Telehealth’s Next Test: Can Virtual Care Make Money for Hospitals?

Telehealth has survived the end of the pandemic emergency. The harder question now is whether hospitals can make the business model work.

Virtual visits, remote monitoring and other forms of digitally enabled care are no longer experimental additions to the U.S. healthcare system. They have become part of routine delivery, particularly for follow-up care, behavioral health, chronic disease management and specialist consultations. Yet hospitals and health systems are discovering that greater use does not necessarily produce better financial results.

A June 2026 analysis from Strata Decision Technology found that telehealth encounters increased 79% between January 2019 and January 2026. Despite that growth, average total-cost margins for telehealth encounters remained negative across commercial insurance, Medicare, Medicaid and self-pay categories in 2025. Remote patient-monitoring encounters increased nearly 4,000% over the same period.

That combination—rising utilization and weak economics—is forcing health systems to reconsider what virtual care is supposed to accomplish. The issue is no longer whether telehealth works technologically. It is whether particular forms of virtual care create enough clinical or operational value to justify their costs.

From emergency substitute to permanent infrastructure

Telehealth expanded dramatically during COVID-19 because conventional care became difficult or impossible to deliver. Regulators loosened restrictions, insurers expanded coverage and healthcare providers rapidly built virtual capabilities.

Much of that infrastructure remained after in-person medicine resumed.

The economics, however, are different in normal conditions. A hospital that invests in software, cybersecurity, clinical staff, remote-monitoring equipment and integration with electronic health records must recover those costs through reimbursement, operational savings or some combination of the two.

Medicare policy remains an important part of that calculation. For 2026, the Centers for Medicare & Medicaid Services permanently removed frequency limits for certain subsequent inpatient, nursing-facility and critical-care telehealth visits and made virtual direct supervision permanent.

But the regulatory picture is not identical across every service or patient. Medicare coverage rules, commercial reimbursement and state policies can differ, while some pandemic-era flexibilities have changed or expired.

The result is a fragmented market in which a virtual consultation that is economically attractive for one provider or payer may be much less attractive for another.

The reimbursement problem

The central difficulty is simple: delivering care virtually may cost less in some circumstances, but it does not automatically mean the provider receives enough reimbursement to cover the infrastructure required to deliver it.

A recent study of more than 275,000 post-discharge telehealth visits found substantial variation in reimbursement by payer, provider and location. Commercial insurers paid more on average than Medicare, while metropolitan encounters generally received higher payments than non-metropolitan ones. The study also found that audio-only visits received lower payments than video encounters.

Hospitals face another complication in the form of facility economics.

Traditional hospital reimbursement was built around physical infrastructure: buildings, equipment, clinical staff and facility operations. Telehealth changes the relationship between the patient and that infrastructure. A patient can receive care at home while the clinician works inside a hospital system that still has substantial overhead.

Medicare continues to pay a facility fee for certain telehealth encounters furnished in clinical settings. For 2026, the originating-site facility fee is $31.85.

For hospitals, these payments can help offset infrastructure costs. For employers and patients, however, facility-based billing can undermine one of telehealth's most attractive promises: that avoiding a physical visit can reduce the cost of care.

The business case is not always about the virtual visit

The strongest argument for hospital telehealth may therefore lie outside the individual encounter.

Virtual care can allow scarce specialists to support multiple locations, reduce unnecessary travel and help rural hospitals provide services they could not otherwise staff. Sanford Health, for example, reported that its virtual-care program saved patients an estimated $41 million in travel-related expenses during 2025. The health system says its model now supports specialty consultations, hospital-at-home services, remote monitoring and other programs across its regional network.

In that model, the economic value is distributed across the system. A virtual specialist consultation may not generate an exceptional margin by itself, but it can prevent a patient from traveling hundreds of miles, improve utilization of specialist capacity and help a smaller hospital retain patients locally.

Tele-ICU programs offer a similar logic. Remote intensivists can support smaller hospitals that cannot economically maintain a full specialist team around the clock. A virtual service may therefore be financially worthwhile because it strengthens the economics of the physical facility rather than replacing it.

This distinction is becoming increasingly important. Hospitals are not necessarily deciding between digital and physical medicine. They are deciding which combination produces the most sustainable care model.

The pressure on hospitals is broader than telehealth

The financial scrutiny comes at a difficult time for hospital operators.

CMS increased 2026 Medicare inpatient hospital operating payments by 2.6% for qualifying hospitals, while hospital outpatient payment rates also received a 2.6% update. Those increases provide some support, but they occur alongside persistent labor, pharmaceutical, technology and facility expenses.

Against that backdrop, virtual care must compete internally for capital.

A health system may have to choose between expanding a virtual-care platform, hiring additional clinicians, upgrading physical facilities or investing in other technologies. If a virtual program produces high utilization but negative margins without generating measurable savings elsewhere, executives have a reason to redesign it.

That does not necessarily mean abandoning telehealth. It could mean narrowing its use to services where remote delivery has a clearer economic or clinical advantage.

What comes next

The next phase of telehealth is likely to be more selective.

Hospitals may increasingly concentrate virtual care around specialties, follow-up appointments, chronic disease management and remote monitoring where the technology can substitute for expensive or inconvenient physical encounters. Other services may remain primarily in person because examination, testing or procedures require physical facilities.

Technology could also change the economics. Better integration with electronic health records, automated monitoring and more efficient clinical workflows could lower the administrative cost of virtual care. But investment in those systems creates its own upfront expense, meaning scale will matter.

Regulation will remain another variable. CMS has already made several telehealth provisions permanent, while other reimbursement questions remain subject to policy decisions and payer negotiations.

The broader lesson is that telehealth has entered a more demanding phase. During the pandemic, the principal question was whether healthcare could be delivered remotely. Today, the question is more consequential for hospitals: where does virtual care create enough value to justify the infrastructure, clinical labor and reimbursement required to sustain it?

The answer may determine whether telehealth becomes a cheaper alternative to conventional care, a specialized extension of hospital networks, or simply another layer of the increasingly complex American healthcare system.