American Well Corporation (AMWL) Earnings Call Transcript & Summary

Ladies and gentlemen, the program is about to begin [Operator Instructions] At this time, it is my pleasure to turn the program over to your host, Allen Lutz. Please go ahead.

Thanks, Robbie, and welcome to everyone to Bank of America's Third Annual Home Care Conference. My name is Allen Lutz, I'm the services analyst at Bank of America. I'm excited to have with us the President and CEO of Amwell, Roy Schoenberg, with us today. Thank you, Roy, for joining us.

Thank you for having me, Allen. Great to be here.

Absolutely. So I'm really excited about the conversation, but one that we just need to get out of the way here is, clearly, there's been an evolution of what's taking place within telemedicine from pre-COVID to what occurred during COVID and now where your customers, health systems and payers are moving post COVID. So I guess, be as brief as you can be here, but would love to hear kind of what was happening pre-COVID? What's happening or what happened during COVID? And what are some of the changes that your customers are asking for a post COVID?

Okay. So I'm trying to get a punchline at the brevity here. But maybe the best way to describe it is that prior to COVID, telehealth, telemedicine, whatever that bunch of words meant to everybody, was perceived as a very novel ideology that has a big role and a big promise to the future, but really not as something that was existential for anybody. It was a luxury for those who are forward thinking. COVID showed up, everybody got locked up, patients at home, clinicians at home, outpatient clinics were closed, community practices were closed and telehealth sprung into use by way of really being one of the only channels by which people could get in front of health care. And a lot of things have morphed because of that. I think the era that we're in now, which is kind of the post COVID era, is really taking this technology to a completely different level of value because maybe the -- in the brief way of describing it, where the previous world was all about connectivity, allowing people to get in front of another synchronously through video conferencing, the current understanding of this technology is that it actually has the ability to change the logistics of health care. Allowing health care to be distributed differently over technology and that goes far and wide and deep into health care economics and the way systems are being built. So a very different world than where we were literally just a couple of years ago.

That's great. I really appreciate that. And I mentioned you have 2 major customer bases, payers and providers. And it seems like both of those different customers have really changed the way that they're approaching technology from pre-COVID to now post-COVID era. I'd love to start with your health system customers. Before we get into the Converge platform, I'd love to hear what challenges do your health system customers have today? And how do they expect technology to help solve some of those problems? And then we can get into really what Converge has and some of the solutions that it can provide for those customers?

Well, the health system market, and we're strictly talking about the American health care system market, is still in a fairly tough financial position or many of the health systems are still in a tough financial position. The reality of COVID wasn't helpful because they couldn't see a lot of patients, so they couldn't submit claims, and that created a big dip in their financial strength. But I think that the part of that most health systems are focused on today is the understanding that in order for them to survive financially and operationally, they need to advance the way they think about how they make revenue. And what that translates into is a couple of different things. One is they need to be able to reach additional audiences that historically were not -- they were not available to talk to and that is obviously the whole conversation about essentially spanning their wings geographically through technology and interacting with the broader community. The second one is that a conversation that's been in the market for quite some time, the notion of medical risk taking, essentially being paid a lump sum for the care of the patient and then it's really up to you to make sure that they are treated efficiently. And if you are treating them well and efficiently, you can keep the change. If you're giving $100 and it only cost $90, you can keep $10 into it. I think that really has been the part that health systems are saying, well, if we are not going to be financially and medically responsible for the well-being of a life of a patient, then we need to know what they're going through after they left the building, after they left our office. And that's -- and we can spend a lot of time talking about what that means, but that essentially translates into, we need to put in place technologies that allow us to communicate on a regular basis with those patients for one, so that we know if they're going the wrong way, we need to act on it but also, if we are -- if we know that we can continue to be in touch with the patient when they go home, maybe we can keep them one day less in the hospital. We can discharge them a day earlier, which dramatically reduces the cost of managing that patient. So these are -- these are some examples that hospitals or health systems are thinking about. The one other thing that I would just briefly remind everybody is there is a major, major workforce crisis inside the health care system that's going on. A lot of people talk about the behavioral health part of it, but it really is, at this point, pretty much kind of everywhere. There are just not enough clinicians at different skills to manage the escalating need for health care with the baby boomers, with Alzheimer with a lot of different things that are happening right now. And health systems are struggling to figure out, okay, we have that amount of personnel that's working for us, how do we introduce force multipliers? How do we get them to care for more patients with the same cost, with the same amount of hours in the day? And in many, many different ways, telehealth technology comes into players the answer for those. So -- these are kind of like touching on 3 different examples, but these are at the 1, 2 and 3 places on the strategic whiteboard of every CEO of every health system around the country.

That's great. And you mentioned really, I would say, I'll bifurcate into 2 different dynamics that are going on. So on the one hand, you need health systems to reach additional audiences that maybe they haven't reached out to in the past. And related to that, you need technology in order to communicate to patients. And so let's start there. So those 2 things seem to be pretty different than how health systems have thought about managing their business in the past, at least directly, direct-to-patient communications. Can you talk about -- I guess this will be where we go into Converge a little bit. Can you talk about that opportunity and what Converge can do for health systems around those areas?

Yes. I think the biggest distinction that we can make here is that historically, even prior to COVID, health systems were utilizing some degrees of telehealth to follow up on their patients. It was used more heavily in places where geography was a challenge, where you had to travel for 5 hours to get back to see your oncologist if you're a cancer patient, but it was really driven by that. Today, the understanding is that for a health system to operate its business, it's not only that they need to have a patient portal, which by the way, finally enough or member portal, finally enough, was the language of the payers was never the language of health systems. Health plans used to have member portals with urgent care and all of that kind of stuff suddenly health systems are saying, no, we want to have a patient portal. And we want to have services that are available to the general public, not only to those patients who are already currently our patients and already have a medical record number inside our Epic or Cerner, EHR. We want to have a strategy that makes us the place of people go in our region even if they're not current patients. That's things that health systems didn't do before. It's marketing to new patients. It's patient acquisition. It's the ability to promise a patient that even though that hospital is a little far away, even when you go home, the clinician can continue to see you and follow up with you. It also means that the way that they think about the quality of their relationship with the patient, especially with chronic patients can dramatically change because the reality is, historically, prior to this, if you had heart failure, God forbid or any one of those kind of conditions, you would see health care 1 month. And 29 days out of -- between those, you would pretty much be on your own. And that creates a lot of issues because patients feel concerned about it. There is not enough reassurance to them or their families that are being taken care of. They are concerned that if something deteriorates, they have to wait until the ambulance shows up. And there's a lot of examples for what happened when this almost built-in model of neglect between visits, which is how are some operates turns out to be not good for patients. With the arrival of these technologies, health systems say, well, I can actually properly care for a patient that lives 60 miles away because I can check up on them regularly. And I can follow up with a lot of different disciplines on making sure that they take their medications, that they are getting out of bed, that their pain level is okay, that they're potentially -- levels of depression or stress when they have a very challenging situation like heart failure, cancer or whatever it is, we can actually have a lot of different disciplines, clinicians interacting with that patient. The whole view of how the center of a health system can reach out to the territory around it and take good care of those patients, changes dramatically when those technologies come into play. So maybe a longer answer that you were looking for but this is a -- from a business standpoint, this is a force multiplier for health systems.

That's great. And we were talking a little bit before we went live about a local health systems that's close to me where I was able to use their digital front door before I entered their health care system. I want to speak specifically about Converge and that front door digital health opportunity. And can you speak specifically to some of the capabilities that Converge has that it's using today to help improve that front door for your health system customers?

So I'll take, I promise 1 minute of general remark about Converge that will translate directly to your question. I think that probably the most important way to start is to say, why did we call it Converge to begin with? And the reason that it was named Converge because historically, there was a kind of telehealth that was done by the health plans, that if you're a united member or Blue Cross or Blue Shield member, you get a website or an app that has urgent care services and so on. So all of that conversation around convenience of care, member portal, ongoing communication with the patient, new patients, new member acquisition, all of that was the language of the payers. And then health systems, the hospitals had a completely different language of use of telehealth. It was really about scheduling a follow-up care from Epic with a patient who has been in the hospital 10 times and just needs to be followed up for how they recover following surgery. And also how a clinician can consult another clinician in another floor of the building around telestroke or things like that. The reason why Converge is called Converge is because that language has dramatically morphed, it crossed over. And now we have health plans who are saying, in order for us to do our business and cut and contain medical cost of our membership, we have to involve clinicians. They are the ones that are going to help us navigate patients in the most effective way. Well, if you need to involve clinicians, you need to connect to where they live, which is electronic medical record systems and fun stuff like HL7, FHIR and scheduling, things that health plans never knew anything about. And on the other side, the health systems are saying, "Well, I want to member portal, and I want a communication plan. And I want to follow-up capability, and I want automated interaction with patients, all of that kind of stuff," which traditionally was the language of the payers. And so what we saw is that both of these very large and very different parts of the industry started saying, "I want the other guys set of digital capabilities because I understand that I need that in order to deliver the ROI in order to deliver efficiency." Converge is the convergence of those competency. It means that any customer that is moving into Converge, customer or prospect or new customer, whichever one it is, that is moving into the Converge chassis no longer has to decide are they the strictly health plan that is a financial institution or are they strictly the health system that just does patient beds in a hospital. And to tie it back to what you mentioned about Converge. So when we talk to a health system, about Converge, what they want us to do is to essentially turn on the strategy that speaks to a more holistic ownership of the patient's management so that they can take essentially financial risk for that patient. They want to be able to communicate with that patient in their environment, which is something their EHR doesn't know how to do. God bless the EHRs. They're good people but they're designed to operate within the walls of the hospital. They don't know how to reach and interact with an elderly cancer patient in her home at the age of 80 something. So the narrative, the capabilities that they need are a combination of different modules that historically were not part of health systems. So maybe the way to kind of bring that together when we speak today to health systems, they're saying, We want you to keep on doing the stuff that you did for us in the past -- provider to provider interaction for the telestroke and follow-up care and on-demand care and so on but we also want you to turn on all of these logistical capabilities that payers used to ask for like load balancing of clinicians, like urgent care offering, which I think you've experienced, like the ability to allow a clinician from one facility if they're a multi-hospital network to cover for another facility that doesn't have that clinician on staff. Those are the kind of things that are the name of the game right now. And finally enough, it is not about video conferencing. The whole thing is about the logistics of settling the resources into where they can deliver value, the way they surface is over video but it really is so much more about logistics than it is the video, and that's a huge change from where we were in 3 or 4 years ago.

That's really great color. And as you think about that, you talked about load balancing, leveraging a clinician from one facility to -- to maybe cover in a different facility. And then there's also on the back end, there's just a lot of disparate systems, scheduling, staff systems, notification, then you have the entire patient side. As you think about where health systems can see the highest immediate ROI from integrating this type of technology, what seems to be the lowest hanging fruit? And then separate to that, how material -- what conversation needs to go on within the 4 walls of a hospital before turning on these types of changes? Because it seems like this is an -- an evolution, it's a step function that requires buy-in from a lot of different parts of the health system. So I'd love to hear a little bit more about, is that perspective accurate?

It is a sea change because it isn't just about telling a clinician. You used to see your patient in front of you physically and now you're going to see them over the phone. If that was the case, then maybe that was the case of 5 or 6 years ago. What is -- what's driving the adoption of these technologies today is the rethinking about how the clinical staff can do their job. How many patient beds they can oversee? How many facilities they can cover at the same time? How technologies can help them along the way to maybe even monitor a patient's bed through AI and through other capabilities and bring their attention when it's needed rather than literally walking the floor bed to bed to check up to make sure that everybody is there. The conversation has moved on in every way into thinking about how the health care services are distributed. Maybe the best analogy that they can come up with is it's like -- and I've made the analogy before, so I apologize if anybody heard me say that before. It's a little bit like Amazon in the early days where it was selling books and all of us thought about what a great way to buy books. We thought that Amazon was the big, big bookstore in the cloud. And we completely misunderstood it. The books exercise was the way for Amazon to learn how to do online retail. And it had to do with completely different things. It wasn't about the books, it was about how to get people comfortable to use credit cards. And how would people buy and not be concerned about it because they have a good return policy, right? I mean that change the game on how people are buying and how to work with FedEx and how to get people to remark on what's a good product and a bad product because you're not in the store with a seller that can advise you. In many, many ways, that is exactly what's happening right now by in health systems. It's not about using this technology to allow the interaction to happen over the phone rather than physically but rather, it's about reinventing people's expectation on what the health care experience looks like. And that is true for -- that is true, not only for patients, we tend to focus on the patient experience. I can tell you, I used to be a practicing clinician. We are a tough bunch. We don't like to change what we do. And for a lot of good reasons, getting clinicians to feel comfortable to move interchangeably between caring for patient physically and caring of patients and sometimes multiple patients virtually is a very, very significant lift. And one of the absolute requirements coming back to part of your question, one of the absolute requirements for that to be successful is that you need to ask them to do the least amount of change in their daily reality as possible. What that means is you can't ask a clinician to log in somewhere else to see a patient virtually. You cannot have a shadow calendar side-by-side with a physical calendar to manage digital interactions. You can ask clinicians to document and do clinical orders or prescribe medication on a completely different systems when they do digital patients versus when they do physical patients. So -- for this to become part of the fabric by which clinicians interact with patients, it needs to integrate into where they live. It needs to speak their language. And I can tell you that's the part that a lot of people and a lot of young companies that are coming into telehealth are saying, "Well, maybe we'll do that later." All of that heavy, heavy complex integration element. But I think they misunderstand the behavioral change that this entire industry, just like retail had to have huge change when it moves to online retail, that is what is happening right now with health systems. And that's why all of that underground capabilities of Converge, that heavy, heavy investment in integration, data integrity, identity management, electronic exchange, interoperability, all these things in terms of people don't like to talk about are a must in health care for this to be successful. And this is where we shine. That's just the reality of what Converge does.

Are there any customers that you have -- I guess taking a step back. I know that you've spoken in the past about most health systems, most customers are going to be on the Converge platform by the end of the year. I'm a little bit less -- I care a little bit less about that specific dynamic. I want to know more about utilizing the platform to its fullest potential. Are there any early adopters that are utilizing the platform anywhere near the full potential? And I guess, can you talk to some of the early adopters here of Converge? Where are they in that evolution or in that process? Are they 50% of the way there? Or they 80%? I'm just curious, is there any way to frame where some of the early adopters are because I think that speaks to, okay, if they're almost where they need to be, they can then start having conversations with some other peers about the benefits that they're seeing. But if they're earlier on, maybe it takes a little bit longer. I'm just curious where are we in that journey?

Yes. I think like everything, especially in technology, it's a bell curve. The trick about technology is that it's never over, right? It continues -- the envelope continues to get stretched. And by the way, that's the -- to me, personally, that's the most exciting thing to see because historically, for many, many years, we've been doing this from before electricity was invented, we were the preaches. We told people how to use telehealth and how to use telemedicine and the reality today is the exact opposite. Every one of our health systems or most of our health systems are taking the front seat in saying how they want to utilize the technology and they're all different. And the reason that is so important is because most health systems are not alike. They have a different deployment model on one state or another state. They have a couple of different facilities, they do or don't have primary care. They do or don't run a little bit of a health plan. They focus on tertiary surgeries or they focus mostly on outpatient clinics. They have pediatrics or not. They can go on and on. The profile of every one of those health systems is different from one another. And also if you speak, if you talk to their Board, which is right now, we used to sell to the Chief Medical Officer, whatever it is, now the conversation about this technology is always at the Board level. They are -- so their asks from us are always custom tailored to what their best foot forward is. What that translates into is that when we work with the health system, and I'm pretty sure I'm told by lawyers not to name anybody here because I'm going to get in trouble. But if you speak to one health system that we have, that is a multistate health system somewhere in the west side of the country. Their view of it is we need to become omnipresent across all disciplines. We essentially need to create a digital equivalence of everything that we do physically through technology. And that means a lot of specialty care. It means urgent care and on-demand care. It means the load balancing that we talked about. It means taking risk. It means primary care using their community group practices and so on. On the other hand, you have health systems who are very geographically localized, I can think of many of those who are saying, well, we need to be able to do the equivalent of discharging patients home and continuing to be on them as if they were still in the hospital because that allows us to cut what's called length of state. It allows us to change the dynamic of when patients need to be in the hospital. I can tell you that if you look at the blueprint of Converge, we have a nice exercise, which I don't think we're going to do here today where we actually have the blueprint of all of the capabilities of Converge, looks a little bit like a periodic table. And you take a customer and you light up the elements of Converge that they are utilizing, the beauty of it is that every one of our customer lights up different things. And that's the power of the technology because it allows them to advance what they believe is going to make them most successful. And I can tell you that even further, and I'll stop talking because I'm taking too much time for this in this answer, but it is not only that they're using different components. They are using capabilities of Converge that historically weren't even in their thinking, they're using things that payers used to require, that group practices in the community used to use. They're using network effect to get clinicians who are at home to begin to deliver services into the hospital. And these are the kind of things that make us really the best partner for them because we're not limiting their ability to think about how digital changes their business. That coming back to the analogy of online retail. And I would -- I think it's safe to say retailers that have early on learned the language and understood that it is inevitable that part of their business will be done online and part of their business will continue to be physically available to a community or in a store or somewhere else. Those survived. Those organizations, those retailers, I don't know the circuit cities of the world and series of the world that held on and said, "No, no, no, we're going to continue to do it the way we did it before." We know what happened. We don't need to preach that anymore. Every health system understands that completely at this point in time, and then they bet on a technology that is going to allow them to advance their own pace with the things that they think they're going to be more successful, and that's why they come to Converge.

I want to ask one more question on the health systems and then pivot to the health lines here. So you mentioned something I thought was interesting. You mentioned cutting follow-ups or cutting length of stay by engaging with the patient and follow-ups. And I think one of the things that has always been confusing to me in health care. Health systems are a brand. And a lot of companies in health care are not brands, but health systems are local brands. And I feel like some do a better job than others historically of promoting their own brand and managing that brand. As you think about where we are in 2023, heading into 2024, managing that brand and kind of diving into having an app where patients are going to be able to connect to immediately and being able to have a dialogue with their health system seems to be something that's really changed over the past 3 years since COVID began. And Amwell is one of, if not the largest players in the space, white labeling is technology for a lot of different health systems here. As you think about this move to risk that these health systems are embarking on. And that front door of care where sometimes patients wouldn't see an e-mail, they miss a phone call. Can you talk about the value of having that app? Is there any type of quantitative data that you can provide? Or -- is there -- how should we think about the value of having that on someone's iPhone or Android really changing the game when it comes to connectivity with the health system?

Yes. So that's a great, great, great question. I think that the health systems historically promoted their brand strictly by the quality of care that they deliver. Cleveland Clinic, Mayo Clinic and the likes. I think that what has done on all of the entire industry is that customer acquisition and customer retention applies to health care as well, which means that your brand needs to continue to be promoted. It needs to be visible and it needs to be associated with things that create trust by the people that are going to interact with you. There is no question that the proliferation of the brand of the health system, can be accomplished through technology, just like it is doing for any other industry. Historically, hospitals had a -- sometimes there was a sign by the road that said the ER wait time is whatever 3 minutes or something like that. We've all seen those. It was an ad in the paper, maybe in local television. Now health systems understand that for people to interact with their services, not just see the brand, but to actually interact with their clinicians, they can spread the wings digitally. And this is -- I'll be brief about it because I think this is something we're going to see my guess, '24, '25 because this entire architecture of digital health care that we run through Converge is one giant switchboard. We didn't talk about the architectural Converge, but all of our legacy systems used to be an installation for every one of our clients. It was kind of an island on its own. With Converge, everybody, even though they have an own experience, and it's white label, everybody is actually living on the same switchboard, which means that if you're a health system and you are creating a digital product, whether it is neurology consultations that people like under your brand that you're very good at. You can actually create visibility to that product on a pair presence on Converge. So if I'm a health plan, and I'm competing on employers because that's my business, right? That's how I make money. I can create a whole -- essentially a whole menu of digital services from health systems who I have good relationship with through Converge and then I can package it and sell it as an unbelievably attractive benefit product for a large national account that I have. So health care is complicated, but the opportunity for health systems to productize their services with their brand and make it show up in a lot of other entry points for people who come into health care usually through their health plan or their employer intranet, whichever one it is, is an opportunity for them to proliferate the brand in ways they've never been able to do before. And luckily, they don't ask us what we think about it. This is, at this point, a common agreement by all of them. They understand that they have to distribute their brand differently over technology. We help a lot because we're switchboard.

That's really interesting. And you touched on the health plan side a little bit. I want to dive into that a little bit deeper because over the past, I'll say, 4 years from pre-COVID to now post-COVID. Four years ago, health plans did not have any type of virtual care offering. They were piloting certain technologies, but they didn't have any type of strategy around it. And now if you think about the larger health plans, some of which are your customers, if you look at their app or their website, they now are incentivizing patients to use virtual care first. And I think it's really interesting to think about the way that health plans business models have evolved with the move to technology here, and it's really happened pretty swiftly. I'd say, from the late 2010s to today, where these health plans are really -- they have such significant control over how patients looking online, see where they can get care just based on sort of the menu that is provided for patients when they look for any type of service that they want to get. So as you think about Converge with health plans, there's been this unbelievably dramatic shift on this end, too. And I know we only left a few minutes for this, but would love your thoughts on what are health plans trying to do? How can Converge help them do it?

I think the best way to describe it -- we've -- many of us live to the day and age of the HMOs, where there was a PCP who was the gatekeeper. I don't know if anybody remembers, didn't go very well. People hated the notion that they need to go to get the referral but the attempt the rationale behind it was that Health plan said, we want to be in the room where it happens. We actually want to be when a patient is seen by a clinician, we want to influence what the clinician does with that patient because then we can potentially guide on which -- what imaging facility they're going to go to or what medication that is more cost effective they're going to get and everything else. They did work out in the 80s. Now with technology, there's the second coming year. The opportunity for health plans to offer out primary care through technology, what people call virtual primary care, is the opportunity for them to say, well, now clinicians are going to interact with their patients for primary care on our platform. That's the unspoken truth that people have to kind of sink in because if the health plan is in the room when a patient gets primary care from their clinician and the primary care clinician sends them to referrals, gives them a medication, send them to labs or imaging whatever it is. And the mechanism by which they do this can be influenced by the network definition of the payer by the analytics by what's efficient versus non-efficient. The health plans have now created or gave themselves an incredibly larger instrument to change medical cost. They can govern how patients flow and ebb around consumption of services in the market. So this is a sea change in the role of health plans because of this technology. To the point that we made earlier, if they are going to be successful with virtual primary care, they mean to have clinicians on it. If they want clinicians on it, they need to tie to Epic and Cerner and Athena and all of that places where clinicians are. So these are the requirements that are coming out the gate from health plans, which again bring them to Converge because Converge does speak that language whereas a lot of telehealth products that just do urgent care have no clue how to get that done. So health plans are as disruptive using this technology or more disruptive than anybody in the market, and that's going to pan out literally in the next few years in front of us.

One last question here, just kind of came to me as we were talking. It seems like there's a pretty big opportunity for benchmarking among your customers as you think about whether it's a health plan or a health system. Is that something that Amwell has thought about? Is it too early for that type of analysis? I'm just curious if that's something that is on the radar at all?

Yes. So in the same way as the white label strategy, which we continue to hold, I think one of the humbling things that happen in the transition to Converge is that we really understand that we're not a story. We are a cog in the wheel of the transformation of how technology transforms the way health care is delivered. What that means is that it is not our brand, it is not our label. It's the labels that people trust and respect and it also means that the data that flows through Amwell, even though we have the data, really belongs to the people that patients trust to do their care. If a health system is using us to interact in millions of times with their different patients, the data that gets generated, which is a lot because I'm not trying to say we're willing, but it's happening over technology. You can capture a lot of things more so than in the office. But that data belongs to the patient and to their clinician. And we don't cross that line because if we are going to be the trusted switchboard under the hood for traditional health care, which we all want to continue to use, we got to know the boundaries, and we got to act the right way. And that is why we help our customers do the analytics on the data rather than say, hey, it's ours, and we're going to make a killing out of utilizing the data. You got a -- health care works a little bit differently than other industries, but if you do the right thing, it actually pays off.

Got it. Well, we are at the top of the hour. I want to thank Roy for the 40-minute conversation today. It was really a great conversation. Thank you so much for joining us.

Thank you for having me, Allen. It was a pleasure.