U.S. Expert Dale Van Demark Analyzes Reimbursement Challenges and Strategies for Digital Health Platforms

When it comes to digital health, one of the most frequently discussed topics is reimbursement under various third-party insurance plans. Among these, telemedicine and remote patient monitoring services have garnered the highest level of attention; in particular, the reimbursement landscape for telemedicine is becoming increasingly favorable. But can digital health tools truly thrive only through direct reimbursement from third-party payers?

U.S. Legal Expert Dale Van Demark Recently Published an Article Elaborating on His ViewsIn Van Demark’s view, people should not adopt a “one-size-fits-all” approach when assessing the role of direct reimbursement for digital health tools. Van Demark is a partner at the U.S. law firm McDermott Will & Emery LLP. Founded in 1934, the firm serves clients across a wide range of industries. Van Demark primarily focuses on mergers and acquisitions, investments, and strategic structured transactions in the healthcare sector. He has extensive experience in deals involving healthcare system affiliations and restructurings, and frequently represents various for-profit and tax-exempt clients, including physicians and hospitals, in strategic transactions. VCBeat has compiled his views for our readers; please see below for details.

Dale Van Demark, U.S. Legal Expert

From Demark’s perspective, direct reimbursement indeed facilitates the development of digital health tools. As with other healthcare service instruments, direct reimbursement can help establish a viable business strategy foundation for digital health solutions. However, the question remains: Is the traditional reimbursement system the only path to success for digital health tools? “Alternative Provider Medical Services” (APMS) is an umbrella term encompassing value-based healthcare, population health management, and capitated care packages. With strong promotion of APMS by both the federal government and private insurers, there are reasonable grounds to believe that digital health tools can secure their own development space by enhancing the quality and efficiency of medical services.

Drawing an analogy with electronic health record (EHR) technology, when the federal government encouraged healthcare providers to adopt EHR technology and vigorously promoted its “Meaningful Use” requirements, it simultaneously offered providers direct financial incentives to offset the additional investment costs incurred in implementing effective EHR systems.

Today’s APMS can also be viewed as a weaker, less restrictive incentive program for investments in digital health tools. Under the “Meaningful Use” framework for EHRs, providers could receive explicit incentives upon meeting specific requirements. The financial returns from investing in such digital health tools stemmed from two sources: first, satisfying reimbursement requirements aimed at enhancing value and improving efficiency; and second, creating value under new reimbursement formulas. In contrast, the financial benefits of APMS are not tied to a set of explicit rules; instead, it allows healthcare providers to leverage digital health tools at any time and in any manner they choose. Of course, users must comply with relevant laws and regulations. This approach has introduced significant creativity, experimentation, and freedom into the application of healthcare technologies.

Although the current environment suggests that people can derive benefits beyond direct reimbursement through the practical application of digital health tools, this does not fully answer the question raised earlier: “Do digital health tools require direct reimbursement to develop?” Many factors indicate that, in the short to medium term, direct reimbursement remains highly valuable for digital health tools.

FirstMost importantly, digital health tools are not monolithic in form or function; they encompass a wide variety of formats and serve diverse purposes. For certain subsectors of digital health, direct reimbursement is both critical and logically sound. Take telemedicine as an example: it provides a digital platform for remote consultations, delivering services that are substantively identical to traditional face-to-face outpatient visits. Therefore, it is only reasonable to apply the same direct reimbursement model used for in-person consultations to these services.

For other services, such as inter-vendor communication tools, social media platforms, or patient engagement tools, direct reimbursement is of limited value. In some cases, the value of these tools would be undermined by direct reimbursement; in others, it is difficult to calculate the appropriate reimbursement amount. One category of such tools functions more like providing office space, constituting indirect business expenses. Another category is specifically designed to reduce healthcare costs; from the insurer’s perspective, offering direct reimbursement for these tools would paradoxically diminish their value. Additionally, for some tools, the billing milestones for their services cannot be easily defined, making it challenging to determine the exact amount for direct reimbursement.

The aforementioned point encompasses both objective and subjective factors. Objectively, specific digital health tools must be integrated into the healthcare delivery system to evaluate their applicability. Subjectively, policy discretion also exerts a certain influence. For instance, among digital health tools, should telemedicine solutions that serve as digital enhancements to physicians’ outpatient services be eligible for reimbursement? Should non-clinical service tools, such as care coordination and effective maintenance of health records, be excluded from reimbursement? Furthermore, should digital health tools that merely adapt existing technologies to the healthcare environment qualify for reimbursement? These questions warrant consideration from a policy perspective. Given the variety of legitimate policies, patients, insurers, providers, and regulators often interpret and utilize them differently. Therefore, policymakers must adopt a holistic view of the healthcare system and fully consider overarching objectives.

Secondly,, the transition to Alternative Payment Models (APMs) is not only still underway but also not all-encompassing. Although numerous APMs currently exist and are poised for accelerated development driven by the Medicare Access and CHIP Reauthorization Act (MACRA), fee-for-service remains the primary mechanism for reimbursement. One reason for this is that fee-for-service constitutes the foundational structure of many APMs, including those within the MACRA framework. For example, during its performance years, the Medicare Shared Savings Program (MSSP) employs a fee-for-service reimbursement model to distribute shared savings to eligible Accountable Care Organizations (ACOs).

Moreover, even the Centers for Medicare and Medicaid Services (CMS), which has adopted the most aggressive Alternative Payment Models (APMs) reimbursement schemes, remains fundamentally rooted in the fee-for-service structure. Therefore, while the transition to APMs has indeed significantly influenced healthcare delivery models and providers’ strategic thinking, it would be naive to assume that it will bring about revolutionary changes to reimbursement methods. On the contrary, the fee-for-service reimbursement model is expected to persist, at least in the foreseeable future.

Finally, the transition to APMS is a gradual process. APMS imposes few restrictions on how vendors create value, which indeed injects vitality and freedom into the application of medical technologies and positively influences the development of digital health tools. However, as of today, it struggles to establish a stable and predictable market for innovative products, and the innovative applications of digital health tools often face challenges in achieving business expansion. For vendors and insurers alike, defining the appropriate reimbursement context for digital health tools remains difficult: on one hand, fee-for-service continues to dominate the core of reimbursement mechanisms.

On the other hand, the transition to APMS is also unstoppable. This has led to a lack of universal standards for the reimbursement of digital health tools, let alone interoperability. Even though the digital health tools currently under development have certain functionalities, their return on investment (ROI) value is often difficult to calculate simply. As a result, only a few vendors can see their value or decide to invest in them. In this situation, direct reimbursement can provide a stable economic model for digital health tools and bring about a relatively stable development environment.

Direct reimbursement for digital health tools is a highly complex issue, involving numerous variables such as the diverse types of tools and the ever-evolving reimbursement landscape. While clear financial incentives were available to promote the adoption of Electronic Health Records (EHRs), there are currently no definitive financial incentives or baseline policies applicable to today’s digital health tools. To some extent, this reflects the gradual shift of the reimbursement system away from the fee-for-service model toward global payment mechanisms, as well as the diversity inherent in digital health tools. Although under the Alternative Payment Models (APMs) framework, digital health tools clearly do not need to rely on direct reimbursement, having a stable reimbursement pathway remains critical for certain digital health solutions amid such a complex medical reimbursement environment. We must always bear in mind that one-size-fits-all approaches are impractical and should never be applied without considering the specific circumstances.