To ensure their telehealth program is financially sustainable, healthcare organizations must establish appropriate objectives, be strategic about technology, understand the financial risk, and use suitable performance metrics.

After starting out primarily as a way for rural providers to obtain medical expertise virtually, telehealth has moved into the mainstream as healthcare leaders continue striving to balance better quality and access with lower costs.

Although providing high-quality care is paramount, a telehealth program also must be financially sustainable. Meeting organizational objectives, purchasing the appropriate technology, and understanding the financial risk involved all play a role in establishing a solid foundation for a telehealth program.

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Set Organizational Objectives

Healthcare organizations implement telehealth programs for a number of reasons, including better care access and quality.

“Really, one of the objectives we see most often on the provider’s side is the improvement of access to care,” says Kelly Hawk, a senior manager with the Healthcare Advisory Practice for consulting firm Ernst & Young, LLP.

In a 2014 survey of 48 academic medical centers, health systems, hospitals, and other healthcare organizations administered by the Washington, D.C.-based eHealth Initiative for Ernst & Young, nearly 96 percent of respondents named improved access to care their main objective in implementing a telemedicine program; nearly 85 percent named improved patient outcomes. According to the survey, telemedicine is most often used in psychiatry/behavioral health, stroke care, radiology, neurology, and maternal fetal health.

Boston Children’s Hospital (BCH) provides expertise remotely to other physicians nationally and internationally. “Practically speaking, the most effective use of telehealth thus far has been easier access to some of our high-end specialists for things like second opinions and consults on very complex issues,” says Doug Vanderslice, senior vice president and CFO.

Population health management is another objective. “Whether the goal is readmission reduction or just finding cost-effective ways to manage patients outside of the hospital, that’s also what’s generating significant interest in telehealth technology,” Hawk says.

Utilizing telemedicine technology, Atlantic General Hospital (AGH), Berlin, Md., implemented an electronic intensive care unit (eICU) about five years ago as a way to obtain clinical expertise during overnight and weekend shifts, according to president and CEO Michael Franklin.

Franklin says he hopes to expand the use of telemedicine as part of a community care strategy to provide services to patients where they are, Franklin says. “Part of our longer-term view is integrating telemedicine with what we do from a population health management perspective and in dealing with the higher-risk, chronically ill patients in the community,” he says.

Be Strategic About Technology

Developing a telehealth program does not necessarily involve a lot of equipment and technology, but does require formulating strategic objectives and aligning those objectives with investments, Hawk says. Investing in technologies that end up being underutilized “is a risk in a technology-driven program,” Hawk says.

About one-third of respondents in the eHealth Initiative survey are operating telehealth programs with investments of less than $1 million. The cost of a new telehealth program can be tempered by being clear on objectives and understanding how existing platforms can work with new technology, Hawk says.

Core technology requirements, especially in areas such as psychiatry and behavioral health, are basic voice and video equipment. “You don’t necessarily have to invest in every technology, especially in the beginning,” Hawk says. “It’s just a matter of having that core technology.”

As healthcare organizations expand their programs, with eICU services or physician consults for example, they require more complex equipment such as high-resolution cameras to view imaging.

Franklin says the technology used in AGH’s eICU is relatively complex compared with other applications. As with most telemedicine applications, on the patient side there is a video screen, a high-definition camera, and peripheral items. In this setting, though, all equipment is interfaced into the ICU medical equipment, meaning all data generated from equipment such as ventilators and all medical record data are uploaded to a platform monitored by remote intensivists.

Consider Revenue Sources

Defining a revenue model for telehealth programs is challenging. As a new care delivery system, telehealth is subject to varying payment rules based on state laws and payer contracts.

For academic medical centers and leading health systems, one of the largest payment sources is the provision of contracted telehealth services to other organizations, Hawk says. “That’s one way, given the reimbursement challenges with Medicare and Medicaid, that they’re finding to generate almost-new sources of revenue, through actually functioning as a provider to other systems in the their region,” Hawk says.

Telehealth also can be a source of referrals, Hawk says, which is "a top-line revenue generator."

BCH receives a fee for its formal second-opinion services, for which it contracts with several third-party vendors that administer second-opinion services on behalf of large employers. Vanderslice says the consults also are a source of referrals of patients with complicated conditions for which BCH physicians have unique and specific expertise.

Use Traditional Performance Metrics

The same throughput, utilization, and patient satisfaction metrics used to measure traditional care delivery can also be used to assess the performance of a telehealth program. “The quality metrics that you would track from an in-person [visit] perspective are equally as important in a telehealth program,” Hawk says.

Some of these include:

  • Return on investments in technology
  • Cost avoidance
  • Reduced avoidable readmissions
  • Referrals
  • Revenue generated through additional throughput

Hawks says some of these metrics are a little softer in terms of financial value, “but it’s still important to have an understanding of how these services will impact your organization financially.”

The eICU program at AGH actually costs the hospital money, but Franklin says it also has a bottom-line benefit. The virtual coverage has led to fewer complications and shorter lengths of stay, resulting in annual savings of $300,000, and ICU patients’ likelihood of survival has increased by 26 percent since the program was implemented. The remote monitoring allows the hospital to avoid salaries for two additional intensivists, at a total estimated cost of $700,000. It instead pays $228,000 annually for the virtual coverage, for annual savings of nearly $500,000.

“So, the savings I have on one side outweigh the cost on the other side,” Franklin says. “I think there are tradeoffs within the system that create the adequate support for the technology costs.”

AGH also has a telehealth program in area nursing homes. This application is primarily for residents at an elevated risk of preventable readmission. The application is less complex compared with the eICU program, requiring a portable telemedicine unit with high-resolution cameras and a few peripheral devices on the nursing home side, and only a notebook computer and access to patients' electronic records on the remote physician side. In AGH's program, the hospitalists provide patient consultations to the nursing home clinical staff.

In the six months prior to November 2014, when the program was initiated, AGH had 53 readmissions from nursing homes. In the first six months of 2015, the hospital had 31 readmissions. “So you can see there’s been a significant reduction in readmissions throughout our health system,” Franklin says.

See related tool: Telehealth Pilot: Atlantic General Hospital Monthly Clinical Goal Report

Keep It Sustainable

Setting up a sustainable program requires more than just improved outcomes and an appropriate level of payment, says Randy Moore, MD, MBA, president of Mercy Virtual, the industry’s largest telehealth program. The program is operated by Mercy, a four-state, 35-hospital system based in St. Louis.

The Mercy Virtual Health Center is housed in a new 125,000-square-foot facility and operates an eICU, virtual care for stroke care, pediatric telecardiology, teleradiology, telepathology, nurse on-call care, and home monitoring for Mercy facilities and for other healthcare organizations and employers through partnerships.

Moore says a potentially overlooked element of financial sustainability is understanding how a telehealth program will affect cash flow. “You need to understand your contract mix, how you’re being paid, which patients are being targeted, your operational capabilities, how you’re going to manage the overall investment and make it work,” he says.

Moore says finance leaders should focus on setting up risk-based models with payers that will provide the cash flow—through shared savings on reduced hospitalizations, for example—to sustain a telehealth program.

Moore says Mercy’s telehealth services were designed to align with that sort of risk-based revenue model. The problem is the fee-for-service payment model remains predominant, so setting up virtual care can be costly in the beginning. Moore says partnering in telehealth programs with other organizations can help to offset costs and add capacity.

“Otherwise, you wake up with a surprise three years into the program with a system that is doing more poorly,” Moore says. “And, you have to start looking for where to cut costs, which may be telemedicine.”

Karen Wagner is a freelance healthcare writer based in Forest Lake, Ill., and a member of HFMA’s First Illinois chapter.

Interviewed for this article: Kelly Hawk, senior manager, Healthcare Advisory Practice, Ernst & Young LLP, New York; Doug Vanderslice, senior vice president and CFO, Boston Children's Hospital; Michael Franklin, president and CEO, Atlantic General Hospital, Berlin, Md.; Randy Moore, MD, MBA, president, Mercy Virtual, St. Louis.

Discussion Starters

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Publication Date: Monday, October 12, 2015