Will Telehealth Save Patients Money or Drive Up Costs?

7 min read

April 5, 2023 -- Barbara Rosebrock was heading to the doctor’s office to learn how to use her 8-year-old daughter’s new insulin pump when health care as she knew it forever changed. 

It was March 11, 2020. With a mysterious new virus entering the U.S., vulnerable patients like Aubrey -- recently diagnosed with type 1 diabetes -- were advised to stay home.

Her doctor canceled the appointment and suggested a remote video visit instead.

Rosebrock was skeptical.

“I didn’t want to do something wrong and end up hurting my kid,” she said.

But the virtual visit went well and set a pattern. Three years later, all of Aubrey’s doctor’s visits are done from home unless lab work or a physical exam is needed. Mom avoids an hour of driving and saves on gas and childcare for Aubrey’s younger brother.

“It’s pennies here and there, but it all adds up,” said Rosebrock.

Telemedicine became routine for the Rosebrocks and tens of millions of others during the pandemic. Among Medicare patients, remote visits increased from 840,000 in 2019 to 52.7 million in 2020, a 63-fold jump. Doctors had shut their doors to only the sickest of patients, and insurers agreed to temporarilyreimburse audio and video visits at the same rate as in-person ones.

Usage has come down substantially since. But patients continue to demand remote options, with 70% of younger generations (Generation Zers, millennials, and Generation Xers) saying they prefer telehealth to in-person visits, and 44% saying they’ll switch providers if it isn’t offered, according to the American Hospital Association. 

But despite the demand, there remain long-run questions of cost, effectiveness, and choice of provider.

Some pandemic-era exceptions, including state-level rules allowing patients to see doctors across state lines, have already been scaled back. Other rules, like those allowing doctors to prescribe drugs for ADHD or opioid addiction via telehealth, are set to be rolled back May 11. And by December 2024, thanks to a 2-year extension,  lawmakers must decide whether to continue covering telehealth visits via Medicare. That decision will inevitably impact what private insurers do.

A key question: Does telehealth save money? 

“It depends,” said James Marcin, MD, director of the University of California Davis Center for Health and Technology. The answer depends on how it is used, by whom, and whose money you’re talking about.

“It is not a panacea,” Marcin said. “But COVID has definitely enabled us to realize its potential.”

Real Savings for Patients

When it comes to out-of-pocket savings, the benefits are clear, said Stephanie Crossen, MD, a Sacramento-based pediatric endocrinologist. Many of her patients, including quite a few from low-income, rural populations, travel several hours to see her. 

“My patients would pretty much always say that telemedicine saves them money,” Crossen said. And regaining that kind of lost time in your day has value, too.

One recent study of 3 million outpatient telemedicine visits in California found that, on average, patients avoided a 17.6-mile, 35-minute commute, saving about $11 in transportation costs per visit. 

Throw in lost wages or child care costs and the savings are likely higher, especially where travel distances are farther, the authors said.

In-person visits often also come with extra facility fees not charged for telemedicine appointments, Marcin said. And doctors tend to order more scans and tests when a patient is on site (some necessary, some questionable), driving up costs. 

Telemedicine can also save tens of thousands in helicopter flights, such as when a stroke patient or child with a complicated medical history shows up at a rural emergency room lacking specialists

“We get a lot of patients transferred between hospitals that don’t necessarily need to come to us,” said Marcin, a pediatric critical care doctor who frequently patches in via video to evaluate and suggest treatments for young patients in distant hospitals.

In-person visits are usually ideal, but cars break down, buses don’t come, and family members get sick. In such cases, telemedicine can avert a cancellation, saving money in the long run, said Crossen.

“We know that if our diabetes patients are seen more often, they are at lower risk for long-term kidney damage and all kinds of other issues,” Crossen said.

In this respect, more visits can mean more cost to insurers in the short term, while in the long term it could avoid more expensive treatments.

That poses a dilemma for payers.

“The problem in our system is that the insurer who covers their costs now is not necessarily the same one who’s going to cover their dialysis in 40 years. So it’s hard to make the case that it’s saving them money,” she said.

More Access Means More Visits 

In December, Congress extended Medicare coverage of telemedicine for 2 years, giving everyone time to decide how to handle the practice permanently. If telemedicine makes it so easy to see a doctor, will it be overused?

Ateev Mehrotra, MD, a professor of health care policy and medicine at Harvard Medical School, says he has seen no research to convince him that telemedicine saves the health care system money.

“From my perspective,” he said, “the real question is: Does telemedicine increase health care spending, and if so by how much?”

In one 3-year study of people who went to the doctor for acute respiratory illnesses, he found that only 12% of telehealth visits replaced what would have otherwise been an in-person visit. The other 88% were “new utilization,” meaning that had telehealth not been available, the patient probably would have just ridden out their cold and not gone to the doctor at all. In the end, telehealth increased net annual spending on colds by $45 per telehealth user. 

Another recent study by the Rand Corporation showed that in the arena of mental health, telemedicine visits more than made up for a drop in in-person visits during the pandemic, with treatment of some disorders up 20%. 

“If you make care more convenient, more people get care,” Mehrotra said. 

Whether that is good or bad depends on lots of factors, including who is paying.

In the case of a cold, “if they are paying out of their own pocket to be reassured, more power to them,” Mehrotra said.  “But if we as a society are paying for all those visits, we do worry because a lot of people get colds.” 

Increased utilization could drive up premiums for everyone.

Doctors also may be more likely to prescribe antibiotics via telehealth, boosting costs and potentially promoting antibiotic resistance, suggests a 2022 review in Clinical Infectious Diseases

While research on return visits is mixed, another study, published in 2021 by University of Michigan researchers, found that patients who had their initial visit via telemedicine were significantly more likely to come back for a second visit within a week.

The authors said that “potential savings from shifting initial care to a direct-to-consumer telemedicine setting should be balanced against the potential for higher spending on downstream care.”

Worth the Cost?

Mehrotra, a practicing doctor, contends that the question of whether telemedicine saves money is not a fair one.

“When a new drug or procedure or MRI machine comes out, we never say, ‘Does it save money?’” he noted. “Instead, we ask whether the improvement in health we’re observing is worth the cost.”

Policymakers must assess how telemedicine affects patients and look specialty by specialty to see if it’s cost-effective.

“For instance, from my research and what I see clinically, I think telemedicine for the treatment of opioid use disorder is a great idea. For telestroke, I’m sold,” he said. “But if we’re talking about telemedicine for colds, I’m not so sure.”

He envisions a system in which visits deemed to be of “lower value” (like that reassuring video call for a cold) might come with a higher co-pay for the patient or a lower reimbursement for the doctor than an in-person version. 

Who is using telemedicine also matters.

Notably, during the pandemic, research found that white patients in urban areas were most likely to use telehealth for outpatient visits, while people in low-income and rural areas and racial minorities used it less, in part due to connectivity issues

Doctors say that addressing those access inequities could go a long way in getting telemedicine to the people who need it most and who will financially benefit from it most.

Priceless Care

For some patients, the benefits are hard to put a price on. Francis Richard, 72, who lived in Mendocino County, CA, took a 2-hour shuttle (one way) to visit a doctor for his late-stage type 2 diabetes and kidney disease. 

“My husband was not tired,” said his wife, Marie. “He was tired of the transportation.” She says wait times for an in-person visit were often weeks or months.

His nephrologist suggested Francis start seeing him via telemedicine.

He’d Zoom in for consults when Francis needed in-person care at a smaller hospital closer to home and was working to set up at-home dialysis.

Often their visits included Marie seated next to Francis in bed at home, holding the phone as the doctor looked him over, asking questions and exchanging the occasional joke.

She never met the man on the screen, Jose Morfin, MD, in person, and her husband met him only once. 

But she considers him family now.

“I wish my husband was still alive and he could tell you this himself,” said Marie, who lost Francis in January.  “But this prolonged his life. They made us feel so supported.”

That kind of care, she said, is priceless.