An Interactive DecisionSupport Tool for Telemedicine:
Making the Business Case
Susan E. Palsbo, PhD
National Rehabilitation Hospital
George Mason University
Michael J. McCue, DBA
Virginia Commonwealth University
Acknowledgements
Grant #H133E980025
Problems
• Fiscal concerns at the hospitals
• Public policy concerns
• Results of cost-benefit studies
“I don’t care that telemedicine saves the
patient time and money. It does not add
revenue to my hospital’s bottom line.”
Idea: Do Financial Analysis
• Make the business case for telemedicine
• Build an interactive spreadsheet decisionsupport tool for the CFOs to model
different scenarios
• Identify the scenarios under which a
telerehabilitation program can be
financially profitable and self-sustaining
Pro forma Direct Revenues
• Segment the market by payer
• Model different reimbursement
assumptions (copays, origination fees)
• Model different service volumes
• Model different growth rates, by payer
Pro forma Indirect Revenues
• Shortened LOS
• Increased physician productivity
• Fewer “no shows”
Pro forma Expenses
• Capital outlay
• Telecommunications expenses
• Medical expenses
Capital Outlay
• Two conceptual approaches
– “Virtual clinic”
– “Rental clinic”
• Type of equipment
• Lease or buy?
• One-time training costs
Operating Expenses
• Telecommunications
– Fixed and variable costs
– Connection charges
– Servicing charges
• Medical
– Hourly salaries, benefits
– Need to project volume of services by CPT
code since work-hour equivalents vary by
code
Medical Expense
• Include hourly salaries, benefits
• Work units per telerehabilitation
procedures
Compute Breakeven Volume
Revenue per visit
- Variable expenses per visit
= Contribution margin per visit
• How many visits to cover fixed costs
• How many visits to cover fixed costs when
indirect revenues are also included
Internal Rate of Return
• IRR = the interest rate that makes the
net present value of all cash flows = 0.
• The return that the company would
earn if they invested in the telemedicine
program.
• If the IRR > the return on other
investments, then the business case is
made!
Examples of Scenarios
• For NRH (intranet), 4 encounters per week,
volume grow at 10% a year, expenses grow
at 3% a year  make a profit in year #3.
IRRyr5 = 29%
• If 1 extra encounter per week, but
physician/psychologist sees extra 100
patients  never make a profit. IRRyr5 = -1%
• If 1 extra encounter per week + 1 less noshow per week, make a profit in year #4.
IRRyr5 = 18%
Key Points
• The best way to think of a telemedicine clinic is as if
building a new clinic …but virtual is much cheaper than
bricks and mortar.
– Universities have already figured this out.
• Segment the payer market and make tailored revenue
and visit projections.
– Insurance companies have already figured this out.
• Urban telemedicine programs can be financially selfsustaining, especially when piggybacking on existing
LANs and when there is available non-revenue
producing physical space.
• Don’t need to rely on indirect revenue, but it helps!
• Build up volume as much as you can to make operating
profits instead of relying on depreciation.
“Where Can I Get a Copy?”
http://www.nrhresearch.org/chdrnav.cfm
?id=670
Or e-mail:
[email protected]