Telemedicine in the New Health Economy

Will increased telehealth access lead to more efficient delivery of care and cost reductions? Doug Norris and Keith Passwater

Photograph: Lacheev/

As a part of the Society of Actuaries (SOA) and Henry J. Kaiser Family Foundation chartered Initiative 18|11: What Can We Do About the Cost of Health Care?1 and the corresponding Managed Care 3.0 initiative, the objective of this article is to describe the various approaches to telemedicine, the impact on medical cost trend, the impact of the COVID-19 pandemic and corresponding changes in patient, provider and regulatory acceptance, and what the future could bring.

Telehealth has a longer history than the casual observer might believe. In 1871, Antonio Meucci filed an announcement of an invention for his design of a talking telegraph, and in 1876 Alexander Graham Bell filed a patent for the telephone.2 A mere three years later, in 1879, The Lancet included a small piece recounting a story from the United States:

The Yankees are rapidly finding out the benefits of the telephone. A newly made grandmamma, we are told, was recently awakened by the bell at midnight, and told by her inexperienced daughter, “Baby has the croup. What shall I do with it?” Grandmamma replied she would call the family doctor, and would be there in a minute. Grandmamma woke the doctor and told him the terrible news. He in turn asked to be put in telephonic communication with the anxious mamma. “Lift the child to the telephone, and let me hear it cough,” he commands. The child is lifted, and it coughs. “That’s not the croup,” he declares, and declines to leave his house on such small matters. He advises grandmamma also to stay in bed; and, all anxiety quieted, the trio settle down happy for the night.3

Despite the jackrabbit start, telemedicine historically has accounted for a modest portion of health care delivery. In 2005, it was estimated that fewer than 1 in 1,000 commercially insured members had an annual telehealth visit.4 But utilization of telemedicine visits continued to grow steadily but modestly until the emergence of COVID-19, which caused an explosion in telemedicine utilization. Before we turn to this recent phenomenon, we first will discuss the different types of telemedicine.

Definition and Types of Telemedicine

Defining telemedicine is complicated because it comprises a wide range of rapidly developing technology, and there are differences in expert opinions as to what truly constitutes telemedicine versus traditional medicine.5 The World Health Organization (WHO) observed in 2010 that there were already more than 100 peer-reviewed definitions for telemedicine, and it adopted this one: The delivery of health care services, where distance is a critical factor, by all health care professionals using information and communication technologies for the exchange of valid information for diagnosis, treatment and prevention of disease and injuries, research and evaluation, and for the continuing education of health care providers, all in the interests of advancing the health of individuals and their communities.6

In this article, we focus on technologies and applications concerned with diagnosis, treatment and prevention of disease and injuries where distance is a critical factor, and with interactions between a practitioner and a patient (not between practitioners). It is important to note that the COVID-19 pandemic has made many of us more aware that “distance” could be a factor even over short ranges when highly communicable disease is being treated. While the technologies are rapidly changing, there are three broad categories of telemedicine: synchronous, asynchronous and remote patient monitoring (RPM):7

  • Synchronous technologies involve live communication between parties in a simultaneous exchange of information. A common example of synchronous telemedicine (particularly during the COVID-19 pandemic) is a video conference psychiatric visit in which a clinician and patient complete a therapy session over the internet.
  • Asynchronous telemedicine refers to an exchange of information disjointed by time, wherein one party presents the information electronically and another party responds at a meaningfully later time. Hence, this category is commonly called “store and forward.” A common example would be the reading of a radiological image captured at a remote facility and read by a specialist based some distance away.
  • RPM refers to the continuous collection and reporting of (or clinician access to) patient information through electronic means. An example of RPM involves the use of a smartwatch to monitor the wearer’s heart rhythms. A promising study published in late 2019 indicated the watch may be very reliable in detecting atrial fibrillation.8

The origins of telemedicine were with audio technology (such as the telephone), the first synchronous application. The telephone allowed clinicians to offer advice to patients in their homes or at distant care sites without needing to make the physical journey. In fact, those early anecdotes about physicians receiving patient phone calls eventually grew into a meaningful volume of patient telehealth phone consultations with nurses. Nurse advice lines, which allow covered individuals to call a telephone number and receive advice from a nurse, are widely available today for members of commercial, Medicaid and Medicare health plans. In 2001, it was estimated that 100 million people in the United States had access to a nurse advice line.9

As technology has improved, telemedicine predictably has expanded to leverage those new technologies. For instance, video telemedicine has become much more common, particularly in some areas of medicine such as dermatology and psychology.10 Meanwhile, asynchronous (store and forward) telemedicine is particularly suited to image interpretation. One recent study showed radiology, pathology and cardiology as the specialties with the highest percentage of physicians using asynchronous telemedicine (see Figure 1).11

Figure 1: Asynchronous Telemedicine Use by Specialty, CY2016

Specialty Percentage of Physician Asynchronous Use
Radiology 42.7%
Pathology 22.7%
Cardiology 14.9%

Source: Kane, Carol, and Kurt Gillis. The Use of Telemedicine By Physicians: Still The Exception Rather Than The Rule. Health Affairs 37, no. 12.

With increasing proliferation of connected devices and internet infrastructure (speed and breadth), telemedicine is poised to expand even more dramatically in the coming years.

Applicable Treatments

Although telemedicine is utilized heavily in a number of specialties like radiology, pathology, cardiology, psychiatry and primary care, it is not prevalent in all areas. Some aspects of medicine (in particular, direct care) do not yet benefit much from telemedicine; however, this is beginning to change.

For instance, one might expect patients to object to having surgery performed remotely, but such surgeries have begun to occur. The first such surgery occurred on Sept. 7, 2001, when physicians in New York City completed a laparoscopic cholecystectomy on a patient more than 6,000 km away in Strasbourg Hospital in France.12 Such surgery relies upon two key pieces of infrastructure: robots capable of surgery upon command and highly dependable communication. Use of surgical robots has grown considerably: In 2012, there were approximately 400,000 robotic surgeries performed in the United States.13

In May, the Agency for Healthcare Research and Quality (AHRQ) reviewed evidence from prior AHRQ-funded studies related to telehealth, in light of the COVID-19 pandemic.14 This report examined telehealth best practices for establishing target populations, setting specific uses and establishing expectations, and it is an excellent resource for those looking to establish telehealth in an existing environment.

Barriers to Use

Telemedicine faces a variety of barriers to use, including clinician caution, regulatory limitations, privacy concerns, safety questions and patient acceptance. Clinician reception of telemedicine has been mixed, with a fast pace of acceptance in some specialties (such as radiology) and a slower pace in others (such as in allergy and immunology).15 Reasons clinicians cite for their wariness of telemedicine office visits include lack of training, lack of reimbursement, cost of technology and potential liability issues.16 

In terms of regulatory barriers, state laws historically have required individual practitioners to be licensed by the state in which they practice as well as in the state in which the patient resides. This barrier can be managed, although it does increase complexity for a telehealth provider. Portability of licensure across state lines is a contentious issue as state governments and their medical licensing boards seek to protect citizens.17

Patient privacy has been another complication of telemedicine. National privacy laws in the United States, such as the Health Insurance Portability and Accountability Act (HIPAA), were written assuming medical care is delivered in a physical health care setting. However, telemedicine introduces points of exposure not anticipated by these regulations. Fraud is also a potential concern with telemedicine adoption: In October 2020, the United States Department of Justice charged more than 100 providers and four telehealth executives with submitting more than $6 billion in fraudulent claims to payers.18

Last but not least, telemedicine has struggled with questions about patient safety. However, a study in 2013 regarding emergency department medication errors showed that telemedicine was associated with increased overall quality.19 Furthermore, reported cases of medical malpractice in patient-doctor telehealth have been rare.20 One contributing factor could be that most direct patient telemedicine has been limited to low-risk conditions (notwithstanding the emergency department example cited). In reality, telemedicine liability cases that have been reported have revolved around the risk of care delivered across state lines, such as prescribing medications across state lines without an in-office exam.21

Bending the Cost Curve?

One might assume that telemedicine has promise in lowering the health care cost curve, and it is true that virtual office visits ($79 on average) are on average less costly than in-person visits ($149 on average).22,23 However, total health care cost is the product of utilization and cost per service, and some studies have shown increases in the total number of visits when virtual visits are made available to patients. One of the goals of telemedicine is to reach those who would otherwise be unable to access care, so it does stand to reason that overall utilization should increase (especially for services where the convenience of telehealth overrides the necessity of in-person attention). However, if these increased visits ultimately replace costlier visits (either directly or in the future), then overall cost would decrease.24

In June 2016, the AHRQ conducted an extensive review of the evidence regarding telemedicine, encompassing nearly 1,500 citations. Although now somewhat dated, the review did identify features and specific uses common to successful telemedicine implementations and should be considered by those looking to develop a similar program. More recently, a 2017 CalPERS study estimated that 88 percent of virtual office visits added to overall utilization and did not replace a physical office visit.25 In contrast, another study by Philadelphia-based Jefferson Health found net cost savings of $19 to $121 per virtual visit, driven by a reduction in emergency department utilization (despite an increase in the number of total visits).26 In yet a third example, the Veteran’s Administration (which pays beneficiaries for travel to appointments) saw an average travel savings of 145 miles and 142 minutes per visit, leading to an average travel payment savings of $18,555 per year.27 So, two of three recent studies suggest telemedicine visits potentially can lower overall cost, although this is heavily dependent on the design of the telemedicine intervention, target population and ultimately whether higher-cost in-person services are offset.

Countering this, the Medicare Payment Advisory Commission (MedPAC) completed a study in March 2018 on how telehealth was incorporated into both commercial health insurance and fee-for-service Medicare insurance in the United States, also focusing on how the technology impacts access, cost and quality of treatment.28 The general conclusion was that there was not strong evidence that telehealth either reduced costs or improved patient outcomes, although they recommended flexibility in evaluating individual telehealth offerings.

Regarding telemedicine devices, a recent study found that remote monitoring of diabetic patients’ blood glucose—combined with personalized insights and access to free supplies and certified diabetes educators—resulted in 21.9 percent lower one-year medical costs when compared to patients not enrolled in the program. This result was more remarkable when considering that the prior year medical cost for those participating in the program was higher than those not enrolled.29

In addition to managing chronic patient care remotely as described, there has been significant interest in using remote patient monitoring (RPM) of hospital patients post-discharge to reduce readmissions. So far, studies have been mixed on the success of RPM to reduce readmissions. For instance, a 2014–2015 study by six California academic medical centers found no significant difference in 180-day any cause readmission rates for heart failure patients.30 On the other hand, a pilot initiative at Signature Healthcare’s Brockton Hospital found that 31 heart failure patients who participated in a remote monitoring program experienced no readmissions within 30 days of discharge versus the hospital’s 30-day readmission rate historic average of 28 percent.31 This result, if normative, would generate very substantial health care savings, not to mention the improved quality of life for patients post-discharge without readmission.

As results are mixed, additional analysis will be necessary to determine whether telemedicine truly bends the health cost trend, especially over the long term. Additionally, there are nonhealth benefits to telemedicine availability, such as transportation costs (especially in rural areas) or fewer days off from school or work for patients.32

A Broader Telehealth for Today’s Tomorrow

While telemedicine may still conjure up the image of someone talking to their doctor on a rotary phone for some, today’s definition of telehealth can include a wide variety of remote care options. These do include phone call consultations, but also ongoing virtual visits with a care provider. This venue allows providers to manage medications and follow up on symptoms in a fashion that provides both convenience for the patient and flexibility for the provider. These visits can occur through video conferencing software, other applications on a smartphone and, yes, even a direct phone call. In many cases, board-certified medical practitioners are available 24 hours a day, seven days a week.

Virtual visits can be used in both the primary care and specialty care settings. In particular, behavioral health and home health care are some of the specialties that can be delivered effectively in this fashion.33 In cases where patients would benefit from additional durable medical equipment (DME), some insurance carriers have found it to be more cost-effective to provide this equipment remotely.

When a purely virtual visit is not feasible (such as when a blood draw is necessary), another option is for the patient to either visit a hub site (where diagnostic testing is available) and consult with a provider remotely from there. This can allow an evaluation and management visit to be paired with medication management, radiology, pathology or other diagnostic treatment.

Another virtual care option lies in the triage of potential emergency care treatment. In acute unfamiliar situations (such as a headache, ankle trauma or flu symptoms), a patient can work directly with a centrally located physician who can direct them to home care (with or without over-the-counter medications), the scheduling of an in-person appointment, or emergency and/or urgent care. A McKinsey report suggests that one-fifth of all emergency department visits could be diverted through these kinds of visits.34

The COVID-19 Pandemic and the “New Normal”

As of this writing, the COVID-19 pandemic has thrown much of the world into a reactionary state, with significant upheavals for many. There have been long intensive care admissions and death in the most severe situations, employment interruption for many others, and the introduction of terms such as “social distancing” and “flattening the curve” to our collective lexicon.

Even before the current pandemic, telehealth was offered as a valuable solution in the medical response to disasters,35 allowing rapid and flexible response to emerging events. What makes COVID-19 different from other disasters is the concern about transmission of the virus from person to person; the existence of asymptomatic carriers and the length of time between infection and onset of symptoms complicate this concern. Because of this, people are reluctant to seek medical care except in emergent cases, and evidence suggests that some urgent care is being foregone altogether.36 Even for those patients who wish to seek care, various governmental bodies have included nonessential health care in their social distancing strategies.

Telehealth and virtual medicine have attempted to fill this gap. One strategy has been “forward triage,” where patients are partitioned prior to their emergency room visit. This protects all parties from virus exposure and can route patients (in this case, those presenting with respiratory symptoms) to the appropriate end venue.37 For those admitted to the hospital with COVID-19 and isolated, some providers are using tablet computers and electronic intensive care unit (ICU) monitoring programs to allow virtual providers to keep tabs on patients. For those with minor symptoms, they can practice self-care at home.38

This model has the potential to flatten the cost curve in multiple ways. In addition to providing care at the most appropriate level, the reduction in contact points between potentially infected individuals and clinicians, other patients and the broader community has the promise to prevent some number of future costly infections. Some warn that telehealth could be overpromising, because there are limitations to what can be done in a virtual setting and privacy issues could manifest.39

The United States Congress set the stage for telehealth to shine during the pandemic, passing the Telehealth Services During Certain Emergency Periods Act of 2020 (the TSDCEPA).40 The Department of Health and Human Services (HHS) then offered additional telehealth guidance for providers,41 allowing practitioners to communicate with patients (both about COVID-19 and other illnesses) through remote communications technology, so long as they notify patients that there are privacy risks involved in doing so. The intent of the guidance by HHS is to allow providers to effectively manage patient conditions without running afoul of HIPAA and the Health Insurance Technology for Economic and Clinical Health (HITECH) Act. Although the guidance specifies that it will last for the duration of the pandemic, some believe it will be difficult to reverse once the wheels are in motion.

Awareness of telehealth opportunities has been high. A recent McKinsey report found 76 percent of patients are interested in using telehealth (with only 11 percent having used telehealth during calendar year 2019).42 A review of Medicare fee-for-service claims data shows a dramatic acceleration of telehealth utilization in that population, moving from well under 100,000 unique beneficiaries per week pre-pandemic to 1.7 million unique beneficiaries in the early weeks of the pandemic.43 Evaluation and management visits have been the most common telehealth visits, although CMS also has seen increases in other avenues of care including, but not limited to, nursing home visits and preventive care.

The Department of Veterans Affairs (VA) has rapidly pivoted to telemedicine during the pandemic. Prior to the pandemic, the VA was conducting approximately 2,500 telehealth video sessions per day; in late June, there were approximately 25,000 sessions per day.44 This success was due partially to a $2 billion investment (through the CARES Act) to cover the cost of video conferencing and infrastructure improvements.

All of these efforts to increase telemedicine access have had a measurable impact on utilization. A recent study has shown that telemedicine visits have risen dramatically and replaced a portion of the sharp decline in ambulatory practice visits (most noted in March and April of 2020).45 As shown in Figure 2, ambulatory visits largely recovered and stabilized by July 2020, just above 90 percent of pre-pandemic levels. Even more notable, telemedicine visits stabilized in July at roughly 7 percent of total visits, a staggering 730 percent of their pre-pandemic levels just five months earlier.

Figure 2: Ambulatory/Telemedicine Utilization Relatives, COVID-19 Pandemic

Hover Over Image for Specific Data

Source: Ogrysko, Nicole. How VA Drastically Expanded Telehealth During the Pandemic. Federal News Network, June 24, 2020 (accessed September 19, 2020).

Time will tell if the current level of telemedicine utilization persists or grows further. However, despite differing views, investors have been increasing their investment in telehealth and digital health more broadly. Through June 30, 2020, digital health venture capital investing is on pace to shatter its 2018 record, as shown in Figure 3.46

Telehealth and the Future

As hard as it may be to believe, there hopefully will be a point in the future where the COVID-19 pandemic is no longer a direct threat to our daily livelihoods. Will the current telehealth expansion stay with us at full volume?

The first open question (in sequence, not necessarily in order of magnitude) is the extent to which the pandemic-influenced telehealth reforms will be extended or made permanent. The federal expansions were intended to last for the duration of the public health emergency, and many states and private payers followed suit. Many efforts have been made in Congress, most notably the CONNECT for Health Act,47 to make many of the federal changes permanent.

In the near term, providers have adapted to the telehealth expansion within their existing physical structures, which have been designed to optimize in-person care. It will be interesting to see how facilities pivot to take advantage of future needs—these changes may include a reduction in the number of exam rooms (and more procedure or multipurpose rooms), a smaller footprint for support space (such as reception and waiting rooms), moving telehealth facilities directly to employer sites or pharmacy settings, or moving doctors’ offices back into communities.48 The pivot to telehealth has been rapid (driven by need) during the pandemic, but ultimately, clinical guidelines will need to be developed to incorporate these new options. Will these transitions lead to more efficient delivery of care and corresponding reductions in cost?

Increasing advances in technology also show promise for additional telemedicine support—one of the oft-touted benefits of telehealth is the ability to reach underserved (lower-income and/or highly rural) individuals with medical needs. As high-speed internet continues to reach more remote portions of the country and urban communities continue to explore providing free internet, telemedicine’s capabilities will grow and be able to help these populations.

Last, but certainly not least, we cannot forget the patient—it’s said that “the customer is always right,” and the demand for telemedicine will have a significant influence on all of the factors discussed. The pandemic has opened the eyes of many to the advantages of telehealth (particularly for older individuals who are not as familiar with the technology), and some may prefer these advantages even when society returns to a new baseline.

Will telehealth contribute to functional bending of the cost curve? Utilization should increase as a result of increased access, unless an increase in preventive and early care leads to a reduction in costlier services down the road. Will the average cost per service decrease enough to render a lower product?

The television show The Jetsons shows us a future where telehealth is a regular part of daily life, where all family members regularly consult with their physician on a moment’s notice.49 The show’s creators failed to focus on the actuarial implications of this paradigm shift; therefore, we will need to work toward creating these efficiencies ourselves—while also waiting to see what the market will bring. Unfortunately, as noted troubadour Tom Petty once opined, “the waiting is the hardest part.”50

Doug Norris, FSA, MAAA, Ph.D., is a principal and health actuary at Milliman.
Keith Passwater, FSA, FCA, MAAA, is a health actuarial adviser at Pasco Advisers.

Copyright © 2020 by the Society of Actuaries, Chicago, Illinois.