Estimating the Economic Impact of Telemedicine in a Rural Community

By Whitacre, Brian E. | Agricultural and Resource Economics Review, August 2011 | Go to article overview

Estimating the Economic Impact of Telemedicine in a Rural Community


Whitacre, Brian E., Agricultural and Resource Economics Review


One commonly discussed benefit of broadband access in rural America is the potential for telemedicine visits that allow rural residents to take advantage of urbanized medical services. While the primary benefit of telemedicine is often viewed as improved health care access, the availability of these services also offers significant economic contributions to the local community. Site visits to 24 rural hospitals of varying size over a four-state area in the Midwest provide information to develop a methodology for estimating telemedicine's economic impact. Using this technique, telemedicine services contribute between $20,000 and $1.3M annually to these local economies, with an average of $522,000.

Key Words: telemedicine, economic impact, teleradiology, telepsychiatry

Demonstrating the economic benefits associated with telemedicine is essential for the justification of community investment in telemedicine infrastructure. Although communities often must decide whether to fund telemedicine through taxes, subsidies, or other means, research to date has examined only the hospital-specific benefits of telemedicine. This study expands upon that research to document the return of telemedicine not only to hospitals, but also to their surrounding communities.

Telemedicine, or the linking of rural residents with urban health specialists, has long held the promise of dramatically improving health care in rural communities. Research has shown that the availability of telemedicine allows rural areas to offer a larger variety of health care services (Rickets 2000); improve the overall perception of health care quality (Nesbitt et al. 2005); and even help with recruitment and retention of physicians (Sargeant, Allen, and Langille 2004, Goetz and Debertin 1996).

The nature of telemedicine, however, allows it to do more than simply offer better health services to a community. The economy of a rural community is impacted by the very presence of telemedicine: reduced travel lowers transportation costs and decreases missed time from work; the amount of lab and pharmacy work performed locally increases; and hospitals save from outsourcing telemedicine procedures versus having to pay an in-house specialist for the same work. Quantifying the economic impact at the community level can be important for areas considering implementing or expanding a telemedicine program, particularly since the basic rationale for the existence of such a program is to provide better service to the community. The current framework for telemedicine evaluation, done at the hospital level, does not allow for this wider view of the potential impacts.

Most of the recent empirical studies on telemedicine have used hospital-level cost analysis frameworks to determine whether or not a particular system was cost-effective (Whitten, Kingsley, and Grigsby 2000). In general, the findings have been somewhat disappointing for telemedicine, as expected cost savings have not been documented. De la Torre, Hernandez-Rodriguez, and Garcia (2004) find that, from a patient's perspective, some instances of telemedicine may not be costeffective when compared to conventional care. Whitten et al. (2002) systematically reviewed over 600 articles that dealt with cost-benefit analysis pertaining to telemedicine and concluded that no solid evidence existed that telemedicine is a cost-effective method for the delivery of health care.

However, very few (if any) studies have focused on the economic benefits of telemedicine from a community perspective. Only Whitacre et al. (2009) developed a framework to look at telemedicine from this viewpoint, although their study was limited to five hospitals within a single state. This paper builds upon (and adds significant detail to) the framework developed by Whitacre et al. and extends the analysis to multiple telemedicine modalities for 24 hospitals in four relatively rural states. A solid understanding of the economic potential of various forms of telemedicine is vital for communities considering implementation of such a program, particularly in light of the unstable financial environment faced by rural hospitals (Stensland, Moscovice, and Christianson 2002). …

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