Introduction Growing populations of elderly patients with chronic obstructive pulmonary disease (COPD) or heart failure (HF) require more healthcare. A four-year telehealth intervention - the Health Diary system based on digital pen technology - was implemented. We hypothesized that study patients with advanced COPD or HF would have lower rates of hospitalization when using the Health Diary. The aim was to investigate the effects of the intervention on healthcare costs and the number of hospitalizations, as well as other care required in COPD and HF patients. Methods Patients were introduced to the telemonitoring system which was supervised by a specialized hospital-based home care (HBHC) unit. Staff associated with this unit were responsible for the healthcare provided. The study included patients with COPD or HF, aged amp;gt;= 65 years who were frequently hospitalized due to exacerbations - at least two inpatient episodes within the last 12 months. Observed number of hospitalizations and total healthcare costs were compared with the expected values, which were calculated using the generalized estimating equations (GEE) method. Results A total of 36 COPD and 58 HF patients with advanced stages of disease were included. The number of hospitalizations was significantly reduced for both HF and COPD patients participating in telemonitoring. Accordingly, hospitalization costs were significantly reduced for both groups, but the total healthcare cost was not significantly different from the expected costs. Conclusion A telemonitoring system, the Health Diary, combined with a specialized HBHC unit significantly decreases the need for hospital care in elderly patients with advanced HF or COPD without increasing total healthcare costs.