Opportunity Costs of Telemedicine

In graduate school, Masters in Business Administration (M.B.A.) students learn about the concept of “Opportunity Cost”—a basic principle of economics. While the definition might vary from one textbook to another or one professor to another, it can basically be defined as the “the cost of any activity measured in terms of the value of the next best alternative forgone (that is not chosen). It is the sacrifice related to the second best choice available to someone, or group, who has picked among several mutually exclusive choices.” If you do one thing, then another will not be done because of scarce resources. Consider the decision to adopt or not to adopt a new technology or new methodology. As individuals we may consider buying a new car based on number of factors, including need, better gas mileage, or our age (SUV versus a two-seat convertible). We never would choose a horse and carriage instead. If we were thinking about a new TV, we might consider plasma or high definition or even the screen size; we most likely would not choose to not have a TV at all. The same can be said about a new device for the hospital like a picture archiving system (PACS). Yes, a hospital could support radiology the old-fashioned way and not make the investment, but what is the ultimate costs of not doing it? The same can be said about an electronic health record. Will patient outcomes change? Will workflow change? Will we save money? Will we lower healthcare costs? The questions go on and on. After all, what is our main objective?

Ultimately two things will drive any business—profit and filling a consumer need. In healthcare, the goal is to address an individual's health and how this person fits into a healthy society, which entails public health and productivity, etc. Companies make and sell products or provide services to make money. So what does this have to do with telemedicine? Well, lots! If we choose to not invest in telemedicine technologies and methodologies to enhance healthcare delivery, what is the opportunity cost of not doing this? As we know, there are finite resources in healthcare, and often decisions on new investments are made on what the return on investment (ROI) will be, which is based on financial input and impact. Seldom is a financial decision made on long-term strategies or how it will impact a market. We are often short-sighted.

The consideration of the implementation of telemedicine in a health system is first based on need and then what are the cost and the associated cost-benefit of the implementation. Several articles have appeared in the pages of this journal and others that focus on economic evaluation. Recently Dávalos et al. ¹ discussed opportunity costs in their 2009 article, “Economic Evaluation of Telemedicine: Review of Literature and Research Guidelines for Benefit–Cost Analysis.” In this article, opportunity costs are highlighted as the value of the next best alternative forgone for the use of the resources.

If telemedicine is not the chosen intervention, this decision is best measured by the health benefits that could have been achieved had it been chosen. In choosing one option, we lose the opportunity of doing the alternative and the benefits that result in its use. A societal perspective must include all costs to fully understand the consequences of decision-making. Clearly when reviewing the landscape of escalating healthcare costs we must consider the cost of getting access, including driving. If patients can't get access to healthcare, then eventually when they do show up in a healthcare setting, the costs will be much higher. Investments today in telemedicine and associated health information technologies will have long-term benefits. Yes, there may well be initial investment costs in equipment, people, and training, but what if it is not adopted? Then we continue down the current path, which many have said is unsustainable. This investment today can then be viewed as the opportunity costs of choosing this approach versus choosing to not invest in telemedicine. The analysis must include those costs that may be intangible such as the cost of fuel, the cost of waiting, and the perceived increase in costs if one decides to wait. Understanding opportunity costs will help all of us identify how to best to maximize the outcome.

In a look at today's healthcare landscape, we see shortages in doctors and nurses, escalating costs, government intervention, changing policies, evolving payment schemes, etc. Technology plays a role in this, and telemedicine can serve as the tool that can maximize the outcome. But we must look at the big picture, which includes the opportunity costs. Any decision that moves forward today that does not consider the opportunity may not be the best decision. It is often said, “You can pay me now or you can pay me later.” We can assure you that it will definitely cost more later!