Economic evaluation of telemedicine compares the costs and other consequences of delivering specific services through telemedicine vs. alternative means. Cost-effectiveness analysis, the most common method used for health issues, helps to assess whether the expected health benefits are worth the investment. Telemedicine raises particular challenges for evaluators: a telemedicine system may have multiple uses and joint costs that are difficult to apportion to one service, the existence of a system may lead to expanded indications for use, and technological change may rapidly make an evaluation outdated. Public and private regulation and payment may affect the diffusion of telemedicine. Uncertainty surrounds the policy of the U.S. Food and Drug Administration, which is still formulating its position. Changes are underway in policies on licensure and credentialing of clinicians, which have traditionally been done by state and by site, to reflect the fact that telemedicine services may cross these regional boundaries. Lack of insurance coverage for telemedicine services has been considered an impediment to adoption with fee-for-service payment. Under capitation payment and fixed budgets, however, providers have financial incentives to use the most efficient method to deliver services, and these arrangements would favor telemedicine if it is the less costly alternative. If telemedicine were most costly and the health benefits worth the cost, monitoring might be needed to ensure the quality of care.