Teladoc´s Progress YoY is Disappointing.

Update

Edited by Brian Birnbaum and an update of my original Teladoc deep dive.

New: You can now listen to this write up on Spotify.

1.0 The Potential of Longitudinal Medicine

Teladoc´s growing dataset is primed to unlock longitudinal medicine, which can transform the healthcare system.

Teladoc is positioned to bring longitudinal medicine to life at scale in the US and then to the rest of the world. In case of success, this would radically transform the healthcare system, which would go from being processed-based to outcomes-based. 

Ultimately, this shift would amount to improved healthcare across society and, thus, tremendous value creation, in the realm of trillions of dollars. Nonetheless, Teladoc faces a multitude of operational challenges and, in my view, still lacks clarity as an organization.

Before digging in, allow me to give you some context on why Teladoc indeed has enormous long term potential.

Today´s healthcare system rarely takes snapshots of its patients´ health. If you feel sick, you go to the doctor, and the system takes a snapshot of your biodata. Until your next visit, the system and your practitioner receive no new information–unless they are truly committed to their work and follow up with patients on their own volition.

Diagnosis and treatment are therefore stultified and inefficient. A patient´s journey is a tedious and bureaucratic process. Rather than your health, the priority is satisfactory completion of the process itself and, by virtue of such, payment. Doctors do the best they can with little to no data as they process one patient after another.

Longitudinal medicine is the cure that Teledoc has brought to market. It consists of picking up patient data over time and using it to generate insights which can lead to better outcomes. In this sense, the human body is a dataset. If we could fully process this data at all times, diagnoses would be seamless, and ultimately, so would treatment.

The body is packed with amino-acids, which coil up into proteins that take on specific shapes. The shape of a protein determines its function, attaching to other proteins to build structures that perform specific jobs. If we knew the status of every single protein, at all times, we could identify and perhaps even eliminate illness on sight.

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We are still very far away from that reality, but Teladoc is well positioned to make it happen. It has distributed its offering to 92M+ insured lives in the US. This metric is from Q2 2022 and unfortunately the company has not updated it for Q2 2023. Regardless, Teladoc has a substantial portion of the US healthcare demand on its platform with no competitor in sight, establishing themselves as the forerunner in longitudinal medicine.

The way Teladoc got so many patients on its platform is by working directly with employers. As I outlined in my Hims and Hers deep dive, the US healthcare market is a monopsony, meaning there’s only one type of client, which in the case of the US healthcare market is insurance companies. Many individuals do not pay for the insurance themselves, instead receiving insurance from employers as part of benefits compensation.

The monopsony has led to an inflationary hamster wheel, by which healthcare providers just keep on raising prices, because there is no demand elasticity. Every time providers raise prices, insurance companies increase their prices a little bit to absorb the inflation across the insuree base. As you can see in the graph below, this has led to anomalous performance of the overall healthcare market.

While the system has worked well for quite some time, this is now translating into healthcare that even the unit economics of insurance cannot quite absorb. Copays, the mechanism via which patients pay for a part of treatments with money from their pockets, have emerged. However, this has just moved some of the pressure from the system to the patient.

Thus, Teladoc´s distribution prowess with employers can over time and with much iteration lead to longitudinal medicine. Despite success on this front, however, the company seems to be struggling to find a differentiated product-market fit, beyond simply connecting patients with practitioners. I will explore this in depth in the next section.