The changing health care environment is generating a number of challenges for Academic Health Centers' (AHC) ability to pursue their traditional tripartite mission of medical care, education, and research. A number of strategies have been suggested to aid the AHC to respond, among them telemedicine. In this paper, telemedicine is examined for its potential to assist in meeting financial, cost, and quality challenges. In particular, the model developed at the University of Michigan Health System for implementing telemedicine within the AHC is presented together with lessons learned. This model, based largely on intramural rather than extramural funding, is offered as a basic strategy to be considered by AHCs facing these challenges.