The Economic Impact of Telemedicine Service in a Rural Hospital

Brian WhitacreOklahoma State University

SERA-19 MeetingsSep. 10-12, 2007

The Issues• Telemedicine has been hailed as a saving

grace for rural health care• Noted benefits include:

– Larger variety of services offered – Improved perception of health care quality

• Some rural hospitals have been slow to adopt

• Documenting the impact to local economy may speed adoption

Introduction to Telemedicine

• Typical Definition: – “the delivery of medical services and information by

telecommunications technology.”

• Dominant applications: – Teleradiology: sending x-rays to be read remotely– Telepsychiatry: communicating with a psychiatrist

located elsewhere– Telecardiology: reading heartbeats (echo-

cardiograms) from another location

Telemedicine Locations in Oklahoma

Oklahoma State University Telemedicine Network

-“Hubs” in Oklahoma City, Tulsa

-15 sites throughout the state

-13 potential future sites

Site Visits / Data Collection

Waurika, OK Bristow, OK Poteau, OK

Monthly EncountersNumber of

BedsCommunity Population Teleradiology Telepsychiatry

Poteau 76 8,000 2,300Bristow 26 4,300 550Waurika 25 2,000 145 8Hugo 34 5,500 800Idabel 90 7,000 125

Methodology

• Typical multiplier methodology will not work– No additional employees hired for telemedicine

startup

• Economic impact occurs through the opportunity cost of not having telemedicine: – Potential hospital cost savings – Transportation savings to patients– Missed work savings to patients– Increased lab / pharmacy work performed locally

Hospital Cost Savings

• Some (not all) hospitals pay specialists to come to their location

• Average salaries (all for rural areas):– Non-invasive radiologist $202,000– Psychiatrist $130,000– Non-invasive cardiologist $210,000

• In contrast, rate per encounter for hospitals to outsource these services: – Radiology $10– Psychiatry $120

Source: Physician Compensation Survey, 2000

Source: Averages for four Oklahoma Hospitals

Hospital Cost Savings (cont’d)• Examples:

– Hospital A replaces 2 days / week radiologist, 1 day / week psychiatrist

– Hospital B replaces 2.5 days / week radiologist, 1-2 days / week psychiatrist

Before Telemedicine: After Telemedicine

Hospital Job Salary % FTE Hospital Pays:Monthly

EncountersRate per

Encounter Hospital Pays: Total Savings:

A Radiologist $202,000 0.4 $80,800 230 $10 $27,600 $64,800

Psychiatrist $130,000 0.2 $26,000 10 $120 $14,400

B Radiologist $202,000 0.5 $101,000 500 $10 $60,000 $36,800

Psychiatrist $130,000 0.3 $39,000 30 $120 $43,200

Transportation Savings to Patients

• One of the largest benefits cited: Quick turnaround time for patients– Teleradiology: patients wait 24 hours instead of 1

week– Telepsychiatry: patients drive to local hospital

instead of closest location (usually an urban area)

• Estimate savings using:– Distance to closest substitute– Typical mileage cost– Approximate number of times used

Transportation Savings to Patients• Example:

SiteNearest

Radiology Site

One Way Miles

Total Travel Miles

Mileage cost per trip

Total Number of Reads per

Year% Needing

ServiceTotal Cost Savings

Poteau Ft. Smith, AR 31 62 $30.07 27,600 5% $41,497

Bristow Sapulpa 30 60 $29.10 6,600 5% $9,603

Waurika Red River, TX 54 108 $52.38 1,740 5% $4,557

Hugo Durant, OK 53 106 $51.41 9,600 5% $24,677

SiteNearest

Psychiatry Site

One Way Miles

Total Travel Miles

Mileage cost per trip

Total Number of Reads per

Year% Needing

ServiceTotal Cost Savings

Waurika Lawton 60 120 $58.20 96 100% $5,587

Idabel McAlester 116 232 $112.52 1,500 100% $168,780

Note: $0.48 per mile travel cost assumed (2007 IRS rate)

Missed Work Savings To Patients• Average Wages

– Poteau (Le Flore County): $11.30 / hour– Bristow (Creek County): $13.85 / hour– Waurika (Jefferson County): $10.13 / hour– Hugo (Choctaw County): $10.56 / hour– Idabel (McCurtain County): $13.41 / hour

Source: BEA Average Wage per Job, 2005

• Average Income Missed– Round trip driving distance to nearest metropolitan

hospital

– (Driving TimeHours)*hourly wageSource: Google Maps, discussion with hospital personnel

Missed Work Savings To Patients

• Example:

Site

Average Hourly Wage

Nearest Radiology Site

One Way Miles

Travel Time Saved

(minutes)

Cost Saved per trip

Number of Trips per

year% Needing

ServiceTotal

Savings

Poteau $11.30 Ft. Smith, AR 31 94 $17.70 27,600 5% $24,431Bristow $13.85 Sapulpa 30 62 $14.31 6,600 5% $4,723Waurika $10.13 Red River, TX 54 142 $23.97 1,740 5% $2,086Hugo $10.56 Durant, OK 53 122 $21.47 9,600 5% $10,307

Site

Average Hourly Wage

Nearest Psychiatry

Site

One Way Miles

Travel Time Saved

(minutes)

Cost Saved per trip

Number of Trips per

year% Needing

ServiceTotal

Savings

Waurika $10.13 Lawton 60 144 $24.31 96 100% $2,334Idabel $13.41 McAlester 116 230 $51.41 1,500 100% $77,108

Local Lab / Pharmacy Work

• If patients travel to other sites for X-rays / psychiatric visits, they typically get lab & pharmacy work done there as well – X-ray follow-up:

• Blood work• MRI• CT scan• Biopsy• Pain medication

– Psychiatry follow-up:• Aderall / Xanax monthly prescription

Local Lab / Pharmacy Work• Example:

Monthly cost per prescription

Yearly Costs (assuming 3 months)

TelepsychiatryNumber of Yearly

Encounters% of Patients

Using Low High Low High

Aderall 84 50% $85 $350 $10,710 $44,100Xanax 84 20% $60 $300 $3,024 $15,120

Test cost Yearly Costs

TeleradiologyNumber of Yearly

Encounters% of Patients

Using Low High Low High

Blood Work 2400 10% $100 $1,200 $24,000 $288,000MRI 2400 2% $400 $4,000 $19,200 $192,000CT Scan 2400 5% $400 $2,000 $48,000 $240,000Biopsy 2400 2% $300 $1,200 $14,400 $57,600

Monthly Cost Low High

Pain Medicine 2400 30% $50 $300 $36,000 $216,000

Opportunity Cost Summary

• CAH, < 200 encounters per month: ~$300,000 year• Larger facility, >2,000 encounters per month: ~$2.5M / year

Monthly Encounters Monthly Cost Savings

Number of Beds

Community Population

Tele- radiology

Tele- psychiatry

Personnel Costs

Missed Work

Travel Time

Pharmacy / Lab

ANNUAL TOTALS

Bristow 26 4,300 550 $3,417 $4,723 $9,603 $32,450 $602,310

Hugo 34 5,500 800 $12,200 $10,307 $24,677 $47,200 $1,132,600

Idabel 90 7,000 125 $6,667 $77,108 $168,780 $5,313 $3,094,400

Poteau 76 8,000 2,300 $10,667 $24,431 $41,497 $135,700 $2,547,526

Waurika 25 2,000 145 8 $2,040 $4,420 $10,144 $8,895 $305,988

Other Issues• Equipment / Infrastructure Cost

– Teleradiology: • Digitizer: $7,000 - $30,000

– Vidar Sierra Plus: $10,995– Intelemed CR-500: $8,000

• Digitizing Software: $5,000 - $10,000– Vidar all-inclusive: $7,000

• Standard PC: $1,500– Telepsychiatry:

• Videoconferencing system: ~$16,000– High-speed data line: $200-500 / month

• Medicare / Medicaid Reimbursement– Medicare reimburses for:

• Remote face-to-face services (live videoconference)• Store and forward services (X-rays)

– Medicaid does not reimburse for videoconference