A Bright Future for Telehealth Beyond COVID-19

Telehealth gained significant momentum in 2019. Nevertheless, on an absolute basis, flexible, widely available telehealth solutions were limited. COVID-19 has upended the status quo and charted a new growth trajectory for telehealth(1). In fact, the pandemic has created an opportunity to ingrain telehealth as a commonplace service in U.S. healthcare.

Once COVID-19 started spreading in the U.S., Medicare expanded telehealth coverage(2), Health and Human Services issued guidance to states in favor of relaxing interstate medical licensing rules(3), and 49 states waived or altered regulations on telehealth(4). Waivers included allowing physicians with out-of-state licenses to practice telemedicine within the state, allowing more mediums of communication during a telehealth appointment, and the reduction of regulations on making prescriptions through telehealth appointments. To protect vulnerable populations, elected officials have encouraged and passed legislation in favor of telehealth visits for the elderly and those at higher-risk for COVID-19(5). While many changes are temporary, convenience and increased patient use of the telehealth platforms following the changes has created pressure to permanently adopt the new rules.

Following the forced incorporation of more robust telehealth, the capability to utilize telehealth is growing for patients and providers alike. Patients will welcome the opportunity to see their physicians in person as soon as they’re allowed in order to address more complicated and urgent problems. However, quick health questions and routine consultations are positioned to remain virtual, freeing up patients’ schedules and adding an efficient option for providers. Ready Responders, a tech-enabled, on-demand health service that provides care in a patient’s home, continued serving its patients throughout COVID-19 and announced plans for further expansion(6). Telehealth’s role in companies like Ready Responders can help reduce unnecessary emergency department usage and direct patients more efficiently to proper providers when in-home care is inappropriate, creating promise for potential significant decreases in expenditures while improving care. Furthermore, with provider shortages nationally and in rural areas especially, increased telehealth resources, especially from physicians who might live elsewhere, help bolster access for populations who need healthcare the most.

With elective and non-essential care shut down in most of the U.S., many physician practices began experimenting with telehealth in order to continue to see patients and keep practices running. Largely using live video and audio, patients have discussed symptoms of respiratory infections with primary care physicians, showed dermatologists concerning skin conditions, walked through upcoming procedures with surgeons, and met with mental healthcare providers. Encounters with providers have led to diagnoses and prescriptions, expedited urgent or emergency treatments, and provided plenty of peace of mind. The experience both patients and practices have gained utilizing telehealth in the past few months has created comfort with telehealth that did not exist before the pandemic and lays a foundation for expanded use.

Major hurdles still exist for wider telehealth adoption following the first wave of COVID-19. On the reimbursement front, CMS released new guidelines for reimbursement of telehealth services(7); moreover, private insurance plans are following suit, rewriting policies on what telehealth services they cover and how much is reimbursed(5). Services covered, reimbursement amounts for telehealth vs. in-person services, and the new guidelines’ reimbursement and cost-sharing structures will all determine which services remain viable telehealth offerings for practices. Added time spent arranging telehealth appointments and technology gaps, specifically with patients lacking telecommunication device access or experience, can lower productivity and potentially dampen enthusiasm for future telemedicine use(9). Most importantly, maintaining the ability for physicians and other healthcare providers to practice across state lines following COVID-19 will strongly contribute to telehealth’s potential growth in the coming years(10).

MHT Partners, a leading healthcare services investment bank, believes continued regulatory evolution, demonstrated efficacy and increased efficiency, and consistent and straightforward reimbursement structures are paramount for telehealth to continue its growth and adoption by patients and providers. While telehealth still has plenty of room to grow, 2020 is seeing positive steps towards improving health outcomes, lowering healthcare costs, and increasing healthcare access through innovative telehealth offerings that will continue moving forward. Physician and healthcare practices will need to be increasingly aware of telehealth, know their state’s regulatory environment with regards to telehealth, and have an opinion on whether telehealth presents as an option to best serve their current and future patients.

Sources:
(1) American Telemedicine Association https://www.americantelemed.org/about-us/
(2) Medicare: Telehealth Coverage https://www.medicare.gov/coverage/telehealth
(3) mHealth Intelligence https://mhealthintelligence.com/news/feds-ok-interstate-licensing-paving-way-for-telehealth-expansion
(4) Federation of State Medical Boards https://www.fsmb.org/siteassets/advocacy/pdf/states-waiving-licensure-requirements-for-telehealth-in-response-to-covid-19.pdf
(5) H.R. 6487 and S. 3548 https://s3.amazonaws.com/fn-document-service/file-by-sha384/fb7696e83acaf7ef91c5a397491226f01ae77205a458e462ecaa875fd31b2152083342720c7e7730e4b661aafa929313 https://s3.amazonaws.com/fn-document-service/file-by-sha384/902177abbfcf26c40e1e793ad5f52cca625fc2b900cdcdd95d8fb23dbc488b8e7898cf74c79592b1bc5ae61fa19898be
(6) Business Wire https://www.businesswire.com/news/home/20200320005540/en/Ready-Responders-Provide-At-Home-Care-Patients-Alleviate
(7) Centers for Medicare & Medicaid Services https://www.cms.gov/files/document/03092020-covid-19-faqs-508.pdf https://www.cms.gov/Medicare/Medicare-General-Information/Telehealth/Telehealth-Codes
(8) Kaiser Health News https://khn.org/news/telehealth-will-be-free-no-copays-they-said-but-angry-patients-are-getting-billed/
(9) Policy Med https://www.policymed.com/2020/04/covid-19-recent-changes-to-telehealth-regulations-and-reimbursement.html
(10) Interstate Medical Licensure Compact https://www.imlcc.org/a-faster-pathway-to-physician-licensure/

The Bicycle is Back in Black!

A simple mechanical contraption has surged in popularity over the past couple of months as people struggle with restlessness at home, public transportation unavailability, shuttered gyms, the temptation of all day work-from-home snacking and bulging waist lines – the bicycle is back in black!

Whether it be road bikes, mountain bikes, e-bikes and the latest, gravel bikes, all have seen a surge in demand from “state of the art” versions to beginner varietals. While some of this mechanical mania will surely subside as “normalcy” returns to recreation, work and commuting – we believe a significant percentage of this change to consumer behavior will stick.

The National Association of City Transport Officials (NACTO) reports an “explosion in cycling” in numerous U.S. cities. While much of this is recreational, usage by essential workers commuting is up significantly and may portent the behavior of non-essential workers who return to the office in the coming months.

Domestically, an increasing number of cities have closed city streets to vehicles both in response to less cars on the road and increased demand from cyclists. Among notable cities:

  • Oakland has closed 74 miles of streets.
  • San Francisco just this week pledged to close another 20 miles of streets which brings the total to 34 miles.
  • NYC plans to close 100 miles (starting with 40 in May).
  • Seattle plans to permanently close 20 miles of streets.
  • Elsewhere in North America, Minneapolis, Philadelphia, Burlington, Denver, Boston, Charlotte, Calgary and Mexico City have all had street closures.
  • International cities ranging from Auckland to London, Berlin to Bogota, are doing the same.

Admittedly, not all road closings will be permanent, but it’s not a stretch to envision some permanency will continue.

Several considerations and factors contribute to cycling popularity:

  • Biking is fantastic exercise, and with public transportation in high density urban areas down 50% or more across the nation, biking is a logical alternative.
  • One can partake in this activity with the whole family.
  • It is lower impact versus some physical activities, and one can cycle late into their life.
  • Biking is an activity that can be both social and social distancing at the same time (unless you’re banging bike pedals, it’s difficult to be within 6 feet or so).
  • Importantly as well, biking is fantastic for the environment as it reduces reliance on cars.

More specifically with respect to some of the points above, according to the World Resources Institute, studies have shown regular cyclists can have a 50% less likely chance of heart disease among other ailments (the same can presumably be said for other acts of regular exercise). As relates to the environment, it’s estimated that each kilometer cycled avoids 250 grams of CO2 emissions. Cyclists in Copenhagen, one of the world’s most prodigious biking cities, by virtue of avoiding cars, keeps 20,000 tons of carbon emissions from entering the atmosphere.

All of this points to significant growth in the estimated $6B + bike market.

Anecdotal checks with numerous bike participants (vendors and independent shops) paint a picture of massive demand juxtaposed against limited supply. At the local bike shop I frequent just north of San Francisco, a simple mountain bike tune-up is taking 10 days (because of overwhelming demand), and the availability of a bike to demo in advance of a new purchase was exactly one (in contrast to probably 10 X that in less active times).

But a word of caution – America witnessed a significant bike boom in the 1970s, and at the time it appeared to be spurred on by high oil prices, a concern for the environment and a number of other “wellness“ dynamics also at play (sound familiar?). Bike sales boomed for a number of years and then they deflated just as quickly and alas, America didn’t become the Netherlands. That said, in hindsight, the 70s’ boom appears to have been fueled simply by baby boomers coming of age and buying “big people“ bikes. While bikes in the 70s were still viewed as somewhat of an odd accoutrement for an adult (rather than something shed with finality in one’s teenage years), bikes (and the quality and spectrum of them) have come a long way in the interim, and there is nothing “childish“ about them anymore.

In addition to the aforementioned dynamics, it remains to be seen how much consumer behavior will stick versus the alternative of bikes becoming glorified drying racks in one’s garage.

Additionally, with respect to worker commutes, the interplay of more people working from home (less need to commute) and convenience (dedicated bike lanes – perhaps less needed with more people working from home) remains to be seen.

As an avid mountain biker and believer in “a sound body makes for a sound mind,” I hope that this two-wheeled revolution continues!

MHT Partners, a leading consumer investment bank, welcomes further discussion. If you would like to learn more about MHT’s consumer advisory practice, please e-mail Craig Lawson, clawson@mhtpartners.com; Patrick Crocker, pcrocker@mhtpartners.com; Gavin Daniels, gdaniels@mhtpartners.com; Tara Smith, tsmith@mhtpartners.com or Tom Gotsch, tgotsch@mhtpartners.com.

Pet Space Update During COVID-19

The pet space continues to be an attractive investment arena in the midst of the pandemic. As a leading consumer investment bank very active in the space, we field a steady drum beat of inbound interest from sophisticated investors. Notably, CD&R’s recently announced pending acquisition of Radio Systems, Corp. serves as an apt example of recent M&A activity, growth and liquidity. The rumored sale price of $1.3B represents 12.75x pro forma adjusted LTM EBITDA as of June 30 – all the more noteworthy in the billion dollar plus range.

More broadly speaking, while unlike past downturns, overall industry growth rates will decline this year. Packaged Facts estimates U.S. pet industry retail sales will decline 17% in 2020 (to $78.5B in 2020E) — the “devil is in the sub-sector details” and in the supply/demand equilibrium equation. To bookend the spectrum of pet-related products and services, pet services, which by and large have been deemed “non-essential,” have and will continue to suffer the most given shelter in place restrictions and a massive decrease in travel (as relates to pet hotels and boarding). On the other hand, pet food, befitting its staple designation, is churning along fine notwithstanding “noise” from pantry stuffing in March that has reversed itself the last few weeks. Other sub-sectors (e.g., treats, durables) fall in between.

Non-consumable pet expenditures are projected to decline in 2020, though that decline appears to be largely a supply-side function due to a subset of brick-and-mortar retailers being deemed non-essential and temporarily shuttered (though a significant percentage of smaller independents, lacking eCommerce capabilities and capital, will undoubtedly permanently disappear). Chinese tariffs have taken their toll and COVID-19 related blowback may as well. Demand, on the other hand, has held strong. As an example, dog food (an essential staple) is projected to grow 4-5% in 2020E. Distribution channels play a large role in success, and anecdotal company checks with scores of vendors with eCommerce/DTC capabilities, or wholesale customers with eCommerce capabilities, highlights strong channel outperformance in these times. Nielsen reports that online sales of pet food in the U.S. increased $281 million (51%+ growth) from February to March 2020 and year over year (“YOY”) increased 77%, compared to March 2019.

While still relatively early, premium brands have held in well, but we may see a shift to lower-priced products as consumer budgets shrink, and/or consumers, absent a truly experiential and/or unique product assortment at their favorite pet store, limit their brick and mortar visits to the “one-stop-shop” FDM venues that offer lower price point products. The pandemic has brought about a period of product and brand discovery whereby the “value proposition” (and all the elements – price, content, transparency, convenience and availability that define it) will find itself under increasing scrutiny from consumers – and vendors need to take heed.

Helping soften the blow of COVID-19 is increased pet ownership as people look to pet companionship to fill the void of social distancing. Shelters nationwide report significantly elevated levels of adoption and fostering (the ASPCA reported a 70% increase in fosters in Los Angeles and New York in March) and if the Great Recession serves as apt precedent, dog ownership rates in the U.S. (presently at ~50%) should tick up a couple percentage points incrementally and pay dividends in the future. A recent LEK Consulting consumer survey indicates that U.S. dog and cat ownership has increased approximately 4%, or approximately 7 to 8 million animals, during the pandemic.

As an investment bank deeply involved in the pet space, we remain highly enthusiastic and optimistic for the pet industry and the growth PAWSibilities in the future – we welcome a discussion with you!

Can Higher Education Remain Status Quo Once COVID-19 is Contained?

The coronavirus pandemic is accelerating change across nearly every sector of the economy from healthcare to retail. The same is true for education as colleges and universities have been forced to transition to online learning and rely on technology as the sole means for instruction. One question that students and spectators alike are asking is whether these institutions view this involuntary transition as a temporary issue or a catalyst for a new method of learning that could better benefit students in the long run.

The traditional higher education path has historically looked like this … universities annually attract new students, expand their endowments, and reinvest in their physical campuses, teaching faculties, and extracurricular programs. Teaching methods and instructional approaches have largely remained the same. All the while, tuition prices have increased exponentially, despite the bachelor’s degree offering remaining relatively the same. Offerings between institutions have also become more standardized, and differentiation more often lies in athletics and student amenities, as opposed to the curriculum or degree programs themselves. Coupled with the mounting student debt required to achieve a bachelor’s degree, the ROI of a college degree is a far cry from what it used to be. Students have never had the power or influence to mandate a change in teaching methods and the cost of college . . . until now.

There is significant need for low cost, online learning tools and curriculum. Moving instruction online can enable the flexibility of teaching and learning anywhere, anytime. Despite research showing otherwise, online learning carries a stigma of being inferior to face-to-face learning. True, taking courses online from the kitchen table with no campus environment, no new life experiences or social connections instinctively feels like a lower quality product. Yet, it should be fair to say that emergency remote teaching is not the equivalent of a well-planned, online learning course. While most universities had no trouble pivoting to online instruction, many instructors modified their course agendas to one that was reasonably achievable in a remote setting. While forced moves to remote learning regrettably could seal the perception of online learning as lower quality, when done intentionally and purposefully, the online format can create cost and scale advantages that are unachievable by traditional methods.

Though an unplanned pandemic is no fault of universities, it gives the customers a great deal of time to reflect and weigh their options. Already, many college students and prospects are reconsidering plans for next school year. As a result, the uncertainty of enrollments is sure to create financial pressure for universities, which may force them to reconsider their offerings and related tuition prices. Nearly every institution expects to see increased attrition due to students faced with financial inability to return to school, dissatisfaction with the remote learning experience during COVID, the desire to remain close to home, or a combination thereof. Students are unlikely to cough up top dollar in the long run as a result of these dynamics and the prospect of continued remote learning.

All of these influencing factors have created a breeding ground for substantive change in higher education. While ROI and scalability issues have been deliberated for years, these discussions will be accelerated due to the pressures created by the COVID pandemic. At a minimum, institutions should be cautious to focus on how quickly business can resume as usual. Instead, they should be asking themselves how they can adapt and innovate to better serve their students in the next several decades. Alterations to the higher education degree in the form of a cost-effective, high-quality experience will be required for the long-term survival of these programs.

MHT Partners, a leading education investment bank, welcomes further discussion on the effects of COVID-19 on the education industry: Rebecca Bell (rbell@mhtpartners.com); Shawn D. Terry (sterry@mhtpartners.com) or Alex Hicks (ahicks@mhtpartners.com).

Getting the Goods During the Pandemic: Pivoting Consumer Supply Chains

As millions of Americans are sheltering in place during the pandemic, the at-home demand for food and supplies, including paper goods such as toilet paper and paper towels, has increased, while restaurants and offices no longer need these items in bulk. According to Alix Partners, U.S. household demand of toilet paper is up 40% due to the closure of schools and offices nationwide.(1)  Coupled with consumer desires to “stockpile” some items for preparedness sake and to avoid shortages, the demand for many items in the direct-to-consumer channel has increased dramatically in the last two months. Out-of-stock shelves in brick-and-mortar grocery and sold-out e-commerce channels have forced consumers to get creative while sourcing their needed items and forced manufacturers and distributors to figure out how to pivot supply chains in order to meet these changes in demand.

Local restaurants have, in some cases, started selling grocery items to their consumer supply base, utilizing their ability to source goods at the wholesale level. Not only does this provide an opportunity for restaurants to make money and keep staff employed during the crisis, but it also potentially engenders goodwill with consumers, who may seek to patronize these establishments that helped consumers get what they needed when they couldn’t find it elsewhere (and I can personally attest to this dynamic, with a strong affection for my local Italian restaurant selling flour in bulk and my local brewery selling yeast!).

Notably, new technology upstarts are helping to enable food and toiletry businesses serving commercial markets to reach consumers directly with goods as the crisis unfolds. Cheetah, a startup founded in 2015 with an app enabling wholesale supply deliveries to restaurants, in late April just announced $36 million in funding from Eclipse Ventures, ICONIQ Capital, Hanaco Ventures, and Floodgate Fund. As the pandemic has played out, Cheetah has shifted its business model to reach consumers directly, through a service called Cheetah for Me, in which consumers can purchase groceries, paper goods, and other supplies in varying quantities via the app and pick them up at designated delivery sites around the Bay Area. As such, goods that would have traditionally found their way into the restaurant supply chain are now in the hands of consumers at home, enabling the startup to generate revenue despite widespread restaurant closures. Similarly, Choco, a Berlin-based startup that also operates in the U.S., recently raised a round of funding in mid-April ($30 million from Coatue Management, Bessemer Venture Partners, Atlantic Labs, Target Global and Greyhound). Choco, which streamlines ordering from, and communicating with, suppliers for chefs and restaurant staff, is currently partnering with its restaurant customer base to enable them to resell groceries directly to consumers.

Companies that are flexible and creative in finding ways to meet changing demand patterns in the global pandemic have clearly attracted the attention of new customers and investors and will likely continue to do so in the coming weeks and months ahead. As consumer investment bankers, we are keenly interested to continue to follow how changing supply chain dynamics will continue to shape the consumer landscape going forward. Our MHT Partners’ consumer team welcomes further discussion on changes in the consumer landscape as a result of COVID-19 (Tara Smith, tsmith@mhtpartners.com, Craig Lawson, clawson@mhtpartners.com, Patrick Crocker, pcrocker@mhtpartners.com), Gavin Daniels, gdaniels@mhtpartners.com, or Tom Gotsch, tgotsch@mhtpartners.com).

(1) https://nypost.com/2020/04/09/how-a-global-pandemic-lead-to-a-toilet-paper-shortage/