Essay 4: Medical outsourcing and telemedicine

Essay 4: Medical outsourcing and telemedicine

Essay 4: Medical outsourcing and telemedicine

Reference is:

Singh, S. N., J.D., & Wachter, R. M., M.D. (2008). Perspectives on medical outsourcing and telemedicine — rough edges in a flat world? The New England Journal of Medicine, 358(15), 1622-7. doi:



Outsourcing of health care services, such as the reading of imaging studies by offshore radiologists, has become common and has raised a number of regulatory issues related to reimbursement, patient privacy, health care quality, and malpractice. The authors review the legal context and challenges relevant to medical outsourcing.

Outsourcing of health care services, such as the reading of imaging studies by offshore radiologists, has become common and has raised a number of regulatory issues related to reimbursement, patient privacy, health care quality, and malpractice. The authors review the legal context and challenges relevant to medical outsourcing.

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Low-cost labor, time zone differences, and telecommunication advances have “flattened” the world of business and services1 ; however, health care has been relatively insulated from these world-flattening forces until recently. In particular, the fundamental physicality of medicine — the need to examine a patient or look at a chart or radiograph — prohibited the remote outsourcing that was possible in manufacturing or call centers.2 However, digitized health care now permits the outsourcing of a range of medical services, from clinical diagnostics to direct care.

Although outsourcing of any type triggers predictable worries,3 outsourcing of health care raises special issues. Health care takes place in a complex regulatory and legal environment. Reimbursement is often from private insurers and government agencies, each with their own concerns and agendas. Both cost and quality of care must be gauged against a backdrop of privacy, billing, licensing, and liability concerns.

In this article, we explore some of the critical regulatory, legal, and policy issues surrounding health care outsourcing and telemedicine. We do not address “medical tourism” (the practice of obtaining health care in another country)4 ; the regulatory issues that it raises, though somewhat related, undoubtedly merit separate treatment.

Overview of Medical Outsourcing and Telemedicine

Medical outsourcing refers to the process by which a health care provider (whether an individual physician, a medical group, a hospital, or a health care system) engages outside third parties to provide medical services. Telemedicine focuses on the electronic delivery of these services, which are usually clinical (e.g., specialist consultations) or diagnostic (e.g., teleradiology) but sometimes include information distribution.5 ,6Essay 4: Medical outsourcing and telemedicine

Medical outsourcing has grown more slowly than other types of outsourcing for several reasons. First, patients have traditionally regarded health care as intensely personal, making them wary of the relative anonymity of outsourcing. Moreover, outsourcing of services normally performed by highly trained, licensed professionals such as physicians and lawyers (so-called extreme professional outsourcing7 ) generally grows more slowly than outsourcing of other services such as call centers and manufacturing. Finally, most medical outsourcing requires a robust and, until recently, prohibitively expensive backbone of information technology.8 ,9

All of this is changing rapidly. Skilled health care labor is now available in many countries. Patients seem primed to embrace the kind of technology that has transformed personal finance and other services. Payers, reeling from runaway costs, may welcome outsourcing that delivers acceptable outcomes at substantially lower costs. The costs of the information technology needed for outsourcing have fallen considerably, and many hospitals have already installed the required infrastructure for local purposes.

The extent of U.S. health care outsourcing and telemedicine is unclear, but emerging evidence indicates a growing array of activities. As many as 300 hospitals nationwide, and two thirds of radiology practices, appear to be using some form of teleradiology.2 ,10 -13 One pioneer in remote intensive care unit services reports having 150 client hospitals,10 and hospitals in an estimated 27 states may be using some form of telepathology.14 A 2004 federal report estimated (at that time) a $380 million telemedicine market, with projected annual growth rates of 15 to 20% and particularly robust growth in the fields of radiology, dermatology, mental health consultation, and home care.6 The same report noted 240,000 annual teleconsultations by the Department of Veterans Affairs alone.

The more controversial question concerns the extent of foreign medical outsourcing. Beyond the well-acknowledged foreign market for teleimaging, foreign outsourcing of telepathology has been increasingly reported.14 A 2006 federal report suggests that many U.S. health institutions, unaware of foreign subcontracts by their domestic vendors, underreport foreign outsourcing.15 Recent commentaries suggest that India alone has already captured 2% of the U.S. health care market.8 ,16 This kind of growth will undoubtedly fuel considerable debate over the regulatory, legal, and policy context of outsourcing.Essay 4: Medical outsourcing and telemedicine

Regulatory, Legal, and Policy Context

Information Privacy

Information privacy remains the greatest source of concern about medical outsourcing. Several high-profile breaches involving foreign providers have contributed to the notion that international outsourcing of sensitive information is an inherently risky endeavor.2 ,17

The risk of a breach of privacy in any kind of outsourcing stems from both the manner of information transfer (i.e., through electronic channels vulnerable to hacking and other security breaches) and the reliance on third parties. Many of these third parties (even domestic ones), although contractually bound to maintain confidentiality, operate beyond the scope of direct supervision. In this environment, one must question whether foreign outsourcing is inherently more risky than other forms of transmission of health care data. A 2006 report disclosed that 40% of federal health insurance contractors and state health agencies, both engaged primarily in domestic outsourcing, had reported recent breaches in personal health information privacy15 ,18 ; additional data suggest that many such breaches arise from failure to dispose of information properly.19

Although the Health Insurance Portability and Accountability Act (HIPAA) establishes significant specific contractual requirements for primary contractors and business associates, the requirements for ongoing supervision of business associates, except in the case of known breaches, are minimal.20 ,21 Indeed, HIPAA and related regulations do not require significant information audits or pre-engagement due diligence, features typically seen in nonmedical professional-service agreements. In the future, policymakers may be challenged to craft these kinds of safeguards without nullifying the potential efficiency advantages of outsourcing arrangements.

Regulatory and Billing Compliance

In addition to the HIPAA regulations, providers must navigate rapidly changing Medicare and Medicaid regulations. Most of these regulations predate outsourcing based on information technology and were developed with relatively little regard for quality measurement and reporting. Whatever the vintage and intent of these regulations, their evolution is not easy to track, and they may either promote or restrict the international outsourcing of health care services for the foreseeable future.

For example, based on interpretations of the current regulations, most international teleradiology companies have required that their radiologists be licensed in the states of the patients whose films they are reading, have medical-staff privileges at the patients’ hospitals, and have local malpractice insurance. According to the founder of NightHawk Radiology Services, which has more than 100 affiliated radiologists (about half stationed overseas), the average NightHawk radiologist holds 38 state licenses and has staff privileges at more than 400 hospitals. NightHawk employs more than 35 people whose sole focus is credentialing and licensing.22 Obviously, these domestic licensure and accreditation requirements are burdensome, but they have not hindered NightHawk’s ability to create a viable business model. Essay 4: Medical outsourcing and telemedicine

The more challenging issues for international outsourcing companies may be related to payment. Most notably, recent changes in Centers for Medicare and Medicaid Services (CMS) regulations stipulate that providers cannot seek Medicare reimbursement for services physically performed outside the United States, even if the provider has a U.S. license and certification.23 The ambiguously worded CMS changes are currently being interpreted as not restricting the use of foreign outsourcing for preliminary work (i.e., work performed to facilitate completion of services by a qualified U.S. provider), assuming that the non-U.S.-based provider does not seek reimbursement. Accordingly, if a U.S. hospital uses a U.S.-credentialed radiologist operating in India to provide final readings of radiographs, it cannot properly seek reimbursement (from CMS at least). However, if the same hospital uses a radiologist in India to provide preliminary readings that are then reviewed for a final reading by a U.S.-based and U.S.-licensed radiologist, the final reading is probably reimbursable. Under such arrangements, the domestic provider (hospital or physician), not the payer, usually compensates the foreign radiologist or the radiologist’s company.

No doubt, this scenario could lead to abuse, particularly if the U.S.-based radiologist did not exercise requisite care in reviewing and approving the preliminary reading (a practice now commonly referred to as “ghosting”). Conceptually, though, this risk is not unique to the use of outsourcing for preliminary readings. Under current CMS regulations, preliminary readings by nonlicensed radiology residents may be used by a licensed radiologist to make final readings that are ultimately reimbursable.24

Because the growth of offshore medical outsourcing and telemedicine will be substantially influenced by regulations and reimbursement policies, one can expect increasing activism and even internal standard setting by professional associations. Though such associations are independent, nongovernment entities, they have several tools to influence practice within their fields. For example, the American College of Radiology Task Force on International Radiology has endorsed state licensure, certification, and continuing education requirements for telemedicine, as well as full disclosure of board certification to patients and contracting parties.25