Skip to content
Quick Start for:
Texas Performance Review
Disturbing the Peace
Chapter 2
Health and Human Services

HHS 14: Reimburse Providers for Telemedicine

The Texas Medicaid program should reimburse providers for telemedicine services.


Telemedicine is an emerging issue, with increasing interest generated by the chronic need for improved access to medical care in rural or inner-city areas.

"Telemedicine" has no universally accepted, all-inclusive definition. Generally, however, it refers to any medical service delivered to or from a distant site via telephone, computer, fax machine, or interactive video system. Common telemedicine services include teleradiology and telepathology, the electronic transmission of digitized radiology images or pathologic results from a remote location to a central site for evaluation and diagnosis; and telemedicine consultation, which allows a physician or other practitioner at a central site to participate in evaluations, diagnoses, and case management at a remote location.

Texas moved into the forefront of telemedicine when Texas Tech University Health Sciences Center received a federal demonstration grant in 1989 from the U.S. Department of Health and Human Service's Office of Rural Health Policy. Texas Tech has built the state's largest telemedicine system, HealthNet, by connecting its four campuses in West Texas with rural health care facilities and many prisons in the western part of the state. HealthNet serves an area including 108 West Texas counties, 99 of which are rural; 49 have a population density of less than seven people per square mile.[1] HealthNet provides medical services such as interactive video consultations, teleradiology and data services for rural hospitals, health care consultations for prisons, continuing education for rural hospitals and providers, and training for emergency service personnel.[2] Texas Tech provides about 100 consultations annually to rural hospitals and another 1,500 or more to the prison system.

The initial funding for HealthNet was a federal grant and some general revenue for the infrastructure. Currently, the system is part of and funded through the medical school. The specialists that provide consultations are staff of the medical school, but do not receive any type of reimbursement from Medicaid, Medicare, or private payers. The entire system is funded by state dollars and funding from any other participants in the system such as the rural hospitals.

In addition, the South Texas Area Health Education Center (AHEC) maintains the South Texas Distance Learning and TeleHealth Network Telecommunications System, which links remote training sites in South Texas with the University of Texas Health Science Center at San Antonio. Texas Tech and the University of Texas Medical Branch at Galveston (UTMB) also provide joint telemedicine services to Texas prisons.


Telemedicine saves time and travel expenses for providers and patients, allows for reductions or substitutions in medical personnel, reduces the number of redundant medical tests, and improves the chances for early diagnosis of disease, when treatment can be more effective and less costly.[3]

In South Dakota, one telemedicine site found that just 57 consultations saved its patients more than 6,000 miles in travel and nearly 120 hours in travel time. The average age of these patients was 79.[4] Louisiana reports that the implementation of telemedicine has allowed the state to prevent small hospital closures.[5] Telemedicine allows small, rural hospitals to deliver care that they might not otherwise be able to provide.

Because of its early start, Texas Tech's HealthNet is one of the few programs that can document the benefits of telemedicine. A 1992 study of Texas Tech's HealthNet network conducted by an independent accounting firm determined that telemedicine consultations between Alpine and Lubbock saved an average $998 per patient for 11 cases studied over one year.[6] HealthNet has allowed distant practitioners to assist with surgical procedures, diagnose skin cancers, and treat newborn babies.

In one example cited by the study, an elderly West Texas patient and his physician in a clinic in Alpine spoke with a cardiologist at Texas Tech in Lubbock via a video network. The patient learned that a drug reaction had caused his congestive heart failure without traveling 150 miles to Odessa, the closest urban hospital. Telemedicine saved hours of critical treatment time and transportation costs, and prevented the delivery of unnecessary services because of a faster local diagnosis. The estimated savings in this one case totaled almost $3,000.[7]

Texas Tech also has found that providing continuing education to rural hospitals and practitioners through HealthNet has allowed it to reduce costs to hospitals and doctors. One report indicates that a hospital that spends $16,000 per year on continuing education could save about $12,000 by participating in HealthNet.[8]

Medicare reimbursement

Five states have been approved to receive Medicare reimbursement from the federal Health Care Financing Administration (HCFA) for telemedicine consultative services, as part of a national research and demonstration project on telemedicine. Currently, Medicare regulations require a specialist to be in the same physical location as the patient and therefore do not reimburse for consultations via telemedicine.

At this writing, the selected project sites have received only startup grants, due to federal budget constraints. HCFA hopes to begin reimbursing for services sometime in the fall of 1996. The project will last for three years and, depending on its results, HCFA may begin reimbursing for telemedicine nationwide after its completion.[9]

Any managed care organization may use Medicare funds to reimburse its providers for telemedicine services. HCFA requires no waiver for this since it has already negotiated a price for services with the organization.[10]

Medicaid reimbursement

Any state may choose to use Medicaid funds to reimburse providers for telemedicine services. At present, 12 states do so, while other states are implementing pilot projects.[11] Texas does not reimburse for these services because officials have never developed a reimbursement policy that they believed would be cost neutral.

In 1995, Louisiana began requiring private insurance reimbursement for physicians obtaining telemedicine consultations. The private insurers were pleased with this legislation and Blue Cross/Blue Shield actively lobbied for it.

California is actively considering a formal reimbursement policy for telemedicine. A proposed "Telemedicine Development Act of 1996" would prevent insurers from requiring face-to-face contact between provider and patient and require them to adopt reimbursement policies for telemedicine services. The bill defines telemedicine as the practice of health care delivery, diagnosis, consultation, treatment, transfer of medical data and education using interactive audio, video and data communications. Telemedicine is believed to save the California Medicaid program $8 million a year.[12]

Other funding sources

Aside from Medicare and Medicaid, several federal agencies are awarding grants for telemedicine. The federal Office of Rural Health Policy administers the Rural Telemedicine Grant Program and Rural Health Outreach Grant Program. U.S. Commerce Department's National Telecommunications and Information Administration also awards grants for telemedicine, as does the U.S. Department of Agriculture's Rural Utilities Service, which administers the Distance Learning and Medical Link Grant Program.

Quality of care

Some critics have expressed concern that reimbursement for telemedicine would encourage facilities to provide an inadequate quality of care. Even though many believe that telemedicine can help to improve quality of care, especially in underserved areas, there is not enough data or research to prove the impact on quality.

Blue Cross/Blue Shield of Georgia surveys its telemedicine providers to ensure quality. Some of the survey questions involve major diagnoses, difficulties in establishing a diagnosis among all parties, and activities undertaken to ensure confidentiality of patient records.[13] This helps them feel confident that the providers they reimburse are using telemedicine in the most effective way. The surveys also help to ensure that the system is not fraudulent and the telemedicine consultations are actually performed and needed.

Some authorities have observed that telemedicine consultations tend to taper off over time. They believe that telemedicine increases quality because physicians gain additional experience each time they sit in on a telemedicine consultation, and over time, learn enough to make their own diagnoses.

Improved quality of care from telemedicine is said to come from the group effort that goes into the process with all parties involved present. The quicker diagnosis and elimination of transferring patient records also are great benefits of telemedicine.


A. The Texas Health and Human Services Commission's State Medicaid Office should develop policies to reimburse providers for telemedicine.

Several issues should be addressed, including payments for various services, licensing, and facility charges, if any. The State Medicaid Office should review other states' policies and determine the most effective method for reimbursement. The office should establish billing codes and a fee schedule for services conducted via telemedicine.

An approval process should be established before any provider can receive reimbursement for telemedicine services. The Medicaid Office should establish a state network of providers to ensure that quality providers participate and that state-owned facilities and teaching hospitals are the primary providers.

The State Medicaid Office should link and coordinate planning for all Texas telemedicine initiatives. The office should work with the Texas Infrastructure Fund (TIF) to develop a strategic plan to ensure that small rural hospitals benefit from telemedicine. The Center for Rural Health Initiatives will submit a strategic plan to TIF in the Fall of 1996. The State Medicaid Office should review and make any changes necessary to help develop an adequate reimbursement policy.

B. Texas Tech University, in cooperation with the Texas Health and Human Services Commission, should continue to pursue membership in the federal research and demonstration project for telemedicine Medicare reimbursement.

In August 1996, the comptroller sent a letter to the President requesting expansion of the demonstration project to Texas Tech. The comptroller also requested that the U.S. Office of Management and Budget approve the waiver necessary for HCFA to start reimbursing the demonstration projects. At the time of this writing, the comptroller had not received a response.

Fiscal Impact

The fiscal impact of these recommendations cannot be determined. Some savings achieved by telemedicine might be offset by an increase in services that otherwise would not have been provided. Long-term savings, however, should result from more timely and accurate diagnoses and treatments.


[1] Texas Comptroller of Public Accounts, "Health Care Atlas of Texas," Austin, Texas, November 1996, p. 66. (Draft.)

[2] Intergovernmental Health Policy Group and George Washington University, "State Initiatives to Promote Telemedicine," Washington, D.C., August 1995, p. II-37.

[3] Mary Moore, University of Texas at Austin, "Telehealth Cost Justification," February 21, 1996. ( (Internet document.)

[4] Interview with Patty Lithe, Health Information Systems coordinator, Department of Health, Pierre, South Dakota,
June 21, 1996.

[5] Intergovernmental Health Policy Group and George Washington University, "State Initiatives to Promote Telemedicine," pp. II-23.

[6] J. Ted Hartman and Mary Moore, Using Telecommunications to Improve Rural Health Care: The Texas Mednet Demonstration Project--January 1, 1989 - June 30, 1992, Vol. 2 (Lubbock, Texas, 1992), p. 4.

[7] J. Ted Hartman and Mary Moore, Using Telecommunications to Improve Rural Health Care: The Texas Mednet Demonstration Project--January 1, 1989 - June 30, 1992, Vol. 2, p. 13.

[8] Intergovernmental Health Policy Group and George Washington University, "State Initiatives to Promote Telemedicine," pp. II-39.

[9] Interview with Bill England, Office of Research and Demonstrations, U.S. Health Care Financing Administration, Baltimore, Maryland, June 17, 1996.

[10] Interview with Bill England.

[11] Fax communication from the U.S. Health Care Financing Administration, June 13, 1996.

[12] "Senate Approves Bill Designed to Remove Barriers to Telemedicine," BNA's Health Law Reporter (June 13, 1996).

[13] Interview with Susan Coraff, Georgia Blue Cross/Blue Shield, Atlanta, Georgia, June 20, 1996.

Texas Comptroller of Public Accounts Window on State Government
Contact Us
Privacy and Security Policy