Investing in the Virtual Care and Remote Patient Monitoring Market

The ultimate goal of healthcare IT is to help healthcare providers improve patient care. However, technology advancements in other industries have woken patients up to the fact that the healthcare experience itself needs to improve. Technologies such as virtual care and remote patient monitoring (RPM) represent one such opportunity for innovators and investors alike that could make healthcare more patient-centric.

The Current Market of Virtual Care and RPM

The COVID-19 pandemic accelerated adoption of virtual care like telehealth. Although usage appears to have spiked earlier during the pandemic, overall, we have still seen a significant increase in virtual care utilization. The move to telehealth and the utilization of information technology in healthcare has been a trend for a long time. But the trends we're seeing in virtual care during the pandemic are real, though they may have been a bit exaggerated over the past 18 months.

Some of the hesitation in the use of virtual care technologies in the past, on the part of physicians as well as patients, came from a lack of familiarity and a general fear of change. As people were forced to use these technologies, they were necessarily exposed to them and, in turn, gained a degree of comfort with them. People began to understand how the technology really could be utilized to make care easier.

On the other hand, RPM technologies certainly got a boost from the pandemic. However, unlike virtual care, the utilization of RPM solutions probably didn’t have the same type of user hesitation. This is because RPM is less about replacing a face-to-face interaction with your doctor and more about creating a new way to deliver information from patient to doctor.

Both telemedicine and RPM solutions benefited from the legal and regulatory changes that were adopted in response to the pandemic. Unfortunately, many of these changes are temporary, and the legal and regulatory environment for telehealth solutions is likely to become more burdensome—although it is also likely that at least some of the temporary lightening of the regulatory burden will become permanent.

Another check on the continued growth of telehealth services will be the natural and necessary retrenchment of organizations that ramped up their capabilities. We have likely already seen some of this response in light of the falling utilization from the pandemic-related peaks. There is going to be a degree of resetting expectations as organizations figure out how they want to approach virtual care long term.

Regulatory Challenges for RPM

The RPM industry was given a massive booster shot with the adoption of the RPM billing codes. But two factors may make the rampant development of this industry slow in the near future. First, the codes themselves are subject to further refinement through the coverage determination process and possible further regulatory refinement. Second, there are new remote therapeutic monitoring codes coming online in 2022, and the way those codes are implemented could impact the way RPM codes can be used.

These two factors are creating a big question mark in the industry right now. But no matter what, we're going to see a refinement of what RPM codes really cover and are likely to see a little more optionality with the additional codes. So it's not all bad news. As these factors develop, we may see some business models make more sense than others, although it is too early to know what that will look like.

There is one other specific legal issue that, for at least some RPM businesses, has the potential to be truly problematic. RPM generally requires an in-person patient encounter for reimbursement. During the pandemic, that in-person encounter can be done virtually. Once the public health emergency ends, we're likely going back to that in-person requirement.

Of course, laws change all the time, and there are efforts underway to make permanent some of the changes that have been made during the pandemic. This may be one of those laws that gets changed, in which case we would just continue moving forward. But if we revert back to where things were, then the RPM business models that were virtually focused may face some significant difficulties.

Two Important Factors to Consider Before Investing

When we’re helping an investor evaluate a virtual care or RPM company, there are several layers for analysis, but two factors are particularly important to consider.

1. The company has a business plan that has a pathway to success within the US healthcare system.

A lot of companies can deliver a very good business focus on direct-to-consumer, out-of-pocket spending. But for the most part when it comes to healthcare delivery, success comes with working within the government and commercial payment programs. In these markets, you deal with a more cumbersome regulatory and reimbursement landscape, and you also start to run into more traditional healthcare delivery perspectives.

Innovation can come by pushing against these factors—operating within regulatory gray areas and side-stepping some traditional delivery models—but lots of nontraditional healthcare firms (both established and start-up) have been thwarted by this peculiar industry. Healthcare is conservative from a clinical perspective and business perspective. Clinicians must first, do no harm, and providers must focus on the bottom line, because no margin means no mission, and in an industry where reimbursement is so heavily regulated, a lot of attention is focused there. The tech industry mantra to make mistakes fast and frequently does not work in the healthcare industry. It can be very tricky to find a balance between pushing the regulatory boundaries and maintaining a compliant operation and between disintermediating and collaborating.

Depending on the stage of the company, it’s not necessarily about having it all figured out from the beginning. Rather, awareness of this dynamic is what matters. Does the management team appreciate the need to find balance and recognize the ways in which the enterprise may need to evolve?

Unfortunately, timelines are getting very compressed from an investment perspective. Digital health company successes over the past two years are driving higher valuations and attracting lots of investment dollars. In this competitive market, it can be challenging to find the true diamonds in the rough.

2. The company understands how to avoid getting in trouble.

Early-stage companies are not necessarily going to be focused with the same amount of attention, detail, and deliberateness that a hospital has when it comes to compliance. That is perfectly understandable. But do they understand the key items that they need to focus on to avoid getting in trouble? Does the company respect that, over time, they are going to have to develop a robust compliance perspective as a healthcare company? Are they going to pay attention to those things when they need to?

Sometimes we spend a lot of time with clients fundamentally restructuring some of their operations because they haven’t focused on the legal and regulatory issues early enough. Early-stage investors frequently accept these risks, but public offerings, some late-stage growth investors, and private equity investors require a different level of attention to these issues.

At different stages of development, we expect to see varying degrees of focus on strict legal and regulatory compliance and compliance infrastructure. But from our perspective, we really need to see the commitment and see that a company is willing to grow and develop their legal compliance infrastructure as it grows in its market.

Dale C. Van Demark is a Partner at McDermott Will & Emery. He works at the forefront of strategic transactions and digital health matters in the health, life sciences, and technology industries.

Photo credit: Maria, Adobe Stock