Telehealth payment parity prevents cost savings

Telehealth parity mandates, which require health insurance providers to cover telehealth services similarly to how they’d cover in-person services, are under consideration in the U.S. House, Senate and a variety of state legislatures. Lawmakers are right to focus on telemedicine, but the details will matter even more. 

In the House, H.R. 4480 proposes a telehealth coverage mandate and a payment parity mandate. In the Senate, S. 1988 proposes removing some restrictions on telehealth within Medicare and would expand payment parity to audio-only health services. Washington State will require payment parity beginning Jan. 1, 2023. Mississippi’s parity requirement ended with its pandemic state of emergency. Meanwhile, in New Jersey, Gov. Phil Murphy vetoed a senate bill proposing payment parity last month.

Telemedicine offers potentially enormous benefits, even outside of a pandemic. For example, it provides new opportunities to treat mental health disorders, and remote patient monitoring can improve tracking of patients with ischemic heart disease, cerebrovascular diseases and diabetes. Increased use of telemedicine appears, if anything, to improve health outcomes. And services provided via telemedicine may even lower costs.

Yet, most payment parity mandates require insurers to reimburse telehealth services on the same basis as equivalent in-person services. When permitted to differ, telemedicine reimbursement rates (and costs for patients) tend to be lower. Payment parity mandates thus act as price floors for telemedicine by pegging the service to more expensive ones. They essentially require higher reimbursement rates for telehealth than would be negotiated without the mandate. That makes them price controls, with predictable effects.

Price controls encourage health care providers, insurers and patients to behave in inefficient ways while they attempt to avoid the effects. But if we allow telehealth prices to be negotiated separately from prices for equivalent in-person services, then over the long run, patients will have the opportunity to benefit from any reduction in service-delivery costs. Providers, meanwhile, will be better able to tailor the two different approaches to care in order to meet their patients’ needs.

With newly approved treatments, insurers typically negotiate a reimbursement rate. Why treat telehealth, which delivers treatment in innovative ways, any differently? Separately negotiated rates simply reflect the differences in costs and benefits of telehealth compared to face-to-face service delivery. 

Patients benefit from separately negotiated rates. Parity mandates prevent any telehealth cost savings from being passed along to patients in the form of lower premiums, deductibles, copayments or coinsurance. Coupled with the fact that telemedicine can provide efficient care without reducing quality, this means we must allow providers and insurers to figure out how best to incorporate the service.

Additionally, payment parity mandates likely lead to a variety of unintended consequences. If mandates lead to higher telehealth prices, providers may overinvest in telemedicine infrastructure or shift too many patient visits to telehealth, even if patients prefer otherwise. Providers may change billing practices. They may begin to bill for interactions previously unbilled or tweak services to create telehealth equivalents to well-reimbursed in-person services.

Insurers may also modify their preferred providers and reimbursement rates in response to any payment-parity system that leads to unnaturally high prices. They might, for example, renegotiate rates for in-person services and modify their network of providers to reflect the new mix of telehealth and in-person services provided. In other words, they may favor those who agree to lower rates and delivery via telehealth. This might require patients to leave their preferred health care providers.

One concern expressed by proponents of payment parity is that telehealth requires an investment in infrastructure, including technology, staff, different clinical scheduling and assistance for patients in obtaining and using telemedicine technology. These costs include items such as a purchasing telemedicine carts or investing in the equipment and skills to collect and analyze data from remote patient monitoring. Most of these are fixed, one-time costs which, if anything, could be addressed by one-time subsidies rather than long-term reimbursement requirements.

Requiring telemedicine reimbursements at the same rate as in-person services is an overreaction which, in practice, will prevent people from benefiting from any of telehealth’s cost-savings and encourage inefficient changes to our health care system. 

Technology can improve our lives and lower the cost of health care. But only if the rules permit it. 

Angela Dills is the Gimelstob-Landry Distinguished Professor of Regional Economic Development at Western Carolina University and author of the new study “Telehealth Payment Parity Laws at the State Level,” published by the Mercatus Center at George Mason University.