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October 2, 2020

The Mismatch of Telehealth and Fee-for-Service Payment

Author Affiliations
  • 1The Urban Institute Health Policy Center, Washington, DC
JAMA Health Forum. 2020;1(10):e201183. doi:10.1001/jamahealthforum.2020.1183

Responding to the duress caused by the COVID pandemic, telehealth is demonstrating its value by saving people from suffering and medical practices from bankruptcy. Patients and clinicians have lauded telehealth not only as a way to effectively provide care during the pandemic but also as a core element in care delivery. However, fee-for-service is a particularly flawed method for paying for telehealth services.1

During the current COVID-19 public health emergency (PHE), Medicare pays for almost 250 telehealth services, ranging from substitutes for in-person office visits to communications supplemental to in-person visits, including phone calls, emails, texts, access via patient portals, and a range of video-based interactions. Although about half of current telehealth codes were added on a temporary basis during the PHE, some with substantially raised fees, it will be difficult to remove the temporary codes once in wide use and to reduce the overly generous payments when the pandemic ends.

Medicare’s approach to telehealth payment has origins in a narrow service definition with many restrictions. In recent years, Medicare loosened these restrictions, covering a broader set of sites, clinical conditions, and eligible categories of clinicians. In addition, the Medicare Physician Fee Schedule (MPFS) started including non-visit-based services, including phone calls. For example, the “virtual check in” code introduced in the 2019 MPFS initiated payment for short communications with patients to avoid unneeded office visits. During the PHE, restrictions on both telehealth visits and non-visit-based communications were loosened further, importantly permitting telehealth services to originate from the patient’s home instead of a medical facility. The Centers for Medicare and Medicaid Services also agreed to pay for routine phone calls between patients and their practitioners. Medicare initially set the rate for a 5- to 10-minute call comparable to a virtual check in—about $15—pegging the fee to relative cost calculations used throughout the MPFS.

But $15 doesn’t even cover the practice costs for providing the service, much less provide a reasonable margin. A recent study from an academic health center showed the calculated billing and billing-related documentation costs of submitting a claim for an office visit were $20.49, representing 13 minutes of work by various individuals, including the clinician who performed the office visit.2 Although the study did not attempt to determine the cost of a telehealth visit or communication specifically, there is no obvious reason why billing and documentation costs for telehealth services would be less.

Studies have documented that billing and insurance-related functions constitute 10% to 15% of operating revenue. Because a major part of billing costs are fixed, applying to any service regardless of the payment level, the billing costs for even a phone call would be substantial in relation to the payment. Furthermore, for the $15 payment, practices would also bear transaction costs for collecting the obligatory $3.00 co-insurance from the patient or supplemental insurer. In short, it makes no financial sense for practices to bill Medicare and patients for virtual check-ins. It is not surprising that in 2019 practices billed Medicare the check-in code only about 12 000 times, with allowed charges totaling less than $200 000 (M. J. Braid-Forbes, personal communication, August 10, 2020).3

The pandemic has reinforced that fee-for-service is particularly inappropriate for many low-cost services, including many telehealth services. Within a few weeks of adoption during the PHE, CMS raised the 5- to 10-minute phone call fee from $15 to $46—the rate for a level 2 office visit, better supporting financially strapped practices. As a temporary policy in the midst of the COVID-19 crisis, “overpaying” for high-frequency, low-cost services makes good policy sense. Post–COVID-19, however, we can expect a proliferation of telehealth services if Medicare continues to overpay for such communications. Policy makers face a dilemma. Using standard, relative cost calculations, they could establish “correct” fees, which primary care practices would rarely bill for or provide. Alternatively, Medicare could pay a rate far higher than the resource cost calculations would establish, making the services highly profitable and provided at high volume.

Policy makers similarly face unpalatable choices in setting rates for telehealth visits that are substitutes for in-person visits. Patients face substantial time costs in travel, waiting room, and, finally, time with their practitioner. Time costs are a major constraint on the volume of office visits but would mostly disappear if patients’ homes become routinely accepted as the originating telehealth site, as COVID-19 PHE policy permits. As permanent policy, then, there would likely be a massive increase of telehealth visits, especially if MPFS payments equaled office visit payments, despite the substantially lower production cost.4

Fee schedules can function reasonably well when code descriptions are concise and specific to the provided service, producing reasonably reliable coding. Unfortunately, current MPFS telehealth codes are not concise, delineating the specific kind of technology employed, the patient’s location, who initiates the service, the duration of the visit or communication, the time interval from prior or subsequent office visits, and the frequency of allowed billing for the service, among other characteristics. These parameters were established for payment purposes alone; they do not reflect useful clinical distinctions. Given ever-changing technology capabilities, codes quickly will become outdated. And if generous payments continue, the Centers for Medicare and Medicaid Services could feel compelled to impose additional burdensome—and ultimately ineffective—documentation requirements as these services proliferate. In short, post–COVID-19, using the standard MPFS to pay for 250 or more telehealth codes would likely produce a quagmire of confusion, inadvertent or intentional miscoding, and clinician and patient complaints while raising spending substantially.

Our proposed solution is to pay primary care practices lump sum payments to cover the cost of virtual telehealth care when there is an established, ongoing patient relationship. A pool of money rather than fee-for-service payments for telehealth communications would allow practices to determine how best to provide care outside of in-person visits while also reducing exorbitant billing costs. For primary care practices in Medicare, this telehealth lump sum payment could be folded into monthly per capita payments that are a central component in current primary care demonstrations, such as in the forthcoming Primary Care First model. The need for ongoing support for telehealth beyond the MPFS should be the catalyst for promptly moving primary care demonstrations currently available to few practices to national adoption.

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Article Information

Open Access: This is an open access article distributed under the terms of the CC-BY License.

Corresponding Author: Adele Shartzer, PhD, Senior Research Associate, The Urban Institute Health Policy Center, 500 L’Enfant Plaza, Washington, DC 20024 (ashartzer@urban.org).

Conflict of Interest Disclosures: Dr Shartzer and Dr Berenson work as part of the contract team supporting the Physician-Focused Payment Model Technical Advisory Committee (PTAC).

Acknowledgments: We would like to thank Maya Rao, George Washington University School of Medicine, for her expert research assistance. This article was not funded and is solely the view of the authors.

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Centers for Medicare and Medicaid Services. CY 2019 Utilization Data Crosswalk to CY 2021. Published August 4, 2020. Accessed August 10, 2020. https://www.cms.gov/medicaremedicare-fee-service-paymentphysicianfeeschedpfs-federal-regulation-notices/cms-1734-p
Ashwood  JS, Mehrotra  A, Cowling  D.  Uscher-Pines. Direct-to-consumer telehealth may increase access to care but does not decrease spending.   Health Aff. 2017;36(3):485-491. doi:10.1377/hlthaff:2016.1130Google ScholarCrossref
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    1 Comment for this article
    Providing mandatory interpreter services are also a cost
    Douglas Blayney, MD | Stanford University Cancer Institute
    Many of my patients speak no or limited English. It's not only good communication practice to speak with the patient in the language in which they are most comfortable and proficient, but California law requires provision of an interpreter to non-English speakers (1) 

    In addition to the direct costs (interpreters make between $23-40 per hour), there are also indirect costs. If the interpreter is internal, there are indirect overhead costs associated with their employment. If the interpreter is employed by an outside service, the service also adds indirect costs.

    There are also indirect
    costs on the provider team -- conversations take twice as long, as every question and answer and explanation must be repeated -- which reduces efficiency. Another drag on efficiency is setting up the interpreter service for the visit. This must be done frequently as each visit is often conducted in a different language. Each drag on efficiency adds indirect costs, and raises the cost of providing the service.

    These direct and indirect costs should be added to the reimbursement formula.


    1. https://www.dmhc.ca.gov/HealthCareinCalifornia/YourHealthCareRights/LanguageAssistance.aspx#rights