Just before Christmas, a federal judge denied the Texas Medical Board’s motion to dismiss an antitrust lawsuit brought by Teladoc, the nation’s largest telehealth provider. It’d been a long year for the Lewisville-based company—the TMB passed a rule in March requiring a patient and a doctor to have face-to-face contact before an ailment could be diagnosed or drugs could be prescribed via telemedicine. That would’ve effectively gutted Teladoc’s business model, which involves pairing a patient at random with a board-licensed physician.
The same judge that ordered an injunction in May swatted away the TMB’s argument that the board is immune to federal antitrust laws. No, the judge ruled, if the board is made up of practicing physicians, they most certainly are not. Teladoc has argued that giving practicing physicians power to limit telemedicine would give them an unfair competitive advantage. This was a big win for the company, one that CEO Jason Gorevic says only signals that the company’s arguments carry much more water than the TMB believes.
That trial won’t begin until February of next year, and Teladoc is free to practice in Texas as it had prior to the TMB’s new rule. Which means it can continue to expand its partnerships with health plans and hospital systems as well as its direct-to-consumer model. That’s certainly a plus to its investors—the company went public last year, hitting the market with a $180 million initial public offering.
I spoke with Gorevic last week to go over 2015 and talk a bit about what’s to come this year.
D Healthcare Daily: Teladoc had a rather eventful 2015. What would you say were some of the biggest developments for the company?
Jason Gorevic: Well, that’s a big question, we obviously had a great year. It was sort of a banner year in the history of the company. We grew substantially and put up great numbers over the whole course of the year. I think at the core, probably, the best thing I can say with respect to the performance of the company is that we drove significantly higher consumer engagement and we had a tremendous, tremendous reception from consumers using the Teladoc platform.
And so, that’s really a significant measure of our success. Now that manifested itself in a successful IPO. We went public on July 1 it was extraordinarily well received by the investment community. We were able to raise $180 million in our IPO. The markets have received the Teladoc story incredibly well, and so that’s really the result of us continuing to successfully sell employers, health plans, and hospital systems on the value of Teladoc and deliver on that value by getting their membership to use the platform.
Over the course of the year, we completed two acquisitions. We acquired a small tele-behavioral health company and a company called STAT Health. We focused on the health systems and hospital systems, that market segment continues to expand and really increase their receptivity for telehealth.
DHCD: Are you seeing increased interest from those hospital systems and provider networks?
Gorevic: Two years ago I would’ve said there are a lot of conversations with the hospital systems, but nobody’s really buying. Today, we’re seeing a tremendous amount of activity and just really over the course of the past three weeks I can think of half a dozen health systems who have told us that they want to move forward with implementing a telehealth solution for their population. We’ve seen a tremendous amount of growth there; we now have about 60 hospitals that are partners with Teladoc.
DHCD: Where are these interested providers located? I know there’s a lot of interest in using telehealth to battle access issues in rural areas, but most of the large-scale systems are located in urban areas.
Gorevic: It’s really both, certainly we see some rural hospitals but just in Texas, Memorial Hermann (in Houston) is a client of ours, and obviously that’s a more urban setting. Similarly, the Mount Sinai system in New York, the Henry Ford system in Michigan; those are hospitals that are in urban or suburban settings and so it’s not limited to the rural settings.
DHCD: One of your partners also had a big year. Oscar, the millennial-targeting health plan, expanded into a number of new states, including Texas, and offers Teladoc services to its members.
Gorevic: That’s a great partnership. They’ve really embraced telehealth as a core part of their offering and deeply embeeded it into their product. And they’re seeing tremendous results from the teladoc platform, they’re seeing utilization that is really off the charts. And I think there are two primary reasons for that: One is that, it’s a core part of their value proposition. If you look at their marketing it says very clearly right up front with Oscar you can talk to a doctor 24/7 365 at no cost and that’s our product inside.
They’ve deeply embedded us into their user experience so their users, when they log onto the Oscar site, can really do three things, and one of those is talk to a doctor now. And it’s because of the flexibility of our technology platform.
We’re sort of kindred spirits in respect to that type of growth. They’ve had excellent and explosive growth over the last couple years and so have we. Our membership grew in the third quarter of 2015 by 56 percent year over year, which is similar to the kind of growth that Oscar’s seeing. I think we enjoy being part of the digital health revolution and really sharing in that growth together.
DHCD: Is your infrastructure such that you’ll be able to take on that sort of growth going into 2016?
Gorevic: We have an extremely talented team focused on making sure our operations our infrastructure are bullet proof and highly scalable. Back in 2012 we made the decision to re-platform our entire technology so we upgraded. We basically rewrote our entire tech platform and migrated our membership over the course of 2013 and we did that specifically for scalability security and flexibility. That gave us the scaleabitlity of our technology platform to be able to handle the explosive membership growth that we’ve had. We have tremendous headroom in capacity still. On the operations side, we launched our Lewisville office. We consolidated three offices into one. We brought our call center in-house, which we previously had outsourced. That gives us much more flexibility in using those resources as our business changes on a day to day, week to week, hour to hour basis.
DHCD: I want to switch gears for a minute and talk about the Texas Medical Board. Just before Christmas, a federal judge denied its motion to dismiss your antitrust lawsuit, finding that physicians who serve on the board but remain in practice are not immune from those antitrust allegations. What does that mean for Teladoc going forward?
Gorevic: We think it’s a great development in the suit. We were not surprised by the court’s decision but we were very pleased with the decision. And also with the care that the court took in explaining the rationale for denying the motion to dismiss, there’s a 22 page decision that really walks through all of the rationale and yet again reaffirms our case. When we were granted the injunction back in may, that was a significant step and the court’s decision at that point made it clear that our antirust suit had a high likelihood of success on the merits of the case. This is just another affirmation of the strength of our case the unfortunate position that the TMB has taken, and what we are confident will ultimately be a decision in our favor.
DHCD: Since this all began playing out in court, have you seen any hesitance from potential partners?
Gorevic: It’s been exactly the opposite, to be honest. What we’ve seen is the business community come out in our favor. The Texas Association of Business has been a strong supporter of Teladoc in our continued disagreement with the TMB, and we’ve seen employers and health plans continue to embrace the Teladoc platform because of the value it provides for them and their constituents. We’ve had state legislators come out in our favor, and so it really hasn’t stunted our growth at all. In some cases I would argue that it probably has improved our growth in Texas. We had several clients who came to us the day that the injunction was issued and said, look we want to move forward with your product, we haven’t actually talked to you in a sales process but we think it’s fantastic and we’d like to go.
DHCD: What do you see coming down the pike for 2016? What is your strategy for the year?
Gorevic: We entered 2015 really as a single product company, and over the course of the year we launched products behavioral health, dermatology, sexual health and smoking cessation. Those are four new products that we didn’t have a year ago, so I think you’re going to see our clients coming to us for a broader solution set that continues to offer a similar value proposition: Better access to high quality, lower cost care. We launched those products specifically in response to the demand from our clients. Our clients said these are our pain points, these are the things we’re seeing as challenges for our employees and health plans members, can you help with those?
We were barely existent in the hospital system market in 2014. We have grown that substantially in 2015 and we think that’s going to continue. We still see great growth in the employer and health plan market, so I think that’s going to continue. We are going to continue our focus on consumer engagement. We announced that Stephany Verstraete is our new chief marketing officer. She has a fantastic background both in classical brand management with companies like Kraft and Frito Lay and Hostess brands as well as having really tremendous digital consumer engagement capabilities that she honed at match.com and Expedia.
That’s a very, very rare skillset to have in one individual, so I’m really excited about Stephanie joining the team and all the new capabilities that she’s going to bring us that will even increase our already market leading consumer engagement capabilities.
DHCD: What is the makeup of your client base at this point?
Gorevic: The vast majority of our membership comes through employers and health plans, and then with a minority coming through hospital systems and a small segment is direct to consumer.
DHCD: So you see a significant opportunity in the consumer market.
Gorevic: Absolutely. The market for telehealth is tremendously under-penetrated. We estimate that on the medical side of our business, there are about, there are over 400 million addressable visits, meaning those are the visits that could be taken care of by telehealth, and this year there will be right around 1 million of them. That’s less than a half of a percent penetrated across the country.
DHCD: What’s changed since going public?
Gorevic: This is my fourth public company that I’ve been part of and my third IPO. We’ve been on this road for an IPO for probably 18 months probably prior to going public. We prepared the company and operated the company almost as if we were public before the IPO. So while there is a little bit of change for my CFO and general counsel and for me because we spend more time with investors, there’s not much of a difference for the rest of the company. Part of my job is to insulate the rest of the company from the nuances of being a public company and help them to be able to do their jobs and bring the value that we bring to our clients and operate the company.