Health Affairs: Is Direct-To-Consumer Telehealth Saving Money? | Healthcare Informatics Magazine | Health IT | Information Technology Skip to content Skip to navigation

Health Affairs: Is Direct-To-Consumer Telehealth Saving Money?

March 8, 2017
by Rajiv Leventhal
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A key finding of the study is that consumers who might not have gone to the doctor’s office were utilizing telehealth services, thus increasing healthcare spending

Supporters of telehealth attest that one of its major potential benefits is cost savings due to being able to replace physician office and ED visits. But new research published in Health Affairs has found that while direct-to-consumer telehealth may increase access by making care more convenient for certain patients, it may also increase utilization and healthcare spending.

Health policy researchers from the RAND Corporation, Harvard Medical School and the California Public Employees’ Retirement System, used commercial claims data on over 300,000 patients from three years (2011 to 13) to explore patterns of utilization and spending for acute respiratory illnesses. They estimated that 12 percent of direct-to-consumer telehealth visits replaced visits to other providers, and 88 percent represented new utilization. But they also found that net annual spending on acute respiratory illness increased $45 per telehealth user.

The researchers noted that direct-to-consumer telehealth companies such as Teladoc, American Well, and Doctor on Demand offer patients with minor illnesses around-the-clock access to a physician via telephone or videoconferencing on their smartphone, tablet, or laptop. As such, the growth in direct-to-consumer telehealth appears to be accelerating. There were a reported 1.25 million direct-to-consumer telehealth visits in 2015, and Teladoc, for one, reported that in that year it provided roughly 600,000 visits—a volume almost double that of the previous year.

Indeed, one of the key attractions of direct-to-consumer telehealth for employers is the potential cost savings. Direct-to-consumer companies argue that they save money for health plans, employers, and patients by replacing costly visits to physician offices and EDs with a $40 to $50 telehealth visit. Furthermore, patients who use direct-to-consumer telehealth can avoid time and travel costs, including time off from work, that are associated with seeking in-person care. “However, the impact of direct-to-consumer telehealth on spending has not been rigorously assessed until now,” the researchers stated.

Nonetheless, they continued, while it is clear that the reimbursement for a direct-to-consumer telehealth visit is lower than that for a physician office or ED visit, there are two potential concerns that they outlined. The first is that if the direct-to-consumer telehealth visit is more likely to result in follow-up appointments, testing, or prescriptions, compared to similar visits to other settings, direct-to-consumer telehealth could increase spending. The second concern is that the convenience of direct-to-consumer telehealth may drive many patients to seek care for an illness who would not have sought care if telehealth had not been available.

Utilization versus Substitution

For the study, medical claims were studied for beneficiaries of the California Public Employees’ Retirement System (CalPERS), a large California public employee benefit organization, which began offering Teladoc to selected members in 2012. Researchers compared the per-episode cost of visits to Teladoc and the cost of visits to physician offices and EDs. They also estimated what fraction of Teladoc visits for low-acuity conditions represented substitution versus new utilization.

The results showed that per episode, telehealth visits were about 50 percent of the cost of a physician office visit and less than 5 percent of the cost of an ED visit. However, the vast majority of telehealth visits for acute respiratory infections were new utilization rather than substitution. Within this study’s sample population, this means that if a person was going to stay at home and not utilizing a healthcare service at all, such as going to the doctor, that person would contact a telehealth company for the care received, thus increasing the overall cost, the study found.

The savings from substitution were outweighed by the increase in spending for the new utilization, and per enrollee spending on acute respiratory infection treatment was higher among telehealth users, compared to non-users. This pattern of greater spending for telehealth users remained even after they accounted for time costs to patients for traveling to and completing healthcare visits.

The researchers noted that companies such as Teladoc and American Well argue that direct-to-consumer telehealth visits are less expensive on a per episode basis. They also argue that roughly 10 percent of telehealth visits represent new utilization, while the researchers estimated that roughly 90 percent represented new utilization. As such, why are the results on the impact on spending so different from those reported by direct-to-consumer telehealth companies?

According to the study, the estimates from the companies come from surveys in which users reported that they would have done nothing if direct-to-consumer telehealth had not been available to them (that is, they would have waited to get better or self-medicated at home without seeking care). Retrospectively surveying direct-to-consumer telehealth users is likely influenced by several cognitive biases, including recall bias, hypothetical bias, social desirability bias, and the consistency principle, the researchers concluded.

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