MAE Consulting Group

Telemedicine: A Tool for Reducing the Cost of Delivering Medicine

Posted By Roz Sweeney, Ph.D., Nerac Analyst

Global economic weakness beginning in 2008, along with an aging population, has intensified the need to reduce healthcare costs. There is a general consensus that the rate of increase in healthcare spending is not sustainable. Since 2009, the annual rate of healthcare spending increases have dropped in the United States; however, it is not clear if this is a temporary phenomenon, or if spending increases will resume to previous levels as the economy improves.

Our view is that telemedicine is a possible lever for reducing healthcare spending by enabling patient interaction at more appropriate intervals (e.g. monitoring patients with chronic conditions) and by facilitating appropriate access to care (e.g. easier access to specialists, collaboration among doctors). Telemedicine does not necessarily represent a new market for medical device companies and healthcare providers; instead it is a new mode of delivering medicine utilizing existing devices and infrastructure that involves some modification to existing practices and infrastructure. In order to remain competitive in the coming years, clinicians, healthcare service providers and payers will need to adapt and become proficient at delivering telemedicine in situations where it can improve patient outcomes and reduce costs.

There are several situations where telemedicine for care delivery has been shown to reduce costs and improve access to care:

  • Prison environments

Remote consultations with specialists are much more cost-effective and logistically easier than transporting patients outside the prison walls.

  • Combat environments

Transporting the soldier can be difficult to coordinate and is dangerous to patients and transport personnel in combat situations.

  • Rural environments

In situations where the patient is not in physical proximity to an appropriate specialist, remote consultations can save patients the time and expense of travel.

  • Acute care/ ICU situations where a specialist is not located in geographic proximity

In some situations, it is not cost-effective to have certain specialists on staff. For example, it may not be feasible for a rural ER to have a psychiatrist on staff. Telestroke networks and teleradiology services are other potential cost-saving tools for rural or under-staffed medical facilities.

  • Chronic care monitoring

Remote monitoring of patients with certain chronic conditions (COPD, ESRD) has enabled patients to be seen by a provider at more appropriate times (e.g. prior to an exacerbation), rather than at pre-defined intervals.

There are other potential markets being explored by start-up companies and by clinicians and payers in pilot studies. We view these markets as having signification potential if regulatory and reimbursement hurdles can be overcome and if cost-savings and/or improved outcomes can be demonstrated.

  • Primary care

As the Affordable Care Act begins to expand access to healthcare, there is predicted to be a shortage of primary care providers. Several companies are addressing this challenge. For example, MDAligne is a web-based provider of outpatient primary care services directed towards self-pay patients. The idea is to increase access to a doctor for minor conditions (e.g. cough, sore throat) that constitute a significant proportion of primary care encounters.

  • Remote monitoring of home health patients with diabetes, CHF, and a variety of other chronic conditions

While it has not yet been proven conclusively to reduce costs and improve outcomes, it is possible that remote monitoring could reduce the number of in-person visits or lead to ‘smart’ visits, only when the patient needs intervention or is otherwise having difficulty. Companies active in this space include Bosch (Home Buddy monitoring system), Cardiocom, Biotronik, and Honeywell.

Remote monitoring/telemedicine is also gaining use during care transitions (e.g. patient discharged from hospital).  Due to new Medicare penalties around readmissions, hospitals are exploring ways to improve care post-discharge through telemedicine and remote monitoring.

Exhibitors at the American Telemedicine Association (ATA) meeting in Austin, TX .

Nerac attended the American Telemedicine Association (ATA) meeting in Austin, TX (May 5-8, 2013) to get a better understanding of recent telemedicine trends and companies active in the space. This was the largest trade show in ATA’s history, and it continues to grow every year with 30% year-over-year growth since 2009. Some presenters and exhibitors commented that there has been more progress in the telemedicine space in the last 18 months than in the last 5-10 years.

According to several attendees and conference organizers, there is significant churn in the exhibitors each year. We attribute this churn to the low barriers to entry in this market, creating a situation where there is downward pressure on pricing that leads to a fragmented market. This is particularly true for many of the start-ups in the mobile health space.

Within the telemedicine industry, there are several different types of companies that deliver services and equipment for patients and providers to connect and share remotely, to monitor progress, and to coordinate care delivery. The following types of companies were well-represented at the trade show and represent companies involved in the telemedicine industry.

  • Remote monitoring and telehealth systems
  • Mobile health (mHealth) (We believe mHealth can be useful in helping patients track their own health and manage their conditions. However, it can be overwhelming for providers to track so much data from individual patients. Methods for summarizing data and making it more efficient for providers to interpret are needed.)
  • Outsourced Clinical Service Providers
  • Teleradiology
  • Videoconferencing
  • Health Information Technology
  • Hardware, software and equipment.

For more information on the exhibitors click here.

Barriers

Despite many predictions of phenomenal growth, telemedicine has not lived up to all expectations. The market is believed to be worth $3-$8B currently, depending on which specific segments are included. Growth projections for the future vary widely, depending on the organization making the predictions. We see the following three barriers as the key to understanding future growth and acceptance of telemedicine.

  • Reimbursement

Payment for telehealth interactions is believed to be the main barrier to more wide-spread acceptance. However, presenters stressed the need to continue pushing for reimbursement with private payers and Medicare. In 1997, a Medicare law was passed stating that telemedicine should get the same reimbursement as other services. Initially, this didn’t happen in practice because of how the law was interpreted. However, as Medicare implements more quality and cost metrics, we believe that telemedicine interactions will become a standard of care and face less reimbursement scrutiny. In addition, Medicare/Medicaid systems have different payment models that vary from state to state.

  • Regulatory

Key regulatory issues include licensing requirements for doctors that vary from state to state and HIPAA Privacy and Security Concerns. Regulations on the security of patient data vary from state to state. This places an additional burden on service providers to ensure compliance. For example, Texas has more regulation regarding patient data than other states and the federal government.

As one example, there are multiple electronic health records (EHR) platforms, making it difficult for doctors to merge information from multiple platforms (e.g. a patient’s primary care doctor, pharmacy, and specialist doctors may all use different platforms).

  • Compatibility of platforms

As one example, there are multiple electronic health records (EHR) platforms, making it difficult for doctors to merge information from multiple platforms (e.g. a patient’s primary care doctor, pharmacy, and specialist doctors may all use different platforms).

The strategy of incompatible platforms is intended to carve out a niche for EHR companies by limiting the competition’s ability to interface with their platform; it believed that this practice limits switching by healthcare providers. However, the lack of industry standards appears to be hurting adoption of telemedicine overall and may be short-sighted on the part of industry.