Our Health Care System Wasn’t Designed To Support Telehealth. Now It’s Time For A Makeover

January 8, 2021

Written by Sean Cavanaugh, Chief Policy Officer & Chief Commercial Officer

The health care scholar Paul Batalden, MD, once penned the phrase: “Every system is perfectly designed to get the results it gets.” This captures a lot about US health care. In particular, it applies to our current conversation about telehealth.

female doctor holding silver tablet


In 2016, only a quarter of 1 percent of all Medicare beneficiaries used a telehealth service once in the entire year. This is obviously an astoundingly low number, and when we see it, we shouldn’t see a failure of policy, we should see policy design at work. Today, a lot of people in health care are asking a simple question: What is the future for telehealth? By examining its initial design, we can find clues as to the best path forward for virtual care.

Congress first created the Medicare telehealth benefit as part of the Balanced Budget Act of 1997—passed during a bygone era when a balanced federal budget was within reach. Nevertheless, financial pressures still loomed largely: Expenditures were growing rapidly, and Medicare’s actuaries had forecasted that the Medicare Part A Trust Fund would be insolvent by 2001. Lawmakers, therefore, drafted the Balanced Budget Act to reduce Medicare expenditures by $393 billion over 10 years. And as anyone who has worked in federal health policy will tell you, adding benefits and reducing costs rarely go hand in hand.

Medicare’s first-ever telehealth benefit was designed precisely so it would rarely be used. The law required that telehealth benefits had to be delivered through interactive audio and video technology—a rarity in the late 1990s. It had to allow real-time communication. It forbade any “audio-only” telehealth, as well as any “asynchronous” communication.

The law said that, when using telehealth, a beneficiary must be in an “originating site,” such as a rural health professional shortage area, non-metropolitan statistical area county, physician’s office, hospital, critical access hospital (CAH), or CAH renal dialysis center, skilled nursing facility, community mental health center, or rural health clinic/federally qualified health center. And finally, in case that wasn’t restrictive enough, the service provided over telehealth had to be on a list of specified services spelled out by the Centers for Medicare and Medicaid Services (CMS). After all those restrictions, it’s a small miracle that even a quarter of 1 percent of Medicare beneficiaries successfully used telehealth in 2016.

Everything began to change in the 2010s. Policymakers lifted certain restrictions and created exemptions. CMS granted Next Generation accountable care organizations (ACOs) a waiver of their “originating site” restrictions. The Bipartisan Budget Act of 2018 went further, allowing Medicare Advantage plans to offer telehealth services as a basic benefit rather than a supplemental one, creating telestroke, home dialysis, and substance abuse telehealth visits, and extending the waiver for Next Generation ACOs to ACOs with two-sided risk (although CMS limited this to those with prospective attribution). Gradually, telehealth was available to a few more beneficiaries. And then, suddenly, the COVID-19 pandemic hit.

As communities across the nation went into various stages of lockdowns, Congress and CMS took action. Suddenly, a Medicare beneficiary could use telehealth through a video service or their phone. They could log in through commonly available services such as Apple’s FaceTime, and they could do it from the comfort of their own home. And physicians would be paid the same for telehealth services as they would have been for in-person visits.

Between mid-March and mid-June of 2020, telehealth use in Medicare skyrocketed to more than 20 percent of beneficiaries, from its paltry quarter of 1 percent in all of 2016. In those three months, more than nine million Medicare beneficiaries used a telehealth service. Among practices participating in Aledade ACOs, telehealth usage leapt from 0.2 percent to 40.0 percent of all claims between March 15 and April 15. It’s clear that CMS’s decision around telehealth kept millions of patients and millions of health care providers safe and kept our health care system functioning as the coronavirus raged.

But what does the future hold? Having worked at the federal policy-making level, responsible for the Medicare program’s payment rules, and now working at a company that partners with thousands of primary care physicians across the country, I think there is a clear, two-part answer.

First, we have to understand that the future of telehealth isn’t binary. We can’t go back to a system in which virtually no one could use telehealth. As a recent episode of the podcast Tradeoffs explained, telehealth services are a crucial time-saver for some patients, and, for others, they are an insufficient substitute for an in-person visit. Policymakers and payers should make sure patients can get the kind of care they need, when and how they need it.

But the alternative shouldn’t be to create a new piston in the fee-for-service utilization engine either. Medicare is in the midst of a significant movement away from paying for volume toward paying for value. When providers accept responsibility for the total cost of care, many of the rules and regulations created to prevent overutilization are no longer relevant.   

So, the key is to embed telehealth in a payment system already designed to prevent overutilization. That means a payment system that takes into account the total cost of care for a patient; one that rewards providers for keeping patients healthy and reducing wasteful spending. In that kind of system, telehealth can be used prudently—as a substitute for in-person care—rather than as an addition to in-person care. In this way, telehealth can be an essential tool of value-based care programs such as ACOs. And now that beneficiaries and providers better appreciate the value of telehealth, linking telehealth waivers to payment reforms could drive greater uptake of those new models.

Batalden was correct by pointing out that a system’s results are a product of its design. His insight is also, at its core, an empowering one. We can get to the results we need by designing the system to get there. As we move through the COVID-19 pandemic into a new health care future, let’s be deliberate with the next steps. Let’s design telehealth to get the health outcomes that every Medicare beneficiary deserves.