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Reforming How Medicare Pays for Digital Health


Digital health products offer policymakers opportunities to improve coverage and payment efficiencies, while also providing meaningful benefits to beneficiaries.


This piece was originally published on Bill of Health, the blog of Petrie-Flom Center at Harvard Law School.

The Fourth Industrial Revolution, also known as the digital revolution, leverages technology to blur the lines between products and services. In the health insurance sector, this revolution offers policymakers unique opportunities to improve coverage and payment efficiencies while providing meaningful benefits to beneficiaries.

Medicare could lead this charge. Congress has an opportunity to reform Medicare in 2024, when the Trust Fund will become insolvent. Policymakers expect Congress to address this problem legislatively to prevent interruptions in coverage for seniors.

If past behavior is any indication, the legislation will also include reforms to improve how the program operates and spends money. Reforms to Medicare’s traditional coverage and reimbursement approaches that harness the digital revolution can help the program secure additional value. We know this because other sectors of the U.S. economy that have fully embraced this revolution have realized additional value.

Medicare uses a series of coverage categories to group similar product and service providers together for purposes of determining payment. The calculations the Centers for Medicare & Medicaid Services (CMS) use for each category are based on the costs of delivering care, including amounts to maintain a brick-and-mortar medical practice, and medical liability insurance. Hospitals, physicians, and durable medical equipment (DME) providers all have their own unique payment system as a result. These categorical approaches to coverage and reimbursement don’t work well for digital health that cuts across all coverage categories.

Rather than treating digital health as a unique category of products for purposes of coverage and payment, policymakers should consider these products as means to improve the care available under all of Medicare’s payment systems. For example, a single product can produce digital forms of clinically meaningful medical services that are already covered and reimbursed. Digital health also can enhance the functional benefits of other medical products, such as drug coatings that send a digital signal when ingested, to improve patient medication adherence. What is needed are coverage and reimbursement alternatives that can better capture the dynamic and cross-cutting capabilities of digital health to secure greater value.

Alternatives to current coverage and payment approaches exist. Fully capitated payment arrangements, which limit the total amount spent on services in a given year without restrictions on utilization, are already used by commercial insurers for digital health. If Medicare employed this strategy, it could help the program take advantage of services with low overhead costs. Modern pricing and coding approaches more in line with the costs of providing digital health can help policymakers unpack and lower the per-unit costs of these services. To aid these efforts, the program should recognize digital health as a legitimate source of medical and other covered health care services for purposes of payment.

In addition, CMS should establish a formal process that allows the agency to develop alternative coverage and payment approaches for digital health than those used today. This would facilitate effective coverage and timely adoption.

Some suggest the Centers for Medicare and Medicaid Innovative (CMMI) is capable of doing such work, but CMMI’s approach requires small coverage demonstration projects before the product or service can be eligible for full coverage — a process that can take years to complete. Further, CMS has publicly acknowledged that CMMI’s authority is quite limited.

Others have posited this process should resemble a separate payment system like those that exist for hospitals and physicians, or that reforms to the DME fee schedule will suffice. These options fail to capture the reality that digital systems are everywhere and not confined to a single category or a discrete “payment system.”

We recommend that policymakers authorize Medicare to develop a new coverage pathway for alternative digital health products and service coverage design as a means of reforming all Medicare payment systems. Policymakers interested in such an approach should consider the following design features:

  • Focus on digital health and other innovative products and services that have the potential to provide the same or better outcomes for the same or lower costs of care;
  • Allow for alternatives to coverage, coding, payment, and pricing for digital health products and services which, due to their design and implementation, do not put Medicare finances at undue risk;
  • Establish regulatory revisions designed to speed innovative technologies through CMS administrative and coding processes;
  • Recognize digital health product and service providers for purposes of payment similarly to how physicians and medical facilities are recognized;
  • Develop a dedicated team of coding, coverage, and technology experts to facilitate the design of coverage and payment approaches that succeed in delivering new value for beneficiaries and the program;
  • Implement a modernization strategy for the program around this pathway that can be used by CMS leadership and staff to help drive reforms offered by innovative technologies into Medicare’s Part A and B payment systems.

Given the unique nature of digital health, we anticipate that the use of fully-capitated payment amounts, more-appropriate coding approaches, and other alternatives afforded products and services will deliver spending, access, and outcome improvements over what is otherwise available using traditional approaches. In some cases, these alternatives will sufficiently account for spending, quality and access concerns such that CMMI testing will not be a necessary before establishing nationwide coverage.

This coverage pathway should not be limited to digital health, but also allow for other types of innovative drugs, devices, and services. Paired with a leadership-driven strategy for how the pathways can be used to improve the operation of all Medicare payment systems, modern approaches to coverage and payment for digital health can improve the financial health of the program.


Medicare’s current payment systems first emerged in the 1960s. Almost 60 years later, the program’s worsening financial situation requires immediate action. Reforms to how Medicare covers and reimburses digital health and other innovative services can save the program money and increase care quality. Currently, the absence of such policies negatively impacts not only Medicare seniors, but also contributes to missed opportunities to improve care and capture and savings writ large. To realize these opportunities, products of the Fourth Industrial Revolution should be covered and reimbursed appropriately.

Robert Horne is President at Forest Hill Consulting, L.L.C.

Lucia Savage is Omada Health's Chief Privacy & Regulatory Officer.