Teladoc loses $1.5M Highmark contract, sparks debate on pricing, utilization of telemedicine

By Jonah Comstock
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Even as Teladoc and American Well fight out their legal battle over patents, the two companies continue to duke it out in the marketplace as well, as does another challenger, Doctor on Demand. On Friday a Deutsche Bank analyst broke the news in a research note that Highmark, a health insurer in Western Pennsylvania, chose not renew contracts that represented $1.5 million in annual revenue for Teladoc, or 3.6 percent of Teladoc's projected 2016 membership, according to the Wall Street Journal.

Highmark will continue to offer Teladoc as an option for Highmark's self-insured employer customers, but for the fully insured set,  according to a follow-up report from Bloomberg, the insurer will offer customers a choice of American Well or Doctor on Demand.

Despite Deutsche Bank's analyst maintaining Teladoc's "buy" rating (he called the news disappointing, but said some customer churn was to be expected) the market reacted by selling, to the tune of a 20 percent drop in share value, which may have had something to do with the Wall Street Journal's choice of headline ("Why Teladoc Needs Medical Attention").

It's not entirely clear why Highmark opted to switch providers for telehealth. A Highmark spokesperson would only say that the contract with Teladoc expired, and Highmark chose not to renew it, and instead chose to expand members' access to telemedicine services by offering Doctor on Demand and American Well, effective January 16, 2015. He also told MobiHealthNews that out of 1 million members who were offered the services, only about half a percent took advantage of them.

The Wall Street Journal suggests it may have been a business decision to do with Doctor on Demand's lack of a per-member per-month fee. Doctor on Demand CEO Adam Jackson told MobiHealthNews in an interview that Highmark was unhappy with Teladoc's utilization numbers. But Teladoc CEO Jason Gorevic told us it had more to do with Highmark's unwillingness to work with his company on driving utilization.

"Unfortunately, when we lose clients -- and we don't very often -- it's usually because they haven't really engaged with us in order to let us do what we do best, which is to drive utilization and engagement," he told MobiHealthNews. "We worked multiple times with Highmark to try to drive that and unforunately they declined most of our efforts to drive utilization. Certainly in the event that a client does not engage with us in our proven utilization and engagement strategy, they’re not going to get the value from the program and we have a situation where it may not make sense. But that’s a very, very rare occurrence."

Gorevic called the reaction to the news an overreaction to "an outlier situation" since Teladoc's latest figures put their retention rate at 98 percent. He also said that Highmark would likely continue to miss out on high utilization with their new providers.

"They've made it clear that they've thrown in the towel on driving utilization," he said. "They've gone with two tools that don't do anything to drive consumer engagement. They’re going to be available on their provider finder and if someone happens upon them that’s great, but it’s not going to be an integral strategy of theirs."

Jackson begs to differ -- he believes that by not charging a per-member per-month fee, Doctor on Demand puts itself at-risk for consumer utilization of telemedicine services, and is thus more committed to it than Teladoc.

"If we don’t prove that we can drive utilization, we get no money," he told MobiHealthNews. "Our business model shifts the risk of telemedicine utilization from the payer or employer to us. It’s the only honest business model in the industry right now. So I’ve got to put my money where my mouth is and actually drive utilization or I go out of business."

This is perhaps the danger to Teladoc that Wall Street Journal was referring to -- Jackson told MobiHealthNews he has aggressive plans to shift the market away from Teladoc's fee structure.

"One thing will certainly be true in the telemedicine market in the next 12 to 18 months," he said. "No one will be charging a per-market per-month [PRPM] fee. We’re basically forcing it out of the market."

Teladoc's pricing structure doesn't work, he said, based on data from the company's own S1.

"The PRPM business model has proven not to be ROI positive for most of the legacy telemedicine players," he said. "The $145 number is out of Teladoc’s own S1. If you take all their PRPM revenue and combine it with their per-visit revenue, and divide it by the number of visits, it’s $145 per visit. That’s more expensive than an in-office visit. Telemedicine can’t survive, it can’t be ROI-positive for a health plan or employer if it’s costing more than in-office visits."

Gorevic responded that Teladoc is the only telemedicine company with a third-party validated cost savings study, which shows an average 4.5-to 1, with other companies getting as high as 10 to 1. He believes the presence of a fee is actually a key component to driving utilization, because it gives the customer a stake in the process.

"We have no plans to abandon our current pricing model," he said. "Our pricing model is the only one that’s been proven effective, We’ve been in this business for 13 years. We know what works and we know what doesn’t work. And we know that our pricing model delivers the greatest value for our clients. ... The fees our clients pay us provide money for engagement programs that drive utilization. Without those strategies or funding for those strategies it is an unsuccessful model. And I think that’s what you’re going to see with these extraordinarily low-priced options in the market."

American Well's response to Gorevic's comments, on the other hand, was more succinct.

"Our culture at American Well is to work hard and get results that speak louder than words," CEO Roy Schoenberg told MobiHealthNews in an email. "If we were to lose business to another company we would focus on what we must do better, not on who else we can publicly blame."