Since the onset of the COVID-19 pandemic, Americans have rapidly pivoted away from in-person interactions and embraced remote, digitally-enabled alternatives in every facet of their lives, from ordering grocery deliveries online to meeting with their sheltering-in-place colleagues on Zoom. For the healthcare industry, where consumer apprehension about visiting facilities where patients with COVID-19 are being treated is particularly intense, the pandemic has dramatically accelerated demand for a wide range of telehealth services.

Analysts at Forrester Research now predict more than 1 billion virtual care visits in 2020, up from an initial estimate of 36 million visits. Investors are taking note: six telehealth start-ups secured $190 million in funding in just the last few weeks, according to Inc. The Centers for Medicare & Medicaid Services is also playing a role, dramatically expanding the number of covered telehealth services for Medicare beneficiaries.

As telehealth adoption reaches a potential tipping point, many hospitals and health systems have moved swiftly to ramp up or develop telehealth capabilities to create capacity and supply and keep caregivers and patients safe from exposure to the virus. And as hospitals face the challenge of rebuilding patient volumes in coming months amid widespread and likely continuing consumer fear about visiting healthcare facilities, eschewing the opportunity to develop and employ telehealth may put organizations in serious financial danger.

In addition, as patients grow more accustomed to the benefits of telehealth, a more sustained increase in related services is likely to continue long after the initial surge in cases is in the rearview mirror. Providers whose telehealth services are limited in scope, capacity or functionality will have difficulty competing against more sophisticated solutions from other providers or new entrants with retail experience, including CVS Health and Walmart.

At the same time, a permanent shift toward a higher proportion of telehealth portends significant financial implications for hospitals. On the revenue side, providers will need to understand and plan for the possibility that lower payment for telehealth services will mean less revenue for organizations already damaged by revenue losses from COVID-19. The reality of lowered reimbursement rates may require the development of a leaner business model and changes to in-person service levels and capacity.

On the expense side, if the shift toward telehealth is broad and lasting, hospitals may be able to rethink some facility and real estate expenses. Regardless of an organization’s current positioning, the current moment requires the development of a sustainable, comprehensive telehealth offering that can position organizations for success in the pandemic and beyond.


How COVID-19 Is Reshaping Telehealth

As patients continue to avoid in-person trips to clinics and hospitals, much of the non-emergent visit volume has shifted to a variety of telehealth settings. While telehealth may not totally replace pre-pandemic clinic visit volumes for all specialties, hospital systems are currently experiencing significant increases in demand for telehealth services. For instance, Jefferson Health in Philadelphia saw the number of patients scheduling online appointments jump from 50 to 2,200 patients a day, the Philadelphia Inquirer reported recently.

Over a longer timeframe, the shifts in demand fueled by the pandemic will likely have significant implications for how care is obtained, delivered, and paid for virtually and in person. While reimbursement for direct-to-consumer telehealth visits currently remains lower than that for a physician office or emergency department visit, incentives will almost certainly shift in the future as the industry evolves. In addition to relaxed rules from Medicare for telehealth reimbursement, some Commercial payers are at least temporarily reimbursing telehealth visits on parity with office visits.

The traditional primary care provider gatekeeper model, where clinic visits are the conduit for follow-up diagnostics and treatments, may also need to be reevaluated as the current crisis disrupts normal patient flow. Maintaining the gatekeeper model will likely require providers to develop and offer consumer-friendly primary care telehealth services in short order.

Hospitals also may experience short-term increases in telehealth staffing costs during the pandemic, as physicians and registered nurses help meet increased demand for virtual visits. These costs could potentially subside after the surge if staffing reverts to a more normal pattern. If physician visits continue to shift to telehealth in a significant way after the pandemic subsides, organizations will need to monitor the impact of physician compensation on overall telehealth costs.

From a capacity perspective, organizations may also need to increase capital spending on virtual platforms in response to increased COVID-19 demand, starting with an evaluation of current capabilities and the capacity to ramp up operations.


Understanding the Financial Implications of COVID-19

In the short term, key financial levers for telehealth include direct volume, reimbursement/price, downstream volume, fixed investment costs, variable staffing and delivery costs. In the longer term, a shift to telehealth and hesitancy on the consumer side to use in-person services provides even more incentive for providers to shift from a volume-based to a value-based payment model. This approach is focused on using capital-light investments that are intended to keep the patient healthy, rather than capital-intensive investments deployed to attract fee-for-service diagnostic and surgical volumes.

 

Financial Drivers and their Impact On Health Systems



Scaling Up Telehealth During a Pandemic

According to the 2019 Kaufman Hall State of Consumerism in Healthcare Survey, three-quarters of health system respondents said they have limited or no direct-to-consumer video or telephone care offerings at their organizations. While the percentage of organizations with some telehealth services has likely increased significantly since the onset of the pandemic, demand for comprehensive, sophisticated, consumer-friendly services will require organizations to build up their virtual offerings relatively quickly.

Organizing and defining key terms and activities—and developing a roadmap for both responding to current demand and planning for the post-pandemic environment—is a critical first step.

For instance, some telehealth programs might be limited to “direct-to-consumer” visits for non-acute urgent care, which will likely prove insufficient for demand during and after the peak of the pandemic. As more consumers grow accustomed to using remote care during the pandemic, demand for additional services that reduce the number of in-person interactions is likely to continue well after the surge.

More coordinated, comprehensive initiatives can extend far beyond direct-to-consumer visits and encompass multiple aspects of care delivery, from clinician-to-clinician communication to a sophisticated online patient registration process.

 A framework for prioritizing telehealth activities in the COVID-19 pandemic and beyond is provided below. Specific implementation priorities may vary by organization, depending on their current capabilities and tools.


Telehealth Priorities for Hospitals and Health Systems

 

Telehealth priorities for hospitals and health systems



As with any complex new initiative, early and sustained leadership support for telehealth implementation is critical to sustained success. In the early going, key leadership functions include identifying and implementing any needed organizational restructuring, and setting clear goals and accountability for project development. For both existing or planned projects, leaders may need to adjust plans already under development to accommodate an acceleration in telehealth usage since the start of the pandemic, with an eye toward expanding services where demand is particularly intense.

The early engagement of physician leadership is also critical, and can support efforts to retrain physicians and manage adjustments in culture due to the shift to new platforms. In the current environment, COVID-19-related reductions in clinic volumes may prove a powerful motivator in increasing physician engagement in training for and adopting telehealth services.

Each health system’s telehealth program should be driven chiefly by internal needs and consumer demand, though the experiences of competing systems and telehealth vendors can help inform program design. In addition, while a system’s electronic medical record (EMR) infrastructure can support project development, an overreliance on the existing EMR for the development of products and solutions can stifle the identification of more innovative solutions and tools.

In the wake of COVID-19, providers should be mindful of consumer interest in remote solutions to all aspects of the care journey. In addition to virtual visits, consumer interest in online registration and remote access to wait time information is also likely to be in higher demand than before.

Prior to launch, the development of an integrated marketing plan is critical for driving consumer demand and adoption of telehealth services. Following launch, internal “product managers” should be tasked with both maintaining and improving the telehealth program over time.


Case Study: Capital Health

In the fall of 2019, New Jersey-based Capital Health planned an expansion of its telehealth program it first launched in 2017, with the goal of driving consumer engagement and growth through more convenient, accessible care and services. At the outset of the initiative, the program offered online scheduling and video visits with primary care physicians.

Initially, the intent of the program was to primarily staff telehealth visits with new physicians who did not yet have full patient panels. Health system leaders were uncertain if primary care physicians and specialists with more experience would express interest in training and participation.

In response to the COVID-19 pandemic, Capital Health has dramatically increased the scope of the program to both meet consumer demand and keep clinicians safe from exposure, offering training to physicians who had not previously used the program.

Nearly every employed physician in the system has subsequently undergone training and conducted virtual visits. Prior to the COVID-19 pandemic, Capital Health had served approximately 1,000 patients total since it first began offering some telehealth services in 2017. Since the start of the pandemic, Capital Health has been serving roughly 2,500 patients a week via telehealth, at a rate of roughly twice the volume of in-person visits. In one week in mid-April, the system served nearly 4,000 patients a week via telehealth. In addition, patients and physicians have both expressed satisfaction with the increased convenience and ease of use.

“Telemedicine has been a saving grace for us during COVID-19,” said Michael Arcaro, MD, Medical Director of Clinical Informatics for Capital Health. “We didn’t even really drop in productivity for primary care, and while the specialists have been slower to adopt for a number of reasons, many specialties in our medical group are now doing hundreds of visits per week.”


Telehealth After the Surge

As leaders begin to reposition their organizations in the wake of COVID-19, telehealth is emerging as an essential strategic priority. The changes in consumer behavior unleashed by the pandemic are likely to continue long after the pandemic subsides. For hospitals and health systems, persistent consumer wariness about the risks of in-person care in the wake of the pandemic—paired with public and private payers’ rising comfort level with reimbursement for telehealth services—will fundamentally reshape how and where care is delivered for years to come. In the future, consumers are likely to expect their provider will offer a wide scope of telehealth services far beyond virtual visits for nonurgent care, from routine primary care visits to the continuous monitoring and treatment of chronic conditions.

Organizations that currently lack any telehealth services or only offer limited, direct-to-consumer services must move swiftly to meet rising demand and keep up with both entrenched and new competition. For hospitals and health systems that already boast robust telehealth programs but are still challenged by the widespread financial constraints of the pandemic, understanding the strategic and financial implications of accelerated, sustained demand for telehealth and positioning their organizations accordingly will be critical to a full recovery.


If you have comments or questions on the information, please contact Dan Clarin by email.

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Dan Clarin

Senior Vice President
Dan Clarin is a leader in Kaufman Hall’s Strategic and Financial Planning practice, with a focus on consumer-centric strategies.
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