$250B of all healthcare spend could be digitized, McKinsey estimates

Dive Brief:

  • Up to $250 billion in healthcare spending could be digitized, according to a new brief from consultancy McKinsey & Company. That’s roughly 20% of all estimated Medicare, Medicaid and commercial outpatient, office and home health spending for 2020.
  • McKinsey’s claims-based analysis suggests 20% of emergency room visits could be avoided via virtual urgent care, 24% of office visits and outpatient volume could be done virtually and another 9% could be done “near-virtually.” Up to 35% of home health services could be virtualized and 2% of all outpatient volume could be shifted to the home with tech-enabled medication administration.
  • Some analysts expect telehealth use to flag in the second half of 2020 if the coronavirus loses steam. But McKinsey researchers think these dynamics will persist for the next 12 to 18 months at least, until a vaccine is widely available, giving telehealth ample time to become normalized in the healthcare delivery system.

Dive Insight:

Prior to the pandemic, the sum annual revenues of U.S. telehealth companies were estimated at $3 billion, with most vendors focused in the on-demand urgent care segment​. But as awareness and adoption continue to increase, vendors have an opportunity to extend their services beyond bulk virtual urgent care.

That $3 billion market could swell to $250 billion if trends persist.

“The window to act is now. The current crisis has demonstrated the relevance of telehealth and created an opening to modernize the care delivery system,” McKinsey associate partner Oleg Bestsennyy and McKinsey partners Greg Gilbert, Alex Harris and Jennifer Rost wrote. “The seeds for success will be sown in the next few months during the COVID-19 crisis.”

The pandemic has caused use of virtual care to accelerate exponentially from 11% of Americans in 2019 to 46% now, according to McKinsey data. And 76% of consumers reporting they’re interested in using telehealth moving forward, boding well for long-term adoption, though a gap remains between hypothetical interest and actual use.

Health systems, independent primary care physicians, hospitals and more are reporting telehealth visits have multiplied 50 to 175 times from pre-pandemic levels. Telehealth vendors and providers have hustled to build out their IT infrastructure and virtual care offerings in response.

Virtual care allows doctors to recoup revenue lost from in-person visits, while protecting patients from potential disease spread. About 57% of providers view telehealth more favorably now than pre-COVID-19, and 64% are more comfortable using it, according to a McKinsey physician survey conducted in May.

The Trump administration has lowered several barriers to virtual care use since early March, approving more than 80 new telehealth services in Medicare on a temporary basis, raising payments for audio-only visits and allowing Medicare Advantage plans to conduct risk assessments digitally, among other new flexibilities.

The changes led to an unprecedented number of seniors using telehealth in the early days of the pandemic.

CMS Administrator Seema Verma has said her agency is looking into which of these flexibilities, if any, will remain after the national emergency is lifted.

Permanently removing the barriers to telehealth is a popular move: Along with lobbying from a wide swath of the private sector, it has supporters in Congress and the executive branch, too.

The Federal Trade Commission said it supports making Medicare coverage of telehealth permanent in a letter to CMS on Friday.