Telemedicine’s Ultimate Turf War

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The telemedicine sector is quickly turning into an arms race. Several companies have raised very large rounds of investment and one even went public, managing to keep above its IPO price despite a very volatile market this summer. Most of these players are what we like to call Direct to Consumer (D2C) plays, in that they are focused on marketing and delivering a service that you pay for out of pocket with little or no intermediary.

But the battle lines aren’t just being drawn between competitors. There is another battle playing out as the established care delivery industry reacts to these telemedicine upstarts and the new capabilities that they represent. The million dollar question is whether the establishment will react quickly – and intelligently – enough to fend off the D2C challengers.

It’s silly to think that the established care delivery system (let’s call it Healthcare Inc.) will sit and do nothing while a bunch of startup rebels whisper lots of 21st century smartphone nonsense into the ears of consumers about how conveniently their health care should work. For Healthcare Inc. is strong with the force (of hundreds of billions of dollars in combined revenue).

Just like many of our favorite good-versus-evil stories, it’s not always easy to tell the good guys from the bad. Companies like Doctor On Demand, MDLive and Teladoc are all very focused on the consumer experience and spend a lot of money marketing directly to the consumer in order to create ‘pull’ for their services with employers and payers. It’s not as simple as saying they are all D2C players. Some of their revenue comes from payers and employers, who are the ones writing the biggest checks in the health care landscape in the United States. In our last issue, we argued that these D2C players are creating the first consumer healthcare brands and they’re creeping on existing Healthcare Inc. brand’s turf.

But Healthcare Inc. is massive and in many cases already a trusted brand. Mayo Clinic, Cleveland Clinic, HCA, the vast network of Ascension hospitals; all of these provider organizations have tremendously valuable brands and have been dabbling with various components of telemedicine for years. There are some telemedicine companies who are geared more as platforms for existing players to utilize than their D2C competitors. In this way, there’s no need to use a rebel startup such as MDLive, when you can finally get access to UCLA Health from anywhere in the country via a company called Zipnosis. Zipnosis is the leader of the pack of B2B providers of telemedicine. Their platform allows any Healthcare Inc. provider brand to add telemedicine capabilities as if by the stroke of their hand.

Why is that important? Healthcare Inc. brands are known quantities with consumers. They already have the infrastructure and institutional expertise of not just getting your visit covered by insurance, but how to arrange for follow up care (such as physical therapy, or imaging procedures), and perhaps the most important piece of the puzzle: data. That’s right, they probably already have some clinical data on you, and that enables them to do a much better job of driving positive outcomes, both clinical and financial.

So who will win this battle? It appears that the D2C rebels have raised a lot of money and have been the darlings in the press about bringing the health care experience in line with the rest of our mobile lives. But unless they use that money to offer deeper delivery options such as brick and mortar experiences, then they will simply be another channel to access care. A channel is generally not a rich margin business long term (just ask anyone who sells DSL for internet access). It’s much more likely that Healthcare Inc. will use B2B platforms as part of their broader marketing strategies to keep their mighty traffic numbers within their brand experience. It will be very hard for the D2C companies to compete with the infrastructure of the Healthcare Incs of the world. And it enables Healthcare Inc. brands to wage war with each other outside their existing territories.

Mind you, this story isn’t over. Healthcare’s startup rebels are still a force to be reckoned with, and won’t go down without a fight.


Scott Kozicki is the Managing Director of Brentwood Capital

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