MAKING THE

CONNECTION
Is the telehealth market
ripe for a boom?
A SAGE GROWTH PARTNERS REPORT
EXECUTIVE SUMMARY

While connected care, telehealth, and telemedicine initiatives have been on the sidelines for many
years, the care delivery model and patient expectations are beginning to catch up to these innovations.
Our report details what this means for the market—here are the key takeaways.

Telehealth’s CAGR
nearly doubles the growth rate
of healthcare IT and even outpaces the
high-growth analytics market.
Medicare
Healthcare IT 13.4% pushback
is waning—but it
Healthcare Analytics Market 27.1%
still exists.
Telehealth 39.9%

The market-leading enterprise vendor has

yet to emerge, but the complex needs of
payers, providers, and patients may mean
tailored point solutions may
find comparative successes.

The market is working

to find the right
balance between a
pure tech solution and
a tech-enabled service.
≈
Lower cost/
higher savings
There’s a lack of alignment on
for payers who will reap the financial
Higher fees/ benefits from telehealth
higher profits
for providers solutions—payers or providers.

All in all, the telehealth market is immature and volatile—but it is rich with potential.
A keen understanding of end-user benefits is critical for making intelligent investment options.
Keep a close eye on how changing payment incentives and policy shifts either favor
or marginalize telehealth options to inform valuable decision making.

A SAGE GROWTH PARTNERS REPORT: MAKING THE CONNECTION—IS THE TELEHEALTH MARKET RIPE FOR A BOOM? 2
THE TELEHEALTH MARKET
IS ONLY GROWING
THANKS TO NEW value-based payment an effective platform to generate addi- Despite this outlook, the telehealth
incentives aimed at bending the health- tional revenue, cut costs, increase acces- market is still relatively immature,
care cost curve, payers and providers are sibility, and enhance patient satisfaction. highly complex, and full of uninitiated
doing more to increase patient access There are a multitude of signs indicat- buyers. Challenges in regulation at the
to care than ever before. This shift has ing that telehealth is ready to emerge federal and state level have hampered
forced the market to scramble to imple- as a true market force. Market analysis adoption and penetration. Yet, telehealth
ment new means of healthcare service has found that one in seven primary has large market growth potential—and
delivery options. The issue is made even care visits could be addressed through finding the right opportunities within
more challenging as care is pushed be- telehealth.1 According to the Ameri- the telehealth marketplace is vital to
yond traditional centers (like hospitals) can Medical Association and Wellness successful investment and partnerships.
to remote locations (like homes) and Council of America, nearly 75 percent In this report, Sage Growth Partners’
satellite clinics. of doctor, urgent care, and ER visits “are expert industry analysts deliver their
Providers and market innovators are either unnecessary or could be handled evidence-based findings on the past, pres-
turning to telehealth as a potential solu- safely and effectively over the phone or ent, and future of telehealth, offering key
tion for these challenges. Remote care video.”2 Furthermore, futurist Eric Topol insights to drive successful return on
delivery services can be a key compo- surmises that by 2025 half of all visits investments (ROI) in telehealth invest-
nent for success in value-based care, and will be virtual.3 ment and implementation.

DEFINING THE SCOPE OF THE TELEHEALTH MARKET

Telehealth is broadly defined as the use of electronic and telecommunication technology to deliver
remote healthcare services. This definition does not often cover health information technology
(HIT) or health information exchanges (HIE).

MAIN SUBSEGMENTS
(CAGR) at 19 percent; IBIS reported a
CAGR of 39.9 percent for the next five
years, putting the market at a value of
approximately $3.5 billion by 2020.4
Tele-medicine: Tele-consulting: Tele-ICU: Tele-education: Remote Patient
Remote Physician Remote Remote Monitoring: The 39.9 PERCENT
patient to to physician monitoring learning and mobile monitor-
physician consultation of ICU training ing of specific TELEHEALTH CAGR eclipses
consultation patient vitals the growth rates of
TECHNOLOGY CATEGORIES
all other high-growth
healthcare markets.
Synchronous: live video Asynchronous: known
conferencing, real time as store-and-foreward,
interaction recorded messages. The 39.9 percent telehealth CAGR
eclipses the growth rates of other high-
growth healthcare markets, including
the global healthcare analytics market
IN TERMS OF market size, telehealth 2015 was $645 million. A recent report (CAGR of 27.1 percent) and the global
is growing quickly. While there is no from Ziegler contains data that pegs the healthcare IT market (CAGR of 13.4
consensus on exact numbers, IBISWorld telemedicine subset of the telehealth percent)—underscoring the powerful
reported that the market revenue for market compound annual growth rate opportunity for growth in telehealth.5,6

A SAGE GROWTH PARTNERS REPORT: MAKING THE CONNECTION—IS THE TELEHEALTH MARKET RIPE FOR A BOOM? 3
THE BUSINESS CASE FOR TELEHEALTH
Telehealth’s impressive market potential justifies deeper explanation. Based on our research, we
have identified four primary drivers of the telehealth movement, each with its own benefit to pro-
viders and consumers alike: Access, Cost Savings, Patient Satisfaction, and Quality of Care.

COST COMPARISON
ACCESS by visit type
In the HIMSS Analytics’ Telemedicine
Study, just over 40 percent of respon-
dents said their primary motivation Emergency Room $650
for investing in telemedicine tools was
to fill gaps in care, something that’s Urgent Care $160
especially true where there’s a geo-
graphic disparity of resources.7 One of
telehealth’s primary benefits has been Doctor’s Office $80
to reach people in remote clinics. More
than 50 million people—about 20 per- Video-based Virtual Visit < $50
cent of Americans—live in rural areas
without easy access to primary care or
specialist medical services.8,9 Now with
mobile technology, almost all patients
can have remote access to physicians savings, or $312 to $542, per person per “If you look at telehealth
through telehealth. In fact, 52 percent quarter.14 in general, every study
of patient transactions at Kaiser Perma- For PCPs, a single telehealth visit rep- that’s been done, PATIENT
nente in 2015 were conducted online, resents $126 in savings over an in-person SATISFACTION IS OFF
rather than in-person.10 visit.15 The cost of a video-based virtual THE CHARTS.”
The access issue doesn’t just impact visit is less than $50 and provides signifi- —Dr. Ray Dorsey, Professor of Neurology and
rural patients. The average lead time for cant savings when compared to costs for Director of the CHET, University of Rochester
scheduling a appointment with a physi- similar minor medical needs treated at a
cian in the United States is 18-20 days.11 doctor’s office ($80), urgent care facility
According to some vendors, effective ($160), or emergency room ($650).16 IN-PERSON VISIT
implementation of telehealth could re- When it comes to emergency services,
duce that time to about ten minutes.12,13 consider this: The Center for Informa-
tion Technology Leadership Partners
Healthcare System studied and found
that, if all U.S. emergency departments
2 hours 20 minutes
were equipped with hybrid telehealth average travel average length
COST SAVINGS technologies, 850,000 trips could be and wait time of appoitnment
The rising healthcare costs that put avoided each year, with a cost savings
pressure on providers, payers, and of $537 million. If the same technologies
consumers could be alleviated by ef- were in place at nursing homes, those
fective telehealth. These services have facilities could avoid 387,000 trips to the long wait times and brief interactions
been proven to lower costs, especially ER and 6.87 million trips to a PCP, sav- with the provider. The average time
by avoiding expensive services for the ing $806 million.17 needed for a 20-minute appointment,
emergency room or urgent care. with travel and wait time, is 2 hours.18
For example, consider the results of a “In our study 97 percent were satisfied
recent study that tracked healthcare costs or very satisfied, “said Dr. Ray Dorsey,
for Medicare beneficiaries with chronic PATIENT SATISFACTION Professor of Neurology and Director of
conditions in the Pacific Northwest using In the new healthcare delivery equation, CHET, University of Rochester, “And if
a telehealth device called Health Buddy. patient satisfaction is a bigger factor you look at telehealth in general, every
Patients who used the Health Buddy for success that ever before. Yet, most study that’s been done, patient satisfac-
device resulted in a 7.7 to 13.3 percent healthcare experiences are marred by tion is off the charts.”19

A SAGE GROWTH PARTNERS REPORT: MAKING THE CONNECTION—IS THE TELEHEALTH MARKET RIPE FOR A BOOM? 4
 Between 94 to 99 percent of patients overall HCAHPS score, patient satisfac- and as a triage tool—one that many
are “very satisfied” with their telehealth tion must become a core competency patients are quickly gravitating towards.
visits, according to a study from CVS for hospitals. Further, HCAHPS scores Research has demonstrated that tele-
MinuteClinics. In fact, one-third of pa- have been linked to patient propensity health can create drastic improvements
tients preferred the telehealth visit to an to return to the hospital if the need reoc- to quality. Remotely delivered behavioral
office visit.20 A study published in 2015 curs: 80 percent if HCAHP is 9 or more; interventions helped to reduce utiliza-
on patient perspectives of telemedicine only 37 percent if 7 or less.22 If a bad tion and readmissions. In fact, even
quality showed that 89 percent of the pa- experience results in a patient’s decision ICU-related issues can be helped with
tients felt the medical video conference to never return to a hospital, the cost can remote solutions. The telehealth-enabled
examination was the same or better than be steep. Estimates show that the house- ICU, or eICU, is already a well-developed
an in-person examination.21 hold of each patient leaving the hospital pocket of the industry, and is showing
While telehealth can ward off some will have additional future hospital early results. Philips, a veteran in tele-
significant length-of-stay (LOS) and re- expenditures of over $405,000.23 Patient health, reports that eICUs help to save
turn-to-hospital penalties, a larger risk is satisfaction can indeed have financial lives and reduce costs.24 In another study
the loss of patients in a highly competi- consequences. on the impact of telemedicine on inten-
tive market where providers are viewed sive care units, a telemedicine-based, re-
as interchangeable and the level of ser- mote intensivist program was associated
vice is a clear differentiator. The imple- with improved clinical outcomes and
mentation of the Hospital Consumer QUALITY OF CARE hospital financial performance. Hospital
Assessment of Healthcare Providers and While telehealth has been thought of mortality for ICU patients was lower
Systems (HCAHPS) in 2008 provided the as a lower-cost, lower-quality health during the period of remote ICU care (9.4
first standardized survey administered alternative, it is not meant to replace percent vs. 12.9 percent).25
to all hospitals. With patient satisfaction many primary services. It does serve
scores accounting for 30 percent of the exceptionally as a supplemental service

REIMBURSEMENT IN A CHANGING LANDSCAPE

Despite all the studied benefits to telehealth, two factors are signs of this market’s struggle toward
maturity. The first is the requirement that doctors must be licensed in the states where they provide
service, not just where they reside. The second is the patchwork of reimbursement rules and condi-
tions across the United States. In 2016 alone, 150 different pieces of teleheath legislation were intro-
duced across 44 states.26

THE CENTERS FOR Medicare & Medicaid

Services (CMS) mandated that as a CURRENT MEDICARE TELEHEALTH PROGRAMS
condition of payment, a provider must
use an interactive audio and video
telecommunications system that per-
mits real-time communication between
them and the patient at the distant site. Telehealth Individual Individual End-Stage Alcohol and/
Asynchronous store-and-forward tech- consultations and group psychotherapy Renal Disease or substance
kidney related services abuse
nology is only permitted in the most disease structured
remote states, Alaska and Hawaii.27 education assessment
services and intervention
services
MEDICARE
There are limitations to the programs
covered under Medicare.28 The current group kidney disease education services; ment; alcohol and/or substance abuse
programs covered are: telehealth consul- individual psychotherapy; End-Stage (other than tobacco) structured assess-
tations, emergency department visits, Renal Disease (ESRD)-related services ment and intervention services.
or initial inpatient visits; individual and included in the monthly capitation pay-

A SAGE GROWTH PARTNERS REPORT: MAKING THE CONNECTION—IS THE TELEHEALTH MARKET RIPE FOR A BOOM? 5
Additionally, while there are restrictions MEDICAID REIMBURSEMENT POLICIES
for Telehealth Services, 2017 29,53
in place as of now, the Next Generation
ACO Medicare Model will remove any
pending restriction for participating
ACOs, potentially lifting this restriction
for its entire population.30 In the past,
Medicare has used ACOs as pilot pro-
grams for new potential programs. We
see this as an indicator that Medicare is
looking towards telehealth, even if cau-
tiously.
This is causing concerns that telehealth
will merely become an add-on to existing
services. Jon Linkous, CEO of the Ameri-
can Telemedicine Association, describes
the issue with Medicare reimbursement,
saying they are “afraid it’s going to blow
the doors off spending.”31 Despite these
fears, insurance, provider, and technology
trade groups are stepping up their lob-
bying efforts to pass legislation that will
force Medicare to provide greater finan- Enhanced Live video No
cial support for the service. coverage only reimbursement

MEDICAID
Individual states have a variety of laws In 2016 alone,
surrounding Medicaid reimbursement of 150 DIFFERENT PIECES OF
telehealth services. As of January 2017, TELEHEATH LEGISLATION
47 states and the District of Columbia were introduced
now provide Medicaid reimbursement ACROSS 44 STATES.
for live video consultation.23
Beyond this basic coverage, nine states
have reimbursement for some store-and-
forward services and 16 states reimburse COMMERCIAL PAYER PARITY LAWS
for Telehealth Services, 2017 32,54
for remote patient monitoring services
through Medicaid.33

COMMERCIAL PAYERS
States have also worked on creating full
parity telehealth requirements for pri-
vate payers. Full parity is classified as
comparable coverage for telemedicine-
provided services compared to that of
in-person services. Full parity laws have
been enacted in 31 states and Washing-
ton, DC.34 Only Alaska and Arizona have
enacted partial parity laws that require
coverage and reimbursement, but limits
coverage to a certain geographic area
(e.g., rural) or a predefined list of health-
care services.35
The big five commercial payers (Aetna,
Humana, Blue Cross Blue Shield, Cigna,
United Healthcare) all have some sort Telemedicine Partial Proposed No
of telehealth reimbursement provision. parity law parity law parity law legislation

A SAGE GROWTH PARTNERS REPORT: MAKING THE CONNECTION—IS THE TELEHEALTH MARKET RIPE FOR A BOOM? 6
These reimbursement rates are compara- Well’s AMWELL to provide video-based time waiting to see how further changes
ble to in-person medical services, though virtual visits in 47 states and Washing- in regulatory policy can help facilitate
private payers predominantly reimburse ton, DC.37 More recently, Cigna expanded greater adoption.
for live video only. Since there is no uni- its telehealth offerings for 2017 by add- While the patchwork of state laws,
versal mandate governing private payers, ing AMWELL to the existing offering of definitions, and regulations can be a little
users need to know their plans and verify MDLIVE.38 confusing, the Center for Connected
directly with the payers to understand There is evidence that payers are Health Policy has an excellent resource
degree of coverage.36 embracing cost savings with telemedi- for viewing these rules on a state-by-state
Last year, UnitedHealthcare decided to cine services.39 Payers are optimistic basis.
partner with Doctor On Demand, about the potential opportunity that
Optum’s NowClinic, and American telehealth brings, while at the same

SPECIALTY AREAS GET BIGGEST BENEFIT FROM TELEHEALTH

Telehealth could be very valuable when implemented in specialty settings, based upon the reduced
need for in-person visits and the wide availability of mobile technology—especially in the areas of
teledermatology, telepharmacy, behavioral health, and teleICU.

SPECIALTY VIDEO CONSULTS platform company focused on clinical

TELEDERMATOLOGY PHYSICIANS FIND MOST telepharmacy. The company raised $9.1
Doctors use teledermatology to quickly VALUABLE40 million last year and is helping acute
do routine store-and-forward checks of and specialty hospitals increase access
skin conditions. This first-line triage to pharmacies, especially in rural loca-
Dermatology 76%
can help reduce unnecessary office vis- tions.42 The novel technology helps
its, saving the consumer and provider seamlessly communicate with phar-
time and money. PCPs can also quickly Psychiatry 54% macy management systems and offers
communicate with specialists for the best possible user experience.43
consultation or triage. Globally, Walgreens Digital Health Chief Atul
teledermatology represents a $3.39 Infectious 46% Singh referenced a survey which stated
disease
billion business.41 telehealth could save $190,790 per 1,000
visits and reduce overall health system
Pain 37%
management costs by $300 billion.44 Considering that
“In rural America, like in 70 percent of consumers would rather
North Dakota, traditional deal with a doctor over video to get
retail pharmacies who Neurology 36%
their prescriptions, telepharmacy shows
have set up telepharmacy great promise.45
programs have been Cardiology 34%
able to INCREASE
ACCESS TO A LARGER
CUSTOMER BASE.” Rheumatology 32% BEHAVIORAL HEALTHCARE
—Steven F. Zielinski, RPh, President of Telehealth may have the biggest poten-
340B Healthcare Associates LLC 51 tial in this area, especially considering
Gastroenterology 24%
the country continues to suffer from
suicide, opioid addiction, rising medical
Sports 18%
conditions, and a lack of adherence to
medicine prescribed treatment. The support from
TELEPHARMACY Medicaid agencies in 48 states that re-
This market has been aided by technol- Oncology 17% imburse for some level of telemedicine
ogy established by PipelineRx, a leading for behavioral health has been a major
medication management services and driver for remote behavioral healthcare.

A SAGE GROWTH PARTNERS REPORT: MAKING THE CONNECTION—IS THE TELEHEALTH MARKET RIPE FOR A BOOM? 7
Companies like Teladoc, American recently teamed up with GE Healthcare
Well, and MDLive have all introduced to deliver more than 200 training classes
telehealth programs to help behavioral TELEICU in the best practices and proper use of
health. Companies are also beginning There is also great potential for effec- GE equipment to more than 300 medi-
to offer “text therapy” services, which tive telehealth initiatives in post-acute cal professionals.48 “GE has made it a
allow users to chat with mental health and intensive care facilities. In 2016, global priority to re-imagine its training
providers for a flat rate.46 there were 54 telehealth ICUs across and education solutions to help users
the United States, and many of these are achieve and maintain optimal skills
showing strong early signs of success. For and product usage,” said Mario Lois,
“We are extremely example, one healthcare system said that general manager, GE Healthcare Global
bullish on the telehealth its telehealth ICU, “saved the hospital Education Services. “Our collaboration
sector. That said, we network more than $4 million by reduc- with InTouch Health enables network
think that BEHAVIORAL ing the number of days patients stayed connectivity, hands on interaction, and
HEALTH IS THE SUB- on ventilators, and more than $6 million an intuitive user experience for their
SECTOR IN TELEHEALTH by lowering occurrences of sepsis.”47 online mobile remote presence training
THAT HAS THE MOST which will be foundational to reaching
PROMISE.” A new use case for telehealth involves this goal.” The program resulted in high-
—Thomas C. Hawes MD, MBA, Managing using telehealth devices for remote er effectiveness and greater convenience
Director, Sandbox Industries 52 education purposes. InTouch Health than traditional training.

SUMMARY

THERE IS NO REASON TO DOUBT

THE FACT THAT TELEHEALTH IS ON
THE RISE.
THE SIGNIFICANT ACTIVITY taking place TELEHEALTH CAPITAL INVESTMENT
Total capital investment and deal counts for telehealth firms from 2012–2016 49
in patient triage and specialties like
dermatology and psychology—as well
as the capacity to increase access to pri- 66 62
mary care physicians—is paving a path $656.9M
54
to widespread adoption. the increased
44
interest in acute care telemedicine
adoption, combined with the fact that 33 $389.3M $364.6M
393.7M

private payers and Medicare are increas-

ing adoption, is a strong reason for bull- $179.7M
ishness.
Despite the uncertainty in the pay-
ment landscape, telehealth is clearly 2012 2013 2014 2015 2016

proving it is an area worthy of consider-

ation by investors. The growing invest-
ment trend in telehealth companies is Total capital Deal
invested count
backed by the growth of access to inter-
net-enabled devices. This, combined with trend seems to match with the increasing 2016. Whether the ACA survives the
burgeoning regulatory support for con- amount invested per deal. Investments in next presidential administration in any
nected care options, is fueling the growth telehealth were, on average, $3.5 million part is in doubt, but the likelihood is
of telehealth companies. per deal in 2014 and 2015—a number that telehealth can only grow larger.50
This generally positive investment that rose to $3.74 million per deal in

A SAGE GROWTH PARTNERS REPORT: MAKING THE CONNECTION—IS THE TELEHEALTH MARKET RIPE FOR A BOOM? 8
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