During its entire operation, the demonstration spent almost $778,000 to provide 1,321 telemedicine consultations. If this entire amount were assigned to the cost of clinical care, telemedicine would appear to have cost an average of $589 per encounter. In contrast, conventional, in-prison consultations cost an average of approximately $108 each. (See appendix D for an analysis of the actual costs of the demonstration.) This comparison distorts the actual costs of telemedicine, however. Many costs were incurred to set up and evaluate the demonstration. Moreover, the $589 cost per encounter does not reflect savings in transfers and external consultations that telemedicine’s use produced, which were estimated at $7,200 per month. This chapter presents a summary of the costs and savings that would result if telemedicine technology and the associated staff were operationally deployed. In addition, the implications of study findings are considered for the expansion of telemedicine to other prisons in the Federal system, and the data required to apply a similar model to State prison systems are discussed.

A telemedicine system implemented for operational rather than demonstration purposes would be configured differently from the one observed in this study. (Refer to appendix E for additional information on the cost and configuration of the operational telemedicine system.)

• BOP would purchase, rather than lease, the telemedicine equipment.

• Lewisburg and Allenwood would each be equipped with a room camera; patient camera; monitor; and the communications equipment and software necessary for real-time, interactive video conferencing ($64,500 each), plus a digital stethoscope ($3,225) and an intraoral camera ($5,375).¹

• The ratio of hubs to remotes would be optimized to maximize use of the telemedicine hardware, bringing the largest cost savings. The demonstration used two hubs because of the location of consulting specialists, but the equipment at each location could have accommodated a larger volume of encounters. The hub would be equipped with video conferencing capabilities similar to those in the prisons, but without the patient and intraoral cameras.

• Video conferencing communications would operate over four Integrated Services Digital Network (ISDN) lines per spoke. The entire network would operate at a cost of $840 per month, including amortization of $1,832 installation costs, plus $0.60 to $0.80 per-minute long-distance ISDN charges.²

To project the costs that would result from this configuration, the team developed a model of the total cost and savings of telemedicine. The model groups costs into two categories:

• Equipment: The purchase price of telemedicine equipment is amortized over its projected useful life. The fixed monthly costs of ISDN communications equipment (and a monthly share of its installation cost) are included in the equipment category. This category also includes several small capital expenses, such as training and remodeling costs. (Appendix B provides a detailed definition of each component.)

• Personnel and communications: These costs vary directly with utilization, primarily payments to specialists and video conferencing line charges.

The demonstration incurred a third category of cost -- payments to the demonstration site coordinators -- that is assumed to be zero for purposes of projecting the cost of an operational system. As an alternative assumption, calculations of the cost using part-time (20 hours per week) and full-time site coordinators were also made. The effects of these assumptions are discussed below.

Offsetting the costs of equipment, personnel, and communications are two major savings:

• Averted external consultations.

• Averted air transfers to Federal Medical Centers.

In addition to the configuration assumptions described, model calculations reflect several assumptions about utilization:

• The telemedicine system would be utilized at the rate of 100 patient encounters per month that replaced conventional consultations in the prisons, approximately the average observed during the months when the demonstration system was fully operational.

• All encounters provided by telemedicine would have been provided conventionally had telemedicine not been available. In other words, any costs associated with increased frequency of care resulting from telemedicine are excluded from the calculations.

• The operational system would avert external consultations and transfers to FMCs at the same monthly rate as that observed in the demonstration period. This would contribute four additional telemedical consultations each month, making the monthly total of patient encounters 104. (Some prisons had much larger numbers of referrals to FMCs than the ones in this demonstration. Savings at these institutions may be greater than those shown here.)

• Each averted external consultation or transfer would be replaced by a single telemedical encounter.

Table 3.1 shows that under these assumptions, the direct costs for specialist encounters (principally payments to the specialists and video conferencing line charges) would be distinctly lower using telemedicine than they were with conventional technology. The major savings, however, are associated with transporting inmates outside the prison walls.

It is also assumed that the numbers of averted external consultations and air transportations would be equivalent to those observed in the demonstration. Consequently, the substantial savings associated with these averted events ($7,200 a month) would continue to accrue to the benefit of telemedicine at any level of utilization. These savings alone more than cover the cost of operation of the hypothetical system, even without considering the cost of conventional encounters. This has an important implication: These savings may be fixed and relatively independent of the volume of telemedical sessions. That is, the assumption is made that triage procedures in operation during the telemedical session would bring prisoners into telemedicine who needed immediate consultations. The research team assumed that the number of such encounters would continue, regardless of the number of patients seen for less urgent complaints.

Because the major costs (equipment) and savings (transfers and external consultations) are unaffected by the number of encounters, savings from telemedicine do not depend greatly on utilization levels. At the observed level of 104 patients per month, telemedicine produces an average savings of $102 per patient ($35 for the cost of conventional care, plus $67 saved in averted transfers and external consultations).³ A 20-percent increase or decrease in utilization would affect this net savings by less than 10 percent.

The scenario envisioned here assumes that regular prison health care staff assume responsibility for telemedicine coordination. Whether this can be done at no additional cost is open to question. If telemedicine was established permanently rather than on a demonstration basis, and if the data collection tasks associated with this evaluation were eliminated, the labor required to coordinate telemedical activities would diminish. Whether existing BOP staff could absorb these activities without additional hiring was not determined. However, even if part-time telemedicine coordinators were retained at the same hourly rate that prevailed during the demonstration, the per-encounter cost of telemedicine would be competitive with the cost of a conventional in-prison consultation. A half-time coordinator would cost about $43 per encounter (at the rate of 100 telemedicine encounters per month). Deducting this cost from the net savings associated with telemedicine -- approximately $102 -- still makes telemedicine less costly than conventional practice. The full cost of the coordinator could be absorbed without increasing the net cost of medical care over that now provided by the Bureau.⁴

¹ These costs were current in January 1998. Considerable advances in technology are continuing, resulting in significant cost reductions in telemedicine equipment. Persons considering telemedicine should research the market for the latest products that meet their needs and provide the most value per dollar spent.

² Typical communication bandwidth for teleconsultations was 336 KB (1/4T1) using switch 56 service. The greatest bandwidth is needed when additional inputs, such as the electronic stethoscope, are used -- hence the fourth ISDN line.

³ At equipment costs current in August 1998, telemedicine encounters would cost an average of $64 each, bringing the savings to $109 per encounter. Total capital cost (equipment, installation, and training) would be recovered in 16 months.

⁴ This assumes that the rate of averting external consultations and air transportations to FMCs continues at the same levels as observed during the demonstration.