Convenient Care and Telemedicine

Policy Reports | Health

No. 305
Wednesday, November 28, 2007
by Devon M. Herrick

Obstacles to Wider Use of Telemedicine

Although telemedicine has the potential to lower costs and increase competition in many areas of health care, it faces numerous obstacles, primarily because it represents a new and different dimension in health care.  Some of these barriers are related to the preponderance of payment for health care by third parties.  Some arise from the efforts of entrenched interest groups, including those who do not want to compete with low-cost providers. Federal and state licensing laws and regulations create even more obstacles.

Obstacle: Third-party payment. The primary reason why doctors and hospitals do not communicate with patients electronically is that patients rarely pay their own health care bills. 68 Because patients pay directly out of pocket for only 13 cents of each dollar's worth of health care, providers have little incentive to create innovative patient-pleasing services unless third parties (private insurers, employers and government) will pay for them. 69 Figure IX shows that the proportion of health care paid directly by consumers has been falling for decades: 70

  • In 1960, consumers paid about 47 percent of overall health care costs out of pocket.
  • The proportion had fallen to 23 percent by 1980.
  • For every dollar spent on health care in 2004, consumers paid only 13 cents out of their own pockets.

Obstacle: Medical culture.  Throughout its relatively brief history, telemedicine has been primarily envisioned as a way to care for patients in remote areas underserved by physicians and specialists. 71 Historically, the preferred way to care for patients has been the face-to-face consultation. 72 This may explain why the American Medical Association (AMA) came out against prescribing medication over the Internet prior to a physical examination. 73

“Providers have little incentive to create patient-pleasing services because they do not compete for patients on the basis of price.” Medical societies have considerable power to slow or block innovation through their influence over state medical boards. 74 State medical boards, medical societies and other physician groups often discourage certain practices they consider unorthodox by declaring them unethical. 75 Or they imply that quality may be compromised. 76 In some cases, they have gone so far as to make selected practices subject to sanctions, such as denial of hospital privileges and even the loss of the license to practice medicine. 77


Medical Bills Paid Directly by Patients

Obstacle: State licensing laws.  States license and regulate physicians with the ostensible goal of maintaining the quality of medical care. 78 Unfortunately, outdated state licensing laws do not conform to the information age. 79 Recent advances in technology allow a radiologist to read X-rays from India just as easily as an American radiologist.  However, the practice of medicine is regulated by state medical boards, which generally require a physician to be licensed in the state where the patient receives treatment. Thus, state licensing laws prevent medical tasks from being performed by providers living in other states or abroad.  Foreign physicians also lack the authority to order certain tests, initiate therapies and prescribe drugs that American pharmacies can legally dispense.

Some restrictions on the practice of medicine have been removed in recent years, but many still exist.  For example:

  • In some states it is illegal for a physician to prescribe medication to a patient online without an initial face-to-face consultation. 80
  • It is also illegal in most states for a physician who has examined a patient visiting from another state to provide follow-up treatment  via the Internet after the patient returns home.
  • It is illegal for a physician to consult by phone with patients residing in a state other than where the physician is licensed.

These laws make it difficult for American patients to seek care from doctors in other states or abroad via telephone or the Internet, and for doctors to employ foreign physicians (which could greatly reduce costs).

“Federal and state laws prevent more efficient delivery of medical care.”

State and Federal Laws Inhibit Beneficial Collaboration. A U.S. physician practice could easily provide doctor visits in a traditional office, coupled with chronic disease management services from a foreign doctor (by telephone or e-mail) and tests done at a convenient retail clinic, when needed.  Yet this service could run afoul of the so-called Stark laws.  The federal Stark laws make it illegal for a physician to refer a patient for treatment to a clinic in which the doctor has a financial interest.  Nor may a physician reward providers who refer patients to him or to a hospital in which he has a financial interest.

Many states have similar laws on their books.  Unfortunately, laws meant to prevent self-dealing and kickbacks also inhibit beneficial collaborationbetween doctors and hospitals.  For instance, the Stark laws could prevent a physician practice from referring a patient with a chronic condition to an affiliated disease management program (employing a foreign doctor) or prevent it from referring a patient needing minor treatment to an affiliated walk-in clinic.

By limiting compensation arrangements for referrals and collaboration, the Stark laws tend to result in rigid physician group practices that are not particularly convenient or economical for patients.

States Restrict the Employment of Doctors. About one-third of the states have laws banning the “corporate practice of medicine,” which prevent corporations from hiring physicians to practice on their behalf. 81 The implication is that a corporate employer might exert undue pressure to skimp on quality in order to increase or preserve profits.  These laws ostensibly aim to ensure the quality of medical care, but in practice they inhibit innovative service arrangements. 82 For example, in many states a company may not establish a chronic disease management service and hire physicians to monitor clients.

One-third of the states have passed laws allowing some firms (such as hospitals and health plans) to hire physicians directly to practice on their behalf.  In the rest of the states, the laws are either unclear or appear to support or restrict the practice to varying degrees.

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