A new study raises a provocative question.
Photo: Joe Raedle/Getty Images
By Leena Rao
March 31, 2015

People already use mobile phones to handle their banking and investments. So why wouldn’t they want to use their phones to connect with doctors, to save time and money?

Silicon Valley venture capital firm Kleiner Perkins is betting that doctors will increasingly depend on telemedicine to diagnose and treat patients who check in with them remotely through mobile devices.

As Kleiner Perkins investment partner Mike Abbott explains, health care is one of the largest segments of the U.S. economy at $2.7 trillion dollars. But it is also the most inefficient because of the big price tag for patient care. Mobile, in particular, can lower costs and still help people manage their health care needs effectively, he said.

Today, Kleiner said that it has invested in Spruce, a startup that lets patients connect with dermatologists about conditions like Acne, aging skin, and psoriasis – and get prescriptions and personalized treatment, all through their mobile phones. This funding adds to Kleiner’s bet on telemedicine after previously investing in Teladoc, a company that coordinates virtual appointments with doctors.

The investment in Spruce is Kleiner’s first since it was cleared last week of gender discrimination allegations in a high-profile trial in San Francisco. A former female partner who had sued the firm lost the case after the jury ruled in Kleiner’s favor. The case cast an unflattering light on the firm by exposing emails showing bickering among colleagues, big egos and disorganization. With this latest investment, Kleiner can show that it is returning to some semblance of business as usual after the court room drama of the past month.

Spruce, which has raised $15 million in new funding in this round from Kleiner Perkins, Google Ventures, Baseline Ventures and Cowboy Ventures, was founded by former Kleiner Perkins investment partner Ray Bradford. Spruce had previously raised $2 million in seed funding from Kleiner, Baseline and Cowboy Ventures.

Bradford says that dermatology, in particular, works well with remote treatment. Skin problems are usually visible and therefore relatively easy to diagnose through photos and video. Skin treatment is also one of the most common reasons patients see doctors. But because it often takes a month for an appointment, many people have to resort to buying over the counter medicine.

For $40, Spruce offers people a way to connect with a local dermatologist by letting them send photos of their condition, message their doctor for up to 30 days, get personalized treatment plan within 24 hours and receive prescriptions for medicine. This compares to an average of $100 for an in-person visit at a traditional dermatologist practice, Bradford says.

“With the recent changes in health care, consumers are bearing more costs than before, so they are going to vote with their dollars on health products that work for them,” says Abbott, the venture capitalist.

For now, however, Spruce lacks an important element that is necessary for it to become widely used: buy-in by insurance companies. As it is, people must pay out of their own pockets for an appointment. The goal, according to Abbott, is for patients to pressure employers and insurers to add mobile medical services to their coverage. Eventually, in theory, insurers will have to give in.

According to a survey conducted by human resources company Towers Watson, telemedicine has already been adopted by nearly a third of large employers in 2014. Another 30% said they planned to add it to their offerings in 2015.

A recent Healthcare Informatics report by electronic medical record company Software Advice shows that there is a large demand for telemedicine. Three-quarters of patients who have never had visited a doctor remotely said they were interested in doing so.

Spruce makes money by taking a cut of what patients pay for their doctor appointments. A company representative declined to provide any details about the amount other than to say the vast majority is paid to the doctors.

Virtual healthcare is a niche that is filled with new competitors looking to capitalize on the expected growth of telemedicine. They include Better, a company that launched in partnership with the Mayo Clinic, and Doctor on Demand, backed by Andreessen Horowitz, Venrock, and Sir Richard Branson.

Besides the competitive environment, regulatory and security hurdles are potential roadblocks to telemedicine gaining traction. For example, Spruce is only available in a small number of states including New York and California. One wrinkle is that doctors can only practice medicine in states where they are licensed. Because of the legal implications, regulators recommend that telemedicine companies only connect patients with doctors in the same state as they are.

Liability is another concern. In general, mobile app services, such as Spruce, cover the cost of telemedicine insurance for doctors.

Regardless of the potential challenges, Bradford and Kleiner Perkins believe that telemedicine is not just a fad, but that it is the future. For now, Spruce is focused on dermatology, but will be evaluating other medical specialties in the future.

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