HSA/FSA
Navigating Letters of Medical Necessity for HSA/FSA Purchases: An Enterprise Guide to Telehealth Compliance
Letters of Medical Necessity (LMNs) are essential for unlocking HSA/FSA funds on dual-purpose products. With telehealth integration, DTC brands can ensure compliance, simplify checkout, and give customers fast, legitimate access to pre-tax dollars—all while avoiding regulatory risks.
August 25, 2025
Sam O'Keefe
Co-founder & CEO of Flex
Overview
Overview
Overview
Overview
The rise of telehealth has opened the door to an exciting opportunity for direct-to-consumer (DTC) brands: Offering HSA/FSA funds as an alternative method of payment—an approach that elevates average order values (AOV) by as much as 50%. Businesses can enhance this strategy by integrating Letters of Medical Necessity (LMNs) into the checkout process.
Imagine an ecommerce customer adding a high-end ergonomic chair to their cart, and then doubting whether they should make the purchase. If they’re offered a swift telehealth consultation to secure an LMN, they could complete the transaction with HSA/FSA funds—increasing the probability they’ll proceed with the purchase..
Americans hold $150 billion in HSA and FSA accounts—but for many purchases, they can only access that money with a special doctor’s note (an LMN). By partnering with telehealth providers, your brand can help customers get an LMN quickly. This is a win-win for your business and the customers. They save an average of 30% by using HSA/FSA funds, and you benefit from 20% larger cart sizes.
Implementing this strategy requires intimate knowledge of the regulatory framework around telehealth and LMNs. Below, we’ll guide you through the details of telehealth compliance for DTC brands.
Understanding HSA, FSA, and HRA Accounts
HSAs and FSAs, as well as a similar tool called a Health Reimbursement Arrangement (HRA), provide consumers with tax benefits for money that’s been set aside for medical expenses.
Here’s a breakdown of these accounts:
A Health Savings Account (HSA) is a special type of savings account that allows consumers to set aside untaxed funds to be used for qualifying medical expenses.
A Flexible Spending Account (FSA) is an untaxed account, often funded by an employer, that can be tapped for medical expenses.
A Health Reimbursement Account is an employer-funded health plan that allows employees to be reimbursed for medical expenses.
These accounts are growing in popularity. Between 2017 and 2022, the number of HSA accounts increased by more than 60%—and as of 2024, more than 61 million Americans were covered by one.
For ecommerce brands and omnichannel retailers, this trend represents a major opportunity to raise average order values (AOVs) while increasing customer loyalty.
What Is a "Qualified” Medical Expense?
In general, “qualified” expenses are related to healthcare—including vision and dental care—for the account holder, their spouse, and any dependents. With a Dependent Care FSA, individuals can also pay for child care for children under 13 years of age.
The IRS Definition of a “Medical Expense”
In IRS Publication 502, the agency defines a “medical expense” as “the costs of diagnosis, cure, mitigation, treatment, or prevention of disease, and for the purpose of affecting any part or function of the body.” Qualifying expenses include “the costs of equipment, supplies, and diagnostic devices needed for these purposes.”
In Section 213(d) of its code, the IRS provides a list of “Deductible Medical Expenses,” which includes a range of medical products and services from contact lenses to equipment for physical therapy. It also includes over-the-counter drugs like pain relievers and cold medicine.
However, the list presented in IRS Section 213(d) is not exhaustive. According to the IRS, it “may help determine whether an expense is eligible.” Ultimately, what determines whether a product or service counts as a “medical expense” is whether it falls under the general definition quoted above.
Dual-Purpose Products (and the Need for an LMN)
Many products fulfill both medical needs and general lifestyle purposes, including fitness equipment, nutritional supplements, and weight-loss programs.
To use HSA/FSA funds when purchasing these dual-purpose products or services, individuals must prove that the purchase is medically necessary. For example, the IRS states in Publication 502 that nutritional supplements do not count as medical expenses, “unless they are recommended by a medical practitioner as treatment for a specific medical condition diagnosed by a physician.” The doctor’s recommendation, then, is what makes the item HSA/FSA-eligible.
To purchase a dual-purpose product with HSA/FSA funds, patients must prove that the item is medically necessary with a specific type of doctor’s note called a Letter of Medical Necessity (LMN).
Defining the Letter of Medical Necessity (LMN)
A Letter of Medical Necessity (LMN) is a detailed document from a licensed healthcare provider explicitly outlining the medical necessity of a specific product or service, enabling the legitimate use of HSA/FSA funds. An LMN can be valid for up to 12 months.
There is no set template for an LMN, but they usually contain the following details:
Comprehensive patient information (including full name, date of birth, address, and contact information)
Precise medical diagnosis or condition
Explicit rationale linking the product/service to the patient's medical needs
The intended duration of use or treatment
The provider’s professional credentials (including signature and license number).
For an LMN to be accepted by HSA/FSA administrators, it must be issued by a certified “treating” physician. Typically, a doctor is only considered a “treating” physician if they have provided medical care to the individual, and for the condition or diagnosis outlined in the letter, within 6 months of signing the LMN.
LMNS are not new—doctors have been providing them for decades—but they were long underutilized. Now, with the advent of accessible telehealth and alternative payment methods, LMNs are becoming more prevalent.
Because of the current telehealth environment, people can consult with a physician remotely, receive an LMN, and then pay for a qualifying item or service online. This capability simplifies the purchasing process for the patient while helping brands sell their products to HSA/FSA account holders.
The Legal and Regulatory Framework of Telehealth LMNs
FSA/HSA administrators will accept LMNs obtained through telehealth, but only if the letters adhere to varying state regulations.
State Telehealth Regulations
States individually dictate acceptable telehealth modalities—such as video consultations, audio-only interactions, or secure asynchronous messaging—based on the complexity and risk profile of the medical services provided.
Fortunately, most states are increasingly flexible regarding telehealth for lower-risk consultations. Only two still require live video interactions exclusively. The others have tiered regulations, with specific requirements depending on the level of the medical intervention. For example, a state may allow asynchronous messaging for LMNs related to therapy-related equipment but require an audio consultation for LMNs related to prescription medications.
Along with these modality requirements, state medical boards enforce stringent professional standards for telehealth providers. States will revoke a provider’s license if standards aren’t met,ensuring that only legitimate physicians provide telehealth services.
Reliance on Patient-Reported Information
Since telehealth involves no physical examination, providers often rely on patient-reported information,which is generally permissible for LMNs. Healthcare attorney [Placeholder Quote - McDermott Lawyer] highlights this, stating, "Patient-reported outcomes form the backbone of modern medical consultations. Providers rely extensively on accurate, patient-generated information."
The acceptance of patient-reported information isn’t a special allowance for telehealth. Even with traditional in-person appointments, doctors regularly rely on self-reported information related to pain or mental health.
While patients are allowed to self-report medical information, misrepresentation carries severe legal consequences. Lying to a physician in order to receive an LMN would likely be considered medical fraud.
Ensuring Telehealth LMN Compliance
Merchants offering telehealth LMNs during the checkout flow need to ensure their LMN process is compliant. After all, LMNs are only useful to customers if they’re approved by HSA/FSA administrators.
Collecting Patient Data
In the context of LMNs, compliant telehealth should involve a dynamic, interactive dialogue between the patient and the provider. The completion of a simple survey won’t suffice. Both the doctor and the patient should have a way to get back in touch after the initial consultation, and all patient-reported information should be reviewed by a medical practitioner licensed in the appropriate state.
Explaining the Medical Necessity of a Specific Product
LMNs should also show that the patient’s condition is directly related to the product or service being purchased. To satisfy this requirement, specificity is key. An LMN won’t be compliant if it recommends purchasing any product from the merchant. Instead, the doctor must write that the patient has a specific condition that necessitates the purchase of a specific product or service.
Example:
An LMN directing a patient to purchase “vitamins” from “Scotty’s Supplements” would not be compliant (too general).
An LMN directing a patient to buy iron supplements for anemia would be compliant (specific, gives a medical rationale for purchasing an exact product).
Lisa S. Mazur, Health Law Attorney at McDermott Will & Emery, explains, “A compliant LMN must clearly outline the direct medical rationale for the specific product or service recommended. Generic or overly broad LMNs face significant scrutiny and are often rejected.”
Brands occasionally fail to remain compliant because they allow customers to check out with HSA/FSA funds for the entire shopping cart, even though only some of the items are HSA/FSA-eligible. They can avoid this pitfall by ensuring HSA/FSA funds are used only for the specific products named in the LMN.
Also, keep in mind that companies offering LMNs should not have a 100% issuing rate. Medical necessity is a clinical decision, and not all consumers will qualify. A supposed “100% guarantee" of an approvable LMN implies fraudulent practices.
Industry Applications & Use Cases
Telehealth LMNs can be leveraged across industries, helping customers use HSA/FSA funds to purchase medically-necessary products and services.
Case Study: iFit Offers HSA/FSA at Checkout
iFIT, a global leader in connected fitness and interactive content, exemplifies how enterprise DTC brands can expand their reach by accepting HSA/FSA funds at checkout. Through its partnership with Flex, customers can use pre-tax health benefits to purchase NordicTrack smart equipment, increasing accessibility and driving new customer acquisition. Flex has quickly become a meaningful part of iFIT’s business, now accounting for a high single-digit percentage of total volume.
Use Cases Across Verticals
Here are some specific industries where DTC brands could benefit from incorporating LMNs into the checkout process:
Fitness (including exercise equipment, fitness trackers, and personal trainers)
Wellness (including supplements, oral rehydration solutions, and probiotics)
Medical devices (including hearing aids, eyeglasses, and compression socks/sleeves)
Appliances/furniture (including air purifiers, ergonomic chairs, and mattresses)
Remember that not all customers will qualify to purchase these products with HSA/FSA funds. The funds will only be approved by HSA/FSA administrators if an LMN shows the product to be “medically necessary”—meaning it meets the IRS’s requirement of relating to the “diagnosis, cure, mitigation, treatment, or prevention of disease.”
Post-LMN: Helping Consumers Maintain Ongoing Compliance
To ensure ongoing compliance, consumers need to properly retain or submit LMN documentation.
The specific requirements vary by account type:
HSA holders should securely retain LMN documentation for at least 3 years. This will serve as proof of medical necessity in the event of an IRS audit.
FSA holders typically face immediate documentation submission requirements. FSAs rigorously verify submitted LMNs to confirm medical eligibility. If an LMN is deemed insufficient or invalid, consumers may need to reimburse the entire purchase (a fact that underscores the importance of obtaining accurate, comprehensive LMNs).
Brands should look for LMN providers that will help facilitate this required recordkeeping for consumers.
Vetting LMN Providers (a Merchant Checklist)
When a merchant incorporates LMNs into their checkout process, it’s imperative that they evaluate potential telehealth providers before establishing a partnership. That way, they ensure compliance for the consumers.
Here are some questions merchants should ask a telehealth provider (before using them to secure LMNs for customers):
In which states are you licensed, and how do you manage ongoing compliance?
What telehealth modalities do you use predominantly, and why?
How accessible are clinicians after initial patient consultations?
Does your LMN process integrate seamlessly into ecommerce checkout flows?
How does adding your checkout feature impact conversation rates?
What is your LMN approval rate?
Do you issue LMNs specific to individual products or broader categories?
What conditions would you deem as relevant to my product or service catalog?
How do you handle it when multiple LMNs are needed during a single checkout?
What is your typical LMN validity period (not exceeding 12 months per IRS rules)?
Have any of your LMNs been rejected by FSAs, and how frequently? How do you address such rejections?
How long do you retain records for patients?
What kind of support do you offer if a customer is audited?
The goal: Identify LMN providers that will serve customers’ needs while maintaining consistent compliance.
Conclusion: Leverage LMNs, Unlock HSA/FSA Funds for Your Business
When you offer customers an easy way to secure a telehealth LMN, you’re tapping into a deep well of purchasing power. Sixty million Americans have an HSA or FSA account, and 92% of surveyed customers said they'll return because HSA/FSA funds are accepted.
But this strategy requires adhering to rigorous standards. Yes, telehealth LMNs are generally legal—but to remain compliant, you should perform thorough due diligence on providers.
Follow the guidelines above, and you’ll minimize regulatory risk while maintaining the trust of your customers.
The rise of telehealth has opened the door to an exciting opportunity for direct-to-consumer (DTC) brands: Offering HSA/FSA funds as an alternative method of payment—an approach that elevates average order values (AOV) by as much as 50%. Businesses can enhance this strategy by integrating Letters of Medical Necessity (LMNs) into the checkout process.
Imagine an ecommerce customer adding a high-end ergonomic chair to their cart, and then doubting whether they should make the purchase. If they’re offered a swift telehealth consultation to secure an LMN, they could complete the transaction with HSA/FSA funds—increasing the probability they’ll proceed with the purchase..
Americans hold $150 billion in HSA and FSA accounts—but for many purchases, they can only access that money with a special doctor’s note (an LMN). By partnering with telehealth providers, your brand can help customers get an LMN quickly. This is a win-win for your business and the customers. They save an average of 30% by using HSA/FSA funds, and you benefit from 20% larger cart sizes.
Implementing this strategy requires intimate knowledge of the regulatory framework around telehealth and LMNs. Below, we’ll guide you through the details of telehealth compliance for DTC brands.
Understanding HSA, FSA, and HRA Accounts
HSAs and FSAs, as well as a similar tool called a Health Reimbursement Arrangement (HRA), provide consumers with tax benefits for money that’s been set aside for medical expenses.
Here’s a breakdown of these accounts:
A Health Savings Account (HSA) is a special type of savings account that allows consumers to set aside untaxed funds to be used for qualifying medical expenses.
A Flexible Spending Account (FSA) is an untaxed account, often funded by an employer, that can be tapped for medical expenses.
A Health Reimbursement Account is an employer-funded health plan that allows employees to be reimbursed for medical expenses.
These accounts are growing in popularity. Between 2017 and 2022, the number of HSA accounts increased by more than 60%—and as of 2024, more than 61 million Americans were covered by one.
For ecommerce brands and omnichannel retailers, this trend represents a major opportunity to raise average order values (AOVs) while increasing customer loyalty.
What Is a "Qualified” Medical Expense?
In general, “qualified” expenses are related to healthcare—including vision and dental care—for the account holder, their spouse, and any dependents. With a Dependent Care FSA, individuals can also pay for child care for children under 13 years of age.
The IRS Definition of a “Medical Expense”
In IRS Publication 502, the agency defines a “medical expense” as “the costs of diagnosis, cure, mitigation, treatment, or prevention of disease, and for the purpose of affecting any part or function of the body.” Qualifying expenses include “the costs of equipment, supplies, and diagnostic devices needed for these purposes.”
In Section 213(d) of its code, the IRS provides a list of “Deductible Medical Expenses,” which includes a range of medical products and services from contact lenses to equipment for physical therapy. It also includes over-the-counter drugs like pain relievers and cold medicine.
However, the list presented in IRS Section 213(d) is not exhaustive. According to the IRS, it “may help determine whether an expense is eligible.” Ultimately, what determines whether a product or service counts as a “medical expense” is whether it falls under the general definition quoted above.
Dual-Purpose Products (and the Need for an LMN)
Many products fulfill both medical needs and general lifestyle purposes, including fitness equipment, nutritional supplements, and weight-loss programs.
To use HSA/FSA funds when purchasing these dual-purpose products or services, individuals must prove that the purchase is medically necessary. For example, the IRS states in Publication 502 that nutritional supplements do not count as medical expenses, “unless they are recommended by a medical practitioner as treatment for a specific medical condition diagnosed by a physician.” The doctor’s recommendation, then, is what makes the item HSA/FSA-eligible.
To purchase a dual-purpose product with HSA/FSA funds, patients must prove that the item is medically necessary with a specific type of doctor’s note called a Letter of Medical Necessity (LMN).
Defining the Letter of Medical Necessity (LMN)
A Letter of Medical Necessity (LMN) is a detailed document from a licensed healthcare provider explicitly outlining the medical necessity of a specific product or service, enabling the legitimate use of HSA/FSA funds. An LMN can be valid for up to 12 months.
There is no set template for an LMN, but they usually contain the following details:
Comprehensive patient information (including full name, date of birth, address, and contact information)
Precise medical diagnosis or condition
Explicit rationale linking the product/service to the patient's medical needs
The intended duration of use or treatment
The provider’s professional credentials (including signature and license number).
For an LMN to be accepted by HSA/FSA administrators, it must be issued by a certified “treating” physician. Typically, a doctor is only considered a “treating” physician if they have provided medical care to the individual, and for the condition or diagnosis outlined in the letter, within 6 months of signing the LMN.
LMNS are not new—doctors have been providing them for decades—but they were long underutilized. Now, with the advent of accessible telehealth and alternative payment methods, LMNs are becoming more prevalent.
Because of the current telehealth environment, people can consult with a physician remotely, receive an LMN, and then pay for a qualifying item or service online. This capability simplifies the purchasing process for the patient while helping brands sell their products to HSA/FSA account holders.
The Legal and Regulatory Framework of Telehealth LMNs
FSA/HSA administrators will accept LMNs obtained through telehealth, but only if the letters adhere to varying state regulations.
State Telehealth Regulations
States individually dictate acceptable telehealth modalities—such as video consultations, audio-only interactions, or secure asynchronous messaging—based on the complexity and risk profile of the medical services provided.
Fortunately, most states are increasingly flexible regarding telehealth for lower-risk consultations. Only two still require live video interactions exclusively. The others have tiered regulations, with specific requirements depending on the level of the medical intervention. For example, a state may allow asynchronous messaging for LMNs related to therapy-related equipment but require an audio consultation for LMNs related to prescription medications.
Along with these modality requirements, state medical boards enforce stringent professional standards for telehealth providers. States will revoke a provider’s license if standards aren’t met,ensuring that only legitimate physicians provide telehealth services.
Reliance on Patient-Reported Information
Since telehealth involves no physical examination, providers often rely on patient-reported information,which is generally permissible for LMNs. Healthcare attorney [Placeholder Quote - McDermott Lawyer] highlights this, stating, "Patient-reported outcomes form the backbone of modern medical consultations. Providers rely extensively on accurate, patient-generated information."
The acceptance of patient-reported information isn’t a special allowance for telehealth. Even with traditional in-person appointments, doctors regularly rely on self-reported information related to pain or mental health.
While patients are allowed to self-report medical information, misrepresentation carries severe legal consequences. Lying to a physician in order to receive an LMN would likely be considered medical fraud.
Ensuring Telehealth LMN Compliance
Merchants offering telehealth LMNs during the checkout flow need to ensure their LMN process is compliant. After all, LMNs are only useful to customers if they’re approved by HSA/FSA administrators.
Collecting Patient Data
In the context of LMNs, compliant telehealth should involve a dynamic, interactive dialogue between the patient and the provider. The completion of a simple survey won’t suffice. Both the doctor and the patient should have a way to get back in touch after the initial consultation, and all patient-reported information should be reviewed by a medical practitioner licensed in the appropriate state.
Explaining the Medical Necessity of a Specific Product
LMNs should also show that the patient’s condition is directly related to the product or service being purchased. To satisfy this requirement, specificity is key. An LMN won’t be compliant if it recommends purchasing any product from the merchant. Instead, the doctor must write that the patient has a specific condition that necessitates the purchase of a specific product or service.
Example:
An LMN directing a patient to purchase “vitamins” from “Scotty’s Supplements” would not be compliant (too general).
An LMN directing a patient to buy iron supplements for anemia would be compliant (specific, gives a medical rationale for purchasing an exact product).
Lisa S. Mazur, Health Law Attorney at McDermott Will & Emery, explains, “A compliant LMN must clearly outline the direct medical rationale for the specific product or service recommended. Generic or overly broad LMNs face significant scrutiny and are often rejected.”
Brands occasionally fail to remain compliant because they allow customers to check out with HSA/FSA funds for the entire shopping cart, even though only some of the items are HSA/FSA-eligible. They can avoid this pitfall by ensuring HSA/FSA funds are used only for the specific products named in the LMN.
Also, keep in mind that companies offering LMNs should not have a 100% issuing rate. Medical necessity is a clinical decision, and not all consumers will qualify. A supposed “100% guarantee" of an approvable LMN implies fraudulent practices.
Industry Applications & Use Cases
Telehealth LMNs can be leveraged across industries, helping customers use HSA/FSA funds to purchase medically-necessary products and services.
Case Study: iFit Offers HSA/FSA at Checkout
iFIT, a global leader in connected fitness and interactive content, exemplifies how enterprise DTC brands can expand their reach by accepting HSA/FSA funds at checkout. Through its partnership with Flex, customers can use pre-tax health benefits to purchase NordicTrack smart equipment, increasing accessibility and driving new customer acquisition. Flex has quickly become a meaningful part of iFIT’s business, now accounting for a high single-digit percentage of total volume.
Use Cases Across Verticals
Here are some specific industries where DTC brands could benefit from incorporating LMNs into the checkout process:
Fitness (including exercise equipment, fitness trackers, and personal trainers)
Wellness (including supplements, oral rehydration solutions, and probiotics)
Medical devices (including hearing aids, eyeglasses, and compression socks/sleeves)
Appliances/furniture (including air purifiers, ergonomic chairs, and mattresses)
Remember that not all customers will qualify to purchase these products with HSA/FSA funds. The funds will only be approved by HSA/FSA administrators if an LMN shows the product to be “medically necessary”—meaning it meets the IRS’s requirement of relating to the “diagnosis, cure, mitigation, treatment, or prevention of disease.”
Post-LMN: Helping Consumers Maintain Ongoing Compliance
To ensure ongoing compliance, consumers need to properly retain or submit LMN documentation.
The specific requirements vary by account type:
HSA holders should securely retain LMN documentation for at least 3 years. This will serve as proof of medical necessity in the event of an IRS audit.
FSA holders typically face immediate documentation submission requirements. FSAs rigorously verify submitted LMNs to confirm medical eligibility. If an LMN is deemed insufficient or invalid, consumers may need to reimburse the entire purchase (a fact that underscores the importance of obtaining accurate, comprehensive LMNs).
Brands should look for LMN providers that will help facilitate this required recordkeeping for consumers.
Vetting LMN Providers (a Merchant Checklist)
When a merchant incorporates LMNs into their checkout process, it’s imperative that they evaluate potential telehealth providers before establishing a partnership. That way, they ensure compliance for the consumers.
Here are some questions merchants should ask a telehealth provider (before using them to secure LMNs for customers):
In which states are you licensed, and how do you manage ongoing compliance?
What telehealth modalities do you use predominantly, and why?
How accessible are clinicians after initial patient consultations?
Does your LMN process integrate seamlessly into ecommerce checkout flows?
How does adding your checkout feature impact conversation rates?
What is your LMN approval rate?
Do you issue LMNs specific to individual products or broader categories?
What conditions would you deem as relevant to my product or service catalog?
How do you handle it when multiple LMNs are needed during a single checkout?
What is your typical LMN validity period (not exceeding 12 months per IRS rules)?
Have any of your LMNs been rejected by FSAs, and how frequently? How do you address such rejections?
How long do you retain records for patients?
What kind of support do you offer if a customer is audited?
The goal: Identify LMN providers that will serve customers’ needs while maintaining consistent compliance.
Conclusion: Leverage LMNs, Unlock HSA/FSA Funds for Your Business
When you offer customers an easy way to secure a telehealth LMN, you’re tapping into a deep well of purchasing power. Sixty million Americans have an HSA or FSA account, and 92% of surveyed customers said they'll return because HSA/FSA funds are accepted.
But this strategy requires adhering to rigorous standards. Yes, telehealth LMNs are generally legal—but to remain compliant, you should perform thorough due diligence on providers.
Follow the guidelines above, and you’ll minimize regulatory risk while maintaining the trust of your customers.
Flex is the easiest way for direct to consumer brands and retailers to accept HSA/FSA for their products. From fitness and nutrition, to sleep and mental health, Flex takes a holistic view of healthcare and enables consumers to use their pre-tax money to do the same.