The idea is great. Where do you go at 2:00am when your kid has a nagging cough and stubborn fever? Telemedicine offers a solution. Access a doctor from your smartphone and within 10 mins you’re connected. Many people use it and end up loving it for these reasons.

But how much does it cost? $130 per visit on average according to Teladoc’s (ticker: TDOC) financial filings ($186.3M in telemedicine revenue divided by 1.46M visits in 2017). That’s likely more than you thought, and about same as the $130-150 typical charge of a primary care visit, albeit one for basic care. Why does telemedicine cost so much? Low utilization. 85% of TDOC’s revenue is subscription fees, and only around 3-4% of people on average use it per year.

Telemedicine is convenient for some but its ROI hinges on reducing ER visits. TDOC commissioned a small independent analytics firm to study savings and they reported savings of $472 per visit by routing care to lower-cost settings. An ER visit costs on average ~$2,000 and a reduction in ER visits is a requisite to justify the reported savings. To validate, follow the clues. Where employees self-report where they would have sought care is of little value. Do companies that use telemedicine see a 10-20%+ reduction in ER visits? That’s the kind of reduction needed to justify $500 telemedicine savings. If a company has 160 visits per 1,000 members, you’d expected 16-32 of those visits to disappear. I have yet to see case studies from this angle. All value stories will leave clues. This is a big one. One debated study in Health Affairs even said the majority of telemedicine visits were new utilization or people who used medical services who otherwise would not have.

Like many things in healthcare, though convenient, what sounds great often doesn’t offer the savings people think. You just have to ask the right questions and deduce when things that should be obvious are omitted. To paraphrase W. E. Buffett: Price is what we pay. Value is what we get.

 

Photo by National Cancer Institute on Unsplash