Healthcare across Boundaries: Urban-Rural Differences in the Financial and Healthcare Consequences of Telehealth Adoption

Abstract

We study the impacts of telehealth adoption on geographic competition among urban and rural healthcare providers, and associated quality of care implications. To causally identify these effects, we consider a quasi-natural experiment: states' entry into the Telemedicine Licensure Compact, wherein participating states coordinate to streamline licensing for physicians wishing to provide telehealth services across state lines. We first show that affected physicians receive more state licenses and earn higher Medicare payments, thereby establishing the Compact entry shock's validity and its positive effect on telehealth adoption. We then examine the heterogeneous effects on provider earnings and quality of care across urban and rural areas. We report evidence that urban providers are systematically more likely to respond to the policy change and financially benefit from it by expanding their service scope to a wider geographic market. As urban providers begin to offer their services to rural patients, rural physicians and hospitals experience a decline in patient volumes, and a revenue loss in turn. We subsequently consider parallel impacts on patient quality of care, and we discuss the implications of our results for healthcare providers and government.