The Scottish Highlands and Islands Remote Dental Care Program
1. Introduction
There are currently 40 General Dental Practices (GDP) in the Scottish Highlands and Islands serving a
population of around 250,000. The GDPs deal with all routine dental care, but each year a few hundred
patients have to travel a considerable distance to hospital in Aberdeen for specialist advice, diagnosis
and a treatment plan to manage complex restorative, prosthetic or periodontal problems.
The National Health Service (NHS) is considering two alternative proposals, starting in 2006, to reduce
the number of hospital visits required and instead to treat a significant number of these patients at the
GDPs:
The Outreach Project proposed by the NHS Scottish Division, would provide for specialists to
travel from Aberdeen to provide treatment at 8 selected GDPs located in regional centres;
OR
The Teledentistry Project proposed by a Canadian company, would provide, maintain and operate
video conferencing equipment which would enable local dentists to provide specialist care at the
local GDPs with the guidance of specialists located in Aberdeen.
It is estimated that under either proposal there will be 400 patients who can be treated locally or
regionally in 2007 instead of having to travel to Aberdeen. The amount of specialist time involved in
treating patients under either proposal will be the same as under the existing system, but the Outreach
Project will involve extra specialist time in the form of travel. Because of changes in population size
and structure the number of specialist patients eligible for local treatment is estimated to rise by 10
each year starting in 2008.
2. THE OUTREACH PROJECT
The NHS Scottish Division proposes to fund an upgrade of space and equipment at eight GDPs located
in regional centres to enable specialists traveling from Aberdeen to treat cases at these GDPs.
Specialist treatment is provided at no cost to the patient and GDP costs are reimbursed by the NHS.
The Scottish Division proposes to up-grade the eight regional GDPs in 2006 and to commence the
Outreach Project in 2007. It is estimated that 50% of the eligible 400 patients can be treated in 2007
and 100% thereafter. The project will run for 15 years from 2007.
Capital Costs (at 2006 prices)
The NHS will incur a cost of £4250 in up-grading each of the 8 Regional GDPs in 2006. Of this sum
40% will be spent on specialist equipment, which is imported and subject to a 20% tariff. The
equipment has a life of 5 years and a salvage value of 10%. The remainder of the funds will be spent on
refurbishing GDP work space; the refurbishements also have a life of 5 years, but no salvage value.
Operating Costs (at 2006 prices)
These costs are reported in Table 2.
3. THE TELEDENTISTRY PROJECT
A Canadian Company, Telemedicine Services Incorporated (TSI), proposes to facilitate the treatment
of specialist cases using its teledentistry service: PC based videoconference hardware and software
coupled with medium band width ISDN lines provide live audio and video transmission between a
referring dentist and patient in a remote location and a specialist at the base hospital. The referring
dentist provides the treatment at the local GDP under the supervision of the specialist in Aberdeen.
Each GDP will require an up-grade of equipment costing £1000 (in addition to capital costs incurred
by TSI) in 2006, and funded by the NHS. Specialist treatment is provided at no cost to the patient,
although under the Teledendistry project there is a fee for the initial consultation with the local dentist,
and GDP operating costs are reimbursed by the NHS.
TSI proposes to set up the system in 2006 with a capacity to treat 600 patients per year (to allow for the
projected increase in patient numbers) and operate it from 2007-2021 (15 years). The company
proposes to facilitate treatment of 50% of eligible patients in 2007 and then 100% of eligible patients
from 2008 onwards.
TSI Revenues and Costs
Capital Costs
Table 1. Capital Costs for Teledentistry (at 2006 prices)
Videoconferencing unit
Cost per GDP
Cost per Hospital
Unit
Unit
(£)
(£)
860
1,660
Codec and software
1,396
1,396
Imaging equipment
1,176
–
ISDN connection
99
99
Total capital cost
3,531
3,155
Note: 40 GDP units and 3 hospital units will be required. All items, except the ISDN connection will
have to be up-graded in years 2011 and 2016 at a cost of 7.5% of initial capital cost. Salvage value at
the end of the project is 10% of initial cost (except for the ISDN connection). Costs of equipment and
software include 20% import duties. Equipment and software (including the 5 yearly up-grade) can be
depreciated at 20% of initial cost per annum over 5 years for tax purposes. Company tax rate is 30%
and TSI has profits from other UK operations against which any losses on the Teledentistry Project can
be deducted.
GDP dentists and specialists will need to be trained in videoconferencing procedures: training costs of
£1475 will be incurred in 2006.
Operating Costs (at 2006 prices)
Annual videoconferencing training: cost of £40 per year per GDP and hospital unit starting in 2007
Telephone charges: line rental £152 per GDP
Equipment operator in Aberdeen: 1 Technician at an annual salary of £20,000
Repairs and maintenance cost: £30 per unit (GDP and hospital).
Financing
TSI will receive a £10,000 Grant from Scottish Highlands and Islands Development Board (SHIDB)
in 2007.
TSI will borrow £80,000 from the Scottish Development Bank (SDB), a State Bank, in year 2006
repayable over 5 years at a concessional rate of interest (5% real rate of interest per annum).
TSI estimates its cost of capital at a real rate of 12% p.a.
Revenues (at 2006 prices)
The NHS envisages that it will pay TSI a fee of £140 per patient treated under the teledentistry
program. TSI hopes to negotiate a higher fee.
NHS Costs
As noted earlier, the NHS will incur a capital cost of a £1000 equipment up-grade per GDP in 2006.
Equipment cost is at 2006 prices and is inclusive of 20% import duty.
4. VARIABLE COSTS OF THE TWO PROPOSALS AND THE CURRENT HOSPITAL PROGRAM
Table 2. Variable costs per patient incurred by patients and NHS (at 2006 prices)
Teledentistry
Outreach Visits
Hospital Visits
(£)
(£)
(£)
Costs to Patient
29.50
–
–
4.39
42.5
–
129.21
173.43
844.47
46.42
9.17
9.17
112.72
54.50
54.50
29.72
18.17
18.17
Nurse and administration costs
0.20
3.69
3.69
Diagnostic images
7.38
0.88
0.88
Patient travel&accommodation (iv)
–
–
250.64
Specialist travel&accommodation(v)
_
130
_
Specialist travel time (vi)
_
22.50
_
Diagnosis and treatment plan (i)
Travel costs (ii)
Travel and consultation time (iii)
NHS Costs
TSI fee per patient
Pre-consultation costs
Consultation costs
Post-consultation costs
140
Notes :
(i) fee paid to NHS
(ii) cost of return car or bus travel from home to local or regional GDP
(iii) patient time valued at the market wage
(iv) cost of return car, bus, ferry or air travel from home to Aberdeen
(v) based on £650 return travel and accommodation costs per 5 patients treated
(vi) based on one day’s travel time per 5 patients. Travel time valued at the specialist wage of £112.50
per day
5. NHS Hospital Capital Cost
Under both the Outreach and Teledentistry Programs there will be between 400 and 600 fewer patients
per annum treated in Aberdeen. The NHS estimates that this will free up one fully equipped 75m 2
consulting facility from 2008 for other uses. NHS estimates its opportunity cost of consulting facilities
at £3500/m2, at 2006 prices, with a life of 20 years. It uses the equivalent annual cost method to work
out an annual cost to estimate any long-run cost saving.
6. Instructions
You are required to conduct a benefit-cost analysis of the Outreach and Teledentistry proposal, each of
which proposes remote treatment of a given number of patients instead of treatment in hospital in
Aberdeen. Your spreadsheets should contain a Variables Table plus Project, Private, Efficiency and
Referent Group analyses for both proposals. The Project analysis should detail the cost of hospital
treatment, provide a breakdown of the Teledentistry proposal into its TSI and NHS components, and
analyze the Outreach proposal, but it should ignore patient costs. The Private analysis concerns TSI
only. The referent group consists of the residents and government of the United Kingdom. Net referent
group benefits are to be disaggregated into those accruing to the NHS, the tax office, financial
institutions, and patients.
The proposals should be assessed against the costs of the current treatment regime using real rates of
discount of 6%, 9% and 12%. The NHS wishes to know which if either of the two proposals should be
implemented, and in the case of the Teledentistry program the level at which TSI’s fee should be set.
The sensitivity of the results to values of key variables, including the TSI fee, the value of patient time,
and any other variables you consider to be important, is to be assessed. Your recommendation to the
NHS should include some discussion of factors not covered by the analysis, such as changes in waiting
times for treatment, and suggestions for further work on the analysis.
While the Teledentistry and Outreach Proposals involve the same amount of specialist treatment time
as the current hospital treatment system, the Outreach Project involves additional specialist time in the
form of travel. The NHS is concerned about the increasing shortage of dental specialists which is likely
to result in a significant rise in the cost of specialist time. It has been estimated that the cost of
specialist time is likely to rise at an annual rate of 8 - 10% above the rate of inflation starting in 2007.
Perform a sensitivity analysis of this scenario and indicate how it would affect the relative net benefits
of the two proposals.
7. The Format of the Report
The report is to be presented in a format similar to that of the ICP Case Study reported in Chapter 14 of
the text. It should begin with an executive summary of approximately one page in length. The main
body of the report should not be more than 10 pages in length (1.5 spacing, font size 12) including your
summary tables of results. Marks may be deducted for failure to observe these requirements. The
printouts of the spreadsheets, including the Input Data should be in a separate appendix. You should
only print the spreadsheets for the base case scenario. Try to condense these so all years fit on one A4
page (landscape). You must also enclose a floppy disk containing all your Excel spreadsheets, with
each file clearly labeled.
8. Grading
The final grade will based on the following weights: (i) Accuracy: 25%; (ii) Statement of approach and
methodology 15%; (iii) Presentation and discussion of results: 40%; (iv) Sensitivity analysis and
conclusions: 20%.
.
NOTE: While it is acceptable for students to do the spreadsheeting on a group basis the report
writing itself must be undertaken on an individual basis. There will be severe penalties if reports, or
parts of reports, are considered by the examiners to be too similar to be treated as independent work.