CHAPTER 9. REIMBURSEMENT

The most successful telemedicine programs identify, in advance, the expected capital and operational funding for the program. Reimbursement received from the patient or third party insurers (whether government or private) for services rendered will affect financial viability of the program. Programs which have self-supporting operations provide a valuable contribution to an organization and are more likely to be promoted from within the Company.

The health care finance system in each country may vary and is important to fully understand the method of health care finance should be assessed during the planning process to determine sources of income for telemedicine services.

The balance of this chapter will focus on the United States health care delivery system and its method of financing telemedicine services.

1. Clinical Services.
   1. Medicare.

      The Balanced Budget Act of 1997 (the "BBA") required payment for telemedicine services which meet certain criteria. Under the BBA, Medicare rules required the presence of a Medicare participating tele-presenter to be eligible for Medicare reimbursement. Due to limitations on telecommunications infrastructure in remote or hostile environments, the predominant telemedicine methodology is "store and forward". In store and forward applications the presence of a Medicare participating provider as the tele-presenter adds little clinical value, but substantially increases the cost of telemedicine services.

      Medicare rules also required that the tele-presenter participate in mandated fee sharing between the tele-presenter and the consulting physician, a practice contrary to other Medicare rules which prohibit payment of renumeration in exchange for referrals. These existing Medicare requirements have essentially limited reimbursement to "live" telemedicine services, which constitute 10% or less of telemedicine services, and have chilled physician willingness to participate under the perceived risk of criminal liability.

      In December, 2000, Congress passed an omnibus appropriations bill (H.R. 5661) which dramatically revised Medicare rules for reimbursement for telemedicine services. The legislation, effective October 1, 2001, has the following features (see Section 223):

      • eliminated the provider "fee sharing" requirement;

      • eliminated the requirement for a Medicare participating "tele-presenter";

      • allowed Originating Sites to be paid a fee of $20 per visit to recover facility costs, with increases commencing in 2003;

      • expanded telemedicine services to include direct patient care, physician consultations and office psychiatry services;

      • included payment for the physician or practitioner at the Distant Site at the rate applicable to services generally;

      • expanded the definition of Originating Sites to include physician and practitioner offices, critical access hospitals, rural health clinics, federally qualified health centers and hospitals (but did not include nursing homes);

      • expanded the geographic regions in which Originating Sites are located to include rural health professional shortage areas, any county not located in a MSA, and from any entity approved for a federal telemedicine demonstration project; and

      • permitted use of store and forward applications in Alaska and Hawaii.

      In addition, Section 504 permits the use of telemedicine services to deliver care under the prospective payment system applicable to home care. These changes increase the availability of Medicare funding to support telemedicine services.

   2. Commercial Insurers.

      Commercial insurers vary widely in their payment policies for telemedicine services. In each case, health care organizations should determine an insurer's policies regarding payment for telemedicine services. If an insurer does not presently pay for telemedicine services, your organizaton may have the leverage to require payment for telemedicine services as a condition to enter a contract. Prior to negotiation of a contract, determine the insurer's existing policy, and formulate your requested coverage for telemedicine services. Requiring that an insurer pay for telemedicine services as a predicate to execution of a managed care or other contract with an insurer can assure availability of a funding source for ongoing operations.

      If your organization's contracts do not specifically provide for payment for telemedicine services, your organization may still be entitled to some level of coverage within the existing contract. Many contracts with insurers include provisions which apply Medicare rules whenever the contract is silent on a specific matter. Under existing Medicare regulations, reimbursement for telemedicine services is presently permitted in limited, circumstances and your organization may be entitled to reimbursement from an insurer to the extent the contract incorporates by reference Medicare for coverage of services rules. It is advisable to consult with your legal counsel or contracting specialists to determine whether contracts provide, directly or indirectly, for the reimbursement of telemedicine services.

2. Home Care
   1. Medicare

      Effective October 1, 2000 Medicare commenced payment for home health services pursuant to the Prospective Payment System ("PPS"), which provides a fixed payment for each Medicare beneficiary for a 60-day period based on the assigned Home Health Resource Group ("HHRG"). PPS creates an incentive for home health providers to proactively manage delivery of care and to use innovative means of delivering that care while reducing costs. Home health care providers which have costs lower than Medicare payment rates are entitled to retain the difference as a "profit".

      Telemedicine is one innovative approach healthcare providers may adopt to manage care while reducing the number of direct visits to the patient in the home. The present Medicare regulations are silent on the use of telemedicine-based services to satisfy the obligation to care for patients under PPS. Presumably, there is no limitation on the use of such innovative services. In order to clarify the situation, H.R. 5661 specifically permits the use of telemedicine services to satisfy the home health care delivery obligations under PPS. Unfortunately, however, visits delivered using telemedicine do not constitute a visit under the Outcome Assessment and Information Set ("OASIS") evaluation tool for purposes of determining assignment to an HHRG. In addition, if the number of home care visits for a 60-day period declines to less than an established threshold of visits (which can be achieved through the use of telemedicine), then the home care provider may be subject to a Low Utilization Payment Adjustment ("LUPA") or the assignment of the patient to a lower paying HHRG. Home care providers should assess the benefits of telemedicine services and the effect substitution of telemedicine visits will have on reimbursement under Medicare PPS.

   2. Commercial Insurers

      Insurers vary in their recognition of telemedicine visits as allowable visits for purposes of reimbursement. Many insurers are interested in demonstration projects to manage populations subject to chronic illness. In certain instances, insurers are allowing payment for telemedicine-based equipment to be placed in the home in appropriate circumstances. Your organization should review the conditions of reimbursement in its contracts to determine eligibility for payment for home-based telemedicine services.