Getting Creative with Telemedicine Revenue Models

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Telemedicine providers are zealous advocates for change and shift in healthcare delivery. Yet these same innovators often fail to apply that same mentality when developing their business models and contractual arrangements. They devise something new, exciting, and disruptive, only to lament a lack of existing reimbursement for the innovation they just created.

The concept of government-funded, fee-for-service payments (i.e., traditional “reimbursement”) is becoming increasingly criticized (even by the Department of Health & Human Services itself ) as an outdated, less than ideal payment model for 21st century healthcare. CMS already announced plans to make at least 30% of Medicare payments through non-FFS alternate payment models (e.g., ACOs, bundled payments) by the end of 2016, increasing that percentage to 50% by the end of 2018. The remaining FFS payments would be tied to quality or value under programs like the CMS’ Hospital Value-Based Purchasing Program or the Hospital Readmissions Reduction Program.

With all these signs of change, why do some telemedicine providers expect their breakthrough approaches to care would (or even should) easily align with an old payment model? Rather than wait on the sidelines focusing on regulatory hurdles, the most successful telemedicine providers we work with (whether physicians, hospitals, or start-ups) are those who shift their mindset from reimbursement to revenue. When that happens, a world of payment opportunities presents itself.

To succeed in the developing market, telemedicine providers must structure their business models and contracts using the same creativity and innovation they devote to their care and technology offerings. In doing so, companies can build scalable, sustainable telemedicine programs extending well beyond the realm of grants, pilots, loss-leaders, and demonstration programs.

By no means an exhaustive list, here are a few concrete examples of telemedicine revenue- generating business models outside the traditional “reimbursement” box. There is no one-size-fits-all approach. And while any healthcare offering must be tailored to comply with state and federal laws, providers should not allow perceived regulatory complexities to prevent them from building something great. Remember: there are no problems – only solutions.

Three non-traditional telemedicine business models

1. Institution-to-Institution

An Academic Medical Center with a surplus of talented specialist physicians can leverage that expertise to patient markets outside the zip codes surrounding its brick and mortar location. The AMC could enter into contracts with rural hospitals or other institutions across the world in need of on-demand specialty expertise. Compensation methodologies will be driven by specific business factors and contract design, including whether the AMC’s service is peer-to-peer consults or direct patient care (or both), and if there will be any billing of third-party payors (and if so, any reassignment of collections). The parties could utilize a monthly rate, a hybrid payment, a fee schedule menu of different specialist services, or even a cafeteria model to encourage multi- specialty utilization. Fundamentally, this model can be built as a professional services agreement without dependence on external FFS reimbursement to drive the revenue.

Even among those forward-thinking providers who have embraced change to build ACOs . . . only approximately 20% have incorporated telemedicine. 

2. Telemedicine and ACOs

Even among those forward-thinking providers who have embraced change to build ACOs (there are 20 Pioneer and 333 MSSP ACOs in the United States), only approximately 20% have incorporated telemedicine technologies into their operations. It may be no a surprise, then, that only 27% percent of ACOs achieved cost and quality scores sufficient for to trigger financial incentive payments in 2014. Strong opportunities exist for telemedicine technology companies (particularly those with and population health software functionalities) to contract with ACOs and use virtual care as a means for ACOs to realize the quality and cost improvements needed for them to receive Medicare incentive payments next year. 

3. Employer Workforce Offering

A provider with a network of primary care physicians can offer telemedicine-based care to the workforce of an employer through a combination of an on-site kiosk and an online app. The employer would realize benefits of increased presenteeism and workforce health, reduced direct care costs in the short term, and reduced overall workforce health costs in the long term, among other benefits. The provider could negotiate with the employer a variety of different compensation approaches, including but not limited to a per-encounter fee, a base services rate combined with a reduced per-encounter fee, a fully capitated per employee per month payment, a shared savings fee model (whether paid on an encounter, capitated, or hybrid basis). Different choices in the contract terms and compensation methodologies will significantly impact the employee utilization of the offering, so all these factors should be considered and tailored to the parties’ specific goals. The payment could be made by the employer’s self-funded plan, the employer’s third-party payor administrative services organization, or even the employer itself as an out-of-pocket cost.

These are just a few examples of what can be achieved when a telemedicine company applies the same level of creativity to its healthcare business models and contracting. Providers should reject the notion that the traditional FFS reimbursement system is immutable or that they must wait for someone else to change policy. Telemedicine companies have already rejected traditional care approaches in favor of something better, so while the business and legal “how to” may be unfamiliar, the “why” is nothing new to these thought leaders.

When the telemedicine and virtual care market matures and the dust settles, the successful and surviving providers and companies will be those who are innovative not only in what they offer patients and the healthcare industry, but in how they offer it. 

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