Beware of Success

Historically, the “overhead” component (practice expense, PE) of the formula for pricing psychotherapy in Medicare has averaged 21% from 2000 to 2020.

As a reminder, the national price of a service in Medicare is determined by three components, work, practice expense, and malpractice, which are then moderated by geographic location to produce the local values.

The rapid shift to telehealth within Medicare, including most recently coverage for mental health services by telephone, undoubtedly will affect — specifically, reduce — the cost of providing services. If a clinician or practice is able to set up even a state-of-the art videotherapy system for perhaps a few thousand dollars at most, or even have patients call them, overhead plummets. Undoubtedly many clinicians will begin to ask why they need a bricks and mortar location at all. This is precisely why teletherapy has been able to be lowballed in price when delivered from overseas, or by algorithm-based bots, or by those who maintain no physical practice presence and are at most marginally concerned about licensing (or competence).

It is widely believed commercial payers “follow” Medicare’s lead in setting prices. Given the apparent rapid shift to services by tele-media, it would seem highly likely that, should Medicare and commercial coverage and reimbursement for tele-treatment continue after the public health emergency, reduced costs of service delivery will be taken into account in pricing.

If anyone has a good rationale for why pricing should continue at the same levels as the cost of providing services in a physical office or other facility, it would be helpful to articulate that. I am doubtful there is a good rationale. Given what is known about the profit-taking motive of the commercial payer industry, and financial pressures on Medicare and Medicaid, it seems very likely that the reduced cost of service delivery is already being taken into account in future pricing.

A 20% reduction in the national value of Medicare reimbursement for 60 minutes of psychotherapy could show a reduction from $141 in 2020, to $113 in 2021. A similar estimate is easily determined for all other mental health services. 

Hoping for the best, there could be a two-tier pricing system (as there currently is for in-office versus other facility locations), for those providing services in office versus by tele-media. Would such a differential be sufficient for clinicians, particularly small group and solo practitioners, to consider sustaining a physical location from which to deliver services? Considering the lower cost of providing services by phone or from a home office and a PC with a webcam and internet, clinicians maintaing physical office locations could be priced out of the market.

There is a considerable and justifiable chorus of congratulations for the effective advocacy leading to the expansion of mental health service provision — indeed across the range of health services and professions — by tele-media. We need to be thoughtful about what the success will mean for “when this is over.”

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