Objective. This study compares the costs of offering outpatient care to primarily orthopedic and dermatology patients via live, interactive telemedicine to the estimated costs of direct face-to-face care for the same patients. Materials and Methods. A simple, yet detailed methodology was used to evaluate the cost of adding telemedicine to a health care delivery system, using a 'hub-and-spoke' model located in Minnesota. The costs and cost savings of telemedicine were evaluated from the perspectives of patients, providers, insurers, employers, and society as a whole. Sensitivity analysis was used to investigate the impact of various factors on the model. Results. The variable cost of a telemedicine referral was $144, versus an estimated face-to-face referral cost of $183. Reductions in patient travel costs and in lost employee productivity were the principal benefits of the system. The break-even point, where total costs equal total cost savings, equalled 1,449 consultations annually. Sensitivity analyses indicated that the breakeven point varies from a low of 152 telemedicine consultations for a 'best case' scenario to no possible breakeven point for a 'worst case' scenario. Conclusions. At the system's current level of 300 consultations per year, the telemedicine system is estimated to add $45,000 to society's costs of providing medical care for these patients. The additional cost is primarily due to personnel expenses and an increase in the volume of specialty care. Patients see specialists more often due to improved access to care and lower transportation costs. Providers bear the cost while patients and employers enjoy substantial savings.