4
The Policy Context of Telemedicine

In their early days, most telemedicine programs had relatively low profiles politically. Clinical applications generally did not cross state borders, or if they did, they involved federal government agencies that were not bound by state licensure or liability policies. The programs did not provoke much legal controversy at either the state or federal level, and decisionmakers, evaluators, and advocates did not appear immediately concerned with possible jurisdictional problems (Shinn, 1975).

Today, even though interstate telemedicine is not necessarily a high priority for many users or potential users, jurisdictional issues relating to licensure and medical liability are generating considerable debate and anxiety. Privacy and confidentiality have emerged as significant policy issues as computer-based patient information systems and databases have proliferated. Public and private policies regarding payment for telemedicine services are regarded by many advocates of telemedicine as a major obstacle. Whether and how such policy concerns are resolved can affect both the benefits and the costs of telemedicine and, thus, the sustainability of telemedicine programs.

At the same time that some governmental policies have posed problems for telemedicine, others have been devised specifically to encourage telemedicine. Such policies include demonstration project



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--> 4 The Policy Context of Telemedicine In their early days, most telemedicine programs had relatively low profiles politically. Clinical applications generally did not cross state borders, or if they did, they involved federal government agencies that were not bound by state licensure or liability policies. The programs did not provoke much legal controversy at either the state or federal level, and decisionmakers, evaluators, and advocates did not appear immediately concerned with possible jurisdictional problems (Shinn, 1975). Today, even though interstate telemedicine is not necessarily a high priority for many users or potential users, jurisdictional issues relating to licensure and medical liability are generating considerable debate and anxiety. Privacy and confidentiality have emerged as significant policy issues as computer-based patient information systems and databases have proliferated. Public and private policies regarding payment for telemedicine services are regarded by many advocates of telemedicine as a major obstacle. Whether and how such policy concerns are resolved can affect both the benefits and the costs of telemedicine and, thus, the sustainability of telemedicine programs. At the same time that some governmental policies have posed problems for telemedicine, others have been devised specifically to encourage telemedicine. Such policies include demonstration project

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--> funding, technical assistance, research, and telecommunications infrastructure development that supports an array of applications, in particular, distance education. Public policies, thus, present a mixed picture of incentives and disincentives for telemedicine that those contemplating telemedicine programs have good reason to examine carefully. Evaluators likewise may reasonably consider whether policy-related variables should be factored into evaluation plans. They may, for example, want to be alert for changes in a telemedicine program intended to achieve consistency with state or federal policies; enlarge the array of benefits, risks, and costs to be assessed; extend the search for possible determinants of telemedicine's acceptability, affordability, and even availability to clinicians, patients, and others; and investigate a broader range of practitioner or patient concerns about specific policy issues (e.g., privacy and confidentiality) to assess how well issues are understood and how important they are. As additional context for the evaluation framework presented later in this report, this chapter examines several key policy issues. The first two sections briefly review federal and state initiatives to promote telemedicine either directly or as part of more general efforts to encourage communications and information technologies. The next three sections discuss professional licensure, malpractice, and the privacy and confidentiality of personal medical information. The final two sections consider telemedicine payment policies (a topic that covers both public and private actions) and the regulation of medical devices. Because it was not part of its charge, the committee did not make recommendations about the policy issues discussed here. National Communications And Information Infrastructure Policy The most newsworthy recent federal action affecting telemedicine is the Telecommunications Bill of 1996, a broad and far-reaching reform of communications law that is expected to alter dramatically

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--> the telecommunications industry (Andrews, 1996). Among other changes, it allows long-distance telephone companies, cable companies, and other firms to compete with local phone companies, and local phone companies can, under some conditions, compete in the long-distance markets. Most rates for cable television will be deregulated within a period of three years. Of greatest immediate relevance for telemedicine are provisions of the legislation directed specifically at assuring universal communications services at affordable rates for rural, high-cost, or low-in-come areas. One provision (Section 101 of the bill) states that "a telecommunications carrier shall … provide telecommunications services which are necessary for the provision of health care services in a State, including instruction relating to such services, to any public or nonprofit health care provider that serves persons who reside in rural areas" at rates comparable to those charged in urban areas. Telecommunications providers in rural areas are to be compensated through a fund designed to promote universal access to modern telecommunications services. This provision will be interpreted by regulations developed by the Federal Communications Commission. Other more general provisions of this major legislation may have quite significant implications for telemedicine, but their effects are difficult to predict very precisely at this early point. Congressional interest in telemedicine is reflected in Senate/House Ad Hoc Steering Committee on Telemedicine, which sponsors brown bag lunches and other events for members and staff interested in telemedicine. The group cosponsored a 1994 conference to develop a consensus agenda for telemedicine and health informatics (Bashshur et al., 1994). During the 103rd Congress, at least 22 pieces of legislation specifically related to telemedicine were introduced (Telemedicine Monitor, 1995). Most explicitly or implicitly supported telemedicine in one way or another. In the first 15 months of the 104th Congress, telemedicine figured in at least 15 pieces of proposed legislation (Arent Fox, 1996). These proposals would, among other things, fund additional pilot projects, establish a commission on telemedicine, and include some telemedicine applications in health insurance reforms. Despite such positive signs, telemedicine was still targeted for a share of budget cuts as part of House and Senate proposals to eliminate the federal deficit.

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--> More generally, as discussed in Chapter 1, telemedicine is just one element of a developing National Information Infrastructure (NII) that combines telecommunications and information technologies (Lindberg and Humphreys, 1995b). The White House has sponsored a major NII initiative to identify and resolve policy questions and speed the development and dissemination of information and telecommunications technologies not only in the government but also throughout the private sector in manufacturing, commerce, education, health care, and other areas. An Information Infrastructure Task Force, led by the Department of Commerce, has the lead in coordinating activities related to the NII initiative. It created the Health Information Applications Working Group that, in conjunction with the Department of Health and Human Services, established the Joint Working Group on Telemedicine, chaired by the deputy director of the Office of Rural Health Policy (Puskin et al., 1995).1 As discussed further in Chapter 5, one objective of that group has been to develop a broad evaluation framework for various federally funded demonstration projects and other telemedicine activities. The working group also has several additional areas of activity related to policy issues, safety standards, managed care, and development and maintenance of a telemedicine project inventory. Another closely related federal enterprise is the High Performance Computing and Communications (HPCC) program (Lindberg and Humphreys, 1995a,b). This initiative emphasizes basic research and advanced technologies and networks. Some projects involve telemedicine and other health applications such as virtual reality tools for guiding or performing surgical procedures, computer-based patient records, and digital imaging software. These applications may raise a variety of regulatory issues, for example, FDA regulation of medical devices for safety and effectiveness. In addition to these initiatives, several federal agencies have funded various kinds of demonstration projects intended to promote more specific agency agendas such as rural economic development. Appendix A provides information on several of these projects. 1   The group includes representatives from various Cabinet departments, including Agriculture, Commerce, Defense, Health and Human Services, and Veterans Affairs, as well as from such other government units as Office of Management and Budget and the National Aeronautics and Space Administration.

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--> State Programs And Initiatives Although some state policies or proposed policies have been viewed as barriers by those interested in making telemedicine applications less cumbersome, expensive, or risky, other state policies have directly supported telemedicine through legislation, demonstration funding, planning and coordination support, and other means (Lipson and Henderson, 1995; GAO, 1996). State initiatives in behalf of telemedicine have been concentrated in, but not limited to, the Midwest, Great Plains, and South. The objectives, scope, and depth of these initiatives are quite varied as are funding levels and sources. Some have focused primarily on medical education whereas others have emphasized service provision or support. The Western Governors Association (WGA) has expressed particular interest in initiatives to reduce some of the policy barriers to telemedicine described later in this chapter (WGA, 1995). Evaluators need to be concerned about state initiatives, particularly as they may affect analyses of the cost, cost-effectiveness, convenience, or sustainability of telemedicine. For example, major infrastructure projects may provide a more enduring base for ongoing programs than do one-time grants. As recently as 1992, only five states had explicit telemedicine planning or development efforts. According to a study undertaken by the Intergovernmental Health Policy Program (IHPP), the number was at least three times that in 1995, and additional states were considering action (Lipson and Henderson, 1995). The IHPP study, which covered 28 states, grouped states into five categories: (1) those with relatively well-developed state programs; (2) those with less well-developed programs; (3) those on the verge of program development; (4) those with some activities but no program; and (5) those with little or no state presence. Table 4.1 presents these categories with illustrative examples of state activities. Some states surveyed by the IHHP have active telecommunications programs to support rural schools and libraries, but they have not made medical linkages a state policy priority. For example, a recent General Accounting Office (GAO) report profiled three states, two of which, Iowa and North Carolina, have encouraged medical care as well as educational links whereas the third, Nebraska, has emphasized educational links by the University of Nebraska Medical

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--> TABLE 4.1 Categorization of 28 State Telemedicine Programs in 1995 with Examples Program Category States Relatively well-developed Georgia, Kansas, Louisiana, South Dakota, Texas Example: "Telemedicine has had a very evolutionary development in Texas. … Texas has funded several … telemedicine and distant learning projects while support for telemedicine has been building in the state's academic health centers and the state prison system. … [Public utilities legislation] promises to create a statewide telemedicine and distance learning system with the largest funding [from private telecommunications companies] ever available in a state. … As of 1995, the state is taking a very aggressive role in telemedicine." (p. 1-13) Less well-developed Iowa, North Carolina, Oklahoma, Oregon, Pennsylvania Example: "Apart from first establishing a network for distance learning that has been used for health applications, [Oregon's] role has been largely limited to funding for one specific program. However, Oregon, like the other states, has now taken action to establish a central planning role for all telecommunications. This action was necessary because of limitations in the current telecommunications infrastructure." (pp. 1-14 and 1-15) Near development Arkansas, New Mexico, Utah Example: "Utah launched into program development with no state planning. However, Utah has a range of technology and telecommunications activities that may lead to a more coordinated role for the state." (p. 1-15) Activities but no program California, Colorado, Kentucky, Virginia, Washington, West Virginia, Wyoming Example: "Virginia's authorization of a study on telemedicine may be a prelude to further state involvement." (p. 1-15) Little or no activity Arizona, Florida, Idaho, Maine, Minnesota, Montana, Nebraska, Ohio NOTE: A number of the 22 states not categorized do have some policies or activities related to telemedicine. SOURCE: Lipson and Henderson, 1995.

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--> Center, which was the site of some of the earliest medical education experiments with telemedicine, as described in Chapter 2 (ORHP, 1993b, and GAO, 1996). In addition, some states not surveyed for the IHHP study do have some level of state support for telemedicine. For example, the state of Maryland's trauma system includes telemedicine applications, which were discussed with the committee during a site visit. More states can be expected to develop policies on telemedicine in the future. Professional Licensure And Distance Medicine Telemedicine challenges the traditional view of professional practice as involving a face-to-face encounter between clinician and patient. This encounter made "the place where medicine was practiced, and who was practicing, … obvious" (Gilbert, 1995b, p. 28). Telemedicine breaks that physical link and thus complicates decisions about where a telemedicine practitioner should be licensed if the practitioner and patient are located in different states.2 Many telemedicine programs are not affected by these complications because they operate entirely within a single state. In addition, telemedicine programs operated by the federal government are not restricted by state licensure laws. For example, clinicians and managers working in the military, the Department of Veterans Affairs, the U.S. Public Health Service, and the federal prison system can proceed with cross-state tests and applications of telemedicine without concern about state challenges or penalties. Current Policies In the United States, the responsibility for licensing and otherwise regulating health professionals lies with state governments. States originally adopted licensure laws and objective criteria for entry into designated health professions to protect people from charlatans and untrained individuals holding themselves out as qualified 2   This discussion draws on Gilbert, 1995a,b,c; Granade, 1995a,b,c; McIlrath, 1995a; Young and Waters, 1995. In addition, Francoise Gilbert (letter, March 25, 1996) and Leo Whalen (letter, March 24, 1996) reviewed the text and made a number of helpful suggestions.

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--> medical personnel. All states require physicians, nurses, dentists, and certain other health care personnel to be licensed by the state to practice their profession. The penalties for practicing medicine without a license are significant and may include criminal as well as civil penalties. State laws, which were adopted long before the advent of modern telemedicine, also require any out-of-state physician who diagnoses or treats a patient in the state to be licensed in that state. Most states, however, provide an exception that allows physicians licensed in that state to consult with the licensed physicians from other states (and sometimes other countries). This exception is intended to allow patients to have access to the talents and expertise of physicians from other states without having to travel to those states. State consultation exceptions are not uniform. Some exceptions are broadly stated, but others limit the exception to one-time or occasional consultations or include other restrictions. Generally, consultation provisions do not appear to offer protection for an out-of-state clinician unless a consultation is requested by or otherwise involves an in-state clinician. A few states, including Louisiana and Pennsylvania, do not have an explicit consultation exception. Recently, some states have amended or are considering amending their physician licensing statutes (or changing the interpretation of existing statutes) to prohibit out-of-state physicians from practicing without a license in that state (Gilbert, 1995b; Young and Waters, 1995; Richardson, 1996).3 Indiana, Texas, South Dakota, and Nevada have enacted statutes that require out-of-state telemedicine providers to be licensed in those states. The Texas statute states that "a person who is physically located in another jurisdiction but who, through the use of any medium, including an electronic medium, performs an act that is part of a patient care service initiated in this 3   Such restrictions have also been aimed at utilization management programs that require that proposed hospitalizations or medical procedures be reviewed or certified in advance as "medically necessary" to qualify for insurance coverage. Many of these programs are operated by national or regional firms that concentrate in one or a few locations the physicians, nurses, clerks, or other personnel who review or certify services for coverage. The contention is that these activities, especially when coverage is not certified, constitute the practice of medicine, and, therefore, they must be undertaken by physicians licensed to practice within the state in which the patient resides (Field and Gray, 1989; Gosfield, 1991).

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--> state … and that would affect the diagnosis or treatment of the patient, is engaged in the practice of medicine in this state for the purposes of this Act" (Texas HB 2669, amending the Texas Medical Practice Act, Article 4495b of the Texas Civil Statutes). The amended statute does not contain a narrow exception for "episodic" consultations with physicians in the same medical specialty. Other states, such as Florida, have narrowed statutory consultation exceptions by administrative regulation or by interpretation. In a widely cited action in May 1994, the Kansas Board of Healing Arts adopted a regulation requiring that—except as authorized by statute—any person "regardless of location" must be licensed in Kansas if he or she "treats, prescribes, practices, or diagnoses a condition, illness, ailment, etc., of an individual who is located in Kansas" (Kansas Regulation 100-26-1). The Kansas legislature, however, has not amended the statutory consultation exception (Kansas Statute 65-2802), which exempts from licensing out-of-state physicians engaged in the healing arts in consultation with a licensed Kansas physician. Thus, the effect of the Kansas regulation is not entirely clear. Restrictive state positions have been challenged by those who argue that a telemedicine service involving an out-of-state clinician does not involve the practice of medicine in the state where the patient is located. In this view, the situation is simply equivalent to a medical visit for which the patient travels physically rather than electronically to another state. To date, this perspective has not prevailed. If a reliance on state consultation provisions does not appear possible or prudent and if a telemedicine practitioner believes it necessary or sensible to seek licensure in other states, the requirements for doing so will vary from state to state. Some states provide for licensure by endorsement, which means they will grant a license to a clinician already licensed by another state with equivalent or stricter requirements. Licensure by endorsement may not, however, be easy. For example, South Carolina requires "a fee; two photos; an application completed in part by the physician's medical school, the state or national board which issued the original certificate by written exam, and if possible a medical society; the signatures of three South Carolina licensed physicians if at all possible; and a personal appearance by the applicant before the medical board" (Granade, 1995a, p. 6).

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--> Issues Why do licensure requirements create problems for clinicians and organizations involved in telemedicine practice across state lines? First, obtaining a professional license involves some expense, including initial and renewal licensing fees. Some states require a face-to-face interview, which entails expenses for travel. Second, obtaining and maintaining multiple licenses can involve considerable time, research, and paperwork, which may, in turn, involve additional expenses (Collins and Charboneau, 1993). Because requirements for licensure vary from state to state, new analyses have to be undertaken and new forms completed for each state in which a clinician expects to provide telemedicine services. Moreover, requirements for maintaining a license also vary with respect to the time intervals for relicensure, provisions for continuing medical education, and other matters. Third, licensure typically brings with it a number of obligations with which clinicians must be familiar. Although broadly similar, state laws may vary on specific points, such as confidentiality requirements (Eid, 1995). For example, Colorado and Minnesota "require doctors to disclose to the state the names of HIV-positive patients' sexual partners, [while] New York and California say those names can't be disclosed" (Richardson, 1996, p. A8). California gives individuals the right to review their medical records, but Maryland does not (Eid, 1995). What would be the situation of a Maryland patient with a California telemedicine consultant?4 Many of the current practical burdens of multiple licensure could be eased for individual practitioners if health care institutions assisted with expenses and provided administrative support as costs of doing business. Moreover, the development of national practitioner databases should make access to information about physicians much easier, although concerns about the accuracy and importance of included data have made such databases controversial. Nonetheless, the ultimate responsibility for adhering to licensure requirements resides with the clinician. 4   Further complicating the legal picture for telemedicine practitioners and programs is the still unresolved question of where a telemedicine patient's records should be kept (e.g., at the distant consultant's office or the local attending's office) and in what form (Gilbert, 1996).

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--> Policy Options Some advocates of telemedicine have suggested national legislation that would either create a national telemedicine license (on grounds that it is a form of interstate commerce) or replace state licensure with a national system (Bashshur et al., 1994; Sanders and Bashshur, 1994; Richardson, 1996). The latter concept, national licensure, has surfaced periodically in response to concerns about physician maldistribution, underserved areas, constraints on professional mobility (especially for dual-career couples), and anticompetitive professional practices. To date, resistance at the state level has been sufficiently strong to limit the progress of such proposals. Today, with federal authority under attack on many fronts (e.g., Medicaid and welfare policies) and renewed advocacy of states' rights, the prospects for national licensure would appear dim. In the future, however, if telemedicine proves itself despite regulatory obstacles, the constituency for change—especially in the form of a national telemedicine license under the Commerce Clause of the Constitution—could become strong enough to prompt national action.5 Other policy options were recently described in an analysis for the Western Governors Association (WGA) (Gilbert, 1995b). These options, several of which could be adopted by states voluntarily, include explicit exemption of telemedicine consultations under specific conditions (e.g., at the request of an in-state physician or when an in-state physician is physically present); determination by an authoritative state body that no additional license is required under the concept that telemedicine is analogous to consultations involving the physical transport of patients across state boundaries; determination by an authoritative state body that no additional license is required because the referring physician remains responsible for the patient; 5   For example, large multistate employers secured passage of the Employee Retirement Income Security Act to override state laws regulating most employer-provided retirement, health, and other benefits.

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--> patient record, large health databases have been created to provide easy electronic access to much personal medical information (IOM, 1994b; Gelman, 1995; Borzo, 1996b). These databases, some of which are community-based and others of which are proprietary, serve a variety of users and uses, including management of health care organizations and health plans; provider payment; employee benefits management; insurance marketing and underwriting; health services research; and health industry market research. In many instances, such uses of health information are essentially unregulated. Also largely unregulated is the private market for individual social security numbers that are used as identifiers in a wide variety of health and nonhealth applications involving medical, financial, credit, educational, and other records (Flynn, 1996). Policy Options In response to growing concerns about threats to medical privacy and confidentiality, several proposals have been put forth to substitute a uniform national policy for the current "patchwork" of state laws, many of which offer little if any protection to individuals, especially from actions by nonclinicians. As indicated in the discussion of licensure, the diversity of state laws poses a challenge for telemedicine because consultants may be held responsible for knowing and adhering to different laws for every state in which they consult. During the unsuccessful health care reform initiative following the 1992 presidential election, a task force drafted privacy protections as part of proposed legislation (the Health Security Act of 1993). The IOM and the Office of Technology Assessment (OTA) also proposed several provisions to be considered in designing privacy legislation for health information (OTA, 1993; IOM, 1994b). More recently, the Medical Records Confidentiality Act (S. 1360) and the Fair Health Information Practices Act (H.R. 435), both introduced in 1995, and the Medical Privacy in the Age of New Technologies Act of 1996 (H.R. 3482) would establish certain federal privacy protections and regularize certain procedures for the routine collection, maintenance, distribution, and use of personal medical information. S. 1360 would require patient authorization for disclosures of information for purposes of medical treatment or payment; allow patients to obtain, copy, and correct their records;

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--> provide civil and criminal penalties for unauthorized disclosure of patient records; require that records be kept of disclosures of patient data; and require the Department of Health and Human Services to draft standards for organizational protection of personal medical information. Under certain conditions, the proposal would also allow researchers, public health authorities, and health oversight organizations (e.g., licensing bodies, claims review organizations) to gain access to personal medical information without patient authorization or notification and would provide law enforcement authorities access to information without patient authorization but with notification under some circumstances. Much of the controversy over the legislative proposal revolves around these exceptions (Kolata, 1995; Schwartz, 1995). H.R. 3482 would, in addition, allow states to set stricter privacy rules and let patients designate some information (e.g., HIV status) as specifically protected (Page, 1996b). An alternative to federal legislation establishing more uniform protection for personal medical information is the voluntary adoption of model state legislation (Eid, 1995). The American Medical Association, for example, has proposed model privacy legislation (AMA, 1995). Earlier model legislation drafted by the National Association of Insurance Commissioners in 1985 has not been widely and consistently adopted by states (Gelman, 1995). Technical and Administrative Options In response to concerns from a wide variety of business, consumer, government, and other organizations, security systems and procedures have been developed to guard electronically stored and transmitted information against misuse (see, e.g., Hammond, 1992; OTA, 1993, 1995; WEDI, 1993; IOM, 1994b; Gilbert, 1995a; Young and Waters, 1995). In addition to protecting sensitive personal, commercial, and national security information, these procedures are also intended to protect organizations from intrusions that destroy, damage, or disrupt information and operating systems. They likewise help shield organizations from liability for damages resulting from lax security (e.g., if a hacker or disgruntled employee changed pharmacy orders or revealed information in patient records). Security measures include

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--> data encryption techniques that encode information so that it is not easily read without a code book or decryption key; authentication procedures to ensure that messages are received from the stated source exactly as they were sent; authorization procedures that determine whether a user is permitted access to particular information; auditing and tracking programs that provide information about those who have gained access to a system; and so-called "firewalls" that encompass a range of access control mechanisms that either block or permit access to one network from another. Developers of security procedures are engaged in a constant struggle with those who seek to defeat such procedures either for the challenge of doing so or for some kind of economic or personal advantage. Similarly, proponents of these mechanisms are continually working to educate individuals and organizations of varying technical, legal, and social sophistication about the importance of good security measures. Payment Policies For Telemedicine9 As noted in Chapter 3, insurer and health plan restrictions on fee-for-service payments to physicians for telemedicine consultations are viewed as a major barrier to telemedicine's growth. Environments not based on fee-for-service payments to providers tend to be seen as less constraining for telemedicine. For example, the use of telemedicine in the military, veterans' health, and prison health care systems, in which most care is provided by salaried or contracting clinicians, is not limited by fee-for-service payment policies or concerns. Because so much medical care is provided to the elderly and paid for by Medicare on a fee-for-service basis and because private payers may follow Medicare's lead, fee-for-service payment policies established by the Health Care Financing Administration have been a dominant concern for telemedicine proponents. Any analysis of 9   Parts of this section are based on a paper drafted by committee members Jay Sanders and Jane Sisk.

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--> 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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--> (HCFA) and other insurers do, however, reimburse for teleradiology and telepathology consultations, which do not ordinarily involve direct patient contact in any case. Except for four cardiology services (e.g., transmitting an EKG), Medicare procedure (CPT) codes do not generally distinguish telemedicine from other consultations for specialties such as radiology and pathology that do not normally involve face-to-face contact with patients (PPRC, 1995). Thus, payers may not even know whether telecommunications technologies are being used by certain consultants and may not be able to generate data on claims and expenditures for such services. In a few states, including Georgia and Kansas, coverage by Blue Cross and Blue Shield plans or other payers has been negotiated for a broader range of telemedicine services (McIlrath, 1995b). In its 1995 report to Congress, the Physician Payment Review Commission (PPRC) identified several issues in coverage decisionmaking, most of which were earlier identified by Grigsby and his colleagues in their reports to HCFA (see Grigsby et al., 1995). The issues include (PPRC, 1995, p. 135) lack of information on the value of telemedicine applications compared with the traditional services they would replace; uncertainty about whether various telemedicine payment methods might stimulate excess service use or otherwise affect service patterns; potentially large increases in utilization and costs if telemedicine services improve access to care; and barriers to the sustainability of telemedicine systems in some rural markets. In establishing coverage policies for medical services, HCFA considers evidence that the service is effective. As discussed in later chapters of this report, the evidence of effectiveness for most of the array of clinical applications of telemedicine is sparse. HCFA, however, has funded analytic work on telemedicine and is sponsoring demonstration projects to provide information for policymaking (see Chapter 5 and Appendix A). Reimbursement policy changes do not appear imminent (Richardson, 1996). To set payments for specific telemedicine services, HCFA or other payers would have to make several important decisions (Grigsby et al., 1994b; PPRC, 1995). These include decisions about

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--> which types of telemedicine services would be covered; how procedures would be coded for claims payment and other purposes; how the payment level would be set for specific services; how payment would be apportioned for a consultation involving an attending physician and a distant specialist; whether and how nonphysician practitioners would be paid; and whether and how payments would be divided into professional and facility components. 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). Per Case or Other Bundled Payment Methods 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).

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--> During the 1980s, Medicare adopted a diagnosis related group (DRG) payment scheme that applies the global payment concept more broadly to inpatient hospital care (ProPAC, 1986, 1996). After making certain adjustments related to patient characteristics and other factors, the program pays hospitals fixed amounts for the care of patients with a designated diagnosis regardless of the specific diagnostic and therapeutic services provided. Although methodological and other problems need to be resolved, the packaged payment approach could also be extended to additional episodes of care, such as ambulatory, home, or nursing home care for certain conditions (ProPAC, 1996). Such approaches are important elements in various state health proposals and managed care plans. Just as fee-for-service payments may be allowed to vary geographically, a per-case payment approach can also adjust the schedule of payment rates by locality to reflect, for example, different costs of providing services in rural or urban areas, but differences in rates would not necessarily hinge on whether or not telemedicine was used. Payers could also adjust payment rates to reflect whether the use of telemedicine substantially raised expenses and was judged to be worth the greater health benefits achieved, or whether telemedicine lowered expenses to providers for delivering given services and health benefits. If telemedicine raised providers' costs for delivering the package of services and the benefits gained were worth the extra costs, the payer and providers could negotiate increased payment rates. On the positive side, per case and similar payment methods reduce incentives for providers to provide more of certain services in order to generate more fee-for-service payments. Providers determine how best to marshal resources to deliver efficiently the services covered within the payment rate. On the negative side, because payment remains the same regardless of the services actually provided, providers also have an incentive to restrict the provision of needed services for a case covered by a global payment. The need for monitoring to ensure access to and quality of care would thus continue. Capitation Payment/Fixed Budget Capitation payment entails a predetermined fixed payment per person for all benefits covered during a specified time period, regardless

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--> of the type and number of services actually used. The payment may be provided to a health plan or system, which may or may not pay providers of care on a capitated basis. Usually, patients pay only a modest copayment for services received from health care providers participating in a capitated plan or system. The committee heard suggestions that because telemedicine might reduce time, travel, and other costs for patients, patients might be expected to make some copayment for telemedicine services offered by a capitated health plan. Capitated health plans have had their greatest success in urban areas. The small population base, limited resources, and relative absence of competition in rural areas have made it difficult to extend such plans to rural markets. One of the potential attractions of telemedicine for capitated organizations is that it provides a mechanism for reaching into rural areas. Because health plans and providers are financially at risk, capitation payment provides incentives for them to employ the most efficient means to deliver and manage services across a range of covered benefits for a defined population of enrollees. Because the use of telemedicine would be neither encouraged nor discouraged by payment method, decisions about whether to "move" specialized services and facilities to patients through telemedicine or to transport patients to those services and facilities can be based on a more straightforward comparison of benefits and costs. HCFA allows "at risk" Medicare HMOs to use telemedicine services, but it will not adjust their payments for such services (and none appear to be offering telemedicine services). The face-to-face consultation requirements, however, apply to HMO plans paid on the basis of their costs. If telemedicine raised providers' costs of delivering care and the health benefits gained were worth the extra costs, payers, health plans, and providers would face negotiations to increase capitation rates accordingly. Conversely, if telemedicine lowered costs, payer pressure to cut health care could prompt negotiations on some reduction of capitation rates. Like bundled payment methods, capitation payment provides incentives for efficiency, on the one hand, and for underprovision of appropriate care, on the other. Thus, monitoring is needed to ensure access to and quality of care.

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--> Other Financing Mechanisms As important as payment and coverage policies are, other avenues of public and private financing for telemedicine should not be ignored. As discussed earlier, both federal and state governments have helped support a telecommunications infrastructure that can be used for health care, educational, and other purposes. Demonstration projects may remain an important vehicle of government funding (preferably with strong provisions for evaluation). In addition, commercial organizations (e.g., software vendors) seeking to develop and expand product markets have provided both direct funding and contributions in-kind of equipment and technical assistance. If, however, telemedicine is not accepted as cost-effective and is not incorporated—one way or another—into the everyday financing of patient care services, it will be difficult to sustain telemedicine once grants expire, donated equipment becomes outdated, and routine operating as well as up-front capital costs have to be covered. Chapters 6, 7, and 8 discuss economic issues and sustainability concerns in more depth. Regulation Of Medical Devices10 Some of the devices employed in telemedicine are subject to regulation by the federal Food and Drug Administration (FDA), primarily through its Center for Devices and Radiological Health (CDRH).11 CDRH regulates medical devices and radiation-emitting electronic products used for telemedicine, and it sets standards for mammography personnel, equipment, and practices. Its programs are intended to assure that medical devices are safe, effective, and properly manufactured; to promote quality in mammographic services including telemammography; and to control unnecessary human exposure to potentially hazardous radiation and ensure the safe, efficacious use of such radiation. CDRH is represented on the 10   This section is based on material drafted by Mel Greberman. 11   The FDA and CDRH currently use electronic systems to make information available to interested parties. For example, the CDRH Home Page on the World Wide Web includes device safety alerts; Federal Register reprints; information on premarket submissions, small manufacturers assistance, video conferencing, and electronic submissions; and other medical device oriented information (http://www.fda.gov/cdrh/cdrhhome.html).

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--> federal Joint Working Group on Telemedicine and has been involved in the efforts to establish several health care informatics, medical imaging, and other standard-setting activities that were described in Chapter 3. CDRH programs are conducted under the authority of the Federal Food, Drug, and Cosmetic Act (FD&C Act), the Medical Device Amendments of 1976, and several later amendments. According to the FD&C Act, a medical device is … an instrument, apparatus, machine, contrivance, implant, in vitro reagent, or other similar or related article, including any component, part, or accessory, which is— (1) recognized in the official National Formulary, or the United States Pharmacopeia, or any supplement to them, (2) intended for use in the diagnosis of disease or other conditions, or in the cure, mitigation, treatment, or prevention of disease, in man or other animals, or (3) intended to affect the structure or any function of the body of man or other animals, and which does not achieve its primary intended purposes through chemical action within or on the body of man or other animals and which is not dependent upon being metabolized for the achievement of its primary intended purposes. Medical devices include devices that produce medical images (e.g., radiographic and fluoroscopic x-ray machines, x-ray computed tomography and nuclear medicine scanners, diagnostic ultrasound devices). The software and equipment used to transmit, store, process, display, and copy medical images may be treated by CDRH as accessories to the imaging devices or as separate medical devices. The CDRH is considering revisions in its requirements regarding these products that would exempt from significant regulatory requirements certain products that the FDA believes do not pose significant risk to patients (Zaremba and Phillips, 1993; Zaremba and Anderson, 1996). The revisions, which would be published in the Federal Register for public comment, would establish five generic categories of products related to medical image management and communications. These categories would cover medical image digitizers, communications devices, storage devices, hardcopy devices, and picture archiving and communications systems (PACS). The PACS category would include both relatively small products (e.g., portable devices that transmit images over telephone lines to an on-call radiologist) and large, complex systems that utilize fiber optic networks and advanced communications methods to transmit

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--> images for entire health care facilities. The category would also include the medical image workstation, which generally consists of a computer, video monitor, and storage device. The computer often utilizes software related to data communications, file management, image processing (e.g., edge enhancement), measurement, and special image displays (e.g., 3D surface and volume rendering). Currently, some stand-alone software products (e.g., some decision support systems) also fit the definition of a medical device as described in draft policies developed in the 1980s (FDA, 1989). Other software products are not covered if they are intended only to serve traditional library, accounting, communications, or educational functions and are not used to diagnose or treat patients. As this report was being drafted, the FDA was exploring new policies that would allow the agency to assess the risks of software devices and decide which might be exempt from certain regulatory requirements. It was also planning to hold a workshop to obtain public suggestions and comments on how the health risks of medical software devices might be assessed and how policies might be defined. In addition, the CDRH had established a Computer Aided Diagnosis (CADx) Working Group to develop guidelines for agency reviewers of CADx software devices. Conclusion The task for this committee was to develop an evaluation framework for clinical telemedicine—not to develop policy recommendations. The committee recognized, however, that policies related to licensure, malpractice, and other matters need to be considered in an evaluation framework because they may affect the availability, acceptability, effectiveness, and cost of telemedicine services. By providing an overview of policy issues, this chapter along with Chapters 2 and 3 has attempted to provide background and context relevant to the task of developing an evaluation framework for clinical applications of telemedicine. The next chapter considers existing and planned evaluations of telemedicine.