The demand for virtual health services has boomed. Roughly 76% of hospitals across the nation utilize video and other technology to connect healthcare providers with their patients, according to a study by the American Hospital Association. Another study released in May reported that between 2017 and 2022, telemedicine is expected to achieve a compound annual growth rate of 19%. As of 2017, the telemedicine market was valued at just under $30 billion. Since the beginning of the COVID-19 pandemic, the demand for quality telehealth services has seen a significant upswing. In fact, the telehealth market is expected to experience 80% growth on a year-over-year basis due to the spike in demand stemming from the coronavirus crisis.
Founded in 2002, Teladoc (NYSE:TDOC) has risen to prominence over the last few years as the telehealth pioneer. The company held its initial public offering (IPO) in 2015. The company already has plenty of competitors in the telehealth space, but a new frontrunner recently emerged.
In April, Zocdoc, a popular medical appointment booking start-up, added virtual doctor visits to its list of services. Within seven days of launching virtual video visits, the company booked over 350,000 appointments in 50 different medical specialties. Zocdoc has since announced the launch of Zocdoc Video Service, a HIPAA-compliant telehealth solution available completely free of charge.
Could a relative newbie in the telehealth sector threaten a veteran like Teladoc? Here's what investors should know.
Teladoc is a leading digital health provider
Teladoc offers a wide range of telehealth services. Through the Teladoc portal, patients can connect with board-certified doctors 24/7 in an array of medical fields, including emergency care, internal medicine, pediatric medicine, mental health, and dermatology. While Teladoc is very clear that prescriptions are not guaranteed with a virtual visit, doctors have the discretion to write prescriptions for certain medications.
Many employer-sponsored health plans and private health insurance carriers across the nation include Teladoc as part of their covered services. If your health insurance benefits do not include Teladoc's services, you can also set up an individual plan and pay a fixed rate for each virtual doctor's appointment. The rate for an appointment through Teladoc is based on several factors, including the covered benefits on your health plan and the type of service you book.
One of Teladoc's most popular services is called Everyday Care. Patients suffering from nonemergency ailments can utilize Everyday Care to speak with a physician via video, through the mobile app, or by phone to obtain a diagnosis and treatment plan. If your insurance plan includes Teladoc's services, the cost for each Everyday Care appointment will be no more than $59. Otherwise, each Everyday Care appointment costs $75. The length of a Teladoc appointment varies. On average, Everyday Care visits take 15 minutes, while appointments with a mental health professional take 45 minutes. Teladoc currently has more than 43 million members on its platform and hosted 4 million telehealth appointments last year.
Zocdoc just made a genius move
Since its founding in 2007, Zocdoc has made waves in the digital health community as an innovative medical appointment booking service. Millions of patients per month use the Zocdoc platform to locate physicians in their network and book medical visits. Zocdoc makes the process of preparing for a doctor's appointment fast and easy. Patients can read thousands of reviews from existing patients before choosing their provider. They can also fill out paperwork online to save time at the appointment. While the cost for an appointment scheduled through Zocdoc depends on your specific insurance plan, the platform allows patients to book these visits completely free of charge.
As COVID-19 swept across the country in early spring, Zocdoc was quick to respond to the burgeoning demand for virtual healthcare services. After just one week of offering its new telehealth service, video visits comprised over 20% of Zocdoc's overall bookings. Approximately 30% of patients using these services were on the company's platform for the very first time. Of the patients booking virtual doctor's appointments through Zocdoc, 20% did so citing coronavirus-related complaints. The remaining 80% of patients booked a video visit to address primary care needs.
Shortly after Zocdoc's initial launch of its video visits, the company announced it was launching a brand new telehealth solution called Zocdoc Video Service. The service is HIPAA compliant and completely free for both providers and patients. Medical providers who are not currently part of the company's platform can still sign up for Zocdoc Video Service, and those already in the company's existing network of providers can opt into the service for free.
So far, about 8,000 providers have opted into Zocdoc Video Service. Zocdoc issued a press release announcing the launch of this service on May 13. In its press release, Zocdoc referenced a study by Merritt Hawkins, which found that 48% of doctors nationwide now see their patients virtually. Zocdoc also cited another survey by Ipsos, noting that "With virtual care encounters on pace to exceed one billion by the end of 2020, roughly three-quarters (76%) of providers surveyed...said they will offer more telehealth appointments as an option in the future, even after their in-person visits return."
Doctors from all specialty areas on Zocdoc's platform have opted into the company's new service. Medical specialties that have seen the highest rise in video visit bookings include mental health (70%) and neurology (55%). On average, telehealth appointments now comprise 30% of bookings across all specialties on the Zocdoc platform.
Zocdoc is completely free for patients to use. Medical providers are charged based on a Zocdoc's pricing model for their state. Last year, Zocdoc made changes to its pricing model in several states. In New York, for example, Zocdoc lowered the annual fee providers were required to pay from $3,000 to $299 and started charging providers for each initial patient visit. The exact cost for each patient's first booking depends on the area of specialty in which the medical provider practices. This move is intended to help the company scale in more rural areas where a high upfront fee is prohibitive to practices, though some doctors who have a high volume of patients from ZocDoc have criticized the change.
A flourishing stock vs. a highly anticipated IPO
Many companies have witnessed their top and bottom lines falter amid the COVID-19 pandemic, but digital health companies like Teladoc have had the opposite experience. Unsurprisingly, while the lion's share of stocks experienced extreme volatility in the coronavirus bear market, Teladoc shares have surged. Currently, Teladoc stock is up nearly 103% year to date. In Q1, the company reported earnings totaling nearly $181 million, up more than 40% on a year over year basis. Teladoc is projecting Q2 revenues between $215 million and $225 million, with full-year earnings expected to hit somewhere between $800 million and $825 million. In May, SunTrust analyst Sandy Draper elevated the stock's price target from $144 to $200.
While Zocdoc hasn't yet made its way to the stock market, there's long been talk of it going public. A public offering in the next few years seems plausible. The company is in late-stage Series D funding, with about $226 million of venture capital and angel investor backing, and a post-money valuation between $1 billion and $10 billion. Zocdoc has some notable backers with plenty of experience taking companies public, including Amazon founder and CEO Jeff Bezos and salesforce.com founder and CEO Marc Benioff.
The bottom line
Teladoc is and has been the leader in telehealth. The COVID-19 pandemic has helped, not harmed, its top and bottom lines, and the company's services will undoubtedly continue to be in high demand once the storm has passed. However, companies like Zocdoc are poised to bring increased competition to telemedicine.
One thing's for sure: If Zocdoc does IPO in the next few years, Teladoc could face a serious disruptor to its dominance of the digital health market.