Telehealth could replace 7% of healthcare spend if COVID-19 catalyzes broader adoption

• In response to the COVID-19 pandemic and aided by unprecedented Medicare regulatory and commercial payer flexibility, providers have rapidly expanded telehealth services.
• A result of this telehealth boom, according to a recent McKinsey & Company analysis, providers “are seeing 50 to 175 times the number of patients via telehealth than they did before.”
• Analysis of claims suggests that over 20% of all office, outpatient and home health spending could be delivered virtually with impacts differing by sector.

In response to the COVID-19 pandemic and aided by unprecedented Medicare regulatory and commercial payer flexibility, providers have rapidly expanded telehealth services. And as a result, according to a recent McKinsey & Company analysis, they “are seeing 50 to 175 times the number of patients via telehealth than they did before.”

The potential growth in telemedicine could be staggering assuming these temporary “flexibilities” are made permanent through legislative (which is likely but nothing in Washington, D.C. or state capitols is a given), regulatory and private market changes.

The May 29 McKinsey & Company article estimates that prior to the pandemic, total annual telehealth revenue from major players was $3 billion. However, post-COVID-19, McKinsey’s claims analysis suggests up to $250 billion of  healthcare spending, accounting for 7% of the national total, could be delivered digitally.

Analysis of claims by McKinsey & Company suggests that over 20% of all office, outpatient and home health spending could be shifted to virtual with impacts differing by sector. Here are some examples:

• ED visits: virtual urgent care could replace up to 20% of ED visits.
• Office visits and outpatient volume: 24% could be delivered virtually, and an additional 9% could be delivered “near-virtually.”
• Home health: Up to 35% of regular home health attendant services could be virtualized.

Takeaway

Obviously, this transition to telehealth will require providers to rethink fundamental questions about how they go to market and deliver services in the virtual arena.

4 fundamental questions providers should ask themselves

These questions include:

1. What impact will this have on patient acquisition? The rapid shift to virtual care may increase the risk of disintermediation by health plans, national telehealth platforms and national health systems with strong brands. It will be important for health systems to understand how to market directly to consumers based on the needs/values of the various segments of the population.

2. What impact will this have on revenue? Beyond the opportunity to gain (risk of losing) market share, the shift to virtual services has the potential to reduce both per visit revenue for virtual services and ancillary revenue.

Some commercial payers are questioning the need to pay an originating site fee (OSF) to HOPDs. While Medicare is paying an OSF for hospital-based physicians, it’s considerably lower than the facility fee for an in-person E&M visit. The overhead and direct costs may be lower to deliver care virtually, however they do not disappear into the internet. There are direct and indirect costs associated with the telemedicine platform and EHR system used to deliver care. While real estate and utilities costs could be reduced in most instances, providers are not working 100% from home while delivering virtual care. So there’s still facilities and utilities costs that need to be covered. And depending on practice workflow, a nurse is still virtually “rooming” the patient.

It will also likely negatively impact downstream revenue unless telehealth services lead to a spike in utilization due to increased convenience. Ancillary services are frequently co-located with primary care clinics. If patients must leave their homes for ancillary services, providers will see some decrease in referral completion rates unless they can be conveniently delivered. And in some instances, ED visits result in observation admissions or inpatient admissions for low acuity symptom management. These will likely decrease if the virtual visit occurs earlier — preventing disease/exacerbation progression  — and the patient can receive care and monitoring in his or her home.

3. How will this impact practice expense and clinician workflows? Reductions in revenue will necessitate a close examination of practice expense. And while there will be some savings from reducing the physical size of clinics, there may be greater opportunities to redesign care delivery models to allow staff to practice at the top of their capabilities/licenses and efficiently serve more patients.

4. What impact will this have on clinicians culture/engagement? Many physicians and clinicians (especially in cognitive based specialties) go into their fields because they get role satisfaction from interpersonal interaction with patients and peers. We’re hearing from members that, not surprisingly, many of these providers are experiencing a decrease in job satisfaction as face-to-face interaction has decreased. This may be more than just “Zoom Fatigue” and increases the importance of involving impacted providers in practice and care pathway redesign to both empower them and help keep them engaged.