Here's What You Should Know Before Buying Telemedicine Stocks

Telemedicine is disrupting healthcare by providing cheaper and more convenient access to doctors. The ability for telemedicine to provide on-demand healthcare diagnosis and treatment via computer or mobile device may be America's best shot at avoiding a major shortage of healthcare providers caused by a larger and longer-living population.

In this clip from The Motley Fool's Industry Focus: Healthcare, host Shannon Jones is joined by Motley Fool contributor Todd Campbell to explain the telemedicine opportunity, the roadblocks slowing its adoption, and what the future may have in store for the technology.

A full transcript follows the video.

This video was recorded on Nov. 14, 2018.

Shannon Jones: Telemedicine is here. It's actually not that new to begin with, but it's here. There are a few factors that have really been driving the rise of telemedicine. Let's just start with the most obvious one, and that's technology itself. You mentioned a smartphone. We're talking smartphones, computers, the whole gamut of technology. Now that we are so much more connected with wireless connectivity, you're really starting to see the adoption of telemedicine start to take off.

Todd Campbell: Right, because we have these devices that allow us to make that "personal" connection with the person on the other side of the device. I think a lot of people before either didn't have a smartphone in their pocket, or were leery of technology. I think technology has become so commonplace that even people who were late adopters now can actually use these things and gain value out of them. I think that evolving technology is going to continue to be a big driver of adoption of telemedicine. I'm sure we'll talk about some of the struggles or obstacles in the way of it.

One of the other really big trends that people need to be thinking about here when it comes to telemedicine's opportunity is a larger, increasingly longer-living population. Aging baby boomers are turning 65 at a rate of 10,000 people a day. By 2035, the population of people who are over 65 in the U.S. will outnumber the population of children for the first time. We have got this huge population of people who are getting older. Those are the biggest consumers of healthcare services, the elderly.

Jones: It's interesting. The obvious driver of technology, you don't immediately then think, "The elderly are going to be a huge diver," because of the technology. But you're exactly right, Todd. Even more so when you think about nursing facilities and skilled nursing facilities. That's actually one of the fastest-growing segments, in terms of using telemedicine, but it makes so much sense. Studies show that approximately 60-70% of all nursing home transfers to the hospital are flat-out unnecessary. One particular study that was done in 2015 found that an off-hours telemedicine service prevented over 90 hospital admissions or readmissions over the course of a year. This was for a 360-bed facility based out of New York. The savings were over a million dollars in Medicare cost alone, and improving the clinical outcomes for these patients, as well. So, I'd say even more so than the technology is the fact that we've got this aging baby boomer population driving it, too.

Campbell: One thing that we don't have to worry about when it comes to the healthcare industry is demand. The demand side of the equation is not going to be a problem. The real problem is going to be supply. And part of that supply problem is going to be being able to deliver it cheaper and more conveniently. That's to your point. The ability to reduce unnecessary visits that can tamp down on spending, that's huge, especially when you're talking about a patient population that has such a big need for healthcare. I saw a statistic, it said that of Americans who are over age 50 today -- there's roughly 70 million of us out there -- four out of five of us have at least one chronic condition. But anyone who's above 65, nearly nine out of ten has a chronic condition. Aging Americans are truly a big driver of healthcare spending in the country today. We spend 4X more on caring for the elderly who have chronic disease than those that don't have a chronic disease. And part of that is because of things like unnecessary visits to the ER.

Jones: Absolutely. That also brings up a good point, in terms of the physician shortage. This has been an ongoing issue, Todd, for quite some time. As you think about the astronomical numbers of people with chronic conditions, especially as we age, what becomes even more concerning is that we may not have enough physicians to meet the actual demands. Let's actually dive into that, because there are some really fascinating stats with that, too.

Campbell: They call them medical deserts. Think about it this way. All of us are getting older, including the doctors. About one-third of the doctors who are out there are baby boomers, who are going to be coming up on retirement themselves. As I was going through and prepping for the show today, I discovered that there are over one billion visits to either primary care offices or hospital outpatient visits every year. 991 million to primary care offices alone. If you think about the fact that we have this tremendous amount of demand coming through the pipeline, and this potential for so many doctors to retire, yeah, you could have a massive shortage. As a matter of fact, the Association of American Medical Colleges' estimate right now is that by 2030, we're going to have a shortage of about 49,000 primary care physicians. That equates to having 62 million people in the United States that are inadequately served because of these physician shortages. It's a huge problem. We've got to find new ways to boost healthcare supply, especially if we want to move the needle on cost.

Jones: Absolutely. That brings us to the point of where the limitations are with telemedicine. The opportunity, the need, is tremendous, but it doesn't necessarily mean that telemedicine has it all right now, Todd. In particular, there are a couple of barriers that telemedicine still needs to overcome. One of the biggest hurdles, and what has really, I think, been one of the things that have slowed it down the most, has been on the reimbursement and regulatory end of things. For example, even defining what telemedicine is still a work in progress when it comes to reimbursement. Payers want to be able to narrowly define, what is telemedicine, how do we code for it, how do we pay for it? That term is still broad. Until we get more traction on what it is, I think that's the first thing. There's obviously also some legal concerns. Of course, if you're treating someone via telemedicine and something were to happen to that patient, and because you weren't actually physically examining them in the office, obviously, insurance companies weren't too keen on that.

But, in 2019, we are starting to see a shift. There were some big moves on the regulatory and legislative front to remove some of those barriers, both on the payer and the health plan policy side. What's interesting for me on that front is, you are starting to see a shift. Granted, it's slow. But telemedicine is shifting away from this stand-alone service that's separate from and apart from your typical insurance and healthcare. Now, it's actually being integrated into the existing healthcare system. I think that is certainly a positive on that front. We're getting there. Still a long way to go on that front, though.

Campbell: The "how to pay for it" issue is a big one. I think that's been a big obstacle to adoption. The last thing you want to do is tell a patient now, "Guess what? We have something else that you're going to have to buy." One of the ways that they're overcoming that objection is, they're coming up with business models where the telemedicine company will actually sign a contract with the employer or the health insurance plan and receive a fee based upon the number of members they want to cover with telemedicine. The payer is actually footing the bill for providing access to telemedicine. That's really been a big driver of some of the growth that we've seen in the industry in the last few years. I was reading somewhere that of large companies, largest employers in the country, we're up to about 74% of them offering telemedicine services to their employees. Listeners, if you don't think you have telemedicine and you work for a big employer, you may actually have access to telemedicine. It's definitely worth looking into, especially if you're interested in the convenience and potentially a lower cost, depending on what your copay happens to be.

You mentioned the regulatory side of things. Yes, that's been a problem. You have to have states actually agree to what the definitions are. They need to figure out, "Are we going to allow a doctor in, say, Massachusetts to be able to treat a patient in New Hampshire? Will they have to get licensed in New Hampshire, as well?" How are you going to handle that or address that kind of an issue? Obviously, the best way would be to have a national registry or something like that. That way, you have a slow doctor's office in, say, Utah, they have the extra capacity in their workday to be able to see more patients, maybe then they could see people in an area where there's a tremendous amount of demand, an area that's underserved. Those are some of the other considerations that we're trying to figure out, the growing pains in getting telemedicine to become something that's much more commonly used by people.

Jones: Exactly. And even on a logistical front, Todd, you're recognizing that for these types of visits, these are non-emergency visits. These are for things like a cold, the flu, things that don't require immediate care and are non-life-threatening. Of course, that's certainly a limitation. I don't think that will ever change.

All in all, I think that telemedicine represents a huge opportunity. We're just seeing the beginnings of what telemedicine will look like. We'll get into some of the stocks and what they're doing, to go after some of the opportunities there. That's just to say, the future of telemedicine does look quite bright, Todd.

Campbell: Absolutely. I wouldn't shortchange it. One of the companies we're going to talk about later on has moved much more into specialty care over the course of the last couple years. As technology gets better and we're able to do a lot more in the way of remote monitoring -- and, who knows. Maybe someday, we'll have holographic images where our doctor is actually standing in front of us to evaluate us in our living rooms. I wouldn't count technology out, as far as being able to break through some of those technology barriers and get us to a point where telemedicine is helping more complex cases. But, to your point, we're still a long ways away from that.

Jones: I don't know about a hologram. I think about my mother, who actually still refuses to use the banking app on her phone, for security concerns. Could you imagine having a hologram in your living room? I don't know how open people would be. But, I do think that's where we're headed. Eventually, we'll get there.