Telehealth Stocks Diverge as Funding Cliff Looms for Millions
Uncertainty over the extension of pandemic-era Medicare coverage rules is pressuring traditional telehealth providers like Teladoc and Amwell, while consumer-focused models show resilience.
A legislative standoff in Washington is casting a long shadow over the telehealth industry, creating a sharp divide between companies reliant on traditional reimbursement models and those with direct-to-consumer platforms. At the heart of the issue is the looming expiration of pandemic-era telehealth flexibilities, which, if left unaddressed, could strip enhanced virtual care access from tens of millions of Americans and create significant headwinds for the sector.
Shares of major telehealth providers have reflected this mounting uncertainty. Teladoc (NYSE: TDOC), a pioneer in the virtual care space, saw its stock fall over 3% in recent trading, touching prices near its 52-week low. The company, which has a market capitalization of approximately $1.1 billion, has seen its revenue growth slow. Similarly, shares of American Well (NYSE: AMWL) have struggled, also trading near 52-week lows with a market cap of just over $77 million. Both companies depend heavily on partnerships with health plans and employers, making them particularly vulnerable to shifts in federal reimbursement policy.
The central issue is the so-called “telehealth cliff.” Key provisions that have allowed for broad and flexible telehealth coverage under Medicare since 2020 are set to expire at the end of the year. According to a recent MarketWatch report, as many as 67 million Americans could be affected if various temporary coverage measures are not extended. The immediate focus is on Medicare, which covers more than 30 million of those beneficiaries and often sets the precedent for private insurers.
Industry advocates have been vocal about the need for a permanent solution. According to an update from the American Telemedicine Association, Congress is considering a temporary extension of the current rules through 2027 as part of a broader spending package, which would avert the immediate crisis but continue a cycle of legislative uncertainty that has hampered long-term investment and planning for the industry.
This recurring legislative risk appears to be steering investors towards telehealth companies with different business models. Hims & Hers Health (NYSE: HIMS), which operates a direct-to-consumer platform for a variety of health and wellness products, has fared significantly better. While its stock was also down nearly 3% in recent trading, its $7.1 billion market capitalization, consistent revenue growth, and positive profitability stand in stark contrast to the struggles of TDOC and AMWL. The success of Hims & Hers suggests that a direct-to-patient revenue model may offer a more durable path to growth amid regulatory ambiguity.
While the telehealth prescribing of controlled substances—another major regulatory concern—was recently extended by the DEA through the end of 2024, the core issue of reimbursement remains the primary obstacle for the sector. The uncertainty particularly impacts access for patients in rural or underserved areas and limits the scope of services for providers like physical and occupational therapists, as noted in analyses of expiring Medicare flexibilities.
As the deadline approaches, the telehealth sector remains at a crossroads. The path forward will be determined not just by market forces, but by political negotiations in Washington. For investors, the divergence in stock performance between players like Teladoc and Hims & Hers highlights a critical theme: in the current environment, business model resilience may be just as important as the technology itself.