payment for telemedicine services, however, needs to recognize the role of private policymakers in insurance companies, managed care plans, and similar organizations. In particular, the growth of private managed care organizations that use capitation or salaries to pay for physician services is likely to reduce the focus on fee-for-service payment, particularly should Congress undertake a major overhaul of Medicare designed to move more beneficiaries to such organizations.

In both public and private sectors and regardless of payment method, the major issue for policymakers and managers is whether any additional benefits provided to patients by telemedicine are worth any additional costs, including costs of possible increased use of both appropriate and inappropriate health services. Another issue is whether it is appropriate to ask patients to pay some or all of any higher costs associated with a particular telemedicine service, particularly if that service is more convenient for patients but adds to total health care costs.

The following discussion considers three major types of payment schemes: fee-for-service; per case or bundled rates; and capitated or fixed budget payments. Although a specific payer's policies can blur the boundaries, these are still useful distinctions for policy discussions. Chapter 7 presents a fuller analysis of economic issues in telemedicine, including how to measure or estimate the actual cost of delivering telemedicine services and how to analyze cost impacts for different parties and decisionmakers.

Fee-for-Service Payment and Telemedicine

Despite the growth of other ways of paying for medical care, fee-for-service still dominates payment for personal health care services, and most payers relying on this method do not pay for most kinds of telemedicine consultations (Grigsby, 1995a). One of the major obstacles to coverage of telemedicine on a fee-for-service basis is the fear that costs would escalate because of higher use of both appropriate and inappropriate services and that utilization and quality review mechanisms would not be sufficient to control inappropriate use.

As a general policy, Medicare covers consultative services provided on a "face-to-face" basis and proscribes coverage for telephone consultations. The Health Care Financing Administration



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