How telehealth companies make money: five models, one a brand runs

Ask how telehealth companies make money and the honest answer is that there is no single telehealth business. There are five distinct ways a virtual clinic gets paid, and they produce different gross margins, different cash cycles and different failure modes. A founder planning a branded clinic needs to know which of the five the brand is actually entering, because the model chooses the cost structure, and the cost structure chooses which vendor terms are survivable.

This post lays out the five models, describes in general terms which ones the large public names run, then spends most of its length on the one a brand operator runs in practice: the medication-inclusive subscription. The economics of that model turn on a single question, which is who keeps the difference between what the pharmacy charges and what the patient pays.

The five ways telehealth gets paid

Per-visit cash pay is the oldest telehealth revenue model. The patient pays a flat price for a video or asynchronous visit, receives a prescription or advice, and the transaction ends. Revenue is lumpy, margin per visit is decent, and there is nothing recurring unless the patient comes back on their own. Urgent care, one-off sexual health scripts and travel medicine tend to sit here.

Subscription visits, sometimes called virtual primary care membership, charge a monthly or annual fee for access to a clinician. The medication, if any, is filled at a retail pharmacy through the patient's own insurance. The company sells access and convenience, so its cost of goods is mostly clinician time. Utilization risk is the whole game: if members use more visits than the fee assumed, margin disappears.

The medication-inclusive subscription bundles the consult, the ongoing clinical oversight and the medication itself into one monthly price. The patient pays one number and a package arrives. This is the model behind most direct-to-consumer telehealth in weight loss, hormone therapy, hair growth and sexual health. Cost of goods now includes the drug, so gross margin depends on the pharmacy price as much as the clinician price.

Employer and B2B contracts sell telehealth to a company or a health plan, which offers it to employees or members. Revenue arrives as a per-member-per-month fee or a per-visit fee negotiated with a procurement team. Sales cycles are long, contracts are large, and the end user never sees a price. This is where much of the older, publicly traded telehealth revenue lives.

Insurance-billed telehealth submits claims to Medicare, Medicaid or commercial payers for covered virtual services, the same way a physical clinic would. Revenue per visit is set by fee schedules and telehealth parity rules rather than by the operator, and it requires payer credentialing, coding and a billing function. Coverage for weight-loss medication in particular is uneven, which is one reason the consumer brands in that category took the cash route.

Which model the big public names run

The large public telehealth companies are not one kind of company, and it helps to read them as two groups. The older, larger group grew up on employer and health-plan contracts, with some insurance-billed volume layered on top. Their revenue is mostly B2B, their sales motion is enterprise, and their margins are shaped by clinician utilization and by the cost of running a large network of contracted providers. When these companies talk about "members" they usually mean covered lives, not paying subscribers.

The newer group is consumer-facing and runs the medication-inclusive subscription almost exclusively. Their revenue is monthly recurring, their customers pay by card, and their income statements look more like a consumer subscription company than a clinic: cost of revenue is dominated by medication and fulfillment, and the largest operating expense below gross profit is marketing. Several of them operate their own pharmacies or compounding arrangements, which is a deliberate choice to capture the pharmacy margin inside the company rather than pay it to a supplier.

Both groups publish figures in their filings, and this post stays away from quoting them, because the numbers move every quarter and because a private brand's economics do not scale down from a public company's in any straightforward way. What matters for a founder is the shape: the consumer model is a subscription business with a drug inside it, and the public consumer companies have spent heavily to own the drug supply because that is where the gross margin sits.

The brand-operator model up close

A brand operator is a company that owns a name, an audience and a treatment category, and wants to run a clinic under that name without building one. A supplement company adding GLP-1 weight loss, a fitness brand adding hormone therapy, a creator with a skincare audience adding prescription retinoids: all of these run the medication-inclusive subscription, because it is the only one of the five where the brand controls the price, the offer and the customer relationship end to end.

Structurally the brand does not practice medicine. In states with corporate practice of medicine rules, a professional corporation owned by a licensed physician, the friendly PC, employs or contracts the clinicians, and a management services organization, the MSO, provides everything non-clinical: the storefront, billing, marketing, operations and the pharmacy relationship. The brand owns the MSO. The patient sees the brand; the chart belongs to the PC; the clinician makes every clinical decision.

The revenue line is simple. Patients pay a monthly membership that covers the consult, follow-ups, prescription management and the medication shipped to their door. The cost lines are where the model gets decided, and there are four of them: the clinician's time, the medication, any labs, and the platform that ties it together. Every vendor a brand talks to is pricing one or more of those four, and the pricing method matters more than the headline rate.

Where the margin sits: visits, medication, labs, platform

Take a hypothetical weight-loss program billed at $199 a month, with the medication costing $140 a month at wholesale. Those two inputs are illustrations, not benchmarks; a real program's price and drug cost will differ. The medication is already 70 percent of the price before anyone has been paid for a visit.

Visits are cheaper than most founders expect once the program is running. A new patient needs an initial consult, then periodic follow-ups for dose changes and renewals, but a stable patient on a maintenance dose does not need a clinician every month. If the book averages around four consults per ten patients per month, then at Tessic Health's published $25 per completed consult the clinician line is about $10 per patient per month. On the example program that is 5 percent of revenue.

Medication is the line that decides everything. At 0 percent markup the brand pays the wholesale $140 and keeps the remaining $49 after the consult fee. If the same medication passes through a vendor at a 30 percent markup, which is within the range that appears in white-label agreements, the drug now costs $182 and the brand's remaining margin is $7 a patient. The clinical work is identical. The patient's experience is identical. The only thing that changed is which company keeps the pharmacy spread. That is the single most important thing to understand about how telehealth companies make money, and there is a fuller treatment in why zero markup matters.

Labs are a smaller line but a real one for hormone therapy, where baseline and follow-up panels are part of the standard of care. Labs are usually passed through at cost or at a negotiated rate, billed to the patient or folded into the program price. The question to ask a vendor is the same as for medication: is the lab price the lab's price, or is there a spread on it.

The platform line is either a fixed monthly fee or a percentage of revenue, and the choice between them is the second most important economic decision after the pharmacy spread. A fixed fee is a cost the brand outgrows. A revenue share is a cost that grows with the brand and never stops. On the example program, a 10 percent revenue share is $20 a patient a month, which on its own is twice the consult line.

The clinical work is identical and the patient's experience is identical. The only thing that changed is which company keeps the pharmacy spread.

Put the four lines together on the example and the brand's contribution per patient, before marketing and overhead, is roughly $49 a month on flat fees with no markup, and roughly negative $13 a month with a 30 percent markup and a 10 percent revenue share. The second brand cannot buy its way out of that with better marketing, because every additional patient loses money. The unit economics calculator lets a founder run their own inputs through the same arithmetic, and the zero markup guide explains what the term does and does not cover.

Insurance or cash pay for a new brand

Founders coming from conventional healthcare often assume the first step is getting in-network. For a new brand in the categories that direct-to-consumer telehealth serves, it almost never is. Insurance billing requires credentialing each clinician with each payer, which takes months, followed by coding, claim submission, denials and a receivables cycle measured in weeks. Coverage for the medications that drive the subscription model is inconsistent across plans, so even a credentialed brand would find many of its patients paying cash for the drug anyway.

Cash pay removes all of that. The brand sets a price, the patient pays it, and the money arrives the day of the charge. The trade is that the brand carries the whole acquisition cost, because no payer is steering members toward it. That is a reasonable trade in categories where patients already expect to pay out of pocket, and it is the reason the consumer telehealth companies were built on cash from the start. A brand can add insurance later if its category and its scale justify the overhead. Starting there is a way to spend a year on credentialing before the first patient.

What public filings are worth reading

A founder does not need to model a public company to learn from one, and the useful parts of a filing are not the headline numbers. Read the definition of cost of revenue first. Whether medication cost sits in cost of revenue or somewhere else determines what the reported gross margin means, and two companies with the same margin can have entirely different pharmacy economics depending on that one accounting choice.

Read the subscriber definition next. Some companies count anyone with an active subscription; some count anyone who has transacted in the trailing period; some count covered lives. Revenue per subscriber is only comparable across companies that define the denominator the same way, and they rarely do. Then read the marketing line as a share of revenue and, where it is disclosed, the discussion of how long a subscriber stays. Those two together are the public version of the payback question every brand has to answer privately.

Finally, read the risk factors about pharmacy and compounding. The consumer companies describe their supply arrangements, their exposure to shortage-list changes and their dependence on particular pharmacies with more candor there than anywhere else in the document. It is the closest thing to an operator's view of the medication line that is publicly available.

Questions operators ask

"Is telehealth profitable?" The medication-inclusive subscription can be, and the arithmetic above shows the condition: the brand has to keep the pharmacy spread and pay for the platform on a basis that does not scale with revenue. A brand paying marked-up medication plus a revenue share is not running a telehealth business so much as running a customer acquisition function for its vendor.

"Which of the five models should a new brand pick?" If the brand's category involves a recurring medication, the medication-inclusive subscription. If it involves one-off treatment, per-visit cash. Employer and insurance-billed models require a sales or billing function that a brand launching from an audience does not have and does not need.

"Does the brand need its own pharmacy to keep the margin?" No. The public consumer companies built or bought pharmacies because they were large enough to justify it. A brand can get the same outcome, medication at wholesale with nothing added, by contracting with infrastructure that passes the pharmacy price through at 0 percent markup. What it cannot do is accept a markup and hope volume fixes it, because the markup scales with volume too.

"How many consults does a subscription patient actually generate?" Fewer than a monthly fee implies. The initial visit, a follow-up when the dose changes, and periodic renewals. The example in this post assumed around four consults per ten patients per month; a brand's own cadence depends on its clinical protocol and its category, and the right way to check the assumption is to model a low and a high case in the calculator before setting a price.