Rural health providers have looked to telemedicine as a technology to reduce costs. However, virtual access to physicians and specialists may alter patients' demand for face-to-face physician access. We develop a model of service demand under managed care, and apply the model to a telemedicine application in rural Alaska. Provider-imposed delays and patient costs were highly significant predictors of patient contingent choices in a survey of ENT clinic patients. The results suggest that telemedicine increased estimated patient benefits by about $40 per visit, and reduced patients' loss from rationing of access to physicians by about 20%. Copyright 2004 John Wiley & Sons, Ltd.