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Communications of the ACM

Communications of the ACM

Is Telemedicine a Practical Reality?

The fee-for-service basis for health-care delivery has been a mainstay in the health-care business for a long time—a procedure used by individual practitioners as well as hospital organizations. Prior to the move toward managed care, the fee-for-service model was ubiquitous throughout the health-care industry. Today, however, health-care decision-makers are struggling with the ramifications of the managed-care environment. They are concerned not only with the impact managed care brings, but also how they might best position themselves, both proactively and strategically, to survive in this environment.

Concurrently, technological advances are coming that create a benevolent convergence with the upheaval generated by the managed-care movement. Telemedicine, for example, is now deployed in a variety of venues and even though there are a number of challenges associated with this technology, its use appears to have the potential to provide a number of solutions to the anticipated problems of managed care. While telemedicine may not drive future changes, it will likely have a cooperative impact on the effectiveness of managed care.

While it is clear that business has infiltrated the practice of medicine, perhaps a business perspective can help the situation by focusing on the practicalities of telemedicine as a viable method of health-care delivery. This article serves three objectives: to define current technological entities that make up telemedicine; to describe the evolution of telemedicine and its potential as a critical piece of the health-care delivery puzzle; and to enumerate the present challenges in the distributed deployment of telemedicine.

The business of health care is undergoing a major renovation and many of the participants are making extreme efforts not to become casualties. For example, there are the small rural hospitals that may not survive the chaos unless they align themselves with larger tertiary care centers in a community health-information network (CHIN), a telemedicine network, or some other type of partnership. During this transition period, a telemedicine partnership has great potential by helping to keep patients in their local community.

Historically, the medical business has been a simple fee-for-service institution. While competition exists in health care as in other business sectors, health-care costs have skyrocketed as health-care providers have fallen victim to the high cost of medical equipment, increasing insurance premiums, and climbing malpractice claims. Potential for litigation has propelled an increase in the number and duplication of diagnostic tests performed and, hence, the costs are passed on to the patient/customer.

While it is clear that business has infiltrated the practice of medicine, perhaps a business perspective can help the situation by focusing on the practicalities of telemedicine as a viable method of health-care delivery.

This spiraling increase in associated costs has brought attention to the paramount problem of paying the bill, especially for the uninsured as well as those on government insurance plans such as Medicare and Medicaid. A related problem involved our highly mobile workforce. Upon changing jobs, people found out that previously existing conditions covered on their previous health plan were not covered on the new one. The cost of paying the bill was often beyond the means of many individuals. Consequently, the government became involved in an attempt to regulate or legislate the insurance industry to create a more equitable system.

What is subsequently occurring is the private sector is driving a change in the overall hierarchy of the medical business. Third-party payers are exercising cost containment in the form of capitation (offering a predetermined cap on the amount of money paid regardless of the number of patient visits) which directly influences the type and quality of medical care provided. Hospitals are no longer able to stand as the independent service they once were. Alliances are now being formed among hospitals and private practices; many are forming health-maintenance organizations (HMOs) to take advantage of the referral nature of health-care insurance plans while simultaneously taking fee cuts just to participate. Unfortunately, there is no guarantee these providers will not be dropped from a group if, for example, they demonstrate the tendency to order too many tests.

To say the business of health care is in a state of upheaval is hardly an understatement. While telemedicine is not necessarily cost-effective in the traditional fee-for-service environment, it has the potential to fit well within the managed-care model.

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What is Telemedicine?

Telemedicine can be broadly defined as the use of telecommunications technologies to provide medical information and services [10]. It involves the practice of delivering health care over a distance using telecommunications equipment as simple as telephones and fax machines or as complex as PCs and full-motion interactive multimedia. Health care in general, and telemedicine in particular, uses a variety of technological entities, such as interactive compressed video. The business world has long adopted such practices as well as teleconferencing and telecommuting that are now more prominent than ever. Telemedicine also uses a combination of these emerging technologies, but it comes with its own additional set of challenges because of the highly complex world of medicine.

Telemedicine involves the electronic conveyance of medical information for the purposes of diagnosis and treatment of patients using PC, telecommunications links, specialized video, audio, and imaging equipment. Telecommunications links include modems connected to analog telephone lines operating at speeds up to 56Kbps, ISDN lines of up to 128Kbps, T-1 lines having a capacity of 1.544Mbps, and satellite links of 100Mbps. Additionally, the Internet is a potentially viable transmission alternative if the level of service can be guaranteed, including a consistent level of bandwidth end-to-end as well as high reliability and security.

Telemedicine consists of both real-time interactive consults as well as batch processing of patient data and information for diagnosis at a later time (asynchronous). It is also used for continuing medical education and patient education, much as distance learning has been used in regular educational curricula. Educational access can both reduce the feelings of isolation by the rural practitioner and also serve the consumer by offering preventive programs such as smoking cessation and nutritional counseling. Other benefits include providing health-care services to patients who either will not (due to health condition, travel distance, or potential loss of time at work) or cannot (prisoners who would require extra cost and security to transport them) travel to seek specialty care.

Telemedicine may not be a new field, but it is demonstrating more of a potential with the digital age converging with the managed health-care revolution. One of the earliest implementations of interactive television for medical consults was in Nebraska in the late 1950s using a microwave link for telepsychiatry consults between a state mental hospital and the Nebraska Psychiatric Institute [10]. Around that time, the National Aeronautics and Space Administration (NASA), Lockheed, and the U.S. Public Health Services developed a joint telemedicine program to serve the Papago Indian Reservation in Arizona. Of course, there have been numerous telemedicine projects since then, the earliest ones using fast and slow scan television and telephone systems. By 1997 there were as many as 72 telemedicine programs in the U.S. were utilizing the high-end interactive video technology for teleconsultations [5].

What makes telemedicine exciting is the potential generated by the evolving digital technologies along with the development and national involvement in the information superhighway. This, in combination with the economic and political pressures of managed health care, changes the face of the fee-for-service structure so inherently intertwined with the health-care business.

The convergence of the digital age with the managed-care revolution is most significant. The availability of communications technology and access would not necessarily drive health care toward telemedicine. However, with the anticipated use of managed-care incentives to provide accessible, low-cost health care, the health-care industry is forced to look at alternative methods for providing services. As a result, there is an explosion of activity and competition among providers today with regard to cost, quality, and access to care on a regional basis.

There has always been a paucity of health-care providers, especially specialists, in rural areas. Telemedicine provides a means for specialists to electronically travel to underserved areas, thereby increasing the size of their region of coverage without physically traveling to these areas. This allows them to use telemedicine capabilities to increase the size of their total market and to compete in areas where they might not have had much of a presence (depending, of course, on how far a patient might be willing or able to drive for specialty care). In addition, it improves the quality and availability of care to patients in remote areas. Early intervention has often proved to be less expensive in the long run, so access to specialty care via telemedicine can ultimately result in decreased health-care costs.

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Obstacles Ahead

Telemedicine has a number of challenges to overcome before it can be integrated into the overall fabric of health care. Cost might be the single largest nontechnical issue to be addressed. Can the cost be justified in the overall cost-benefit scheme and will third-party payers reimburse for this type of care in the near future? As with many technologies, the cost will likely continue to decrease, but will it reach a level of affordability? Also, will telemedicine be covered by third-party payers? Teleradiology and telepathology consults are currently reimbursable because of the historically outsourced nature of these services. Whether the outsourcing is traditionally conveyed by physically mailing results, or over the telephone, or whether they are being transmitted digitally is a moot point when it comes to reimbursement. However, when a face-to-face encounter is necessary, the question of whether this modern modality is the equivalent of traditional care has not been answered satisfactorily by third-party payers.

Several states currently require private insurance carriers to cover telemedicine services and other states are working to develop pilot studies with their local health-insurance carriers for reimbursement. Also, Medicaid agencies are now providing coverage for teleconsultations in a handful of states. At the federal level, the Health Care Financing Administration (HCFA) began a three-year study in 1996 using five telemedicine programs as demonstration sites for reimbursement of telemedicine services by Medicare, experimenting with alternative payment schemes [4]. Unfortunately, as with most other telemedicine cost studies, the number of cases was too small to provide adequate data upon which to base decisions. As a result, the study was extended [3]. On June 22, 1998, HCFA published a proposed rule titled "Payment for Teleconsultants in Rural Health Professional Shortage Areas" (HCFA-1906-P) that addresses Medicare reimbursement for telehealth services.

While ongoing evaluations of telemedicine programs are attempting to enumerate the costs and benefits of using this technology, there are still not enough cases to provide the empirical data to determine specific costs of telemedicine. A large number of teleconsultations have occurred involving prison-based programs. While those programs have been able to show cost savings because of the unique expenses involving security and transportation of prisoners, that data cannot be extrapolated to the general population for reimbursement purposes. In 1996, reimbursement and the cost of telecommunications were identified as the most important barriers by the 72 active programs in the U.S. [5]. Until adequate numbers of teleconsultations are performed and data is available, the empirical studies involving the cost-effectiveness will continue to lag in the telemedicine literature.

One thing we can learn is that technology certainly has the potential to soothe the growing pains and provide some solutions for the major challenges facing the business of health-care delivery.

For the most part, the evaluation of telemedicine programs to date has involved assessment of user satisfaction. In addition to cost and acceptance, however, evaluation plans should also consider issues such as quality of care, and legal issues such as security and confidentiality of patient information [2, 8]. Telemedicolegal issues such as licensing and liability present another realm of uncertainty, both from a traditional perspective as well as a technological perspective [9]. Traditionally, a patient may travel a short distance across state lines to visit a specialist who is licensed in that state. What laws apply when a patient travels technologically to the practitioner but remains physically in a state in which the practitioner is not licensed? Some states are enacting laws that will affect this interpretation, most notably Oregon and Kansas, with Oregon moving in the direction of facilitating telemedicine licensure and Kansas moving in the opposite direction [12]. In fact, several other states besides Kansas have passed laws that require teleconsultants to be licensed in their states if they are seeing patients via telemedicine in their states. In addition to the licensing issue, seeing patients from a distance also exposes the provider to additional liability since it is more difficult to determine if a physician-patient relationship existed and, if so, if there was a breach of duty to provide care to the patient [11].

To be fully integrated at its highest level, telemedicine will also require the fully functioning conversion of the standard paper-based medical record into an electronic format, an area wrought with its own set of challenges. Some of the important critical obstacles include security issues, the legality of electronic signatures, cost, and the archival durability of the electronic format. Documentation is still a major concern with such issues as the logistics of record-keeping, who initiates and maintains the patient record, who is ultimately responsible as custodian of the record, and whether encounters will be videotaped [6]. It is likely these issues can be overcome just as similar ones were surmounted with the initial use of microfiche record archival. In the meantime, the practice of telemedicine can likely evolve without solving the documentation problem at the outset.

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As the Convergence Unfolds

If these challenges to telemedicine are overcome and if the political and legal issues are resolved, telemedicine will flourish as a practical reality as the behemoths of managed care and the digital age converge.

The Telecommunications Act of 1996 offers much promise for paving the information superhighway that would be a boon for telemedicine and would hasten this convergence, especially with the purported decrease in cost for consumers as a result of the increased competition. It is likely the rural areas are going to have the most to gain using telemedicine. It still remains to be seen, however, how costs will be affected for the higher cost rural maintenance and development of communications links due to delays in implementation of many of the mandates of the Telecommunications Act. One mandate involved Universal Services Fund. Though the federal dollars for rate discounts were made available to ensure that rural health-care providers pay no more than their urban counterparts pay for telecommunication services, the procedures for applying for those funds had not been completed as late as March 1998 [1]. Subsequently, the Universal Services Administrative Company has been provided with guidance by the Federal Communications Commission for administering the telecommunications universal services programs.

Telemedicine has the potential to influence not only the customer of the services but the organization itself. The value added to the customer/consumer/ patient arises on several fronts. For the rural customer, a decrease in travel costs and an increase in selection of specialty care would be available on a global scale. Accessing specialty care as a preventive measure affects health-care costs through early intervention, as well as quality of life for the patient. Prevention as a means to contain costs through capitation is a primary focus of managed care, unlike the fee-for-service incentive for providers to treat illness. Early intervention also helps to decrease transfers to tertiary care centers for admission to the hospital, which would otherwise increase cost through increased tests and more expensive treatment. The use of telemedicine also has a positive impact on the health of those individuals who are unable to travel. This translates to a positive economic effect on productivity for the organization and decreased loss of pay for the individual because the patient would be spending more time on the job and less on travel. Patients who have used telemedicine services are reporting high levels of satisfaction with the experience [7]. It is expected this trend of user acceptance will continue.

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While it is apparent the health-care industry is in the midst of some of the greatest change in its history from a business point of view, as well as from a delivery perspective, it is not clear how the industry will look in the near future. One thing we can learn from a general perspective is that technology certainly has the potential to soothe the growing pains and provide some solutions for the major challenges facing the business of health-care delivery. Whether or not technology will drive these changes is not the question. What is important is how the technology can help facilitate the changes and how obstacles can be removed in the deployment of the technology.

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1. Blackwell, M. FCC Universal Services Fund: How It Applies and How You Apply. Presentation at Paying for Telehealth: New Developments Toward Financing Networks and Reimbursement of Services (FCC, Mar. 19, 1998). Columbus, Oh.

2. Burghgraeve, P., and De Maeseneer, J. Improved methods for assessing information technology in primary health care and an example from telemedicine. J. Telemedicine and Telecare 1, 3 (1995). Royal Society of Medicine Press, London, U.K., 157–164.

3. Ciesielski, C. Update on Medicare Research Projects, Part B Medicare Funding, States with Medicaid Reimbursement. Presentation at Paying for Telehealth: New Developments Toward Financing Networks and Reimbursement of Services (FCC, Mar. 19, 1998). Columbus, Oh.

4. England, B. Medicare reimbursement demonstration project. Telemedicine Sourcebook 1998. N. Neuberger, Ed. (1997). Faulkner & Gray, New York, N.Y., 168–170.

5. Grigsby, B., and Allen, A. 4th Annual Telemedicine Program Review. Telemedicine Today 5, 4 (1997). Ace Allen, Ed., Overland, KS, 38–42.

6. Huston, J.L. Telemedical records: The weak link in telemedicine. J. American Health Information Management Assoc. 67, 6 (1996). Amercian Health Information Management Association, Chicago, IL, 69–71.

7. Huston, J.L., and Burton, D.C. Patient satisfaction with multispecialty interactive teleconsultations. J. Telemedicine and Telecare 3, 4 (1997). Royal Society of Medicine Press, London, UK, 205–208.

8. Huston, J.L., and Smith, T.A. Evaluating a telemedicine delivery system. Topics in Health Info. Management 16, 3 (1996). Aspen Publishers, Gaithersberg, MD, 65–71.

9. Klein, S.R., and Manning, W.L. Telemedicine and the law. J. Healthcare Info. Management Syst. and. Soc. 9, 3 (1995). Healthcare Information and Management Systems Society, Chicago, IL, 35–39.

10. Perednia, D.A., and Allen, A. Telemedicine technology and clinical applications. JAMA 273, 66 (1995). Amercian Medical Association, Chicago. IL, 483–488.

11. Shotwell, L.F. Telemedicine and malpractice: Old liabilities and new risks. Health Info. Syst. Telemedicine 1, 1 (1996), 1–3.

12. Young, H.J., and R.J. Waters. Licensure barriers to the interstate use of telemedicine. Telemedicine Today 4, 2, (1996). Ace Allen, Ed., Overland, KS, 10–11.

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Terry L. Huston ( is an assistant professor in the Faculty of Business, University of Victoria, British Columbia, Canada.

Janis L. Huston ( is a telemedicine information management consultant in the U.K.

©2000 ACM  0002-0782/00/0600  $5.00

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