Hospital investments should emphasize the virtual over the physical, Wall Street panelists say

• A Wall Street analyst says virtual-care capacity represents a better investment for healthcare providers than brick-and-mortar expansions.
• Payment rates for telehealth are subject to change but likely will remain stable in the near term.
• Telehealth isn’t associated with lower overall healthcare costs, according to a recent study.

Hospitals that don’t invest in virtual care risk being left behind in an evolving industry, a panel of leading Wall Street equity analysts said recently.

In conjunction with broader investments in virtual-care models such as telehealth, hospitals also should consider decreasing their investments in physical infrastructure, one panelist said during an April 9 discussion hosted by the USC-Brookings Initiative for Health Policy.

“I remember five years ago, we hosted hospital executives who envisioned the hospital of the future 10 years from [that time],” said Ricky Goldwasser, managing director with Morgan Stanley. “It would be only an ICU because you wouldn’t need anything else.”

In terms of utilization, that model just about came to fruition for some hospitals during parts of the COVID-19 pandemic. Still, Goldwasser acknowledged that such a model may be “the extreme.”

Even so, she said, hospitals should be mulling how to repurpose or scale back their physical campuses.

“Maybe you have an existing capacity, but that capacity is not all going to be captured by the brick-and-mortar presence,” Goldwasser said. “But you expand it into the community. Investment priorities are clearly on the virtual. Part of it is that if you’re not going to do virtual, then you’re really at risk that your footprint is going to be much smaller in the future.”

Where telehealth models go from here

Various factors will influence the degree to which telehealth can replace potential revenue decreases associated with in-person care, panelists said. Payment rates will be key.

A few health plans, such as Harvard Pilgrim Health Care, have started to offer benefit designs that cover virtual-only services and carry correspondingly lower premiums. Such plans “provide the health plan with a lot more control because in essence, here you have your ultimate narrow network,” Goldwasser said.

Changes to payment structures helped bolster telehealth models during the pandemic, but those changes weren’t meant to be permanent.

“Going from meaningfully below in-person [care] to parity, I don’t think that’s sustainable as an apples-to-apples comparison,” Goldwasser said. “Even when you talk to providers, they don’t think it’s reasonable that that’s going to be sustainable. At the end of the day, an in-person visit is not equivalent to a telehealth visit.”

Goldwasser said the industry may need to carve out more of a defined role for telehealth visits. In some service lines, for example, such visits could serve primarily as pre-screenings or follow-up consultations.

“That’s how the payers will think about reimbursement,” she said. “I don’t think the reimbursement is going back to pre-COVID levels because those were clearly too low. It’s sort of finding what’s going to strike the right balance.”

Why telehealth payments may be stable in the short term

At least over the next year or so, Goldwasser said, payers likely won’t look to scale back their telehealth rates.

“Who’s going to blink first? Because we are still under kind of an emergency state, and you don’t want to be the first one who’s going to come back and say, well, are we now lowering the payments? So I think it’s going to take a while. It’s the balance of: How do I look publicly versus when I think I should do it as it impacts P&L?”

In projecting when telehealth payment rates may come down, George Hill, managing director with Deutsche Bank, drew a comparison with managed care companies that reimburse pharmacy companies for COVID-19 vaccinations.

CMS set the reimbursement rate at $40 per shot, Hill noted, but managed care organizations (MCOs) aren’t obligated to match that rate in their commercial books of business.

“If I’m a multiline MCO, and I know that I have to pay 40 bucks a stab for a COVID vaccine in my Medicare Advantage book, but I’ve got flexibility in what I want to pay people in my commercial book, that probably becomes the roadmap for the same approach that these payers take to telemedicine come end of 2021, or 2022 or 2023,” Hill said. “The number’s going to come down.”

But Matthew Borsch, managing director with BMO Capital Markets, isn’t sure the momentum around telehealth will slow significantly.

“It might just surprise us that this there’ll be more resistance to going back on any front, given what we’ve experienced thus far, and in fact things are going to push forward rather than walk back in any sense when this [pandemic] is over,” he said.

A shift to value-based payment models could boost telehealth, Borsch noted. “The faster and greater degree to which providers are willing to push to go toward capitation, the more that payers are going to be perhaps agnostic about whether it’s done in a telemedicine format or physical format.”

Not associated with lower patient costs

A study published in March by JAMA found that during the initial stage of the pandemic, people with at least one telehealth visit had considerably higher costs compared with those who received only in-person ambulatory care.

Among the study pool of more than 36 million people, costs per person in March-June 2020 were nearly $900 more for individuals who had at least one telehealth visit ($2,214.10 vs. $1,337.78). The analysis was based on allowed charges and drew on data from Blue Health Intelligence, an independent licensee of the Blue Cross and Blue Shield Association.

The disparity in costs can be explained by the fact that people with at least one telehealth visit were older and had greater preexisting disease burden than those with in-person visits only. The finding seemingly contradicts the notion that elderly people don’t want to use telehealth.

“This is the first study I’ve seen that — looking at the people that have had telehealth services — identified that they’re in fact sicker,” said lead study author Jonathan Weiner, DrPH, of the Johns Hopkins Bloomberg School of Public Health. “Now, that does not say that telehealth is less efficient, but [the finding] is provocative.”

The authors are conducting further investigation to establish whether there’s a cause-and-effect relationship between telehealth and higher costs.

“Will telehealth lead to increased efficiency? Will it lead to increased costs? Will it be duplicative? That we don’t know yet,” Weiner said. “[This study] sets the stage.”