Payers would, for example, have to determine whether to pay the same rate for a service (e.g., psychiatric consultation) regardless of the mode of service (e.g., office visit versus telemedicine) or to set special rates for telemedicine. If special rates were negotiated, the amounts could depend on the payer's leverage vis-à-vis the provider, with the provider wanting rates as high as possible and the payer wanting rates as low as possible.
For physician payment rates based on resource costs (e.g., the Medicare relative value scale or RVS), a payer could set a higher payment rate for a telemedicine service if that service were more expensive to provide than alternatives and if the benefits were judged to be worth the extra costs. Conversely, if a telemedicine service were less expensive to provide than the alternative, the payer could lower the payment rate for telemedicine.
If payment rates exceed providers' costs, providers will be more inclined to use telemedicine in discretionary situations. This situation has characterized other innovative technologies and is inherent in the incentives of fee-for-service payment. Although payers may establish mechanisms to monitor appropriate utilization, such efforts have often proved difficult or unsatisfactory for a variety of clinical, administrative, political, and financial reasons (PPRC, 1988; IOM, 1989).
One alternative to traditional fee-for-service payment is payment of a fixed rate for a package of related services. This method has long been used for surgical services, for which one global payment covers physician services before, during, and after a procedure such as coronary artery bypass (CBO, 1986; OTA, 1986b; PPRC, 1987).