BetterHelp was the main driver of growth for virtual healthcare company Teladoc (NYSE:TDOC) in the third quarter of 2022. But the direct-to-consumer business remains vulnerable to the country’s macro environment, management says from Teladoc.
Unlike Teladoc’s B2B offerings, BetterHelp is more directly tied to the financial health of consumers, Teladoc CEO Jason Gorevic explained Wednesday during a third-quarter earnings call.
“If we see an economic recovery next year and lower inflation, and the consumer feels more confident, that could help us,” Gorevic said. “If the consumer sees a lot more inflation and pressure, that could put pressure on the consumer, because BetterHelp is one of the most expensive things the consumer buys. It doesn’t come in a box.
In light of this, Teladoc “will continue to take a more balanced approach to growth and margin in BetterHelp,” the CEO added.
Founded in 2013, Teladoc was one of the first virtual care providers to enter the public markets. In 2015, it acquired BetterHelp for $17.2 million, launching it further into the consumer behavioral health space.
Regardless of economic headwinds, Gorevic noted that the company will continue to focus on growing its BetterHelp business segment.
“This business has grown and expanded incredibly quickly,” Gorevic said. “It’s at a run rate of $1 billion,” he said. “And I think it’s fair to expect us to focus on growth and efficiency.”
Teladoc’s to-do list
To help Teladoc’s overall growth, Gorevic announced that Laizer Kornwasser, former COO of CareCentrix, will join the company as COO to support all customer channels and product lines. CareCentrix is owned by Walgreens Boots Alliance (Nasdaq: WBA), which announced on October 11 that it was acquiring an outstanding stake in the company for approximately $392 million.
In particular, Teladoc is considering group therapy sessions as a way to improve the margin of the BetterHelp business, according to Gorevic.
“We’re looking more at digital interactions with consumers as well as group – virtual group therapy sessions, which are a more effective way to interact with the consumer, [and it] improves gross margins,” Gorevic said. “It actually has the … effect of lowering our visitation volume.”
Fewer visits to the BetterHelp business are “actually good” because that, in turn, improves its gross margin and allows the segment to serve more people with fewer professional resources, he noted.
Advertising yield, or how much an organization spends on advertising to acquire a new customer, has been a historic challenge for BetterHelp. In the first quarter, Gorevic said digital mental health newcomers were making “economically irrational decisions” when it came to ad spend.
Gorevic shared an additional flush around that point on Wednesday.
“While the return on ad spend remains below what we expected at the start of the year, we have seen it stabilize as BetterHelp remains on track to generate strong revenue and margin contribution,” said he declared. “We continue to build on BetterHelp’s leadership position in the direct-to-consumer mental health market while driving both growth and margin.”
Competition in consumer behavioral health may slow as “a tighter economic environment and high cost of capital” impact small businesses, according to Gorevic.
“I’m not sure I would say we’ve seen a massive tremor yet,” he said.
In addition to deepening its focus on BetterHelp, Teladoc is looking at value-based care, with a focus on its chronic care segment. In 2021, Teladoc launched a shared chronic care savings pilot with fully insured members under a Blue Cross Blue Shield plan.
While this arrangement focuses on chronic care, the company appears to be looking for more value-oriented care opportunities in the future.
“Our team just completed a study with this partner’s actuarial team, which determined that we exceeded our goal of medical cost savings by 60%,” Gorevic said. “Not only are we achieving better results for our members and generating more savings for our clients, but we are able to realize a small shared savings bonus. We believe the results of this pilot project and others like it validate our ability to move towards value-based contracts over time. »
In the third quarter, Teladoc’s revenue increased 17% to $611 million. This comes after Teladoc reported a lackluster first half of 2022. BetterHelp specifically grew 35% quarter over quarter. The virtual care company ended the quarter with 57.8 million members, an increase of 1.2 million members quarter over quarter.
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