Is the Next Healthcare Revolution Already Brewing?

A huge change for health care is in the making. And it has nothing to do with Obamacare.

Aug 9, 2014 at 9:03AM

A big health care change appears to be under way, but few are paying much attention to it. At least not yet.

On July 28, U.S. Senators Thad Cochran (R-Miss.) and Roger Wicker (R-Miss.) introduced a bill that could help open the door to a new model of delivering health care. This legislation, the Telehealth Enhancement Act of 2014, would expand the use of remote patient monitoring for Medicare beneficiaries and promote use of telehealth in state Medicaid programs to help women with high-risk pregancies. If the bill ultimately becomes law, the impact on health care could be significant.

Why it's a big deal
Using telehealth seems like a no-brainer. Allowing medical professionals to remotely monitor patients' health and provide care should save money -- and potentially improve the quality of care provided. 

Telehealth is especially beneficial in rural areas where there aren't enough physicians. Around 60 million Americans live in these medically under-served areas. That number appears likely to increase over the next few years.

Medicare already reimburses for some uses of telehealth but imposes considerable restrictions that limit how often the technology is actually employed. Probably the most onerous restriction is that the patient must be located in an eligible location such as a physician's office, clinic, or hospital in a rural setting. That rules out the patient receiving care at home.

The Telehealth Enhancement Act would waive that restriction. It also would allow telehealth to be used at all critical access and sole-community hospitals regardless of where they are located -- even in large metropolitan areas.

Passage of the law along with a successful implementation could conceivably lead to even bigger things. If telehealth helps control costs and improve clinical outcomes within the expanded boundaries proposed with the Telehealth Enhancement Act, perhaps those boundaries could be stretched even further to allow any patient to receive care anywhere and from any qualified medical professional. 

Opportunity knocks

Regardless of whether or not that dream materializes, some hospital and technology companies could emerge as winners with the increased use of telehealth envisioned in the recently proposed legislation.

Qualified hospitals that use telehealth to reduce readmissions will receive financial incentives. Community Health Systems (NYSE:CYH) counts 206 affiliated hospitals across 29 states. Quite a few of these hospitals meet the government's definition of sole community hospital and could be poised to profit through effective use of telehealth. Community Health Systems already demonstrated its interest in telehealth by investing in a privately held telehealth company via a venture fund.

Regulatory changes have helped Community Health in 2014, with shares surging 30% in just the past three months. CEO Wayne Smith noted that a decline in uninsured admissions that he attributed in part to the Affordable Care Act helped the company's second-quarter financial performance.

Will the Telehealth Enhancement Act be as beneficial as Obamacare to Community Health? It's unlikely. But more financial incentives from the government could make a significant difference for many hospitals in the Community Health Systems family -- and potentially help keep the stock on its nice upward path.

Picking the telehealth companies most likely to prosper presents a tricky proposition, but Qualcomm (NASDAQ:QCOM) appears to be in position to do well. Its Qualcomm Life subsidiary has built the largest ecosystem for medical device and service companies in the telehealth space. At last count, 112 organizations used Qualcomm's platform. During gold rushes in the past, the biggest winners often were those who sold shovels rather than mining themselves. Qualcomm is in effect providing technology shovels for telehealth companies.

The problem for investors, however, is that Qualcomm's telehealth business is only a drop in the bucket compared to the revenue generated by its major business segments. Medical device connectivity and related business aren't even reported separately in Qualcomm's financial updates. Telehealth could very well become a more important element of Qualcomm's success, but for now it should only be a minor factor in deciding whether or not to buy the stock. 

Smaller companies focusing on telehealth seem poised to benefit the most financially from the recently introduced legislation. Most aren't publicly traded, however. Investors should keep their eyes open for any IPOs in the coming year or two for companies that offer strong telehealth solutions.

The biggest winners of all could be those Americans who receive more convenient and more effective health care as a result of expanded access to the technology. Telehealth hasn't received a tremendous amount of publicity so far, but sometimes the most significant shifts in an industry are the ones that happen quietly.

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Keith Speights has no position in any stocks mentioned. The Motley Fool owns shares of Qualcomm. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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