, pick their facilities, and pick how much they work, then they’re going to be happier when they’re there and be able to deliver better care.

That seems like a better mental health place for everybody and I think we can get there.

If you look back on connectRN’s growth, was there a secret sauce that you could share with other founders?

I really think it’s the team that we put together. Phenomenal companies are built by teams of phenomenally hardworking, phenomenally smart people. 

To have a successful startup, I think the first thing you need is a great problem to solve. Once you have that, you need to put together a great team to go after it. The third thing that helps is great investors, and we’ve had the support of really world class investors that have been there for us all along the way.

If you have those three things I think you can consistently succeed as a startup, but if we’re being 100% honest there’s also an element of luck. You absolutely make your own luck in some cases, but having the right solution at the right time is important.

For connectRN, the key has been to keep the flexibility and the nurses at the center of everything we do. We’re not optimizing for a full time schedule, we’re optimizing to help nurses build their careers.

For more on connectRN’s platform, head over to their website.

Brave Raises $40M for Medicaid Mental Health

Serve a large need. Serve it at scale. Serve it well. It’s a popular playbook for many mental health startups, but Brave Health is looking to put a twist on the model with $40M in Series C funding.

Brave’s strategy differs from employer-focused mental health providers like Lyra and Headspace in its commitment to Medicaid members, no easy path considering only a third of psychiatrists accept new Medicaid patients.

To serve this population, Brave employs nearly 200 behavioral health providers and supports them with a tech stack that’s one part teletherapy tool and one part engagement platform.

  • These providers offer virtual counseling, therapy, and psychiatry, while the priority is to get Medicaid patients referred to mental health services into care as quickly as possible.
  • This engagement component is key. Brave boasts an 80% contact success rate and has received 23k referrals this year alone through partnerships with payors and hospitals.

The fresh funding will be used to help Brave expand beyond the 18 states in which it currently operates, and to accelerate the activation of more value-based contracts.

  • After entering its first VBC contract with Molina Healthcare of Texas earlier this year, Brave’s now signed two others to push the total number of lives it could potentially cover under risk-based arrangements to over one million.
  • It’s also likely that we’ll see Brave double down on partnerships with other startups in the Medicaid space, building off of existing relationships with MedArrive (in-home care) and Doula Network (maternal mental healthcare).

The Takeaway

Brave’s “you can’t treat who you can’t reach” approach is fairly unique among its cohort of VC-favorite mental health startups, but its focus on Medicaid sets it even further apart from competition. By taking ownership of getting members into treatment as well as their care journey, Brave seems well-positioned to deliver results for both health plans and the patients they serve.

The Current State of Hospital Finances

Although we touch on Kaufman Hall’s National Hospital Flash Reports pretty regularly, the consulting firm recently published a more in-depth update on the current state of hospital finances and it looks like we could be in for a rocky 2023.

The main themes are all laid out below, but the full 13-slide deck is a quick skim if you want to take a closer look at any of the highlights.

One of the most noteworthy findings was that employed labor expenses are projected to increase more than all non-labor costs combined by the end of this year.

  • Hospital labor expenses are expected to climb $86B from last year’s combined total, while non-labor expenses are looking at a $49B jump due primarily to inflation causing drug and supply costs to remain 20-25% above pre-pandemic levels.
  • Contract labor expenses remain nearly 500% higher than in 2019 as the battle for nursing talent continues to pressure margins despite this year’s slowdown.

Kaufman Haul’s optimistic projections for the rest of the year now indicate that hospital margins will be down 37% from pre-pandemic levels, but their pessimistic models point toward a significantly sharper 133% decline.

  • The most pessimistic scenarios include COVID-19 variant surges, sustained inflation and expense growth, sicker patients who have delayed care, aggressive payer negotiations, and increased mix of non-commercial payers.
  • Half of hospitals reported a negative operating margin in H1 2022, and 53% are expected to be in the red by the end of the year – a pretty bleak picture considering only a third of hospitals saw negative margins prior to the pandemic.

The Takeaway

Hospitals have been feeling the pain of sluggish volumes and climbing expenses since the early days of the pandemic, but they’re now faced with a total lack of foreseeable federal support to help stabilize their deteriorating financials. Unless the situation starts showing signs of improvement, it’s likely that the service cuts and restructuring moves are just getting started.

Rock Health Q3 2022 Funding Recap

The end of Q3 means it’s time for another digital health funding wrap-up from our friends over at Rock Health, and many of you can probably guess how the numbers looked:

  • Total Q3 funding plunged 48% to $2.2B, the lowest quarterly amount since Q4 2019.

The low total puts us on pace for less than half of last year’s $29.2B haul, but the full story isn’t as grim as it sounds. Smaller round sizes, rather than fewer rounds, dragged down the overall number.

  • Q3’s 125 deals only represented a 14% drop, but a newfound preference for early-stage startups caused the $100M+ mega-rounds to dry up completely with the exception of Cleerly ($223M Series C) and Alma ($130M Series D).
  • Only six Series C or higher rounds took place during the third quarter, accounting for less than 5% of total funding volume. By comparison, Q2 saw 19 late-stage rounds and Q1 had 32.

Rock Health floats three explanations for the late-stage slowdown: 1) Many rounds were pulled forward to 2021 to strike while the iron was hot. 2) Other raises are taking place behind the scenes through round extensions or venture debt. 3) We’re in the middle of the biggest bear market in a decade… so some funding just isn’t happening.

The other major shift taking place with investors can be seen with the top funded value propositions and clinical indications.

  • Value Props: Non-clinical workflow companies vaulted into first place ($1.8B YTD), suggesting that staffing shortages and employee burnout remain top priorities. 
  • Clinical Indications: Digital mental health companies held on to the throne ($1.7B YTD), but oncology ($1B) and cardiovascular startups ($0.9B) have been gaining ground.

The Takeaway

It’s no surprise that this year’s public market correction is causing private market investors to hold out for smoother sailing, but if Rock Health’s Q3 report shows us one thing it’s that truly innovative startups will attract capital no matter how turbulent the macroeconomic waters. Rock Health also left us with an important reminder that “rational prices promote long-term market health and, if anything, diminish near-term worries.”

Why Healthcare is a Squid Game

Biotech veteran Wah Yan made a big splash across digital health social media last week after putting out a fantastic article that explores how a playing field of well-intentioned actors has managed to turn healthcare into a Squid Game.

If you missed the wildly popular Netflix show, the article’s subtitle tells you everything you need to know: “why healthcare stakeholders keep trying to punch each other in the face”

Yan lays the foundation for the article by explaining how improving the US healthcare system is difficult due to the mismatch between how revenue is generated vs. how value is measured.

  • Revenue is commonly generated per “unit of economic activity” (i.e. per visit or per procedure), so that increasing revenue depends on increasing activity.
  • On the other hand, measurements of healthcare value (i.e. a healthier population) are often tied to decreasing healthcare activity (i.e. a healthier population = less visits).

While that might sound like Healthcare 101, Yan goes on to illustrate how this relationship creates an inherently hyper-competitive market because “the value of an innovation is often dependent on declining utilization of other products & services at the population level – even if they’re not in the same vertical.”

  • The value of new interventions – whether a drug, a diagnostic, or a service – is increasingly defined by its impact on total cost of care regardless of the reimbursement channel.
  • As a result, everything competes with everything else for revenue, regardless if the final payer is a health plan, employer, or patient (e.g. home care reducing hospital utilization, pharmaceuticals replacing procedures).

This hyper-competitive landscape is what Yan contends is accelerating a growing number of Squid Game dynamics, including a land grab for scarce resources and a tendency to favor control over collaboration (e.g. acquiring companies vs. remaining partners).

The Takeaway

Whether or not the shift to value-based care is creating a healthcare Squid Game, Yan’s article provides a great lens for looking at the incentives influencing stakeholder behavior (and vice versa). He goes into a lot more depth than we can cover here, so it’s worth checking out for anyone looking to understand some of the dynamics driving healthcare innovation.

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