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How State Lawmakers Are Undermining Telehealth’s Potential

Online medical services are cheaper to deliver than in-person care, but legislatures are mandating reimbursement at the same rates. It’s costly for taxpayers and patients, and it stifles innovation.

Many patients are trying telehealth for the first time during the pandemic. But are virtual medical appointments here to stay?
Dr. Lisa Ravindra conducts a remote monitoring telehealth visit with patient Jenny Thomas in Chicago.
(Antonio Perez/Chicago Tribune/TNS)
Telehealth could slash health-care spending, but it seems like state legislators across the country are working hard to keep prices high. Payment parity laws, which exist in some form in at least 20 states and counting, mandate that in most circumstances insurers reimburse medical professionals at the same rate for both in-person and online health-care services, even though the latter are much less costly to provide. Hospitals and physicians clamor for payment parity, arguing that telehealth infrastructure and provider training represent added costs that need to be covered.

The last thing we should do is peg the price of groundbreaking technological services to some of the most expensive services in the economy. The prices of hospital services have more than tripled in the last 20 years, growing almost four times faster than inflation and faster than any other type of goods or services. Non-hospital medical care services have more than doubled in price.

Telehealth, meanwhile, is demonstrably cheaper to provide than in-person services. In fact, in-person visits last significantly longer than telehealth visits. The telehealth health-care provider doesn’t need to pay rent for office space, employ a large staff or purchase expensive medical equipment and supplies. All that are required are an Internet connection, a streaming device and the secure videoconferencing and other tools provided by a telehealth vendor.

A growing share of American patients are equipped with connected devices and broadband, which means that the barriers to access are falling. There is no reason why they or their insurers should pay as much for telehealth as they do for in-person care. It would be as if government required people to pay the same price to stream a film at home as they would have paid to take the family to the movie theater.

So why do physicians and hospitals advocate for payment parity? Such mandates facilitate the collection of extremely high, unwarranted fees relative to the effort and resources that medical providers put into telehealth. Without payment parity, patients would get better deals at the expense of hospitals. Luckily for providers, legislators across the country are moving quickly to grant their wish — and patients and taxpayers are footing the bill.

To be sure, providers needed a bit of a push to get started on telehealth, which was a new concept to many of them and was not included in medical training until recently. Policymakers are right to seek to accelerate the transition. But permanent payment parity mandates aren’t appropriate, since they ensure that prices only go up long after the transition is complete.

Third-party involvement could also lead to the growth of telehealth visit prices. Owing to the tax exemption for employer-sponsored insurance, companies compete for hires by providing ever-more generous health-care benefits. From its inception, telehealth spread through such plans. When Teladoc, a pioneering telehealth vendor, began offering telehealth visits in the early 2000s, employers would pay for a monthly subscription that allowed their employees to book telehealth appointments for an out-of-pocket cost of $35 or $40. The model is similar today, but those plans are usually part of major insurance companies’ covered benefits. Copays have increased, although they remain much lower than in-person visits.

Pegging prices to those of hospital industries is particularly ill-advised for technology-based services because innovations tend to be expensive initially but become gradually cheaper over time. The more granular the law gets about how much to charge for telehealth, the more difficult the task becomes for innovators.

The COVID-19 pandemic highlighted deep gaps in access to health care. It drove home the value of telehealth, and there is a bipartisan appetite to foster its continued growth. But at a time when some well-intentioned policy ideas with bad consequences are spreading, payment parity mandates may end up hurting the very people they’re trying to help.

Kofi Ampaabeng is a senior research fellow and data scientist and Elise Amez-Droz is a program manager for the Open Health program at the Mercatus Center at George Mason University.

Governing's opinion columns reflect the views of their authors and not necessarily those of Governing's editors or management.
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