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Our Take: Telehealth spending to reach $250 billion in 2020?

Jun 08, 2020

A new study from McKinsey & Company finds that consumer adoption of telehealth is taking off, predicting a massive surge in the nascent industry.

In the McKinsey COVID-19 Consumer Survey, conducted this April, researchers found that 46% of consumers used a telehealth visit to replace an in-person health care visit, compared with 11% of consumers who used telehealth in 2019.

Further, 76% of consumers said they are interested in using telehealth going forward.

A recent Morning Consult poll of more than 1,000 seniors revealed similar support. More than half (52%) said they are comfortable using telehealth. Of those who had used telehealth, 91% said they had a favorable experience, and 78% said they planned to use telehealth again.

According to McKinsey, prior to COVID-19, annual telehealth revenues totaled about $3 billion. But with the widespread adoption of telehealth services by both health systems and consumers, McKinsey estimates that industry revenues could reach $250 billion this year. As the basis for its forecast, the consulting firm used 2018 claims data from Medicare, Medicaid, and commercial insurers, as well as CMS National Health Expenditure projections.

McKinsey noted that the shift to telehealth at this scale isn’t inevitable. It’ll require widespread integration of technology, improvements in information exchange, and providers’ acceptance of new ways of delivering care.

“The current crisis has demonstrated the relevance of telehealth and created an opening to modernize the care delivery system,” the study authors wrote. “Health care systems that come out ahead will be those who act decisively, invest to build capabilities at scale, work hard to rewire the care delivery model, and deliver distinctive high-quality care to consumers.”

Our Take:

The rapid escalation of telemedicine services is a bright spot in the COVID-19 era. Telehealth has the potential to increase efficiencies in care delivery while improving the patient experience.

As Our Take readers may be aware, our firm is in the midst of a nationwide study of health systems and their response to the pandemic, as well as how they are reopening their doors to more patients. Our preliminary research shows that many systems were forced to stand up a telehealth platform overnight, with virtual visits replacing most primary care visits. Even sophisticated health systems with advanced telemedicine programs saw an increase in virtual visits of more than 1,000%.

What’s most impressive is how our nation’s health systems rose to the task — out of sheer necessity — and implemented a program that in less urgent times would have taken months to complete. In many cases, that meant selecting a telehealth technology vendor, training thousands of providers, and creating new tasks and workflows in a matter of days.

While virtual visits were most widely implemented in the community, many systems were able to broadly deploy telehealth in the hospital setting, which proved satisfying for providers and patients alike.

“The patients felt like they were having one-on-one time with a doctor with no distractions, and they weren’t there with a face mask and looking like they were from outer space,” said one hospital chief medical officer in a recent interview. “It was a normal-looking doctor on the other end of the TV screen. They could actually see their face, and the patients really loved it.”

Is telemedicine here to stay? Of course. Providers view its implementation amidst COVID-19 as a success story and want to see it used as another tool to administer care safely and effectively. And as the McKinsey study shows, nearly 8 in 10 consumers are interested in using telehealth moving forward.

Will it reach the level that McKinsey predicts — a quarter of a trillion dollar industry? That’s less certain. For one, payers will have to commit to reimbursement parity. That means Medicare, too, which for now has referred to its recent rule changes (which provided increased flexibility and reimbursement parity for telemedicine services) as “temporary.” The Federal Trade Commission recently sent a letter to CMS in support of making the changes permanent.

As the country has been opening up, so too are the nation’s health systems, even in states where COVID-19 cases are on the rise. Telemedicine visits are already dropping off, which has some providers concerned.

“Patients want to come back and see their doctors — that’s what they’re telling their doctors,” a health system chief medical officer told us this week. “We have doctors who want to see their patients or want to get back to some normalcy. I’m concerned, frankly, that we transitioned out of telehealth so quickly.”

What else you need to know

Five drug companies have been named finalists in the Trump administration project referred to as “Operation Warp Speed” — a national program to accelerate the availability of vaccines, therapeutics, and diagnostics for COVID-19. According to reporting by The New York Times, the five companies the administration believes show the most promise in achieving this goal are AstraZeneca (in partnership with Oxford University), Johnson & Johnson (J&J), Merck, Moderna, and Pfizer. As finalists, these companies will have access to government funding, assistance with clinical trials, and manufacturing support. The Times noted that, collectively, Moderna, J&J, and the AstraZeneca-Oxford University collaboration have already received $2.2 billion in federal funding.

As part of the same program, the Biomedical Advanced Research and Development Authority (BARDA), an agency within the Department of Health and Human Services, issued a task order under an existing agreement with Emergent BioSolutions valued at approximately $628 million. In a news release, Emergent said that under the task order it would commit its Baltimore Bayview manufacturing facility to produce vaccine candidates for COVID-19 through next year. The company will also expand its viral and nonviral drug product fill/finish capabilities at two other facilities for COVID-19 treatments.

CMS is extending certain deadlines for value-based payment models and decreasing risk requirements to create more flexibilities for providers and reduce their reporting burden during the COVID-19 public health emergency. The move is intended to help prevent providers who are struggling financially from dropping out of the programs. Of note, the Next Generation ACO model has been extended through December 2021. CMS is also reducing the 2020 downside risk for providers participating in the Next Generation model by reducing shared losses during the COVID-19 public health emergency; capping the gross savings upside potential at 5%; removing episodes of care for treatment of COVID-19; and canceling the quality audit for 2019. The agency will also adjust the quality benchmarks for the Direct Contracting model, if necessary, to reflect the change in duration resulting from the revised April 1, 2021, start date and will create an application cycle during 2021 for a second cohort to launch on Jan. 1, 2022. CMS created a chart of the new adjustments for these and all affected programs.

A group of physicians at Steward Health Care have bought a controlling interest (90%) in the company from private equity firm Cerberus Capital Management, making the 35-hospital, Dallas-based health care system the largest in the country that’s owned by physicians. Steward Health Care’s founder and CEO, Dr. Ralph de la Torre, led the group of physicians in the recapitalization transaction; he will continue to serve as chairman and CEO. Cerberus Capital’s controlling interest was exchanged for a convertible note, according to a press statement. Medical Properties Trust will retain its 10% stake in the company.

Blue Cross Blue Shield plans in six states are suing CVS, claiming the company charged them inflated prices for hundreds of generic drugs for more than a decade. Blues plans in Alabama, Florida, Minnesota, North Carolina, North Dakota, and Missouri filed the lawsuit in a Rhode Island District Court. They claim that CVS created its Cash Discount Programs not only to compete for customers that pay cash for their prescriptions but also “to obfuscate [CVS’s] true prices” from third-party payers. They allege that CVS purposely told third-party payers that the prices it charged customers who paid out of pocket for generic drugs were much higher, and the payers reimbursed CVS based on those higher prices instead of the lower prices CVS offered to the general public. A CVS spokesperson told Becker’s Hospital Review the allegations are “baseless.”

Humana subsidiary Partners in Primary Care will open 20 new senior-focused clinics within the next year, marking the first phase of a three-year expansion project, the company said in a news release. Eight of the new primary care centers will be in Las Vegas and two will be in the Shreveport-Bossier City area of Louisiana. Both of those are new markets. The other 10 clinics will be in Houston, where Partners in Primary Care already has five clinics.

Pfizer is investing up to $500 million in biotechnology companies as part of the newly launched Pfizer Breakthrough Growth Initiative, a program intended to support innovation in clinical development. The company said in a press release that it will make non-controlling equity investments in clinical-stage public companies with small to medium-sized market capitalizations in the following therapeutic categories: internal medicine, inflammation and immunology, oncology, rare disease, vaccines and hospital.

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