"Avoided cost” is generally defined as the incremental cost that is not incurred when activity or output is suspended or declined. Stayed home instead of going to the Taylor Swift “Eras Tour” movie? You enjoyed the avoided costs of theatre tickets, transportation and a jumbo bucket of popcorn. Clicked through for a telehealth appointment? You enjoyed avoided costs of transportation, time off from work and parking.
Avoided costs are valued relative to the actual cost that would have been incurred. It can be a quick calculation when dealing with fixed price services or commodities, but a less definite exercise when working with costs that are implicated by potentially shifting variables.
Agriculture and telehealth are two sectors where avoided costs represent a substantial proportion of the added value that broadband brings to those sectors. For example, ag tech simultaneously increases yield while decreasing cost inputs. More for less, as it were, and the value of decreased chemical use and increased production can be measured in standard units. In health care, however, the benefits are not measured in bushels, or cattle weight or gallons of dairy production. Rather, the benefits are represented in better health outcomes, which typically may be evaluated with more difficult to quantify factors such as increased productivity of a healthier patient or avoided health care costs. Avoided costs, by contrast, can been quantified more readily. This Smart Rural Community report remains a key source of data that measures avoided fuel, travel, and wage expenses. It also captures anticipated increased revenues for local medical labs and pharmacies.
But avoided costs in telehealth often accrue to beneficiaries who are often outside of the hospital system. To be sure, there are reduced health care costs on the provider side, but those do not necessarily accrue to the benefit of the provider. And therein lies a problem in search of a solution.
A National Institutes of Health survey of chief financial officers (CFOs) at rural hospitals found that financial attractiveness of telehealth plays a major role in adoption. While the representatives of 20 hospitals from 10 states agreed that telehealth enables health outcome benefits and can also provide some financial benefits to the hospital, the predominant conclusion of many CFOs is that the cost of implementing and supporting telehealth would not necessarily generate savings or avoided costs to the facility at a scale necessary to justify the investment. By way of example, a hospital engaging telehealth typically maintains the same overhead (physicians, nurses, administrative, etc.) while incurring additional equipment and technology expenses. At the same time, reimbursement for telehealth encounters often scale lower than reimbursements for in-person interactions. Accordingly, a small hospital would conceivably need to achieve a suitable economic scale of patient interactions to support the cost of a telehealth system.
But this does not mean that the financial code to telehealth cannot be cracked. And it certainly does not mean that we should stop trying.
The Veterans Administration (VA) provides an excellent example. The VA has a dedicated team working on immersive reality for healthcare. They are currently running 18 pilots in 120 locations across 44 states involving 2,000 front-line staffers. These are not experiments or trials, but rather pilots deploying evidenced based tests on a widespread basis.
These tests are exploring virtual reality (VR) and immersive reality for applications like cardiac rehab. And peer support, providing veterans with an anonymous yet in-person feel for support groups. And rehab for post-surgical patients. And along the way, the tests are gathering data on everything from patient comfort to technological capabilities to cost modelling to the mitigation of barriers that might otherwise impede access to healthcare. Importantly, the VA notes that the out-the-door cost of VR equipment in many instances is far lower than the traditional medical equipment it replaces. As these data emerge, they can offer examples to make telehealth more attractive to rural hospital CFOs.
Of course, the pilots are revealing non-cost issues that must be addressed. Can patients withstand cybersickness (nausea, dizziness, headaches when using VR)? Will patients diagnosed with schizophrenia have delusional thinking in a VR environment? Will extended VR usage cause eye fatigue or other strain? These questions are being examined as the VA pilots move forward.
But with these examinations, the economic benefits of broadband-enabled healthcare will be better defined, leading to greater understanding of avoided costs and better patient outcomes.