Posted by
Lori Housman
Zoë Williams
Philip Ellis
July 29, 2015

Beginning today, CBO will publish two blog posts that feature responses to questions that we received from Members of Congress after hearings last month before the House and Senate Budget Committees. The posts highlight topics that have generated substantial interest among lawmakers and Congressional staff: Today’s will focus on telemedicine (that is, health care provided at a distance), and tomorrow’s will discuss the Center for Medicare & Medicaid Innovation (which was created by the Affordable Care Act). (You can view the complete set of questions and CBO’s answers from the June 3 hearing and June 17 hearing on our website.)

Question: Would expanding Medicare coverage for telemedicine increase or decrease federal spending?

Whether expanding Medicare coverage for telemedicine services would increase or decrease federal spending is difficult to predict, but doing so depends on two main considerations:

  • The payment rates that would be established for those services, and
  • Whether those services would substitute for (or reduce use of) other Medicare-covered services or would be used in addition to currently covered services.

If all or most telemedicine services substituted for or prevented the use of more expensive services, coverage of telemedicine could reduce federal spending. If instead telemedicine services were mostly used in addition to currently covered services, coverage of telemedicine would tend to increase Medicare spending. Many proposals to expand coverage of telemedicine strive to facilitate enrollees’ access to health care. Therefore, such proposals could increase spending by adding payments for new services instead of substituting for existing services.

Because coverage of telemedicine services in Medicare’s traditional fee-for-service program is limited, so is evidence about the effects of such coverage. Thus, CBO must often draw inferences from other sources—such as the experience of private managed care plans—when developing cost estimates. However, an important limitation of that evidence is that private plans generally have more ways to influence doctors’ choices and to limit the services that their enrollees use than are available in Medicare’s fee-for-service program (which the Department of Health and Human Services and its contractors run). As a result, even if coverage of telemedicine reduced net costs for some private plans, the greater difficulties involved in ensuring that services are used appropriately in the fee-for-service Medicare program mean that proposals to expand coverage of services in that program could increase federal spending.

CBO analyzes proposals to expand Medicare coverage of telemedicine on a case-by-case basis. The agency considers the design of those proposals—including what services would be covered under what circumstances and how their payments would be determined—as well as any relevant evidence. Having more evidence about how the telemedicine coverage affects spending would thus be useful. The results of a demonstration project conducted within the fee-for-service Medicare program would be particularly useful, especially if the approach tested was similar in its design to the specifications defined in a legislative proposal.

Given the substantial interest in proposals related to telemedicine, CBO has prepared the discussion below, which further describes the issues that arise in defining a telemedicine benefit and how CBO estimates the budgetary effects of those proposals.

Defining a Telemedicine Benefit

Telehealth or telemedicine encompasses an array of services. Telemedicine services include virtual visits with doctors or other professionals, remote monitoring of patients’ conditions, and off-site analysis of medical imaging or test results. Providers may offer telemedicine through various means of communication, including phone calls, video chats, text messages, email, and websites. With the varied possibilities, proposals to expand coverage for telemedicine or telehealth services in Medicare would need to define several factors, including:

  • The services that would be covered and their allowed methods of delivery,
  • The types of providers and sites of care that could be paid to offer those services, and
  • The types of patients or beneficiaries who would be eligible to receive such services.

Proposals would also need to specify how to determine Medicare’s payments for those services (for example, whether payments would equal Medicare’s fees for physicians’ services provided in person or would be some percentage of those fees).

CBO’s analysis of such proposals would take into account how they differed from Medicare’s coverage of telemedicine services under current law. Now, Medicare providers can be paid to furnish certain telemedicine services by using specified methods and sites of service—but only for patients who live in rural areas. (Those patients generally visit a facility that has some staff but that accesses some doctors remotely.) In general, Medicare pays the distant doctor or other provider of telemedicine the same fee that Medicare would have paid for an in-person office visit, and the site where the patient receives the services is paid a facility fee. Medicare’s total payments are thus higher for telemedicine services than for equivalent services delivered conventionally. Whether similar arrangements would apply for any expansion of coverage for telemedicine depends on the details of legislative proposals.

How CBO Estimates Effects on Spending

CBO seeks to incorporate information from a variety of sources when estimating how proposals to expand telehealth or telemedicine services that Medicare covers might affect the budget. Those sources include available data about the costs of covering similar services and the results of academic studies investigating how telemedicine affects health care spending. In particular, CBO considers the evidence about spending on telemedicine services in Medicare itself, in the Department of Veterans Affairs, and in the Medicaid program. CBO also considers evidence about the use and effects of telemedicine in Medicare Advantage plans (private plans delivering Medicare’s benefits) and other private health plans. In doing so, the agency accounts for the potential differences in benefit management between private and public plans noted above. CBO also consults experts who help the agency understand how telemedicine may affect health care spending.

Considerable uncertainty surrounds estimates of the likely utilization rates for covered telemedicine services themselves and of the downstream effects on other services that might be induced or avoided. In its analysis, CBO examines whether use of telemedicine as proposed would prevent the use of more expensive services, such as emergency room visits or hospital admissions, or would instead increase the use of other services to provide follow-up care.

As one recent study noted, proposals to expand coverage may reflect a “long-standing hope that telehealth could be used to overcome a lack of local medical and surgical subspecialists in rural areas.” Although offering telemedicine to rural enrollees could improve the quality of care that such enrollees receive and could be more convenient for them, doing so might not reduce Medicare spending on their care. More broadly, if rural or urban enrollees would otherwise not have received care because of difficulties in obtaining access to doctors, providing telemedicine might well increase spending on services Medicare covers instead of substituting for services that would have been covered without telemedicine. Without other constraints, the added convenience for enrollees of receiving telemedicine rather than face-to-face care could increase their demand for and use of Medicare-covered services. Provisions governing the cost-sharing requirements that enrollees face for telemedicine services would also affect their demand for those services.

Because Medicare coverage of telemedicine is limited, CBO does not have extensive data that would help project how expanding such coverage would affect federal spending in the Medicare program. CBO’s analysis would benefit from having the results of new and well-designed academic studies examining how introducing telemedicine services would affect health care spending in the Medicare population. The results of a demonstration project conducted in the fee-for-service Medicare program could be especially valuable in light of the particular challenges of controlling spending on new benefits in that program.

Lori Housman and Zoë Williams are analysts in CBO’s Budget Analysis Division. Philip Ellis is a Deputy Assistant Director in CBO’s Health, Retirement, and Long-Term Analysis Division.