Telehealth Visits Returning Back to "Normal" - Or Are They?
Epic Health Research Network recently published data on telehealth use since the beginning of the year.

There was a period in April when the number of telehealth visits actually exceeded office visits.

In May this flipped back to favoring office visits, and telehealth visits has continued to drop.

Such a quick reversal proves this was a temporary, lockdown induced switch, correct?

Post media

Maybe, but I don't think so.

I think the real story here is the before and after the flip-flop.

Before, the lockdowns, tele-health visits were less than 1%. Now they are at 21%. This number will likely continue to drop, but even if it falls all the way down to, say, 5% before finding a base, I would say the important thing to realize is that we found "lift-off from 0."

Now the public has been exposed to telehealth, they now understand when telehealth visits are preferable and when they aren't sufficient. Corona virus served to carve out a niche for telehelath to latch on to.

My bet for the future is that telehealth will continue to incrementally improve and expand the set of situations you would rather choose to stay home than go into a doctors office. So even if we continue to see the percentage of telehealth visits to drop for the rest of the year, I think this is a healthy area to invest.

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Just how much traction telehealth has post-Covid depends on exactly where that usage percentage settles. It is best explained through the concept of the S-curve for product adoption. The basic idea is there is gradual adoption of a new product until about 10-15% market penetration. It then accelerates until the 85-90% range, at which point it reaches saturation and slows. The fastest adoption occurs between 15-85%, which usually coincides with the period of highest returns for the companies involved.

If telehealth settles at 10%+, these companies should see continued success. If it settles at 5% as you suggest, it might still be a while until telehealth gains full acceptance. Having sold LVGO, I don't currently own any telehealth or remote monitoring companies. However, I would guess the stabilization rate finds a floor above 10%, which would bode well for the industry.

Here's a more detailed article on the S-curve with the percentages outlined: http://www.business-planning-for-managers.com/main-courses/marketing-sales/marketing/the-adoption-curve/

Here's an article I wrote about how the S-curve applies to investing: https://thestocknovice.substack.com/p/buying-low-selling-high-and-understanding
Nathan Worden's avatar
Great points, and thanks for sharing the articles @stocknovice . The first one got me thinking about who is in the early adoption cohort of telehealth. I think that has some interesting implications for it catching on.

The second article (yours) helped me understand a little better why you are so on top of your portfolio and willing to cut a company quickly if it becomes evident it is a "sunk cost". Training your eye to know when the S-curve isn't panning out is an interesting way to invest.

I think you're right, if we were to see a meaningful drop below 10% of doctors visits in the next year, it would be a signal that we are still too early on the S-curve for telehealth (or perhaps it won't catch on in a big way at all)

What other metrics will you be watching closely other than percentage of doctor's visits? I'm thinking more in the weeds such as remote patient monitoring platforms showing behavior changes in patients. Anything to show that the early majority is really adopting the services.

Do you have any indicators like this that would signal to you that you need to buy back into a Teledoc $TDOC or an Ontrack $OTRK ?
You can always seek out public metrics like the one you referenced above. Those are always helpful, especially if they are from a neutral third party. As far as company numbers, I tend to view companies as being in a good spot on the S-curve when top line growth really starts to leverage toward the bottom line. For an example I'd say look at the write up I did on LVGO when I purchased it in March. It was clear from the prior 3-4 quarter trend in profitability Livongo was in a good spot on the S-curve. It appeared to be rounding the lower curve and heading north. The stock's performance since showed that was probably the correct call.

The alternative (at least for me) was when I sold ROKU in August. It still has solid top line growth, but the bottom line leverage just wasn't where I expected it to be after following it for several quarters. Gross margin, profits and cash flows weren't narrowing as quickly as I thought they should at these growth levels. I admit it could be COVID related, but it suggested to me ROKU is still riding the bottom of the S-curve when I thought by now it would be coming through the lower bend and starting upward. I still think it will get there as long as pricing and margins hold up, but I determined ROKU still has to prove it can turn its growth investments into bottom line success. That doesn't mean I'm right, of course, but that's the way I was thinking about it when I made the decision.

Hope that helps.

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