Paying for Telehealth Services in the United States

A Brief Primer Jonathan D. Linkous, CEO, PATH

As the use of artificial intelligence, automation, robotics and other forms of advanced technology applications in healthcare grows, the issue of paying for the cost of hardware, software, telecommunications lines and services (as well as their regulation) are starting to be raised.   Obtaining clear and favorable answers to this issue is one of the priorities of PATH.  This is a brief overview of the current ways hat payment is made for telehealth services.

“How do we get paid for telehealth?”  This is one of the most common questions I’ve heard over my past 25 years in the industry.  Grants are fine for start-ups but becoming self-sustaining and profitable requires an enduring stream of revenue. Fortunately, there are multiple funding sources. Even better, the streams are growing.  However, let’s start by sorting out a few facts.

Telehealth is not monolithic.  The term is an umbrella covering many different types of services, serving different audiences and involving different players, technologies and applications, each with their own possible funding sources.  Leading examples include: specialty services between medical facilities; online consultation services and; remote vital sign monitoring for patients outside of a hospital

Funding for telehealth is based on the service, not the device or network.  Providers may pay for a video system or network application, but such purchases are always dependent on the provider ultimately getting reimbursed for services delivered using the product.  An insurer or employer may pay for a personal device or application but only if they are assured that it will positively affect patient health and reduce their costs.  There is relatively little opportunities to have insurers pay for the cost of telemedicine equipment.  But the good news is that the cost of such technology has reduced significantly and is starting to become merely a component of consumer electronics or hospital networks.

Of the $3+ trillion that constitutes healthcare market in the U.S., there are five primary sources that support almost all telehealth services.  All are rapidly expanding.

  1. Federal Medicare – Medicare, managed by the Centers for Medicare and Medicaid Services (CMS) is the single largest payer for healthcare in the U.S. Beneficiaries are mostly over 65 years old.  CMS pays for services to beneficiaries in several ways.  The majority of its funds reimburses for eligible services (fee-for-services).  Reimbursement for telehealth is still somewhat limited but it has expanded and is set to grow even more.  There are no restrictions for remote imaging (radiology, pathology, EKGs, etc.).  Live consults are reimbursed for patients in rural areas.  A list of payment codes for Medicare services that can be reimbursed is available here.  The other way Medicare pays for services is through forms of managed care like the Medicare Advantage program and Accountable Care Organizations.  Here, Medicare pays lump sums to care for patients with far fewer restrictions on the number or types of services that can be prescribed, including those provided remotely.  It is a fast-growing part of Medicare and that is good for telehealth.
  2. State Medicaid – Medicaid coverage for some telehealth services are available in almost every state. Like Medicare, the fastest growing part of state Medicaid programs is managed care.
  3. Hospital and healthcare systems – Support for telehealth paid directly by a hospital or healthcare system comes from two areas.  First, managed care, health home and Accountable Care plans allow these providers the flexibility to pay for and use telehealth.  Second, a growing number of hospitals and health systems use their own funds to support telehealth services between facilities to lower costs by sharing specialty services and to increase revenue from expanded referrals.
  4. Private and employer insurers – Every large private health insurer in the U.S. is expanding coverage of telehealth.  Besides imaging services, the fastest growth has been for online primary and mental health consultations. XXX states currently mandate private insurance coverage.
  5. Health services provided to beneficiaries directly by federal and state agencies – Governmental agencies such as the U.S. Veterans Administration, Department of Defense, Indian Health Service, federal and state and local corrections departments are active providers of remote health care.

Finally, a note about direct consumer-pay – Consumers pay some or all costs of health insurance and provide co-pays for items authorized and partially paid for by an insurer. But except in rare circumstances, consumers in the U.S. do not pay out-of-pocket for healthcare products or services and often have little say in what is purchased.  Services, prescriptions and many medical supplies are paid by insurers, who determine what service, drug or supply is eligible for payment.  For the past fifty years the percent of out-of-pocket spending on total healthcare has dropped from 45 to 9 percent.