Teladoc’s (NYSE: TDOC) direct-to-consumer mental health subsidiary, BetterHelp, refunded $93 million to consumers in 2023.
That amounts to about 8% of the company’s revenue, according to public SEC filings. BetterHelp saw its refund total increase by 15% compared to 2022.
“BetterHelp regularly discloses the annual amount of refunds issued to members. Refunds may be offered for any number of reasons if a member decides BetterHelp is not right for them,” a BetterHelp spokesperson told Behavioral Health Business. “The amount of refunds issued to members has been a consistent percentage of revenue over the past several years.”
But in its annual financial report for 2023, Teladoc notes that refunds are unique to BetterHelp. Teladoc’s other services line — B2B-focused Teladoc Health Integrated Care — doesn’t typically conduct refunds for “fees earned related to services performed.”
“BetterHelp offers refunds on a case-by-case basis,” the company says on an FAQ page on its website. “BetterHelp offers refunds to some customers, considering each case individually. You may need to meet specific criteria to receive your money back.”
Shivan Bhavnani, founder of the Global Institute of Mental and Brain Health Investment (GIMBHI) and senior associate at the advisory firm Two Bridge, told Behavioral Health Business that the refund rate presented in BetterHelp’s filings are not far off from typical return rates for subscription-based digital services, which he estimates to be about 7%.
“It’s a subscription service, and people probably think of it as such, but that’s because these companies market themselves like that,” Bhavnani said. “Let’s say you cancel mid-month: The company should refund you a prorated amount at the minimum.
“Also, with other companies, the policy is that if you can’t schedule due to no appointments being available, you get a full refund.”
Teladoc Health spent about $689 million on advertising and marketing in 2023.
BHB was unable to find comparable data for other publicly traded, digitally focused health and wellness companies. Perhaps the most comparable peer on the public markets, Talkspace Inc. (Nasdaq: TALK) includes mentions of refunds for its B2C business but doesn’t specify a dollar amount.
The company’s 2022 annual financial filing (it has not yet released its 2023 report) says that customer refunds would be some unspecified portion of $2.9 million that is classified as “Other” in its accrued expenses and other current liabilities.
“B2C members may cancel their subscription at any time and will receive a pro-rata refund for the subscription price,” Talkspace states in filings. “Most of our clients and members have no obligation to renew their subscriptions for our services after the initial term expires.”
While not directly connected, Talkspace is strategically moving away from the B2C market.
The digital gender-focused health and wellness company Hims & Hers Health Inc. (NYSE: HIMS) and the precision medicine and pharma development company 23andMe Holding Co. (Nasdaq: ME) said in public filings that they allow for refunds and must account for them. They also don’t specify an amount. 23andMe states in filings, “The reserves for customer refunds, sales incentives and bad debt were immaterial for all periods presented.”
The average e-commerce industry return rate is about 16.5%, according to a report to statsita.com.
BetterHelp generates nearly all of its revenues for monthly subscription fees that provide access to a network of over 40,000 mental health clinicians. It also does work with employee assistance programs, billed per visit. Members also can access the BetterSleep app as well. It generated about $1.1 billion in revenue, about 44% of Teladoc’s total revenue in 2023, the filings state.
While the specifics are unknown in the case of BetterHelp, companies typically do refunds to ameliorate customer service issues.
Akshaya Srivatsa, CEO and co-founder of the online health care pricing marketplace Care Better, told BHB he sees the refund amount as signifying a commitment to “customer satisfaction and ethical business practices.”
“While such a substantial refund amount may raise eyebrows initially, it demonstrates the company’s willingness to rectify any dissatisfaction experienced by its users,” Srivatsa added. “Ultimately, prioritizing customer well-being and addressing concerns promptly can contribute to long-term success and sustainability for the company in the competitive telehealth market.”
Still, refunds are typically generated when there is an issue that needs to be addressed in the first place. Jonathan Rosenfeld, founder and managing attorney at Rosenfeld Injury Lawyers in Chicago, told BHB the amount of refunds raises the need for questions even if they are offered proactively as a gesture of goodwill.
“If BetterHelp’s services were not meeting the needs of patients, it could highlight broader issues within the telehealth industry and the accessibility of mental health care for vulnerable populations,” Rosenfeld said. “The public should view these refunds with a critical eye, considering the potential implications for patient care, business practices, and regulatory compliance within the mental healthcare sector.”
BetterHelp’s growth has slowed in recent months after prolonged hypergrowth. It’s also suffered under the gaze of public and regulatory scrutiny over mishandling of private health information. Last year, it settled an investigation with the Federal Trade Commission. Among several other terms, it agreed to keep records of refund requests.
In 2023, BetterHelp revenue totals didn’t meet management expectations. It also expects that BetterHelp will keep its current business size in 2024 with a slight shrinkage in revenue and increase in adjusted earnings in the first quarter.
Jason Gorevic, Teladoc Health CEO, said on the company’s 2023 year-end earnings call that BetterHelp’s growth was “gated” by how much it can spend on marketing the business to get new patients, according to a transcript of the call. It had backed off BetterHelp marketing in the fourth quarter of 2023. The company “saw lower yields on marketing spend” that it did allocate.
Teladoc Health saw revenue increase 8% to $2.6 billion while its net loss increased 98% to $220 million in 2023. For the year, BetterHelp’s revenue increased 11% to $1.13 billion, while its adjusted EBITDA increased 19% to $136 million. The company does not report net income for BetterHelp.
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