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  Capital Costs

Capital costs are counted only for telemedicine because the other capital investments required of conventional consultations remain unchanged after the introduction of telemedicine. The equation for capital costs converts fixed investments into monthly values by depreciation. (See Equation B.2.)

equation b.2

This substantially exceeds the cost anticipated for any larger scale use of telemedicine. Of the available alternative values for this cost, researchers chose the lowest -- that proposed by the vendor for renewal of the lease after the initial commitment period has expired -- because it most nearly represents the long-term cost of a large-scale implementation of telemedicine in many prisons.

These elements reflect costs that telemedicine imposes on the system even before the first patient sees a specialist. The largest of these fixed costs is the monthly lease for the telemedicine equipment itself. Telemedicine equipment for the demonstration was leased but could have been purchased. The model is used to estimate costs for equipment lease and then separately for equipment purchase, to test the impact of these different strategies for securing costly equipment. During the 15 months of the demonstration period, $356,047 was paid to lease the equipment used for the demonstration.

Had this not been an experimental demonstration of telemedicine, the equipment could have been purchased for approximately $73,000 per site. When the model is used to simulate telemedicine with purchased equipment, the initial investment is translated into a monthly cost by straight-line depreciation over a 10-year useful life.1

    1 In this and other accounting assumptions, the standards of OMB circular A-76 were followed.