The Telehealth “Top Ten” for 2015
Aug 24, 2015 Top Ten Download PDF
By Nathaniel M. Lacktman, Partner, Foley & Lardner LLP
1. Rapid Growth of Telehealth Investment Activity
Telehealth (and its cousin mHealth) represents the most rapidly growing sector in the healthcare industry. Excitement about this growth is reflected in the concurrent growth in interest in telehealth technologies in the venture capital market. Telehealth provider group, Teladoc, held an IPO this year with favorable results. Private equity and venture capital continue to invest in telehealth and digital health innovation, as the number of incubators and accelerators grows.
U.S. employers spend approximately $620 billion annually on health care benefits, and investors recognize the role that technology plays in reducing costs. According to Rock Health, a start-up incubator, funding for digital health care technology companies exceeded $4.1 billion in 2014 (125% year over year growth) with over 295 deals closed and an average deal size of $14.1 million. The first six months of 2015 already yielded over $2.1 billion in funding, with no signs of slowing down. As telehealth technology use increases within the health care industry, it will continue to generate interest within the investment community.
2. Cross-Border Licensure and the Interstate Medical Licensure Compact
With a virtual health platform, the geographic restrictions of brick and mortar clinical practices begin to lose their meaning. Telehealth providers can seamlessly offer services across state and national borders; but they need to be cognizant of the fact that they are generally subject to the state and/or national laws of the places where their patients are located. Moreover, in the heavily regulated healthcare industry, business models and contractual arrangements that work in one state will not necessarily work in other states. There are specific exceptions and some business strategies and models that have been built on those exceptions, but the majority of "direct to patient" arrangements, for example, will require the physician to be licensed in the state where the patient is located at the time of the consult.
2015 saw notable efforts to streamline and simplify physician licensing across state lines. Perhaps the most important example gaining traction is the Federation of State Medical Boards' Physician Licensure Compact. Under the Compact, participating state medical boards would retain their licensing and disciplinary authority, but would agree to share information and processes essential to the licensing and regulation of physicians who practice across state borders. The Compact would function like the Nurse Licensure Compact currently in operation in approximately 24 states. The Physician Licensure Compact has received significant support, and at least 10 states have completed the process necessary to bring it to adoption once it becomes effective.
3. Expansion of Telehealth Commercial Insurance Coverage
Nationwide, states have begun to enact laws requiring commercial health plans to cover medical services provided via telehealth to the same extent they cover medical services provided in-person. These laws are intended to promote innovation and care delivery in the private sector by encouraging health care providers and plans to invest in and use the powerful telehealth technologies available in the marketplace. Currently, 29 states plus the District of Columbia have enacted commercial payment statutes, and similar bills are in development (or process) in several states. In 2015, the Telehealth Association of Florida was created in an effort to develop a focused voice for legislative change, and providers in Massachusetts have continued to work for a legislative approach to open the commercial market with payment parity with no fewer than six telehealth bills offered for discussion.
Many hospitals and health care providers already offer telehealth services, and patients have been able to access virtual care as part of these health care delivery models. But these laws are expected to drive the commercial insurance market to expand telehealth coverage, allowing telehealth to be enjoyed by more patients across the country. Successes in these 29 states will signal the promise of telehealth coverage and payment parity as the remaining 21 states consider their own legislation.
4. Telehealth and New Payment Approaches
Telehealth technology is particularly suited to alternative payment methodologies because it allows providers to better manage risk. Under a traditional fee-for-service (FFS) payment model, the payor bears almost all of the risk because providers get paid each time they perform a service. A provider has little incentive to manage the patient's health and the associated costs of care. Indeed, compensating a provider on a FFS basis incentivizes the provider to perform more services for more patients, as that is the only way for the provider to generate more revenue.
Under capitated, shared savings, or hybrid alternative payment models, the risk associated with over-used and high cost services is borne by the provider, who is responsible for managing the health of his/her/its patient population (hence the trending term "population health management)". To manage risk, the provider is best served by practicing the "new" old-fashioned way: increased communication with patients, meaningful information exchange, periodic monitoring, and fostering a strong "doctor/provider-patient relationship". Telehealth is a powerful tool to accomplish this because it reduces barriers to accessing care, increases the convenience and likelihood a patient will communicate with the doctor, offers inexpensive remote patient monitoring tools to give the provider a stream of health information, draws on data mining, brings the doctor to the patient, and leverages specialist physician expertise. The increased patient 'touches' plus meaningful health information exchange allows providers to better assess and treat patients' health on a long-term horizon. These are just a few ways telehealth technology allows providers to manage risk far better than traditional bricks and mortar practices. In that sense, telehealth is the innovation of blending high-tech tools with "old-fashioned" doctor-patient relationships.
5. Medicare Telehealth-Based Chronic Care Management
Effective January 1, 2015, telehealth-based Chronic Care Management (CCM) is a new service covered by Medicare. It is perfectly suited for telehealth, as CCM may be provided via remote care services. CCM is another way providers can harness telehealth technology to leverage staffing, improve patient care, increase doctor-patient contact, decrease inpatient length of stay, and ultimately reduce overall patient costs. The CCM billing code (CPT 99490) pays providers on a monthly capitated (per patient per month) basis. Hospitals and physician using telehealth to develop patient population health and care coordination services are taking a serious look at CCM billing, as are third party companies experienced in chronic care services and now looking to offer contracted CCM services on a telehealth platform.
6. U.S. to China International Telemedicine Arrangements
U.S. companies continue to look abroad for telehealth opportunities, particularly in China. They are exploring both institutional arrangements and direct-to-patient service offerings such as internet-based medical consultations and online second opinions. China is anxious to promote and grow telemedicine, but U.S. companies must be sensitive to the differences on how government authorities in China define and regulate these offerings.
The National Health and Family Planning Commission of the People's Republic of China (NHFPC) recently published guidelines regarding telemedicine services in China. The documents include the Interpretation and the "Opinions of the National Health and Family Planning Commission Regarding Promoting Medical Institutions' Telemedicine Services," reflecting China's efforts to promote the adoption and use of telemedicine in the country. These Opinions are extremely useful for U.S. providers to understand some of the expectations China regulators hold for international telemedicine arrangements. Six months later, the NHFPC issued a new document, outlining an ambitious plan to build a uniform national telemedicine service network in China. The document, "Technical Guideline for Telemedicine Information System Construction (2014)" (Technical Guidance), is a visionary 200-page blueprint for the creation of an interoperable, uniform service network in China, designed to allow China patients and medical institutions to enjoy seamless telemedicine services anywhere in China.
The opportunities for growth in telemedicine services in China's healthcare system are evident. U.S. businesses undertaking projects or contemplating Internet-based healthcare-sector opportunities in China should take steps to assess the legality and compliance issues associated with these projects. Taking steps now to develop proper international arrangements can position providers to best harness these growth opportunities.
7. Telehealth and the Medicare Access and CHIP Reauthorization Act
Telehealth was one of the beneficiaries of changes introduced by the so-called "doc fix" bill, formally titled the Medicare Access and CHIP Reauthorization Act (H.R. 2). The legislation was passed by Congress on April 15, 2015 and signed into law on April 16, 2015. It introduced sweeping changes to the reimbursement methodologies and financing of health care in the United States, including a notable shift away from the traditional fee-for-service model, a shift towards Accountable Care Organizations and risk-based payment, and a focus on quality and population health.
In the Act, telehealth and remote patient monitoring are expressly recognized as, and included in the definition of, "Clinical Practice Improvement Activities" along with care coordination, population health management, and monitoring of health conditions. Moreover, new "Alternative Payment Models" may include payment for telehealth services, even if the services are not otherwise covered by the traditional Medicare program. The Act requires the GAO to conduct a study on telehealth and the Medicare program, and a second study on remote patient monitoring and the Medicare program, publishing both reports no later than April 2017.
8. Telehealth Apps and HIPAA
With the 2014 and 2015 changes in FDA's guidance on mHealth apps and medical devices, many telehealth app developers appear to be focusing their "regulatory" attention primarily on whether (or not) their app is a "medical device". Less attention appears to be focused on the applicability to their products of privacy and security rules, which are not limited to the rules promulgated pursuant to the Health Insurance Portability and Accountability Act ("HIPAA").
In reality, an app developer frequently is not a Covered Entity subject to HIPAA rules, and in many apps, the developer is not a Business Associate either. The specifics depend on the nature and function of the app itself. But simply because an app collects identifiable, health-related data, it does not mean that the app is subject to HIPAA. Similarly, a wearable health app used by a consumer is not necessarily subject to HIPAA, nor is a medication-adherence app for patient self-use. But that does not end the story; and addressing privacy and security issues should definitely be on the "to do" list of any telehealth app developer's business plan.
For example, these apps may be subject to Federal Trade Commission oversight and its "unfair acts" power. In addition, state law may apply, particularly if the developer intends the app to be used in multiple states across the country. Many states have enacted their own state law privacy and security statutes, and they frequently apply to a much broader scope of activities than HIPAA. An app developer can easily be subject to state privacy and security laws, even if it is not a Covered Entity or Business Associate and not subject to HIPAA rules.
9. Physician Employment Models and the Uberization of Healthcare Services
Many telehealth companies, particularly those with multi-state footprints, have embraced the uber concept of an on-demand service economy. Some utilize an independent contractor model to develop one or more networks of physician providers, and thereby ensure that the company has access to the services of licensed physicians in each of the states in which the company plans to offer services. An independent contractor model (using 1099 contractors) can help keep overhead costs relatively low because contractor status helps the company avoid taking on some of the financial and reporting obligations of a "W-2/employment model" enterprise. An independent contractor model also offers flexibility and scalability when the company wants to begin providing services in new states with initially lower patient encounter volumes.
The June 2015 OIG Fraud Alert on Physician Compensation Arrangements served as a reminder that physician contracts must comply with fraud and abuse laws, and that independent contractor arrangements do not enjoy the same flexibility as bona fide employment arrangements under the Employment Safe Harbor to the Anti-Kickback Statute. But another question that has begun to arise for companies using an independent contractor, on demand service model is whether regulators will start to claim that those contractors are really employees.
Teladoc's S-1 filing issued in connection with its IPO describes how the telemedicine company uses an independent contractor model with its healthcare providers. Teladoc asserted the arrangement is a valid independent contractor relationship, but noted as a risk area that "tax or other regulatory authorities may in the future challenge our characterization of these relationships." Telehealth companies can look to IRS Revenue Ruling 87-41, 1987-1 CB 296, where the IRS enumerates 20 factors used to determine whether a worker is properly characterized as an independent contractor or an employee. These factors provide a general framework for examining both types of relationships. If a regulator or court were to determine that a company's independent contractors were actually employees, the costs to the company would be significant. The company would be required to withhold income taxes, to withhold and pay social security, Medicare and similar taxes, and pay unemployment and other related payroll taxes (to say nothing of unpaid past taxes and penalties). Companies should take the time to carefully craft their independent contractor agreements under the IRS guidance, particularly if they plan to roll out contracts on a widespread basis for an on-demand telehealth model.
10. Remote Prescribing of Controlled Substances
While virtual consults, diagnoses, and treatment recommendations are gaining widespread acceptance, remote prescribing remains an area of concern for state medical boards, and a number of states require an in-person examination of the patient prior to issuing a prescription. When it comes to DEA controlled substances, however, the issue is becoming red hot as 2015 saw one of the first instances of a DEA action against a physician (located in Dallas) for remote prescribing in an otherwise clinically-acceptable telepsychiatry arrangement. At the same time, the Fifth Circuit Court of Appeals is examining the Fourth Amendment implications and appropriateness of the DEA's use of administrative subpoenas of medical records as a means to investigate physicians for criminal prescribing violations, despite never obtaining a search warrant. A DEA victory in that case might allow it to use administrative subpoenas to examine the medical records of telemedicine prescribers to determine whether or not the prescriber complied with the federal Ryan Haight Act.
Federally, remote prescribing of controlled substances is governed by the Ryan Haight Act. The Act and its implementing regulations require a physician to conduct at least one in-person medical evaluation of the patient before prescribing any controlled substances remotely. Once the prescribing practitioner has conducted an in-person exam, the regulations do not set an expiration period or a minimum requirement for subsequent annual re-examinations. Several states expressly permit remote prescribing of controlled substances, but the federal Act preempts state law. The Act contains certain exceptions for telemedicine practice, but none of the exceptions (drafted in 2008 before telehealth's recent rapid evolution and refinement) cover the direct-to-patient virtual care model widely used in telemedicine, most notably telepsychiatry, where medical management of mental health is accepted and utilized.
The Act includes a process for a telemedicine special registration that, despite being enacted seven years ago, the DEA has not made available for prescribers. Change may be afoot, as Congressional Committees have instructed the DEA to open this special registration process and make it available to telehealth prescribers. In Spring 2015, the DEA announced it will issue a proposed rule to enable a telemedicine special registration. This is a key development for telemedicine prescribers to monitor in 2015. Note, though, telemedicine prescribers should continue to also be mindful of prescribing requirements under applicable state laws.
About the Author:
Nathaniel Lacktman is a creative healthcare regulatory, compliance and business lawyer with a particular focus on telemedicine, telehealth, and innovative healthcare arrangements and offerings in the U.S. and Internationally. His practice emphasizes strategic counseling, business modeling and fresh approaches to realize clients' ambitious and exciting goals. A partner at Foley & Lardner LLP, he is listed in 2013, 2014 and 2015 Chambers USA: America's Leading Business Lawyers. He is the co-chair of the AHLA Telemedicine and eHealth Affinity Group, Chief Legal Counsel to the Telehealth Association of Florida, and a frequent speaker and author at the American Telemedicine Association. Follow him on twitter @Lacktman
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