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Why It Isn't Too Late to Invest in Telehealth

Before the coronavirus pandemic, few people probably knew what exactly telehealth was. Today, many healthcare providers offer it and insurance companies are including it in their coverage. Video calls with doctors have become essential for patients who might otherwise be too vulnerable to visit a doctor's office and risk contracting COVID-19. But just because the pandemic created a surge in demand for telehealth doesn't mean that the service will become obsolete or unnecessary once life goes back to normal.

Telehealth will likely remain a fixture in the healthcare industry, and for investors, it could be an area of high growth that can generate strong returns for their portfolios. Here's a look at why you'll want to have some exposure to this emerging segment of the market.

Image source: Getty Images.

Telehealth has an important role in the future of healthcare

One of the reasons telehealth is popular with its users is its convenience. Not only can patients use it anywhere they have access to an internet connection, but physicians are also able to do the same. And that can be valuable in treating chronic conditions and helping patients with ongoing care.

A challenge for telehealth is in reaching patients in rural areas where internet connectivity can be an issue. However, the government is taking notice. In August, the Biden-Harris Administration announced a $19 million investment to expand telehealth and improve access in rural communities. And that could be just the start, as dozens of bills are making their way through Congress that could expand virtual care across the U.S.

Telehealth is also growing in popularity for employers. A June survey conducted by nonprofit organization Business Group Health found that not only had 76% of employers increased their telehealth offerings since the pandemic, but they also plan to keep these options available for their employees once it subsides.

There's a huge incentive for businesses and the government to push for greater telehealth access: It saves money. Not only can telehealth lessen hospital loads if patients can get their questions answered through a virtual visit, but the cost is also cheaper. A 2014 study from Red Quill Consulting estimated that an in-person visit with a physician could cost up to $176, compared with just $40 to $50 for a telehealth visit. It also found that 83% of the time, just a single telehealth visit was enough to address a patient's issue.

The potential for telehealth is there, and analysts from ResearchAndMarkets project the industry will grow at a compounded annual growth rate of 37.7% until 2025, when it will be worth $191.7 billion.

Investors have multiple ways to invest in the sector

Depending on how much exposure you want to telehealth, you can invest in businesses that mainly focus on virtual care or those that are just expanding their services to include it. Tech company Amazon, for instance, has launched a telehealth service that it offers to employees and companies in the U.S. In May, big-box retailer Walmart announced it was acquiring telehealth provider MeMD, which will expand its healthcare offerings.

These are a few of the top companies that are dabbling in telehealth right now. How seriously they'll expand into healthcare remains uncertain. If you're looking for the bigger players, then American Well (NYSE: AMWL) and Teladoc Health (NYSE: TDOC) are a few of the names you'll want to consider.

In its most recent quarter, for the period ending June 30, Teladoc reported 3.5 million virtual visits, which was 28% higher than in the prior-year period. Management anticipates it will still be relatively stable through the current quarter, with virtual visits ranging between 3.4 million and 3.6 million. And now, with COVID-19 cases surging again, it wouldn't be a surprise if the company were to blow past those numbers.

One of the reasons I'm bullish on Teladoc and own shares of it is because of its acquisition of chronic care provider Livongo Health last year, which will allow the company to serve a broader base of patients. For diabetes and other long-term illnesses, there's a need for ongoing care that telehealth can help address without tying down the healthcare system. And the company is still in the early innings of that acquisition, having closed on it less than a year ago.

American Well, better known as Amwell, has been expanding its offerings too. It recently closed deals on SilverCloud Health, which focuses on mental health, and Convers Health, which uses automated responses to help provide quick assistance through its virtual care platform.I

In Amwell's last quarter (also ending June 30), its total visits of 1.3 million were slightly down from the 1.6 million it reported in the previous period. But the company is focusing more on expanding its technical capabilities and offering its Converge platform, which will make it easy for providers to offer virtual care.

Currently, platform subscriptions generate about as much revenue as virtual visits do, but Amwell is looking to change that so that platform makes up the bulk of its sales, which it says should improve its financials. Over the past 12 months, Amwell's gross margins have averaged just 38%, while Teladoc has consistently been up by more than 60%.

Both Teladoc and Amwell offer investors ways to gain exposure to the rising telehealth market. Although they're both incurring losses, the potential over the long haul makes these promising businesses to invest in.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. David Jagielski owns shares of Teladoc Health. The Motley Fool owns shares of and recommends Amazon, Amwell, and Teladoc Health. The Motley Fool recommends the following options: long January 2022 $1,920 calls on Amazon and short January 2022 $1,940 calls on Amazon. The Motley Fool has a disclosure policy.


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