Photo of a laptop, stethoscope, cellphone, classes and a pen.

Why Isn’t Telemedicine Achieving Cost Reductions?

Any discussion about cost savings to the health care sector should logically start by identifying the high cost areas. Then examine possibilities to reduce those costs. In the US, the first part is easy.

It is estimated that 80% of health care costs in the US are incurred by just 20% of the population. This includes people with chronic illnesses, the elderly and other at-risk individuals. The main costs stem from hospitalizations (average cost of $10,000 per day with an average stay of 4 days) and use of Emergency Rooms (average cost $1.2K per visit).1 Telemedicine can be used to reduce these costs.

While there are plenty of niches, there are three major areas in telemedicine to review in regard to cost savings:

  1. Hospital/clinic applications (sometimes referred to as institutional telemedicine).

This sector is driven by grants to pay for the telemedicine equipment.  In which cases, neither the hospital nor the patient pays for it.  But the patients definitely benefit from it because they can have telemedicine consultations with remote specialists at a local hospital/clinic rather than having to drive, sometimes long distances, to see the specialists in person.  This is a beneficial service but doesn’t have much of an impact on reducing overall health care costs.

  1. Telemedicine in home care applications typically administered by home health agencies (generally referred to as home telemedicine and dominated by remote patient monitoring equipment).

There is some clear success in this area in reducing re-hospitalizations after patients are discharged from a hospital stay.  Increased use of telemedicine in this area has been demonstrated to help reduce re-admissions.

  1. Consumer telemedicine applications using cell phones to connect patients/consumers directly to clinicians for interactive audio/video sessions (commonly referred to as direct-to-consumer telemedicine).

Studies have shown that these video phone call telemedicine sessions don’t save costs.  Some of the video sessions are replacements for in-person sessions and some are additional.  Because of the convenience, the number of total encounters could increase.  While this may yield better patient satisfaction, it doesn’t have a significant impact in overall health care costs.

Use of telemedicine has clearly been shown to have a positive impact on improving health care with high patient satisfaction.  But without attacking the major health care costs of hospitalizations and ER visits, it will have a hard time emerging from the fringes of health care.

The good news on this is that telemedicine can be specifically re-focused to reduce the number of initial hospitalizations and reduce ER visits.  The elements to accomplish this are available now.  They just haven’t been put together yet to form the solution.


All the technology needed to accomplish this is already in use. Contrary to what many believe, it can be very affordable. With WebRTC available to all, video technology is no longer a barrier to entry. Software resources can be dedicated to telemedicine specific tasks such as interfacing to medical device peripherals and the human interface. This is still work, but straight forward. But as the direct-to-consumer applications shows, video alone is not enough for anything beyond simple issues not requiring use of medical devices.

Many consumer level medical devices such blood pressure meters and pulse oximeters are low cost commodity items. While most alternatives available in drug stores do not have communications capability, some do and more will as consumer telemedicine takes hold.

Some medical devices such as telemedicine stethoscopes are higher in price, but that is mainly due to the current low volume demand. With higher volume, prices will drop. If consumers were to use their own PCs, low cost telemedicine kits would be very affordable such as one shown at

Continuity of Care

A serious short coming of the current direct-to-consumer telemedicine apps is that the clinicians are from pools contracted by each telemedicine app company. Typically, the clinicians and patients are strangers to each other, with no prior history. This is acceptable when a relatively healthy consumer needs a prescription for that nagging cough, but doesn’t work for those with chronic illnesses.

This is a critical point because individuals with chronic illnesses are among those most at risk for a hospitalization or ER visit. They need the continuity of care provided by the patient’s local physician practice. The good news here is that most physicians would be willing to use telemedicine as part of their care delivery. For that to happen, telemedicine must be part of the patient’s health care plan. In addition, EHR solutions need to make it easier to integrate.

While physicians are deliverers of health care, they are not the creators and drivers of health care plans. Some health care plans are starting to nibble around the edges of telemedicine by adding third party direct-to-consumer options for their subscribers. There is still a long way to go before major health care plans incorporate telemedicine to specifically target the reduction of hospitalizations and ER visits.

Telemedicine at the Core of Health Care Cost Savings

There is a special market sector for telemedicine that could catapult it to the forefront of health care cost savings and set an example for other sectors. That is, through self-insured employers.

Most medium to large companies and an increasing percentage of smaller companies are self-insured rather than getting covered through an insurance company as an individual would. Self-insurance is very common and well understood. It typically involves Third Party Administrators (TPA), provider networks and stop-loss insurance. The key factor is that the employer is responsible for health care costs and directly benefits if those costs are reduced. As mentioned, the biggest opportunity for savings is to reduce hospitalizations and ER visits.

A health care plan built on telemedicine can achieve that.


Consider the goal of the recent Amazon, Berkshire-Hathaway, JP Morgan health care initiative. With a combined work force of 1.2 million employees (plus a multiple more dependents) and the will to improve health care for those employees, this is a rare opportunity for a break through that serves their needs and creates a case study / blueprint for the health care industry.2

This could start with an existing health care plan upon which a telemedicine element is overlaid and embedded. Local physician practices would agree to see patients using telemedicine. Some of those telemedicine encounters would involve video only and some would include key medical devices. Since there would be no out-of-pocket expense for video only if employees used there own PCs (or cell phones), all employees would have access to video visits.

Employees that would be considered to be at-risk, could be provided with a kit of medical devices that would enable a physician to conduct a more complete medical examination. For example, an employee (or dependent) that has chronic COPD or CHF would have a stethoscope as part of their kit. An employee (or dependent) just released from a hospital stay would be issued a kit for use until they were past the discharge risk stage.

With rules for determining at-risk status and a pool of home telemedicine kit available for deployment, a large number of employees and dependents can be managed with a minimum of equipment.

With medical assistance available with the immediacy of a telemedicine call, many problems could be dealt with at an early stage avoiding unnecessary expenses in ER visits or hospitalizations.

An illuminating example in reducing ER visits is a program in Houston that put telemedicine in the hands of paramedics so when they arrive at the scene of an emergency, they can immediately conduct a telemedicine visit for an injured party. Last year when they conducted their 10,000th patient encounter, they had prevented 6,000 unnecessary ER transports. (Average cost of the telemedicine visits was $220 and the average cost of an ER transport was $2,200.)3 This is a unique model, but it shows the potential of remote, on the spot diagnosis made possible by telemedicine.


When it comes to health care cost savings, telemedicine has been long on promise but short on delivery. The Amazon, Berkshire-Hathaway, JP Morgan health care initiative may be on the cusp of changing that.