The Perverse Ascent Of Telemedicine

Several years ago in a groundbreaking article for the Atlantic and then in a bestselling book, David Goldhill brilliantly demonstrated a grasp of the profound perversities of our third-party payment system—government and insurers—that is at the core of American health care. To this day this setup produces sky-high costs and subpar outcomes. In this eye-opening piece Goldhill shows how this reimbursement system is peculiarly interacting with the heartening rise of telemedicine to thwart lower costs and far greater accessibility. 

A must—and enlightening—read.

Guest post by David Goldhill.

The pandemic has been very good for telemedicine. With medical offices closed, providers report massive growth in virtual appointments. It’s been a long time coming: While some form of telemed has been offered for over 20 years, as recently as 2018 only 2.5% of patients reported having telemedicine appointments. Primarily used for urgent care, telemed has expanded into dermatology, mental health and even more “hands-on” specialties. 

The rise of telemed also illustrates an unfortunate feature of U.S. health care—the pernicious effect of third-party payment in frustrating the promise of convenient and low-cost innovations.

Though not appropriate for all conditions, telemed involves lower true costs for provider and patient. It provides a doctor scheduling flexibility, utilizes digital intake forms and reduces support staff. Patients avoid travelling and waiting, with less impact on work or childcare responsibilities. 

At its core telemed is just a fancy term for a consultation via video, voice or text. With HIPAA communication rules suspended, any doctor who knows how to use Google Meet or Facetime can practice telemed, yet almost all telemed is provided by dedicated telemed companies, such as Teledoc, MDLive, Doctor on Demand and Amwell.  

Why? Third-party reimbursement. 

With few exceptions the big telemed companies have reached agreements with employers, insurers and plan administrators to clarify their financial arrangement—what’s covered, what counts against deductibles and what carries co-pays. But here’s the irony: The cost of providing telemed is so low that it could be priced like a normal consumer product. On my company Sesame’s direct-pay marketplace, primary care physicians typically offer virtual consultations for $25 to $40. Not surprisingly, these direct-to-patient prices are comparable to what telemed companies pay per visit to their contracting doctors.

As is typical in health care, third-party payment itself massively pushes up price. Examination of the financials of Teledoc—the only publicly held telemed company—demonstrates this impact. Teladoc charges employers and insurers membership fees that give their beneficiaries access to free or discounted consultations. The company’s $553 million in 2019 revenue was equal to $134 per appointment—essentially, a huge markup over the $25 to $35 doctors report being paid per visit. But like all the big telemed companies, Teladoc has no choice but to spend a fortune in order to attract and service its employer and insurer customers. So, even a big, effective markup doesn’t make Teladoc profitable.

When a telemed platform sells its services to an insurer rather than directly to an employer, that adds even more expense. An insurer’s allowed margin for administrative costs and profit would add an extra $23 to the effective cost of a consultation in the example above. Even those telemed platforms that accept uninsured patients need to set prices consistent with insurers’ reimbursement rates—again well in excess of pay to doctors. 

In fairness, the telemed companies do offer consumers 24-hour access to doctors and easy customer interfaces. And in Teladoc’s business model the effective cost of a consultation should decline with this year’s increased volume. But only in health care could telemed even be considered a technological advance in 2020, much less a separate product category. Imagine needing a separate service to access a lawyer by phone. Telemed should just be a feature of your doctor’s practice. Shifting the performance of telemed from dedicated platforms to individual medical practices wouldn’t just heighten price competition but encourage innovation to improve the patient experience.  

As it’s practiced, telemed fits perfectly in our health-care economy. For every physician there are 16 other health-care employee mouths to feed. Of the $3.6 trillion spent on health services, physicians are paid under $300 billion; that’s only 8.5 cents out of every health-care dollar.

High-deductible insurance plans were supposed to change all this by driving competition on price, convenience and quality. But telemed is a clear example of how insurers have frustrated the whole point of deductibles. Even though patients are paying their own money, insurers apply to deductible spending the same network restrictions, the same bureaucratic processes, the same opaque benefits notices and even the same pre-authorizations. Simply put, no matter how low the price paid for telemed, a beneficiary won’t get reimbursement—or even credit against her deductible—unless the service was provided by an insurer-approved platform.

Every health-care entrepreneur knows this reality: No matter how much more cost-effective, convenient or higher quality their innovation is for patients, the customer that matters is the third-party payer. And the only way to sell to third-party payers is to add so much complexity and cost as to often undermine the initial rationale of the innovation. Self-insured employers can end this absurdity. They should order their plan administrators (aka insurers) that money spent by their employees under deductibles carry much less scrutiny and no network restrictions. This would allow innovators with genuinely higher value services to sell directly—at much lower prices—to employees. 

As for telemedicine, it took a once-a-century pandemic for wide medical adoption of a technology used a decade ago by grandparents to talk with their grandkids. More health plans now offer telemed as a “free” benefit or one carrying a limited co-pay—as long as patients use a telemed platform that has a deal with the plan. That’s advertised as great for patients, yet—like so much in American health care—it’s a mirage that only pushes up premiums. A doctor utilizing telemed is actually performing truly lower cost care; but our third-party payment system makes sure that doesn’t translate into lower prices for anyone.

—David Goldhill, CEO of Sesame, a new online platform for direct-pay health-care services; author of Catastrophic Care; and chair of the Leapfrog Group, the nation’s premier advocate for hospital transparency