JCMC 6 (4) July
2001

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Vol. 6 No.
1   Vol.
6 No. 2   Vol. 6 No.
3

Ehealth: Market Potential and Business Strategies

Pamela Whitten, Charles Steinfield,
and Seth Hellmich
Department of Telecommunications
Michigan State
University, USA

Abstract

Ehealth:
Market Potential and Business Strategies

Current
Utilization

Medical
Equipment and Supplies

Health
Insurance

Medication

Clinical
Services

Barriers
to Provision of Online Health Services

Business
Models and Competitive Strategy in Electronic Commerce

The
Case Studies

An
Online Pharmacy

Lessons
Learned from ePharmacy

An
Online Physician's Consultation Service

Lessons
Learned from eDoctor

Conclusion

References

About the
Authors

Abstract
Due to the economic and social
priorities afforded health services in the United States, research on new
delivery modalities such as the Internet is gaining in popularity. Claims of
the Internet's potential range from a promise to revolutionize the fundamental
way health care is delivered to a tool for empowering patients through
enhanced interaction with providers (Rice, 2001). Even though a great amount
of attention has been given to e-health activity, the preponderance of
publications to date has focused on the Internet as a source of health
information. However important this form of e-health is, this type of service
simply does not face the same constraints that must be addressed by those
actually delivering health care services or tightly regulated pharmaceutical
products. In this paper, we examine e-health by focusing explicitly on the
delivery of health care products and services. Our examination of e-health
activity is guided by two broad research questions. First, we ask what the
potential is for the development of online health care services by examining
its potential in major health care service and product sectors. Second, based
upon case studies of two online health service firms, we seek to understand
the emerging strategies of firms that are attempting to enter the health care
market with an entirely online approach. Our examination of current e-health
trends, as well as our two case studies, demonstrates the tremendous potential
for health-related commercial activity on the Internet. However, our
examination of the barriers facing ehealth from the US health system also
pointed out the almost insurmountable challenges. We therefore conclude that a
"click and mortar" model may perhaps be the optimal strategy for e-health.

Ehealth: Market Potential and Business
Strategies
Health care in the United States has evolved over this
century from a service accessed by a small percentage of society to one of the
biggest market sectors in our economy. The Healthcare Financing Administration
(1999) reports that the nation's total spending for health care will increase
from $1.0 trillion in 1996 to $2.1 trillion in 2007. This growth represents an
increase in health care costs as a percentage of gross domestic product (GDP)
from 13.6 percent to almost 17 percent. These national trends in health
expenditures are attributed to a boost in underlying demand for medical
services resulting from a recent growth in real per capita income accompanied
by increasing medical inflation. Patterns in health care growth, however, vary
widely across types of services. It is anticipated that hospital growth will
fall well short of the increase in physician and professional services as the
trend from inpatient to outpatient care continues. The fastest growing segment
of health care expenditures is projected to be for drugs due to an increase in
the number of actual prescriptions and changes in the size and mix of
medications. This paper addresses the dramatic growth in healthcare
expenditures through the examination of a new delivery modality, namely
e-health.

Due to the economic and social priorities afforded health services in the
United States, research on new delivery modalities is gaining in popularity.
New communication technologies, such as the Internet, are enjoying particular
attention by health researchers. Claims of the Internet's potential range from
a promise to revolutionize the fundamental way health care is delivered to a
tool for empowering patients through enhanced interaction with providers
(Rice, 2001). Wherever web-based medicine eventually lands, it is currently
generating excitement as a means of providing care for two segments of the
American population.

First on the list are citizens who currently have trouble accessing a wide
range of health care services. Despite the abundance of health providers and
companies in this country, people with preventable or manageable health
problems are often those least likely to have access to health services. Among
those with the greatest challenges in accessing care are residents living in
remote areas, facing transportation problems, suffering from physical or
emotional handicaps, or living with lower incomes or poor health insurance
coverage. Recent federal investment and commitment to telehealth, the use of
telecommunication technologies to deliver health services over a distance,
indicates that the federal government views computer-mediated technologies as
a potential solution for some portion of these access challenges. According to
Carolyn Bloch (2001), the Federal Government will spend close to one billion
dollars this year on telemedicine research, grants and other funding.

The second audience serving as a driving force behind the development of
Internet-based health care services involves the "21st century health care
consumers." The Institute for the Future describes a such new consumers as
people actively involved in making choices about their health services
(Kyrouz, Holt, Mittman, & Everett, 1998). New consumers are made unique by
the 3 "C"s, namely cash, college, and computers. New consumers' expectations
about how they will obtain online health services are shaped by their
experiences with retailers and financial services firms. They will expect free
choice when it comes to doctors and treatments they will receive and high
levels of customer service (Mittman & Cain, 2001).

New consumers are behind two factors driving the growth of online health
services, specifically consumer demands and consumer experience with Internet
transactions. Other factors driving online health include characteristics of
the Internet, e.g., inexpensive, ease of use, democratic nature, distance
insensitivity and increasing functionality (Mittman & Cain, 1999).
However, another factor pushing health services online comes from the very
pressures within the health care industry.

The health-care industry, which now competes voraciously for every
heath-care dollar, is witnessing a convergence of care suppliers, payer
sources, providers, and consumers. With this emerging interdependence comes
the heightened need for ubiquitous access to information and services that
help industry members confront some of the universal challenges, including
pressures to reduce costs, intense competition, the complexities of managing
information as people and companies integrate, and an ongoing need to gain and
retain a competitive advantage through growth and diversification (Deloitte
Research, 1999). As the lines that distinguish the various health sectors
begin to blur, online commercial activity (e-commerce) emerges as a strategic
resource to purchase as well as sell products and services within and between
health providers.

However, the development of e-health is currently challenged by a number of
issues that appear to be inhibiting its deployment. Among the greatest of
these barriers are legal and regulatory issues such as privacy, licensure and
reimbursement policies; delivery of care difficulties arising from limitations
of the technology, and the changes in the relational component of
provider-patient interactions that can influence patients' trust.

Even though a great amount of attention has been given to e-health
activity, the preponderance of publications to date has focused on the
Internet as a source of health information. For example, many researchers are
examining the veracity and type of health information available on the Web
(e.g., Berland, 2001; Eysenbach, 1998; Julian, 2001; Pace, 2001). However
important this form of e-health is, this type of service simply does not face
the same constraints that must be addressed by those actually delivering
health care services or tightly regulated pharmaceutical products. In this
paper, we examine e-health by focusing explicitly on the delivery of health
care products and services. Our examination of e-health activity is guided by
two broad research questions. First, we ask what the potential is for the
development of online health care services by examining its potential in major
health care service and product sectors. Second, based upon case studies of
two online health service firms, we seek to understand the emerging strategies
of firms that are attempting to enter the health care market with an entirely
online approach.

Research Question 1: What is the potential of online health
activity?

In order to understand the current and future role of e-health, it is
important to look briefly at current utilization, delineate the categories of
products/services available commercially online, and identify the barriers and
challenges facing e-health firms.

Current Utilization

General use of the Internet for health points to a great demand for
health-related information. For example, almost half the Internet users in
1997 reported looking for health information or support (FIND/SVP, 1997). A
survey of 2,000 Internet users estimated that more than 24.8 million people
sought online health and medical content in 1998, an increase of 44% from 1997
("Double Mastectomy," 1999). E-health web sites have enjoyed growth that has
outpaced general Internet use. For example, in 1999, general use of e-health
sites grew 176% to almost 11 million (Media Metrix, 2000). According to
Newsweek, the Web is currently a source of health or medical information for
more than 50 million Americans. Patients and their families do more actual web
surfing than investors, students or people who purchase online (Watson, 2001).
Data from Forrester Research (Yonish, Ranguelova, Shrier, & Broadben,
2001) indicates that women are twice as likely as men to visit health sites.
In addition, Internet users diagnosed with a serious illness in the past year,
whether young or old, visit medical information sites more frequently than
their healthier cohorts. A 1999 study reported in Nature documented more than
15,000 health information Web sites categorized at the prime tier of both the
Yahoo and Netscape directories. Yet, health information on the web is not
limited to simple non-interactive informational sites. For example, there are
many specialized online support groups that offer active mailing lists. Rice
(2001) reported that a search on Liszt.com yielded 278 health-related mailing
lists. In 1995, the last date individual newsgroup readership figures were
provided (Rice, 2001); half of the top 10 Usenet newsgroups were concerned
with health topics.

In addition to being a source for health or medical information, the Web is
also a site for health-related commercial activity. With respect to online
health purchasing behavior, of those who go online three times per week
(defined as active Web users), more than 6 percent purchased nonprescription
health products, almost 9 percent purchased prescription medications and just
under 6 percent bought some type of formal healthcare service (Yonish et al.,
2001). To date, an estimated 2.5 million consumers have actually used a
medical practice Web site, but more than 35 million report that they would
like to (Guglielmo, 2001). Physicians are hearing this message. Up to 37
percent of all physicians already have some kind of Web presence and a quarter
of net-connected physicians use e-mail to communicate with patients
(Guglielmo, 2001).

E-health as a commercial activity can be schematically conceptualized as
four major categories, namely medical equipment and supplies, health
insurance, medications and clinical services (Whitten, Steinfeld, &
Hellmich, 2001)

Medical Equipment and Supplies

Health commodity items are perhaps the easiest to transition from
traditional hard copy catalogs to online publications. Traditionally, health
providers must work through a company sales representative or distribution
middleman in order to purchase medical equipment and supplies for their
clinics or offices. The web offers an opportunity for staff to shop on the web
for everything from hospital beds to bedpans and tongue depressors. This
category refers to all items that are tangible and require physical
transportation for delivery.

There are two separate sets of potential clients for medical equipment and
supplies. The first are industry members. These would include hospitals,
doctors' offices, outpatient health centers, home health agencies, nursing
homes, and medical laboratories. Any organization that provides direct or
indirect patient services is able to purchase equipment and supplies necessary
to supply that care through these web sites. The second set of clients for
this category is comprised of the care recipients. This would include the
actual patient or a family member or non-professional caretaker of a patient.
There is a host of medical equipment and supplies that are directly purchased
by the actual patient such as special functioning beds, wheelchairs, canes,
glucose monitors and strips, blood pressure monitors, or bulk items such as
wound care dressings and bandages. It appears that the preponderance of
e-commerce sites currently being developed are directed at businesses rather
than individuals, which is logical given current computer dissemination and
utilization trends.

Health Insurance

Payers of health services obviously play a pivotal role in the entire
health system. Currently, most health insurance companies are utilizing the
web for informational purposes. However, some companies are utilizing
e-commerce in one of two ways. First, following the traditional independent
agent structure of the insurance system, insurance companies use the Web to
enable agents to order policies for their clients electronically. Second,
insurance companies are utilizing the Internet to bypass independent agents,
and sell health insurance policies directly to the end consumer. Some sites
provide consumers with electronic forms to speed up the process of obtaining
health insurance. Other sites go a step further and actually support the
online purchase of health insurance.

Medication

Consumers use a wide range of prescription and over-the-counter medications
for prevention and treatment purposes. Medications include anything
traditionally provided in the health section of a supermarket or drug store or
products supplied only through a physician's prescription. E-commerce sites
offering medication products are emerging in three distinct forms: [1] online
sales of over-the-counter medications that are delivered directly to the
consumer; [2] ordering of prescription medications on-line that can be picked
up by the consumer or delivered directly to the home or office and; [3] direct
marketing with on-line consultation service for a specific product available
by prescription only.

Clinical Services

The Internet serves as an innovative source for the actual acquisition of
medical care and services. The purchasing of medical diagnoses, treatment
recommendations, ongoing care management, or a simple second opinion from a
licensed health provider falls in this category. These services could be
theoretically purchased from a physician, nurse, nurse practitioner, physician
assistant, psychologist, social worker, or speech/physical/occupational
therapists. Currently, the handful of forays into cybermedicine appears to be
coming from a few enterprising physicians who have set up medical practices on
the Web. In these practices, patients log onto the Internet, type in a
description of their symptoms accompanied by a credit card number and are then
connected to a real doctor who offers a diagnosis as well as a prescription if
warranted. This new service is often touted for its potential to solve the
issue of access for people who are unable to see a physician in her office due
to geographic, economic or time constraints. However, the practice of medicine
is a highly regulated business and this modality of service raises a number of
perplexing questions ranging from licensure requirements to efficacy of care.
Additionally, there are worries that Internet-based clinical service provision
opens the door to increased probability of misrepresentation of health
provider credentials, as well as patient attempts to fake illness in order to
obtain prescription drugs.

Though health information on the web is obviously popular and an important
application, it is not challenged by the many stringent health guidelines and
requirements that confront the other categories of e-health firms.
Specifically, online pharmacies and clinical providers face the same strict
legal and delivery-based barriers that confront traditional health firms.

Barriers to Provision of Online Health Services

The US Department of Health and Human Services recently submitted its
Telemedicine Report to Congress for FY 2001 (Health and Human Services, 2001).
The report, released in May 2001, describes the key issues facing the
telehealth industry. The report states that the some of the issues have been
present over the past several years but are now moving to the forefront with
the widespread adoption of the Internet. The report includes the following
five issues as the biggest challenges facing delivery of health services and
products online:

Lack of Reimbursement-Congress has introduced nine bills to deal with
reimbursement. On December 20, 2000, Congress passed legislation that
eliminated fee splits and telepresenter requirements, expanded the types of
allowable health providers eligible to present patients via video
conferencing to a distant specialist, and increased the geographic rural
area limits for reimbursement. Important to note is the assumption that
online services will mirror traditional delivery of care with such
assumptions that a health provider will be onsite to present a patient to a
consulting provider in real time. In addition, e-health is potentially blind
to geography. With current telehealth legislation, potential consumers
residing anyplace other than designated rural areas will not be eligible for
reimbursement.

Legal Issues-Cross-state licensure is still an issue. In essence, a
health provider or pharmacy must be licensed in every state in which it
serves clients. The paperwork and fees for licensure in multiple states is
not insignificant. However, online providers must also comply with this
strict requirement. The federal government is particularly interested on
illegal online pharmaceutical sales. In FY 2001, the Federal Drug
Administration initiated 40 Internet-related investigations and is
continuing to investigate suspected criminal activity related to Internet
drug sales. Of the 130 currently open Internet-related investigations, 64
are Internet pharmacy cases where the focus is on the possible dispensing of
prescription drugs without a prescription. So far, the FDA has initiated 285
Internet investigations and has made 88 Internet-related arrests.

Safety and Standards-Widely adopted standards and guidelines are
considered vital. Without widely adopted standards and guidelines,
interoperability and interconnection of equipment could pose a problem as
ehealth providers attempt to utilize peripheral medical and data
transmission devices. In addition to technical standards, HHS calls for
clinical protocols and guidelines to ensure an acceptable minimum standard
of care is provided online.

Privacy, security, and confidentiality-The Health Insurance Portability
and Accountability Act (HIPAA) mandates privacy rules that became effective
in April, 2001. While the most publicized aspect of this bill is its
assurance of health insurance portability, it also contains key provisions
designed to guarantee the security and privacy of health information and to
enforce standards for electronically transmitted health information. Because
privacy is a top priority among health consumers, enactment of HIPAA's
privacy standards eventually promised to remove one of the most significant
barriers to e-health activities. However, the current act does not clearly
delineate what is necessary for an online firm to be in formal compliance
with HIPAA guidelines.

Telecommunications Infrastructure-HHS is concerned about the existence
of an adequate spectrum for future e-health applications. In order for
online providers to provide services such as smooth videoconferencing or
telemetry, consumers and providers will require an infrastructure that
offers affordable broadband solutions.

In addition to the legal and
regulatory challenges faced by e-health providers, there are also barriers
related to the delivery of health services. Rice (2001) explains another key
barrier, namely the patient-provider relationship. The communication between a
patient and physician "has a tremendous impact on the quality of health care"
(Harris and Associates, 1997, p.1). Health communication literature in this
field documents that patients believe that their physicians don't listen well
and provide explanations that are confusing. As a result, many patients avoid
seeing their doctors and postpone obtaining medical advice (Harris and
Associates, 1997). Somehow, online providers must manipulate an electronic
medium to address these communication challenges. After all, patients will be
unwilling to receive care through this medium if the communication interaction
is inferior to a less-than-perfect traditional visit.

Another significant challenge can be found in provider ambivalence (Mittman
& Cain, 2001). Currently, the medical culture in the United States is
extremely cautious and conservative. Physician practices have adopted
information technologies at significant rates for routine administrative
functions such as scheduling or electronic claims. Physicians are, however,
simultaneously threatened and fascinated by the Web. They understand the value
of well-informed patients yet also worry about losing control over the
interactions they have with patients (Mittman & Cain, 2001).

During the past five years, online health activity has grown so that it
must be taken seriously. Use of the web for health information has enjoyed the
greatest activity to date, due in large part to its ability to avoid many of
the barriers confronting those wishing to provide actual health services and
products online. Because this unique niche of online providers receives so
little attention in the academic literature, we now turn to a case study of
two such online firms to address the business strategies employed by pure
online health service firms.

Research Question 2: What are the competitive strategies and business
models of e-health companies?

In order to understand more fully how e-health services are evolving, we
conducted case studies of two online firms - one an electronic pharmacy, and
one providing actual online physician consultation services. We chose these
two areas because they are among the most visible e-health services today,
involve some of the thorniest policy issues in the emerging e-health sector,
and represent a more revolutionary approach to e-health than cases where
online services are mainly used to supplement an existing physical business or
clinical practice.

Before providing a brief overview of the cases, we first introduce a basic
framework for understanding the competitive strategy and business models of
e-commerce firms. We then use this framework to structure our presentation of
the cases.

Business Models and Competitive Strategy in Electronic
Commerce

E-commerce firms in many ways are no different from traditional firms in
terms of the basic competitive strategies they employ. The competitive
strategy literature, best represented by the works of Michael Porter (Porter,
1980, 1985) suggests that firms basically follow two generic strategies to
gain a competitive edge in their industries: 1) they either seek to obtain a
leadership position in terms of their costs of doing business, allowing them
to charge equivalent prices to competitors while enjoying larger profits, or
2) they attempt to differentiate themselves from competitors, positioning
their products and services as premium goods that can demand a higher price.
Substrategies within these two areas involve focusing on specific segments of
a market for each versus pursuing a broad mass market in the given industry.

Information technology researchers have extended the basic competitive
strategy approach, by showing how the creative use of information and
telecommunications technologies to link to customers can be used to pursue
these generic competitive strategies. In particular, IT and telecommunications
networks have been used to lower the costs of many value chain activities
(e.g., improving coordination with suppliers, reducing inventory holding
costs), differentiate firms (e.g., offering an 800 number for customers to
call in at no expense), and to extend reach into new markets (e.g., telephone
and online ordering via catalogue) (Porter & Millar, 1985). An interesting
side effect of the use of IT and telecommunications networks is that it helps
firms create "lock-in" in various ways - that is, it enables sellers to raise
the costs their buyers would incur if they attempted to switch to a new
vendor. Higher switching costs arise particularly as buyers make investments
in hardware, software and know-how in order to do business in this way, and
firms exploit the captured transaction histories in network-based exchanges to
provide useful services to customers (Bakos & Treacy, 1986; Johnston &
Vitale, 1988; Steinfield, Chan & Kraut, 2000; Shapiro & Varian, 1999).

Today, as e-commerce continues to develop, these basic competitive
strategies underlie many of the emerging Internet-based businesses.
Transaction cost theory is often used to explain the mechanisms by which
networks help firms achieve competitive advantages (Steinfield, Kraut &
Plummer, 1995). Essentially, Internet firms attempt to compete with
traditional ones by taking advantage of the dramatic cost savings they can
enjoy due to the ability to enter markets without a physical presence
(Steinfield & Whitten, 1999). Buyers take advantage of the lower search
costs afforded by the network, enabling distant suppliers of goods to compete
with local ones. Internet firms can save both on building costs and inventory
holding costs. Additionally, because most transactions are automated, they
hope to obtain a cost advantage through lower labor costs. Internet firms also
seek to differentiate themselves by offering such conveniences as seven-day,
twenty-four hour access, useful product-related information, software agents
that provide comparison shopping information, community-building services such
as online discussions with other customers, online help and after-sales
services, and many other many value-added services (Steinfield & Whitten,
1999). It is important to note that IT in general, and the Internet in
particular, allow firms to generate new sources of revenue from these
value-added services, in addition to the other benefits that the Internet
provides in terms of cost savings and differentiation.

Because of the many novel ways in which Internet-based businesses have
sought to carve out their niche in the marketplace, e-commerce researchers
also have focused on the basic business models through which products and
services are provided and revenues obtained (Rappa, 2001; Timmer, 1998). Rappa
(2001) defines a business model as "the method of doing business by which a
company can sustain itself -- that is, generate revenue. The business model
spells out how a company makes money by specifying where it is positioned in
the value chain." Among the more common e-commerce business models noted by
Rappa are: 1) a variety of forms of electronic brokerage in which Internet
firms match buyers and sellers usually in return for a commission on
transactions, 2) advertiser models where information, goods or services are
offered for free or below cost to end consumers to build traffic, allowing
revenues to be obtained from advertising, 3) infomediary models, where
Internet firms gather data about the consumers who visit their Web site and
use their services and then sell this market data to other firms, 4) merchant
models where firms derive revenue simply from selling products online much as
retailers sell them offline, 5) manufacturer models where producers of goods
bypass their traditional downstream channels and sell directly to end buyers,
6) affiliate models where firms attract visitors and direct them to other
vendors' sites, and then receive commissions from these other vendors, 7)
community models where end users provide content for each other, usually
allowing the host Internet firm to derive advertising revenue from the traffic
that is generated, and finally 8) subscription and utility models, where firms
offer information or services on either on a flat-rate basis (e.g., monthly
subscription for unlimited use) or a metered (pay-per-use) basis,
respectively. Although it is possible to separate out these various approaches
to generating revenue in e-commerce, in reality most Internet firms rely on
various combinations in order to sustain themselves.

Unfortunately, most of these business models have not proven to be
successful for the vast majority of Internet firms (often called digital
pureplays or dot.coms). Over the past several years, the pure Internet model
has given way to hybrid forms of e-commerce, whereby firms combine their
traditional brick and mortar businesses with e-commerce (see Steinfield,
Bouwman & Adelaar, 2001; Steinfield et al., 2001). Steinfield et al.,
(2001) suggest that such "click and mortar" firms obtain competitive
advantages from cost reductions, value-added services and extension into new
markets made possible by exploiting the synergies between their physical and
virtual presence. In addition, and perhaps of critical importance for
e-health, click and mortar firms can rely on their physical presence to help
establish trust and lower consumers' risks for the use of online services.

The Case Studies
Given the above theoretical
background on e-commerce, we can now explore the business models and
competitive strategies found in the two e-health pureplay businesses. For this
study, the researchers employed a case study methodology, which afforded the
researchers the ability to study the phenomenon in-depth and allow
organizational members to describe their world as they see it, rather than how
a researcher has predetermined it to exist (Yin, 1994). Two ehealth service
firms consented to this study, both of which operate in the eHealth arena, but
offer different health care services to their consumers. One company (dubbed
ePharmacy) focuses exclusively on the sale of prescription pharmaceuticals and
over-the-counter health products. Through its online pharmacy, customers can
purchase prescription and OTC drugs, as well as a wide selection of other
healthcare products in a secure manner from their homes or workplaces, 24
hours a day, seven days a week, with a simple point and click on a personal
computer. In contrast, the other online health firm (dubbed eDoctor) is one of
the Internet's dominant sites for real time online medical consultations,
where the majority of consultations result from emergency room and doctor's
office consultations, both domestic and abroad.

The researchers employed two qualitative data collection techniques. First,
in-depth phone interviews were conducted with corporate officers in each firm
(e.g., Chief Financial Officer, Chief Operating Officer, Marketing Director,
etc.) in order to reveal the internal organizational structure and business
trends of the companies, interface issues, marketing strategies, as well as
comparing and contrasting the online health world to the traditional health
care realm. In addition, archival data such as business plans and websites
were analyzed and compared between the companies in order to compare styles,
business structures, and technical issues endemic to each company.

An Online Pharmacy

The first case study involved a company that was primarily in the business
of selling prescription drugs online. This was a pure Internet startup, rather
than an existing pharmacy that added an online channel.

ePharmacy focuses exclusively on the sale of (1) prescription
pharmaceuticals, (2) over-the-counter (OTC) pharmaceuticals, (3) vitamins,
minerals, supplements (VMS) and herbal products and (4) related healthcare
products. The Company has invested over $10 million in state-of-the-art
technology and facilities including fully automated pharmaceutical dispensing
equipment that enables the company to fulfil customer orders rapidly upon
receipt of the order via the Internet. ePharmacy began selling OTC
pharmaceuticals and other healthcare products through its website in May 1999
and began sales of prescription drugs and providing healthcare information in
late October 1999. With respect to prescription pharmaceuticals, the company
had the ability to service over 75 million insured lives as well as the entire
cash-pay market which accounts for over 20% of the prescription market.

ePharmacy's target markets include the estimated $120 billion U.S.
prescription pharmaceutical market, the estimated $22 billion U.S. OTC
pharmaceutical market and the $11 billion U.S. vitamin market. Currently, most
of these products are sold through bricks-and-mortar retail pharmacies and a
smaller percentage, particularly prescription pharmaceuticals for chronic
conditions, are purchased by mail.

The company's long-term goal involves development of a comprehensive
pharmacy services vertical portal-delivering all aspects of pharmacy services
to consumers as well as business constituencies within the healthcare
industry. The online pharmacy allows customers, via the Internet, to receive
comprehensive drug and healthcare information, and correspond privately with
pharmacists.

ePharmacy's genesis began in the middle portion of 1998, with three
co-founders who believed the Internet could offer a new value and dimension to
healthcare. The hiring and operations began in the early part of 1999, and
then focused on creating an infrastructure (business and technical) from which
to begin. At the time of data collection, ePharmacy employed 150 workers in
such departments as marketing, financing, and most importantly, operations.
ePharmacy has the facilities to fill between 20,000 to 21,000 prescriptions
per day, or about ten thousand in a seven and a half-hour shift. In order to
operate at an efficient level, ePharmacy has a fifty-thousand square foot
physical location, which houses the automated dispenser that is connected to
high levels of interfacing and interconnectivity between the automated
dispensing equipment and the rest of the company.

ePharmacy employs the services of United States Postal service, which
disseminates their prescriptions as well as any other items such as OTC's and
related healthcare products. Shipping is free for prescription orders;
however, for all non-prescription items, the cost of shipping is assumed by
the consumer. ePharmacy actually subsidizes a portion of the shipping in order
to ameliorate the process of doing business on the web, as well as sustaining
customer loyalty. Moreover, ePharmacy also provides prescription reminders
through the use of email. For example, if an individual has a prescription for
a chronic drug, and the prescription is for more than a single dispense,
ePharmacy advises the customer when the refill is coming to an end. In effect,
the company is attempting to turn each chronic drug customer into a loyal
customer by providing a service that is not readily available from
traditional, physical pharmacies.

In order to fully receive service from ePharmacy, customers must provide
information such as name, address, and billing information. Payment for all
healthcare items usually involves credit cards, but the company also accepts
check and money orders when applicable. In addition to traditional e-commerce
payment, ePharmacy also accepts third party payers, such insurance companies.
Insurance companies normally cover the cost of the prescription. In that case,
the customers must provide payment information for their co-pay, and also
provide information concerning their insurance company, as well as their
coverage plan. Naturally, the company confirms the insurance coverage and the
authenticity of the prescription. ePharmacy checks the accuracy of the
prescription against the patient's medical history, as well as unearthing and
verifying any possible interactions with other drugs.

ePharmacy's Web site offers a reference desk to potential and current
customers, which is a database of information relating to drug interaction,
vitamin information, and other pharmacy-related information that the customers
can access. Further, in-house publications are also available to consumers.
The company offers this service to the consumers in order to allay any
questions or concerns pertaining to the online, or traditional, pharmaceutical
field. ePharmacy feels this combination of products and information affords
them an edge in terms of competing for consumers. The site becomes a
"one-stop-shop" Web site that offers a vast array of medical and
pharmaceutical information.

All information disseminated and originating from the site is fully
encrypted, and where there are areas on the site where information is
traveling back and forth-it is strictly one-way communication. In addition,
the company utilizes secure Web pages to take all orders and to display
prescription information. No personal information can be accessed by or
released to any third-party, doctor, etc. without consent. All information is
stored in a secure database behind a firewall. Customer accounts are
accessible over the Internet only by entering a user name and password.
Presently, ePharmacy uses Secure Socket Layer (SSL) software, a security
standard supported by common Web browser software, including Microsoft
Internet Explorer (3.0 and higher) and Netscape Navigator (2.0 and higher).
Sensitive information such as passwords, address, and credit card information
is encrypted using 56-bit encryption for transit over the Internet. ePharmacy
argues that encryption makes business transactions over the Internet even more
secure than purchasing by telephone. While select departments at ePharmacy
have access to contact information and aggregate demographic information, only
departments with necessary access can view health and insurance information.
This site has additional security measures in place to prevent the loss,
misuse and alteration of the information under the company's control.

Lessons Learned from ePharmacy

The business model for the online pharmacy is mainly a virtual merchant
model, whereby revenues are derived directly from the sales of prescription
drugs. Their hope was that due to their lower operating costs, they could
offer prescription drugs at prices that were competitive with those of brick
and mortar pharmacies. Hence their dominant competitive strategy was to seek a
cost leadership position in the pharmacy retail sector.

However, the online pharmacy clearly sought to differentiate itself from
brick and mortar-based competitors in a number of ways. Four specific sources
of differentiation discussed in the interviews were:

Convenience. Consumers no longer need to leave home to fill
prescriptions, since they could be ordered online and delivered to them at
home. This was particularly important for homebound consumers.

Anonymity and private transactions: For many buyers of prescription
drugs, the ability to ask sensitive questions in private, rather than in
front of other customers or a pharmacist that they may know outside of the
pharmacy, is an advantage.

Rich information: The ability to complement the provision of drugs with
additional content is a distinct advantage. The online pharmacy provided
detailed information about the drugs, including potential interactions and
side effects.

After-sales service: The online pharmacy offered a number of after-sales
services to prescription drug buyers that would be hard for traditional
pharmacies to replicate. This included allowing customers to email any
questions they had about taking prescription drugs, and sending automatic
reminders when prescriptions should be refilled.

Like many other
e-businesses, the online pharmacy took advantage of the ease with which
complementary products could be sold on their site. These other products added
to the potential sources of revenue.

However, the online pharmacy faced many challenges. The cost of delivery
had to be absorbed or added to every sale, and since quantities of
prescription drugs are usually not large, little efficiency was possible for
home deliveries. In addition, many people obtain prescription drugs only when
they become ill, and need medication right away. For these customers, even
overnight delivery represents an intolerable delay.

Several challenges result directly from the complex structure of the
healthcare industry. The online pharmacy was fighting to be listed as an
approved supplier of prescription drugs by the major health insurance
companies. Without this, customers would not be reimbursed for their
medication expenditures, making it unlikely that they would substitute the
online service for a traditional one recognized by their insurance provider.
And, even if they could be reimbursed for online prescription drug purchases,
the current model requiring customers to pay upfront via credit card is far
less attractive for those with prescription drug coverage who only have to
make small co-payments or do not have to pay at all at their local traditional
pharmacy.

Many of these challenges would not apply to a traditional pharmacy that
provided an integrated e-commerce offering to its customers. Indeed, the
online pharmacy faced stiff competition from click and mortar pharmacies that
offered immediate pick-up of prescription drugs ordered online as well as the
advantages of approved coverage by insurance providers. Indeed, as a
postscript on this interview, by June of 2001, the online pharmacy has ceased
independent operation, and now directed online inquiries for prescription
drugs to an established click and mortar pharmacy.

An Online Physician's Consultation Service

The second case study was an online physician consultation service. Founded
in July 1999 by three emergency room doctors, eDoctor has a proven business
model and the only Internet malpractice insurance policy ever written. A full
60% of the company's demand for consultations comes from abroad. The
substantial traffic to the company's site has been generated without
advertising or registering with a search engine. eDoctor estimates that by
2005, 10% of the 1.1 billion annual emergency room and doctor office
consultations in the United States will be conducted online. eDoctor enjoys a
"first to market" advantage in this rapidly growing field. Specifically, the
company provides one-on-one consultations between physicians and patients. The
doctors who started the company noticed many people were coming into the
emergency room because they had forgotten their prescription somewhere, and to
get the prescription, they would need to see a local doctor. This niche need
is the primary impetus for eDoctor, but other ancillary factors also played a
role in its creation. For example, the founders believed a platform existed
for a Web site that dispenses medical information and services for emergency
room situations. Further, this company would offer this service to executives
or other people traveling abroad who do not have access to their regular
medical outlets, or who have just forgotten a prescription. eDoctor is a
liaison between the patient, local doctors, and medical services.

eDoctor's target market includes American executives traveling abroad,
specifically customers who need medical advice or attention, but cannot locate
or reach their primary care physician. The Web site allows consumers to
contact and communicate with U.S. trained and certified doctors, and when
necessary, these doctors can prescribe medication to the consumer and then
overnight the product to the patient. eDoctor has emergency room physicians
that are on call, 24 hours a day, seven days a week for those customers
requiring immediate attention. Conversely, the company can also set up an
appointment and meet with that physician immediately (non-emergency), or if it
is a specialist they are interested in, the doctors can arrange that
appointment as well.

In order to receive services from the company, patients must log onto the
network with a credit cared, as well as divulge medical information, personal
information and other ancillary items germane to the specific visit. Since
emergency consultations are the major impetus for the company, medical records
are not necessary required for all patients due to the uniqueness of the
situation. However, the standard medical information is required of the
patients (e.g., current medication, past surgeries or ailment, and allergies
to medicine). In addition to medical information, the patient must also
provide information on their primary care physician in order to relay the
information and mediation to the proper outlets, as well as verify the
veracity of information supplied to the company by the patient. When a
non-emergency situation arises, such as a routine appointment with the
company, the patient must provide the primary care information up-front before
visiting the doctor-this reduces any liability indemnity as well as increases
the potential for assistance. Interestingly, if a patient is seeking an
immediate medical consultation from one of the emergency medicine physicians,
he or she will first complete payment for the physician's service through the
secure CyberCash credit card processing system. Then, the patient will
complete the registration form, which includes personal information, past
medical history, and review of systems, as well as some specific questions
relating to the immediate medical concern.

If a patient is seeking an appointment with one of the other physicians in
another specialty, the patient will first go through the secure CyberCash
credit card processing system for a credit card authorization, which will not
result in a charge to the card; it will verify the validity of the credit
card. The patient will then provide preliminary information (personal, past
medical history, and nature of the medical problem or question). Next the
patient will be brought to the eDoctor's Appointment Center, where she will be
able to set up an appointment with the chosen physician. The patient will be
given an appointment ID, which will allow reentry to the site for the actual
consultation with the doctor. When the patient returns for the appointment, he
or she will fill out the review of systems form and then proceed with the
actual consultation. The patient is not charged for the appointment-based
consultation until it has concluded.

All patient information on eDoctor is fully encrypted, which means personal
medical information and online consultation is secured through SSL encryption,
and will not be accessible to anyone other than the company's physician. After
the patient has completed the registration process (either for an immediate
consultation with one of the Emergency Physicians, or when they return to the
company's Web site for an appointment with a non-Emergency physician), she
will be brought to the eDoctor's "Doctor's Office," where the physician, after
briefly reviewing the supplied patient information, will join the patient in a
secure, encrypted, "one-on-one," virtual conference room environment. The
physician will then provide the type of service requested during the
registration for that visit. There is no "pre-set" format for the dialogue
with the physician; the doctor may ask additional questions, depending on the
nature of the medical problem, and will help guide the patient through the
consultation.

If initiation of medical treatment is deemed warranted by the doctor at the
time of consultation, prescription medication can be provided by "pharmacy
call-in" by the physician. If the patient is traveling or away from home, the
eDoctor physician can arrange delivery of U.S.-formulated prescription
medication to almost anywhere in the world. If the patient is seeking an
appointment with one of the non-emergency medicine specialists, and needs to
submit electronic data such as ultrasounds or x-rays, specific instructions
from the physician will be provided at the time of the consultation. At the
conclusion of the online consultation, the company's doctor will provide the
patient with detailed discharge instructions. Patients may print these by
clicking with the mouse on the browser's print button, or else "copy and
paste."

Lessons Learned from eDoctor

This e-health firm relies primarily on a brokerage model, serving as an
intermediary service that connects patients with physicians for secure e-mail
or Internet-based video consultations. Patients can either choose their
preferred physician, if their doctor has registered with the service, or allow
the service to select a physician for them. Physicians are paid by the
e-health service, which retains some portion of the fees paid by patients.

Their primary competitive strategy is a differentiation-focus strategy,
allowing them to offer a premium service mainly directed at a particular
segment of the market, the international business traveler. As a broker, they
must have a strategy to bring both "buyers" (patients) and "sellers" (doctors)
into their business. They promote their services to physicians, and also use
patients to "pull" their preferred doctors into the service. Given their need
to create a critical mass of physicians and patients registered with the
service, this service benefits from their "first mover" advantage, since it is
unlikely that doctors will want to sign up with more than one such
intermediary.

Particularly for international business travelers, their service is
differentiated from the alternative source of medical consultation by their
ability to offer:

English-language physician consultations in countries where English is
not the native language

Access to a US trained physician while traveling abroad, including
secure email to a patient's regular doctor if enrolled in the service

Access to prescriptions for familiar drugs which can be delivered almost
anywhere in the world

Immediate access to a physician when needed.

The physician
consultation service also faces a number of challenges. Like the online
pharmacy, lack of physical presence is a problem when patients need immediate
in-person attention or immediate medication. Even with prescription drug
delivery, the delays may not be tolerable. In addition, as with the previous
case, the reimbursement issues raised by lack of recognition by health
insurance companies makes it difficult for patients to choose in preference to
a traditional in-person physician consultation. Even though many travelers
need to pay in advance of services anyway when obtaining medical treatment
abroad, they still are able to obtain reimbursement from their insurance
companies. This is not necessarily the case for online consultations. Hence
the target market is limited to those who can afford to pay outright for their
healthcare, or receive this as an executive perquisite from their companies.

State licensure requirements are another barrier being addressed by this
firm. In this case, the strategy to have consumers recruit their own
physicians is a smart way to try to pull in doctors already licensed in the
states from which patients seek services.

Other challenges faced by this firm follow from their focus on travelers
and from their reliance on Internet-based communications only. Internet access
may not be available in all locations, or may be so poor that services such as
Web-based video do not work. Moreover, there is little possibility to use many
of the available phone-based remote diagnostic instruments now becoming more
common in telemedicine. Even if Web-based interfaces were developed for these
instruments, it is not clear that travelers would always have them on hand.

Despite these problems, the online physicians service has not yet succumbed
to the dot.com bust afflicting so many other Internet start-ups. Its first
mover advantage, ability to offer some service immediately without the need
for physical delivery, focus on linking patients to their own regular and
trusted physicians where possible, and clear focus on an unmet need of
business travelers are all possible explanations.

Conclusion
Our examination of current e-health
trends, as well as our two case studies, demonstrates the tremendous potential
for health-related commercial activity on the Internet. Accessibility to
health services via the Web adds value in many ways that go beyond simple cost
efficiencies. For example, the ePharmacy firm demonstrated the potential for
more private and personal communication with an online pharmacist. A customer
does not need to yell a personal or embarrassing question to the pharmacist
with ten people in line right behind him. Or, the eDoctor company showed us
the potential value of accessing care in one's native tongue from anywhere in
the world. In addition, the prospect of immediate access to care, 24 hours a
day, seven days a week might prove quite appealing to niche markets such as
travelers. Clearly, there are health service needs not currently being met in
the US health system.

However, our examination of the barriers facing ehealth from the US health
system also pointed out the almost insurmountable challenges. Requiring a
physician or pharmacist to hold a current license in every state in which they
service a client is expensive and time consuming. Perhaps the greatest barrier
is found in how health care is paid for in the United States. Online health
providers cannot currently compete with health care that is paid for by third
party payers. In addition to the uphill battle to persuade insurance companies
to pay for these services, these online health providers are trying to
persuade an American culture used to "having someone else pay the majority of
their health care costs" that they should pay for these health services out of
their own pockets. So, in addition to the legal and regulatory requirements,
online health firms are also trying to shift many cultural norms enshrined in
the US health delivery system.

Recent moves towards integration with traditional businesses or
pre-existing health care providers provide preliminary evidence that the click
and mortar model may perhaps be the optimal strategy for e-health. The best
chance for success in the delivery of online health services may exist through
the combination of a traditional business with a physical site and a
convenient Web presence. The physical location permits easier compliance with
extant legal and regulatory requirements. The Web site enables providers to
tap into additional value-added services that customers may demand as the
health care market grows increasingly competitive. Indeed, we may find that
health care organizations wishing to thrive will be required to provide care
through a new click and mortar paradigm of care.

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About the Authors
Pamela Whitten is Assistant Professor
of Telecommunication at Michigan State University. She was formerly Assistant
Professor in the Department of Family Medicine at the University of Kansas
Medical Center. Her work has appeared in Journal of Telemedicine and
Telecare, Telemedicine Journal, The American Journal of
Hospice & Palliative Care, Journal of Continuing Education in the
Health Professions, Science Communication, and
Geriatrician:Journal of the American Society on Aging.

Address: 409 Communication Arts Building, Michigan State
University, East Lansing, MI 48824-1212.

Charles Steinfield is a
professor in the Department of Telecommunication at Michigan State University.
He has been a visiting professor and researcher at a number of institutions in
the U.S. and in Europe. These include the Institut National des
Telecommunications in France, Delft University of Technology in the
Netherlands, Bellcore, and the Telematica Instituut in the Netherlands. He has
also taught courses for the Helsinki School of Economics and Business
Administration in their annual summer Interactive Telecommunications Programs
and was a summer visiting researcher at the French national telecommunications
research laboratory, CNET. He is a recipient of MSU's Distinguished Faculty
and Teacher-Scholar Award, and was also awarded a nine-month Fulbright
research grant to study information services usage in France

Address: 436 Communication Arts Building, Michigan State
University, East Lansing, MI 48824-1212.

Seth Hellmich is
a graduate student and research assistant in the Department of
Telecommunication at Michigan State University.
Address:
402 Communication Arts Building, Michigan State University, East Lansing, MI
48824-1212.

©Copyright 2001 Journal of Computer-Mediated Communication