Telehealth adoption has settled at roughly 8 percent of all outpatient visits nationwide. That's a precipitous drop from pandemic peaks, when some medical practices saw more than half their volume shift online. But it's still triple the pre-COVID baseline, and the stickiness appears real. Behavioral health sessions dominate the schedules—nearly 2.75 million Medicare beneficiaries alone logged virtual visits in the first quarter of 2024. Walk into California health centers serving low-income communities, and you'll find telehealth accounting for around a quarter of primary care visits and half of all behavioral health encounters through 2024.
The patients showed up. They kept showing up.
And yet, the startups are hemorrhaging cash.
Teladoc Health, the sector's highest-profile public company, posted a $1 billion GAAP net loss in 2024. Buried in that figure: a jarring $790 million impairment charge tied to its BetterHelp mental health unit. Revenue ticked down 1 percent year-over-year to $2.57 billion. Management blamed "double-digit" increases in customer acquisition costs for BetterHelp and announced what amounted to a strategic reset. Shares cratered to record lows. The paradox has become starker now than it was during the heady SPAC boom of 2021—utilization is sticky, demand is proven, but the unit economics simply don't work for many players at scale.
How did we get here?
The Demand Mirage
Telehealth's post-pandemic staying power has been genuine, if uneven across specialties. Mental health conditions accounted for nearly 60 percent of patients with at least one telehealth claim in commercial insurance data from January 2025, according to FAIR Health's monthly utilization tracker. Psychotherapy and established patient evaluation codes dominated the procedure mix. Medicare data tells a similar story: utilization stabilized after the initial surge, settling into a new normal rather than collapsing back to 2019 levels.
The trouble? High utilization doesn't automatically translate to sustainable unit economics. Especially when the costs to acquire and serve those patients are climbing faster than the revenue they generate.
Consider the funding landscape. Rock Health reported that U.S. digital health venture funding totaled $10.1 billion spread across 497 deals in 2024—the lowest deal count since 2014. In the first half of 2025, funding climbed to $6.4 billion across 245 deals, but average check sizes grew while capital flowed disproportionately toward AI-focused startups. Translation: investors have turned selective, perhaps punitively so. Late-stage rounds dried up. Companies that relied on cheap capital to subsidize customer acquisition suddenly faced hard questions about payback periods and lifetime value. The answers, for many, weren't pretty.
The Customer Acquisition Crisis
Customer acquisition costs have spiked across the board, hitting direct-to-consumer telehealth companies hardest. Privacy changes rolled out by Apple and other platforms increased the cost of digital advertising. Competition intensified. Teladoc's experience with BetterHelp offers something of a cautionary tale: the company flagged soaring CAC in multiple earnings calls before ultimately taking that massive writedown on the business.
Hims & Hers Health, by contrast, has managed to grow aggressively—first quarter 2025 revenue hit $586 million, up 111 percent year-over-year, with 2.37 million subscribers on the platform. Monthly online revenue per average subscriber reached $84, a 53 percent year-over-year increase driven by cross-sells into new categories like weight loss medications. But even Hims felt margin pressure. Its gross margin dropped from 82 percent the prior year to 73 percent in Q1 2025, largely due to the introduction of GLP-1 weight-loss offerings, which carry significantly higher product costs. By Q3 2025, the company posted revenue of roughly $599 million and a gross margin around 74 percent.
It's growing fast. But the product mix matters—a lot.
For purely app-based mental health companies without human clinician support, the numbers are even grimmer. Independent research shows that unguided mental health apps see roughly 3.3 percent retention at 30 days. That destroys lifetime value unless the model pivots to employer-sponsored plans or adds live therapy, both of which dramatically increase costs. You can't build a business when 97 percent of your users disappear within a month.
Then there's the regulatory overhang. The Federal Trade Commission's enforcement actions against BetterHelp in 2023 and Cerebral in 2024 and 2025 made acquisition even harder. Both cases involved improper use of sensitive health data for advertising purposes, resulting in refunds, fines, and bans on certain tracking practices. That directly undermines the playbook DTC telehealth startups have relied on—Facebook pixel retargeting, lookalike audiences built from patient data, personalized ad creative informed by health conditions. Compliance overhead went up. Conversion rates, one assumes, went down.
Reimbursement Reality
Revenue per visit is under pressure from two directions simultaneously.
First, Medicare's 2025 Physician Fee Schedule cut the conversion factor to roughly $32.35, a 2.8 percent reduction versus 2024. That directly impacts reimbursement for telehealth evaluation and management codes, hitting providers serving Medicare beneficiaries hard—especially in specialties outside behavioral health where visit fees are the primary revenue driver.
Second, commercial payment parity remains a regulatory patchwork. As of fall 2025, 44 states plus DC, Puerto Rico, and the Virgin Islands had private payer telehealth laws on the books. But only 24 states (plus Puerto Rico) mandate explicit payment parity with in-person visits. Many others require coverage parity—insurers must cover telehealth—but don't require equal payment rates. That variability creates significant revenue dispersion across geographies. A startup operating nationally can see vastly different margins in Texas versus New York depending on payer mix and state law.
For urgent care and on-demand visit models, this is close to existential. Revenue per encounter might range from $40 to $80 for commercial patients, while Medicare telehealth visits follow the depressed fee schedule. Without subscription revenue or high-margin ancillary sales, the lifetime value of an episodic patient can't justify meaningful acquisition spend. CAC must be near zero—driven by organic search, referrals, or health plan placement—to make the math remotely work.
The Regulatory Whipsaw
Controlled substance prescribing rules remain in flux, creating acute uncertainty for psychiatry, ADHD, and weight-management platforms. The DEA and HHS extended telemedicine prescribing flexibilities for controlled substances through December 31, 2025, and in January 2025 announced new rules around special registrations, platform registration, and continuity protocols for VA patients. The stated goal: transition parts of the pandemic flexibilities into permanent regulations with added safeguards.
But the timeline is unclear, and the compliance burden keeps rising. Implementation details directly affect conversion rates and lifetime value for any startup prescribing stimulants, benzodiazepines, or buprenorphine. The Department of Justice's 2024 criminal charges against executives of Done Global, an ADHD-focused telehealth startup, underscored the reputational and operational risks. Enforcement is real. Investors are spooked.
Behavioral health telehealth—despite being the largest use case by volume—now carries regulatory risk that wasn't fully priced in during the 2020-2021 funding boom. That repricing has been painful.
Clinical Economics Under Pressure
Clinician labor costs are rising, naturally. Nurse practitioners, the backbone of many telehealth clinical models, earned a median annual wage around $129,000 to $132,000 in 2024, with wide state variation and projected 40 percent job growth from 2023 to 2033 according to Bureau of Labor Statistics data. Sustained high demand for providers increases clinical cost of goods sold and constrains scaling. Some startups have turned to asynchronous care models—dermatology has shown strong diagnostic concordance and major time savings per case—but most telehealth categories still require live video or phone time with a licensed clinician.
Operational data paints a mixed picture. Large studies show telehealth generally lowers no-show rates (adjusted odds ratio of 0.40 versus in-person appointments in one dataset), which should improve clinician productivity. Patients also schedule visits faster via telehealth, often within a day. But other research shows that mixed-modality clinic days—when providers toggle between virtual and in-person patients—can actually increase EHR documentation time. That compresses throughput and margin if not managed carefully.
For employer-sponsored virtual care programs, the pitch has always centered on ROI. Virtual physical therapy for musculoskeletal conditions, for instance, reportedly delivers over $1,000 per member in gross savings within six to twelve months, with a roughly 1.8x return on investment, according to company-reported data from Omada Health. But employers are increasingly worried about vendor fragmentation. The Business Group on Health's 2025 survey found that the share of large employers planning to offer "virtual-first" models in 2025 was projected to decline slightly to 26 percent. The top concern: integration and navigation across a sprawling stack of point solutions that don't talk to each other.
Sales cycles for B2B2C telehealth tend to cluster in the second half of the year during benefits season, with launches typically in the first half of the following year. That creates painfully long cash conversion cycles. PMPM fees are often risk- or performance-adjusted, meaning revenue recognition can lag proof of outcomes by quarters.
Who's Making It Work
A few business models are showing genuine traction, though. Hims & Hers is forecasting full-year 2025 revenue of roughly $2.33 billion to $2.36 billion with an adjusted EBITDA margin around 13 percent. The company's monthly subscription model, paired with pharmacy margin from medications and compounding services, generates recurring revenue. Cross-selling into categories like hair loss, dermatology, and GLP-1 weight loss has driven revenue per subscriber up sharply. The trade-off has been margin pressure as product mix shifts toward higher-cost offerings, but management believes the unit economics still work.
Amwell, a B2B platform provider, has aimed to shift its revenue mix toward software and away from lower-margin clinical services. The company reported gross margins in the high-30s in 2024 and guided toward margins above 50 percent in 2025 as large government deployments go live. Management is targeting EBITDA breakeven in 2026. Whether that path holds depends almost entirely on whether the mix shift materializes as planned.
Episode-based cost studies have shown virtual-first acute primary care can deliver 10 to 24 percent lower costs than in-person-first care for certain conditions, based on 2022 cohort data from Medicare Advantage and commercial payers published in 2025. That gives virtual primary care startups real ammunition in contract negotiations with health plans and self-insured employers. But it requires robust actuarial proof, and generating that evidence often takes 12 to 18 months—an eternity when burn rates are high.
The Path Forward
Investors are applying tighter heuristics now. The traditional SaaS benchmark of 3:1 LTV to CAC and 12-month payback periods don't always translate cleanly to care delivery models with high clinical costs and regulatory overhead. Startups in categories like GLP-1 management or behavioral health with controlled substances face inherently higher acceptable CAC payback thresholds simply because gross margins are lower and retention is harder to sustain.
Capital efficiency has become the mandate, not a nice-to-have. Rock Health and CB Insights both noted that 2025 funding, while up in dollars from 2024, is concentrated in larger, later-stage deals and AI-heavy companies. The funding environment has stabilized somewhat—but it hasn't reopened for companies without a clear, credible path to profitability within 24 months. Consolidation is rising across the sector. Acqui-hires and asset sales are more common than new unicorn rounds.
The telehealth market isn't shrinking. Visit volumes remain elevated. Patients, particularly those seeking mental health care, have voted with their feet. But the easy money is gone, perhaps for good. The startups that survive will be the ones that solve CAC, nail a sustainable reimbursement model in their target geographies, navigate the regulatory maze without legal catastrophe, and build clinical operations that actually scale without breaking the P&L.
Demand alone won't save them. It never does.
