Does Digital Health Need Reimbursement?

McDermott Will & Emery

McDermott Will & Emery

In Depth

One of the most talked about topics when it comes to digital health is the reimbursement under various third-party payer programs. Most notably, telemedicine and remote monitoring have received a lot of attention, and the reimbursement environment is changing for the better for telemedicine reimbursement in particular. But do digital health tools need direct reimbursement under third-party payment programs to thrive?

To be certain, direct reimbursement will help the development of digital health tools. As it does for other health care delivery tools, direct reimbursement can help form the basis for a viable business strategy for digital health tools. A fair question to ask, however, is whether digital health tools need to fall within the traditional reimbursement landscape to find success. With the push by the federal government and private payers for value-based purchasing, population health management and bundled and capitated payments (collectively, APMs), digital health tools can be valuable simply for the efficiencies improved quality they can bring to the delivery of health care services.

Consider as a comparison the incentives created for health care providers to adopt electronic health records (EHR) technology. When the federal government implemented meaningful use requirements, it provided a direct financial incentive for providers to incur the additional investment costs needed to implement effective EHR technology. One can see today's APMs as providing a slightly more attenuated, and less proscriptive, incentive to invest in digital health tools. Whereas with EHR "meaningful use," a definite bonus would be paid if certain specific requirements were met—the benefits of investing in digital health tools comes from satisfying the increasing focus on value and efficiency in reimbursement, and reaping the financial rewards associated with creating value under the new reimbursement formulae. Rather than a proscriptive set of requirements tied to definite financial benefit, APMS allow providers to use digital health tools whenever and however they believe value may be created (subject, of course, to legal and regulatory compliance with the utilization of the tool).  This has resulted in a great degree of creativity, experimentation and freedom in the use of technology in care delivery.

Although the current environment suggests that digital health tools provide benefits outside the direct reimbursement that may be available in the utilization of these tools, this does not, in and of itself, answer the question of whether direct reimbursement for digital health tools is desirable. A number of factors suggest that direct reimbursement for digital health tools may still be quite valuable, if not critical for the short to intermediate term.

First, and perhaps most importantly, digital health tools come in many forms and serve a variety of purposes. For some, direct reimbursement may be more important or logical than for others. For example, telemedicine, a digitally intermediated doctor's visit, constitutes the direct delivery of care very similar to any other doctor-patient encounter. Direct reimbursement for such a service would seem to make sense in the same manner an in-person visit is reimbursed. On the other hand, it may not make sense to provide direct reimbursement for provider-to-provider communication tools, social media tools or patient engagement digital efforts, the value of which may be undercut by direct reimbursement (or for which direct reimbursement strategies may be difficult to calculate). Some of these tools may be more like office space—an overhead cost of doing business. Others may be designed specifically to reduce costs in health care delivery, and direct reimbursement of the tool's utilization may undercut its value—particularly from a payer's perspective. Still, other tools may defy an easy transactional point of service that is chargeable, making direct reimbursement difficult to calculate.

This first factor includes both objective and subjective factors. Digital health tools need to be understood in terms of how they fit within health care delivery. In addition, a number of subjective questions of policies come into play. If a digital health tool, like telemedicine, is nothing more than a digitally enhanced doctor's visit, as a matter of policy, does it make sense to provide reimbursement? As a matter of policy, does it make sense to not reimburse digital health tools that provide non-clinical services, such as care coordination and effective record keeping? If a digital health tool merely adapts existing technology to a health care setting, should it be reimbursed? Accordingly, to properly consider this first factor, perspectives on policy need to be considered—and there may be multiple, legitimate policy perspectives. The goals of patients, payers, providers and regulators may diverge on some of these points, and the policy makers need to consider the larger goals of the health care system

Second, the shift to APMs is neither complete, nor necessarily all-encompassing. Despite the many APMs out there, and the impending acceleration that will be brought on by MACRA, fee-for- service continues to be the primary reimbursement vehicle. In part, this is because fee-for-service forms the basis for many APMs (including under MACRA). For example, the Medicare Shared Savings Program (MSSP) uses fee-for-service reimbursement during the course of performance years to determine any shared savings to impart to applicable accountable care organizations. Further, even CMS's most aggressive predictions for Medicare reimbursement shifting to APMs continue fee-for-service reimbursement (including as the primary vehicle for APMs). Accordingly, the shift to APMs, while having a remarkable impact on health care delivery models and strategic thinking for health care providers, cannot be relied on to be all that exists at some platonic end-point of reimbursement reformation. Rather, fee-for-service is here to stay—at least for the foreseeable future.

Finally, the shift to APMs is a gradual process, and, as noted before, not particularly proscriptive when it comes to how providers create value. While this freedom is having a positive impact on the development of digital health tools, it is also doing little today to establish a stable and predictable market place for innovative products to enter the market. The same freedom that is allowing for creative application of digital tools in health care delivery is also resulting in a difficult business market. As providers and insurers struggle to identify the right environments for digital health tools with one foot firmly planted in the fee-for-service world and the other in the world of APMs, commonality of approach is lacking (let alone interoperability). As a result, while digital health tools that are being developed may serve a useful function, only a handful of providers may see the value or decide to dedicate a financial investment without the prospect of an easy to calculate return on investment. Direct reimbursement for digital health tools could provide stable economic models and provide some stability.

The question of direct reimbursement for digital health tools, then, is a complicated one. There are many variables, including the type of tool in question and the evolving reimbursement environment. EHR adoption was fueled by a very definite financial incentive. For the current set of digital health tools there is no definite financial incentive or baseline to work from. In part, this is a reflection of the reimbursement system's shift away from fee-for-service and toward more global payments. In part, it is a reflection of the significant diversity of digital health tools. While it is clear that direct reimbursement for digital health tools is not necessary in terms of the APM value proposition, there may be good reasons to push for direct reimbursement, at least for some digital health tools, so that they have a firm setting in the complicated world of health care reimbursement. It is also clear, however, that this is not a "one size fits all" subject. 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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