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One analyst sees traditional and digital health combining, particularly as it relates to chronic care. This includes devices that monitor blood pressure, diabetes, and heart conditions and keep a post-operative eye on patients recovering at home.iStockPhoto / Getty Images

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Telehealth medical services were invaluable during the pandemic lockdowns with doctors’ offices closed and hospitals limiting access.

That sent shares of companies offering these services soaring – especially in the U.S., the largest global health care market. Three years later, the sector has sagged, even though patients want more telehealth because it’s convenient for routine consultations.

That demand shows up in U.S. medical insurance data. Telehealth claims were 1 per cent of total volumes pre-2019 and peaked at 12 per cent in 2020. They’re now running in the 5.5 per cent range, according to the latest figures from FAIR Health Inc., an independent non-profit organization in New York. The potential is huge given that the U.S. health care industry has an annual value of US$4-trillion.

That should be good news for the companies providing the services. But analysts say challenges include how doctors are billed as well as resolving complex rules surrounding the sharing of information. Fragmented use of technology is another issue.

“The take up is going to be slower than people want it to be,” says Jeff Elliott, lead global equity portfolio manager for health care at BMO Global Asset Management (BMO GAM) in Toronto.

“Patients want it, but physicians are questioning whether they will get paid for it and governments are working toward how to regulate it. From a stock [price] perspective, all that has to work its way through.”

BMO GAM markets BMO Equal Weight U.S. Health Care Index ETF ZHU-T, which holds some companies involved in telehealth. Those holdings include insurers such as UnitedHealth Group Inc. UNH-N, Humana Inc. HUM-N and DexCom Inc. DXCM-Q, which markets wearable insulin monitors and pumps.

Mr. Elliott, a Ph.D. in molecular biology and biochemistry, says telemedicine has a growing role because it offers preventative care and cuts costs by helping keep people out of hospitals. It also has a “democratization effect,” because all it requires is an internet connection.

Challenges for physicians

Nevertheless, he sees challenges with physician uptake if they’re paid a lower rate than for in-person visits. In the U.S., an agreement has been reached for another two years in which in most states, insurers are paying the same for virtual visits as in-person ones. There’s no guarantee it will be extended. In Canada, each province decides how much it pays for services.

Physicians must also invest in the technology, learn how to use it and change how they interact with patients, which requires different skills than in-person visits.

Ottawa’s recent warning to the provinces is an example of regulatory complexity. The federal government says it will reduce health care transfers if provinces continue to allow private companies to charge patients for services available for free through the system. The issue is people are paying out of pocket to get faster access in certain provinces and the government doesn’t like that two-tier approach.

Mr. Elliott believes a good route for investors is via companies that influence how telemedicine develops. Teladoc Health Inc. TDOC-T is a leader in the technology used to connect doctors to patients, but has little influence on the speed of adoption. Insurers like UnitedHealth and Humana are better placed.

“They’re largely aligned with what societally we want out of health care, which is to bring costs down and to make sure that care is being provided in the right place and people have access,” he says.

Arelis Agosto, senior health care analyst with Global X ETFs in New York, says doctor-patient interactions are the most visible aspect of telehealth, but wearable devices and systems that help improve health care delivery are as important.

Global X Telemedicine & Digital Health ETF EDOC-Q is focused on the sector more tightly. It dropped 30 per cent in 2022 versus 10 per cent for BMO Equal Weight U.S. Health Care Index ETF.

Ms. Agosto sees traditional and digital health combining, particularly as it relates to chronic care. That includes devices that monitor blood pressure, diabetes, heart conditions and keep a post-operative eye on patients recovering at home.

“We think about digital health as the broader benefit of COVID-19 – not only from a consumer-facing standpoint but also on the back end, whether it’s drug discovery or systems for hospitals and physicians,” she says.

Ms. Agosto agrees that billing issues are a headwind but sees telehealth offering doctors benefits such as fewer cancellations and no-shows as well as cost savings through a streamlining of record keeping and easier prescribing.

Both analysts also point to preventative diabetes care as an example of how technology can improve outcomes.

DexCom markets sensors that attach to the arm or stomach and monitor glucose levels. The sensor alerts patients to changes in blood sugar via an app and can be tied into an insulin pump to deliver the drug. Ms. Agosto says continuous glucose monitors have been shown to reduce hospitalizations by two-thirds.

Another example is chronic cardiac care. One sign of congestive heart failure is rapid weight gain as the heart’s inability to pump properly leads to fluid retention. Humana ran a trial using Bluetooth-enabled weight scales.

It offered lower premiums to patients who weighed in each morning and maintained their weight. The data were monitored remotely and if a spike in weight occurred, a nurse would contact the patient.

“There are really only two ways to invest well in health care,” Mr. Elliott says. “You either save the system money or you come up with technologies that improve quality of life. If you can find the intersection of that, then you’ll do really well.”

Ms. Agosto says developments to watch include more devices that transmit data between patients and physicians and a broader integration of this with online pharmacies.

“Although telemedicine is most familiar [to people], it’s by no means the be-all-end-all or even the portion of the market that could see the greatest growth,” she says.

Adam Mayers is a contributing editor to the Internet Wealth Builder investment newsletter.

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