Investor interest in telehealth surged during the Covid-19 pandemic. While the healthcare industry’s widespread adoption of telehealth was driven by necessity due to social distancing practices, such expansion would not have been possible without federal and state governments waiving many legal and regulatory requirements that had previously hindered such telehealth growth. Many of these waivers were temporary and tied to public health emergencies (“PHEs”) which either have already or will soon expire. In turn, the volume of telehealth investments has already begun to decline. In fact, 2023 is projected to be the lowest telehealth funding year since 2019. This begs the question – is the slowing telehealth investment due to the tightening credit markets and an expected economic downturn, or should the telehealth industry expect the trend of decreased investor interest to continue in a post-PHE world?
A review of federal, state, and private payer activity indicates interest in telehealth remains strong. As such, as the credit market stabilizes and fears of a recessions begin to recede, we expect investor interest in telehealth to return.
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Background on pandemic telehealth coverage policies
Prior to the Covid-19 pandemic, payers had created numerous policy and coverage barriers that served to limit widespread telehealth adoption. For example, Medicare had requirements preventing patients from receiving telehealth services from their homes, as well as the frequency limits of certain telehealth services. Many state Medicaid programs and private payers had similar telehealth restrictions. On January 31, 2020, a PHE was first announced at the Federal level. Pursuant to the PHE, the Department of Health and Human Services, Centers for Medicare and Medicaid Services (“CMS”) waived many of the key Medicare telehealth requirements that had previously limited widespread telehealth adoption, with state Medicaid programs and private payers quickly following CMS’ lead.
Insights on telehealth interest from federal, state and private payer action
- Federal
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The federal telehealth waivers were set to end when the federal PHE expired on May 11, 2023. Although CMS was supportive of continuing expanded telehealth coverage, many restrictions on telehealth were set by statute, and therefore congressional action was required to permanently change policies. Under heavy industry pressure, on December 29, 2022, Congress temporarily extended many of the telehealth flexibilities afforded by the PHE to Medicare beneficiaries through December 31, 2024. Given the current gridlock in Congress, legislative efforts to further codify telehealth coverage expansion are unlikely to be revisited until late 2024. While budgetary pressures may continue to lead to temporary rather than permanent extensions, with CMS, industry, and public support, Congress is unlikely to force a return to a pre-pandemic telehealth world.
- State
When it comes to making coverage determinations, states often follow the lead of Medicare. However, given the expectation that Congress will not act further on telehealth solutions until late 2024, state action provides helpful insight into the strength of the telehealth industry post-PHEs.
Many state Medicaid programs offer more generous telehealth coverage policies that have continued to broaden in the last couple of years. States have long removed geographical restrictions imposed on where telehealth services take place. In fact, Hawaii, Montana, and Maryland are the only state Medicaid programs that still restrict reimbursable telehealth services to rural areas. Furthermore, 37 state Medicaid program plus Washington, D.C. allow patients to receive telehealth services in their home. Removing geographical restrictions and increasing the types of eligible originating sites means that more patients, including previously underserved populations, can access telehealth services.
With respect to the delivery method of telehealth services, all state Medicaid programs reimburse for live video and 36 state Medicaid programs and Washington, D.C. also reimburse for audio-only telehealth services. Moreover, 28 state Medicaid programs reimburse for asynchronous telehealth services, also referred to as store-and-forward policies, which allow providers and patients to directly share information with each other before and after telehealth appointments. This movement by state Medicaid programs beyond the historical live video requirements provides reimbursement opportunities for telehealth providers and technology. The success of such programs could also lead to further adoption from Medicare of store-and-forward services (which are covered only covered by Medicare in Hawaii and Alaska as part of a telehealth demonstration project).
States have additionally taken legislative action to address private payer reimbursement for telehealth services. The majority of states have passed service parity laws, requiring telehealth services to be covered if they would otherwise be covered if rendered in-person. Payment parity laws, which 24 states have passed, require telehealth services to be reimbursed at the same rate as in-person services.
Beyond the flexible telehealth policies provided by state Medicaid programs, states are demonstrating commitment to telehealth services by announcing their own investments into telehealth offerings. For example, Minnesota’s Department of Health released a report in June 2023 detailing how telehealth services have filled in the gaps of healthcare access and delivery. Other states, like Ohio and New Mexico, are expanding broadband access to remove the technological barriers to telehealth access. Ohio is concentrating its broadband expansion efforts to providing telehealth access to K-12 students and Governor Grisham of New Mexico recently announced that a part of the state’s $675 million federal grant to expand broadband access throughout the state will be allocated to improving access to telehealth services. In March 2023, Governor Roy Cooper of North Carolina issued a $1 billion investment plan to address the state’s mental health and substance use crisis, which includes $225 million for raising Medicaid reimbursement rates for behavioral health services and allocates $50 million towards facilitating access to mental health treatment including through telehealth for rural communities.
- Private payers
Private payer action also offers valuable insight into the strength of the post-PHE telehealth market. Although private payers have always had the flexibility to determine coverage for telehealth services (within the boundaries set by law), their partnerships and newly added services demonstrate commitment to coverage and reimbursement for telehealth services. For example, BlueCross BlueShield of Massachusetts’s expanded network of mental health providers recently expanded its mental health network include telehealth partners with Headway and Talkiatry, (and has correspondingly increased its mental health spend from $610 million in 2019 to $1.3 billion in 2022). Aetna provides its members access to CVS Health Virtual Primary Care, which expanded this year to include telehealth mental health care appointments with licensed therapists and psychiatrists. Similarly, Humana continues to grow its mental health telehealth platform with the addition of Array Behavioral Care in February 2022 and Valera Health in July 2023 as in-network providers.
Conclusion
Notwithstanding the end of PHEs and corresponding loss in many waivers and policies that allowed for increased telehealth adoption during the pandemic, the recent actions of state governments and private payers indicate that interest in telehealth remains strong. We therefore expect investor interest in telehealth providers and technology to similarly stay strong as economic headwinds recede.
Photo: elenabs, Getty Images
Jon Zucker is a Partner in Sidley's Healthcare practice and is based in the firm's Washington, D.C. office. He works with clients and investors to structure and negotiate transactions and address regulatory challenges. He serves as healthcare regulatory counsel for major acquisitions, mergers, joint ventures, strategic affiliations, and other arrangements. He is also regularly engaged on behalf of private equity sponsors and their portfolio companies operating in the healthcare industry.
