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Original ResearchCost Savings of Telemedicine Utilization for Child Psychiatry

in a Rural Kansas Community

Ryan Spaulding, Ph.D.,1 Norbert Belz, MHSA, RHIA,1

Stephen DeLurgio, Ph.D.,2 and Arthur R. Williams, Ph.D.2,3

1Center for Telemedicine and Telehealth, University of Kansas

Medical Center, Kansas City, Kansas.2Childrens Mercy Hospitals and Clinics, Kansas City, Missouri.3University of Missouri Medical School, Kansas City, Missouri.

Abstract

The costs of pediatric telemedicine services remain underreportedand understudied; however, there is evidence that telepediatric ser-

vices can be cost competitive with traditional ones. For 15 years, the

University of Kansas Center for Telemedicine and Telehealth has

been providing telemental health outreach from the University of

Kansas Medical Center (KUMC). One service site is located in

Crawford County, Kansas, which provides telepsychiatry services to

children and adolescents. The purpose of this study was to examine

the costs of operating the Crawford County site relative to accessing

services at KUMC, the likely alternative service location. The cost of

travel time to parents who accompanied a dependent to either lo-

cation also was estimated. Patients and parents were examined over

a 6-month period in 2006. One hundred thirty-two patients received

257 telemedicine psychiatric consultations during this period. Costestimates for using the pediatric telemedicine service were assessed

for all patients; however, travel and related costs were collected from

a sample of 26 patientparent dyads. The estimated costs of services

were obtained using standard cost-accounting procedures. An av-

erage cost per consultation in Crawford County was $168.61. The

cost savings in travel time and other expenses to parents and patients

were substantial between use of the county site and KUMC. Sub-

tracting average savings in travel costs to patients and parents

produced an average cost of a telepsychiatry consult in Crawford

County of only $30.99. This study was conducted over 6 months with

a small number of observations; it should be replicated over a longer

study period, with more patients, and with more data that might

capture marginal costs of services.

Key words: telepsychiatry, business administration/economics, tele-

medicine

Introduction and Literature Review

The University of Kansas Center for Telemedicine and Tele-

health at the University of Kansas Medical Center (KUMC)

has been providing telemental health services for 15 years

in Kansas. For*12 of these years, a robust telepsychiatry

clinic has been operating at a community mental health center lo-

cated in Crawford County in the southeast region of Kansas. In co-

operation with the community mental health center administrators

and the attending telepsychiatrist, a cost-accounting analysis was

completed to better understand the institutional and patient costs

associated with providing telepsychiatry in rural Kansas.

A PubMed search of articles and reports was conducted on

September11, 2009, forthe years 2000 to present using thefollowing

search terms: telemedicinepsychiatry (379); telemedicinepsy-

chiatrypediatrics (14); and telemedicinepsychiatry cost (5).

The number of articles or reports found is shown in parentheses. Of

the five articles found that deal with the topic of this analysis, only

twocontained empiricalcost data. Theotherthreewere reviews of the

literature.

Hersh et al.1 reviewed the literature in telemedicine used for

Medicare before 2000, of which our interest in pediatric tele-

psychiatry would only be a small subset. In any case, the Hersh et al.1

review identified only 28 studies; none of these dealt with pediatric

service cost, the topic of this study. The authors conclusions were

that, studies assessing the efficacy or cost are insufficient to permit

definitive statements about the evidence supporting (or not sup-

porting) the benefits of telemedicine. Pesamaa et al.2 searched for

articles covering the period of 1966 to June 2003 for videoconfer-

encing in child and adolescent telepsychiatry, and found 27 articles

covering patient care or consultation, evaluation of a clinical service

or education, and assessments of satisfaction with videoconferenc-

ing. Three studies presented some calculations of cost-effectiveness;

however, costs were very crudely measured, and procedures used

were not reported in sufficient detail to determine exactly how or

which costs were measured. A more recent review of clinical tele-

health across the disciplines by Jarvis-Selinger et al.3 identified 397

articles focused on videoconferencing in clinical contexts, but this

included a wide array of medical disciplines both adult and pediatric.

Those studies providing explicit cost estimates were not identified by

the authors, but they stated, because fixed costs of establishing

telemedicine programs are substantial a sufficient amount of work-load is required to justify equipmentexpenditures. They did notnote

that these costs have fallen sharply over the last decade, and the data

supporting their assertion are not provided.

The two cost studies found in the current search were quite dif-

ferent. Edwards and Patel4 provided an important description of a

telemedicine program designed to meet needs of a remote rural

population in Maine. Forty-one percent of the clinical consultations

(n518) were provided to mental health/psychiatry patients, but the

number of services provided to children versus adults is not given.

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The costs reported were those saved by staff engaged in distant

clinical, educational, and administrative activities versus provider

and participant on-site delivery of services. The reported savings are

substantial from $386 to $491 perconsultation. The costs reported by

Edwards and Patel4 have little relevance to this article, which is fo-

cused on the delivery of distant psychiatric consultations to childrenand adolescents.

The article by Smith et al.5 comes closest to addressing our con-

cerns. They examined the costs of providing 1,499 clinical consul-

tations to patients over 5 years through a telepediatric service in

Queensland, Australia. Only 2% of consultations were telepsychiatry

services. They found average telemedicine costs per consultation to

be A$637.76 (about U.S. $551.08) versus average face-to-face or

traditional service costs of A$1,036.20 (about U.S. $895.38). The

authors conducted a break-even analysis to find that costs of tele-

medicine services reach a threshold of cost equality with traditional

services when 774 telemedicine consultations are provided. Con-

sultations beyond774 would provide a cost advantageto the distance

modality. Unfortunately, linear break-even analysis can be mis-

leading when cost-curves are declining sharply and nonlinearly as

commonly observed in telemedicine services.

Doolittle et al.6 were able to estimate pseudo-cost-curves for 386

telemedicine consultations provided to children in 10 school clinics,

including total, average, and marginal costs of the service. This

analysis indicated that a cost savings in favor of telemedicine oc-

curred when 165200 consultations were provided annually at a

service site. About 23% of the consultations provided in the study

were psychiatric and the rest were ambulatory pediatric consultations

of various types. The average cost of a consultation at a point of

equality between telemedicine and traditional face-to-face consul-

tation was about $153. The University of Kansas Center for Tele-medicine and Telehealth was the telemedicine service provider.

While there appears to be a substantial discrepancy between these

estimates and the Australian study, these may arise due to the use of

cost-curves versus break-even analysis, where the later would

overestimate costs that had a sharply declining marginal cost-curve

as illustrated in Doolittle et al.6 Additionally, the consultations pro-

vided at KUMC were predominantly well-child and preventive care

that may be less costly than the variety of specialty services required

by and provided to children in the Australian study. Last, it is highly

likely that fixed and variable costs were accounted for differently in

the two studies. Telepsychiatry for children and adolescents is only

one of a number of services provided at KUMC using dedicated

equipment and staff; therefore, overhead costs were apportioned bypercentage usage among the services provided to children in school

and other uses of the KUMC telemedicine facility. At >165 consults

the KUMC and school-clinic-site fixed costs become relatively small

and total costs approach variable costs. After adjusting the average

Australian variable cost in U.S. dollars per consultation by various

deflators to 2002 U.S. dollars, the adjusted Australian average vari-

able costs to be about $170, which is quite close to our estimate of

$153 at the U.S. threshold. This lends some concurrent validity to the

results of both studies.

In previous studies, we have shown that travel time and costs of

providers to distant service sites are not cost competitive with tele-

medicine.7,8 This finding is consistent with Edwards and Patel4

however, our previous cost studies were in adult teleoncology. The

purpose of this article is to report some findings concerning costs of

providing telepsychiatry services to children and adolescents. Anoted above, costs of telemedicine remain underreported and the

provision of pediatric services is particularly understudied, but there

is some evidence that telepediatric consultations can be more than

cost competitive with traditional ones.

The data accumulated in this study permit cost reporting of the

telepsychiatry service relevant to the providers, KUMC, and the dis

tant site in a rural Kansas county. Included are estimated average

costs of service provision by the providers and savings in travel costs

to patients and families as they utilize telemedicine for the psychi-

atric care of children.

Service SettingFrom January 1, 2006, through June 30, 2006, all psychiatric

consultations provided to child (up to 12 years) and adolescent (1318

years) patients through a telemedicine modality in Crawford County

Kansas, were monitored for later calculations of the cost of the ser-

vice to both providers and to patients. Two hundred fifty-seven tele

medicine psychiatric consultations were provided to 132 uniqu

patients during this 6-month observation period. Personnel changes a

both the service and KUMC sites delayed these data from earlie

publication. Although some time has passed, these data suggest cos

savings that may be even more significant in current dollars.

The Crawford County service site was *136 miles from KUMC o

*2 h and 19 min average one-way travel time. Crawford County in

the southeast corner of Kansas has a population of 38,242, 93%white, 23% under 18 years of age, and 17% of youth live below the

poverty line. Pittsburg is the largest town in the county with a pop-

ulation of 19,152. KUMC-affiliated providers, county govern

ment, and private practitioners are the sources of primary medica

care for the populace. There is only one pediatric psychiatrist in the

county.

MethodsInstitutional Review Board approval was obtained for this study

due to the involvement of human subjects, particularly children

under the age of 18, and all participants provided signed consent. Fo

analysis,two types of cost data were collected. Thefirst were thecost

of operating the two service sites. The second was the cost of travetime of the accompanying parent or parents in cases in which more

than one parent accompanied the child or adolescent.

The estimated costs of services provided are comprehensive. Al

costs, including overheads arising from the treatment of these pa-

tients at the service site in Crawford County and at the originating

telemedicine site at KUMC, are calculated using common hospi

tal accounting procedures to measure fixed and variable costs.

Applications of these procedures in this study are briefly mentioned

below.

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COSTS TO PROVIDERS

All telemedicine services were provided by psychiatrists at KUMC.

This service was provided under contract with the patient service site.

All related minor administrative needs and costs, such as record-

keeping for the teleconsultations, were covered by the KUMC phy-

sician contract. Despite this, the contracted physician costs may

underestimate actual physician time costs, since the negotiated

contract was priced attractively for the service site and was estimated

to be close to the Medicaid reimbursed cost. Thus, the degree of

underestimation in the contract would be similar to underpayments

by Medicaid for this service. Nevertheless, this cost roughly ap-

proximated the actual variable costs of physician services.

The one pediatric psychiatrist regularly practicing on-site in

Crawford County was not a member of the KUMC faculty, and he

rendered face-to-face services to patients throughout this observa-

tion period but not to patients receiving telemedicine consultations.

Costs related to this on-site physician are not included in the service

costs of this report. In our results, these physician contracted ex-

penses are recorded under Crawford County costs.

All other personnel expenses were directly paid by the Crawford

County site. These included a nurse practitioner, a registered nurse or

licensed practical nurse, and clerical time. The costs reported below

were calculated on a percentage use of time by pediatric tele-

psychiatry patients. Equipment costs were fully amortized annual

expenses of all telemedicine equipment.

The only operating expenses or variable costs recorded at the

KUMC site were annual line charges and the use of technical/main-

tenance support. Equipment at KUMC was fully amortized; therefore,

we adjusted the estimate of annual charges to be equal to those

charged under Crawford County costs. Technical/maintenance sup-

port was much lower than would be encountered during a start-up orearly operation, since the delivery of other telemedicine services had

led to the training of on-site personnel in trouble shooting. Required

trouble-shooting operations beyond the expertise of these personnel

were conveniently handled by telephone with a technician at KUMC

during the 6-month observation period.

Fixed costs were allocated as follows. The cost of office space for

service delivery was theprice per square foot forsimilar officespace in

Pittsburg and Kansas City, Kansas, multiplied by the actual percentage

of square footage utilized for service delivery. Prices were obtained

from real estate data searches in the two communities utilizing both

Web searches and inquiries with real estate agents. The price used per

square foot was almost 50% higher in Kansas City, Kansas, at $17 per

square foot versus $12 per square foot in Pittsburg, Kansas. Despitethis lower cost persquare foot in Pittsburg,the total facilityspace used

for the consultations was much larger than the Kansas City space,

resulting in a much higher office space cost. Space utilized was al-

located on a percentage of space available that was used for service to

telepsychiatry patients. This percent allocated space amounted to

slightly>337 sq. ft. in Crawford County and 22 sq. ft. at KUMC.

Administrative costs were allocated to the Crawford County site

based on the percentage of pediatric telepsychiatry services of the

total of all patient services delivered at the site during the 6-month

period. Medical records costs and insurance costs were similarly al-

located. Although some might consider utility costs a variable cost,

these are considered under administrative costs, since the percentage

of actual utility expenses consumed by the service under observation

was minimal and not easily separated from other administrative

expenses at the service site.Average costs of a consultation to providers (Crawford and KUMC)

separately and combined are reported below. The results were care-

fully reviewed by the health economist on the study team.

TRAVEL COSTS SAVINGS TO PATIENTS

Data permitting cost estimates to be made for accessing the pe-

diatric telemedicine service by patients were obtained prospectively

from 26 unique patientadult dyads, almost a 20% sampling of

patients actually served. These 26 dyads were chosen because they

provided the most complete records of information for these sim-

ulations. The data obtained provided calculations of travel distances

and time by patients to the Crawford County service site and KUMC

as an alternative site. Mode of transportation was uniformly by

private car, and all but three of the patients were accompanied by

an adult. No cost of travel time was estimated for the patient, but

those with accompanying adults had estimated travel-time costs

that were obtained by multiplying estimated round-trip travel times

by the hourly wage rate for the self-identified occupations of the

accompanying adults. These wage rates were obtained from the

Bureau of Labor Statistics, U.S. Department of Labor, using 2006

reported Kansas nonmetropolitan wage estimates for employment

classifications.10Although annual salary data were gathered for this

study, a poor response rate on this item prevented an accurate

travel cost calculation. In a pilot study of the use of our data col-

lection form in this setting, parents refused to answer an incomequestion even though this form used salary ranges not actual in-

comes. It is not known why respondents were reluctant to answer

this question, except to suggest that income level remains a sen-

sitive issue.

Accurate data relating to the time spent by patients receiving the

actual consultations or by the accompanying adult were also not

available, so this information is not included in these estimates.

Monte Carlo resamplings are reported below using information from

the 26 patients, probability distributions of the number of accom-

panying parents, travel-times, wage rates, and the additional 231

observations included in the study database.

The reported travel costs are average savings in the difference in

travel time between the local site and KUMC, plus $0.35/mile forround-trip automobile travel expenses using the distance saved by

travel to the local site. We believe that these costs and mileages

are suitably conservative estimates of real travel costs at the time

of this study. The three patients who drove themselves to the service

site are included in the calculation of average distance travel cost

savings.

Our survey responses from these 26 dyads indicated no other large

potential patient cost savings to accessing the telepsychiatry service

than travel-related ones. Therefore, our report is solely one of travel

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cost savings arising from local access to patients versus a trip to

KUMC.

MONTE CARLO RESAMPLINGS OF TRAVEL DISTANCES,

TIMES, AND COSTS

The costs in Table 1 were generated using 150,000 Monte Carlo

resamplings of the driving distances and times for the 257 observa-

tions provided through telepsychiatry. Empirical distributions of

actual patient driving distances to the local Clinic and KUMC were

calculated using averages of Mapquest and Google Map to insure

accurate times and distances. These times and distances were based

on the 257 patient, local clinic, and KUMC addresses. Using these

actual distributions of distances and times, 5,000 resamplings and 30

replications yielded the means and standard deviations of times,

distances, and costs reported in Table 1.

11

Resamplings used threerandom numbers to define the distances and times to the Crawford

clinic site and KUMC as well as whether there were, in addition to the

patient, 0, 1, or 2 accompanying adults in the vehicle.

ResultsTRAVEL COSTS SAVINGS TO PATIENTS

Table 1 reports the means and standard deviation for local travel

costs, KUMC travel time costs, differences between local and KUMC

travel time costs, the vehicle mileage cost differentials to KUMC, and

the total cost differential of KUMC versus using the local pediatric

telepsychiatry site.

COSTS TO PROVIDERSTable 2 below reports study results relative to the costs of services

provided through the Crawford County site and KUMC. The average

or mean per consult cost of this telemedicine service is $168.61. This

estimated cost does not include any research costs or start-up costs.

It might be seen as an average cost of clinicalserviceas a goingconcern.

These data suggest substantial average or mean cost savings to the

patients and families of $137.62 per consult. If this figure is multi-

plied over the 257 study consults, it suggests that the average savings

to patients of this service over 6 months was $35,369.

Table 1. Estimated Patient Travel Costs and Cost Differences (U.S. $2,006) for the Telemedicine Service Provided LocallyVersus a Service Obtained at University of Kansas Medical Center in 2006

VARIABLE OBSERVATIONS MEAN SD RANGE

Local travel cost 257 and MC 5.96 3.87 1.4014.20

KUMC travel cost 257 and MC 57.45 8.55 32.0071.00

Difference in travel cost 257 and MC 51.49 8.81 29.9761.80

Mileage cost 257 and MC 86.13 5.24 35.00108.50

Total cost difference 257 and MC 137.62 22.36 64.87166.80

While there were 257 observations, reported travel costs estimates are obtained from the Monte Carlo resamplings.

KUMC, University of Kansas Medical Center; MC, Monte Carlo; SD, standard deviation.

Table 2. Estimated Total Costs of the Crawford CountySite and University of Kansas Medical Center to ProvideAdolescent and Pediatric Telepsychiatry Consultationsfrom January 1, 2006, Through June 30, 2006,in U.S. $2,006 (n 257 Consultations)

EXPENDITURE(U.S. $2,006)

CRAWFORDCOUNTY SITE KUMC

Fixed costs

Office space 4,050 374

Administrative 420 0

Medical records 770 0

Insurance 672 0

Line charges 0 46

Subtotal 5,912 420

Variable costs

Physician contracted

services

22,537 0

Nurse practitioner 7,600 0

Registered nurse/

licensed practical

nurse

2,688 0

Check-in clerks 1,536 0

Technical/maintenance

support

0 239

Equipment 1,200 1,200

Subtotal 35,561 1,439

Combined site costs 41,473 1,859

Total project costsU.S. $43,332.

Average cost per consultationU.S. $168.61.

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COMPARISON OF PROVIDER COSTS AND PATIENT

SAVINGS IN TRAVEL COSTS

The savings in patient travel costs substantially offset the provider

costs of the service. The provider cost is only $7,964 in excess of

patient savings (i.e., $43,333$35,369); therefore, the net average cost

of a consult after subtracting patient travel costs savings is $30.99 (i.e.,

$7,964/257). This figure does not include many other potential cost

savings to the patient and the service sites, nor does this cost ac-

counting figure account for the additional service rendered to the

community through the availability of thetelemedicine service andthe

freeing of time of the one resident psychiatrist to serve other patients.

Discussion and ConclusionsOne must not lose sight of the fact that providers of a service and

patients are different entities. Provider institutions must meet their

total financial requirements, whereas patients would prefer to min-

imize their costs and even shift cost burdens to someone else. For

these reasons, careful attention must be paid to how service costs areactually allocated in an economy. The situation examined in this

report seems to suggest benefits from telepsychiatry to both providers

and patients.

It should be noted that the costs of the on-site pediatric psychia-

trist were not factored into this study for comparison purposes. U.S.

Department of Labor Statistics from 2006 indicate that the average

hourly wage of a psychiatrist was $70.97, not including benefits,

insurance, licensing, or other expenses. At an average cost of U.S.

$168.61 per consultation, the telepsychiatry service appears similar

to earlier estimated costs reported by Doolittle et al.6 and other

studies of telemedicine services. This cost per consultation is clearly

more than cost-competitive compared to the cost of a psychiatrist

who physically travels to this site. Given the limited availability ofchild psychiatrists in rural areas, the costs identified are likely to be

acceptable for centers that are unable to recruit a resident psychia-

trist. Given the context of this study, the arrangement described

appears to be financially and operationally beneficial to the com-

munity mental health center, even with an existing staff psychiatrist

in the community.

While the telepsychiatry service studied here is relatively isolated

and occurs at a single site, there is no reason to believe that similar

cost figures could not be observed for other telepsychiatry practices

in rural areas. Practices that employ similar videoconference

equipment and Internet protocol connectivity would share compa-

rable technical costs, and many of the clinical and administrative

expenses would be similar. The physician cost is likely the mostvariable expense, depending on the negotiated components of the

contract. Nonetheless, this study can serve as a guide forthe financial

considerations of a rural telepsychiatry practice, as well as a method

for conducting a cost-accounting analysis of the program.

This was a limited study conducted over 6 months with a small

number of observations. A longer study period with more unique

patients and observations is suggested to refine the cost model. A

comparison with on-site psychiatry expenses would also be valuable

in helping rural centers determine the best service choice for psy-

chiatry.

AcknowledgmentsThis article was made possible by grant number H2ATH07755-01-

00 from the Office for the Advancement of Telehealth, Health Re-sources and Services Administration, DHHS.

Disclosure StatementNo competing financial interests exist.

R E F E R E N C E S

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7. Doolittle GC, Harmon A, Williams AR, et al. A cost analysis of a teleoncologypractice. J Telemed Telecare1997;3:2022.

8. Doolittle GC, Williams AR, Cook DJ. An estimation of costs of a pediatrictelemedicine practice in public schools. Med Care2003;41:100109.

9. Finkler SA. Cost accounting for health care organizations: concepts andapplications. Gaithersburg, MD: Aspen, 1999.

10. BLS, U.S. Department of Labor. Metropolitan and nonmetropolitan areaoccupational employment and wage estimates. Kansas nonmetropolitan area.2006. Available at http://bls.gov.oes/2006/may/oes_2000001.htm (lastaccessed September 13, 2009).

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Address correspondence to:

Ryan Spaulding, Ph.D.

Center for Telemedicine and TelehealthUniversity of Kansas Medical Center

3901 Rainbow Blvd., MS1048

Kansas City, MO 66160

E-mail: rspaulding@kumc.edu

Received: April 15, 2010

Revised: May 10, 2010

Accepted: May 10, 2010

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