A simulation model was developed to estimate the costs of telemedicine and conventional care under various scenarios, both observed and hypothetical, and to distinguish the effects of changes in utilization patterns from different equipment and operations costs of telemedicine. That is, the model accurately reproduces the observed monthly operating costs of the telemedicine demonstration. In addition, by changing model assumptions, it shows how costs would vary with different telemedical equipment and personnel, different prices for resources, and different numbers of patients seen by telemedicine.

Costs per patient are estimated separately for telemedicine and conventional care. The relative costs of telemedicine and conventional care are assessed by comparing one model estimate of the cost per patient encounter of conventional care absent telemedicine with another estimate for per-encounter costs of telemedicine. Finally, a third model estimate of per-encounter telemedicine costs might be obtained if telemedicine were implemented in the same three Pennsylvania prisons on a permanent, rather than experimental, basis. The general model is expressed by Equation B.1.

The equations exclude several costs of medical care that are the same in the two systems. Only care that differs between telemedicine and conventional care is modeled. The equation does not explicitly mention a time period because it is valid for any consistently defined accounting period. The costs discussed in this report are allocated monthly, unless otherwise stated.

Each term in this equation is explained in the sections that follow.