Ehealth: Market Potential and Business = Strategies

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JCMC 6 (4) = July=20 2001

Message=20 Board

Collab-U CMC Play E-Commerce Symposium Net Law InfoSpaces Usenet =
NetStudy=20 VEs VOs O-Journ HigherEd Conversation Cyberspace Web Commerce =
Vol. 6 No.=20 1 Vol.=20 6 No. 2 Vol. 6 No.=20 3

Ehealth: Market Potential and Business Strategies

Pamela Whitten, Charles = Steinfield,=20 and Seth Hellmich
Department of Telecommunications
Michigan = State=20 University, USA

Abs= tract=20
Ehea= lth:=20 Market Potential and Business Strategies=20

Current=20 Utilization=20
Medi= cal=20 Equipment and Supplies=20
Health=20 Insurance=20
M= edication=20
Cli= nical=20 Services=20
Bar= riers=20 to Provision of Online Health Services=20
Bus= iness=20 Models and Competitive Strategy in Electronic Commerce =

The=20 Case Studies=20

An=20 Online Pharmacy=20
Les= sons=20 Learned from ePharmacy=20
An=20 Online Physician's Consultation Service=20
Les= sons=20 Learned from eDoctor

C= onclusion=20
R= eferences=20
About = the=20 Authors

Abstract
Due to the economic and social = priorities afforded health services in the United States, research on = new=20 delivery modalities such as the Internet is gaining in popularity. = Claims of=20 the Internet's potential range from a promise to revolutionize the = fundamental=20 way health care is delivered to a tool for empowering patients through = enhanced interaction with providers (Rice, 2001). Even though a great = amount=20 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=20 simply does not face the same constraints that must be addressed by = those=20 actually delivering health care services or tightly regulated = pharmaceutical=20 products. In this paper, we examine e-health by focusing explicitly on = the=20 delivery of health care products and services. Our examination of = e-health=20 activity is guided by two broad research questions. First, we ask what = the=20 potential is for the development of online health care services by = examining=20 its potential in major health care service and product sectors. = Second, based=20 upon case studies of two online health service firms, we seek to = understand=20 the emerging strategies of firms that are attempting to enter the = health care=20 market with an entirely online approach. Our examination of current = e-health=20 trends, as well as our two case studies, demonstrates the tremendous = potential=20 for health-related commercial activity on the Internet. However, our=20 examination of the barriers facing ehealth from the US health system = also=20 pointed out the almost insurmountable challenges. We therefore = conclude that a=20 "click and mortar" model may perhaps be the optimal strategy for = e-health.=20
Ehealth: Market Potential and Business=20 Strategies
Health care in the United States has evolved over = this=20 century from a service accessed by a small percentage of society to = one of the=20 biggest market sectors in our economy. The Healthcare Financing = Administration=20 (1999) reports that the nation's total spending for health care will = increase=20 from $1.0 trillion in 1996 to $2.1 trillion in 2007. This growth = represents an=20 increase in health care costs as a percentage of gross domestic = product (GDP)=20 from 13.6 percent to almost 17 percent. These national trends in = health=20 expenditures are attributed to a boost in underlying demand for = medical=20 services resulting from a recent growth in real per capita income = accompanied=20 by increasing medical inflation. Patterns in health care growth, = however, vary=20 widely across types of services. It is anticipated that hospital = growth will=20 fall well short of the increase in physician and professional services = as the=20 trend from inpatient to outpatient care continues. The fastest growing = segment=20 of health care expenditures is projected to be for drugs due to an = increase in=20 the number of actual prescriptions and changes in the size and mix of=20 medications. This paper addresses the dramatic growth in healthcare=20 expenditures through the examination of a new delivery modality, = namely=20 e-health.=20
Due to the economic and social priorities afforded health services = in the=20 United States, research on new delivery modalities is gaining in = popularity.=20 New communication technologies, such as the Internet, are enjoying = particular=20 attention by health researchers. Claims of the Internet's potential = range from=20 a promise to revolutionize the fundamental way health care is = delivered to a=20 tool for empowering patients through enhanced interaction with = providers=20 (Rice, 2001). Wherever web-based medicine eventually lands, it is = currently=20 generating excitement as a means of providing care for two segments of = the=20 American population.=20
First on the list are citizens who currently have trouble accessing = a wide=20 range of health care services. Despite the abundance of health = providers and=20 companies in this country, people with preventable or manageable = health=20 problems are often those least likely to have access to health = services. Among=20 those with the greatest challenges in accessing care are residents = living in=20 remote areas, facing transportation problems, suffering from physical = or=20 emotional handicaps, or living with lower incomes or poor health = insurance=20 coverage. Recent federal investment and commitment to telehealth, the = use of=20 telecommunication technologies to deliver health services over a = distance,=20 indicates that the federal government views computer-mediated = technologies as=20 a potential solution for some portion of these access challenges. = According to=20 Carolyn Bloch (2001), the Federal Government will spend close to one = billion=20 dollars this year on telemedicine research, grants and other funding.=20
The second audience serving as a driving force behind the = development of=20 Internet-based health care services involves the "21st century health = care=20 consumers." The Institute for the Future describes a such new = consumers as=20 people actively involved in making choices about their health services = (Kyrouz, Holt, Mittman, & Everett, 1998). New consumers are made = unique by=20 the 3 "C"s, namely cash, college, and computers. New consumers' = expectations=20 about how they will obtain online health services are shaped by their=20 experiences with retailers and financial services firms. They will = expect free=20 choice when it comes to doctors and treatments they will receive and = high=20 levels of customer service (Mittman & Cain, 2001).=20
New consumers are behind two factors driving the growth of online = health=20 services, specifically consumer demands and consumer experience with = Internet=20 transactions. Other factors driving online health include = characteristics of=20 the Internet, e.g., inexpensive, ease of use, democratic nature, = distance=20 insensitivity and increasing functionality (Mittman & Cain, 1999). = However, another factor pushing health services online comes from the = very=20 pressures within the health care industry.=20
The health-care industry, which now competes voraciously for every=20 heath-care dollar, is witnessing a convergence of care suppliers, = payer=20 sources, providers, and consumers. With this emerging interdependence = comes=20 the heightened need for ubiquitous access to information and services = that=20 help industry members confront some of the universal challenges, = including=20 pressures to reduce costs, intense competition, the complexities of = managing=20 information as people and companies integrate, and an ongoing need to = gain and=20 retain a competitive advantage through growth and diversification = (Deloitte=20 Research, 1999). As the lines that distinguish the various health = sectors=20 begin to blur, online commercial activity (e-commerce) emerges as a = strategic=20 resource to purchase as well as sell products and services within and = between=20 health providers.=20
However, the development of e-health is currently challenged by a = number of=20 issues that appear to be inhibiting its deployment. Among the greatest = of=20 these barriers are legal and regulatory issues such as privacy, = licensure and=20 reimbursement policies; delivery of care difficulties arising from = limitations=20 of the technology, and the changes in the relational component of=20 provider-patient interactions that can influence patients' trust.=20
Even though a great amount of attention has been given to e-health=20 activity, the preponderance of publications to date has focused on the = Internet as a source of health information. For example, many = researchers are=20 examining the veracity and type of health information available on the = Web=20 (e.g., Berland, 2001; Eysenbach, 1998; Julian, 2001; Pace, 2001). = However=20 important this form of e-health is, this type of service simply does = not face=20 the same constraints that must be addressed by those actually = delivering=20 health care services or tightly regulated pharmaceutical products. In = this=20 paper, we examine e-health by focusing explicitly on the delivery of = health=20 care products and services. Our examination of e-health activity is = guided by=20 two broad research questions. First, we ask what the potential is for = the=20 development of online health care services by examining its potential = in major=20 health care service and product sectors. Second, based upon case = studies of=20 two online health service firms, we seek to understand the emerging = strategies=20 of firms that are attempting to enter the health care market with an = entirely=20 online approach.=20
Research Question 1: What is the potential of online health=20 activity?
In order to understand the current and future role of e-health, it = is=20 important to look briefly at current utilization, delineate the = categories of=20 products/services available commercially online, and identify the = barriers and=20 challenges facing e-health firms.=20
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=20 1997 reported looking for health information or support (FIND/SVP, = 1997). A=20 survey of 2,000 Internet users estimated that more than 24.8 million = people=20 sought online health and medical content in 1998, an increase of 44% = from 1997=20 ("Double Mastectomy," 1999). E-health web sites have enjoyed growth = that has=20 outpaced general Internet use. For example, in 1999, general use of = e-health=20 sites grew 176% to almost 11 million (Media Metrix, 2000). According = to=20 Newsweek, the Web is currently a source of health or medical = information for=20 more than 50 million Americans. Patients and their families do more = actual web=20 surfing than investors, students or people who purchase online = (Watson, 2001).=20 Data from Forrester Research (Yonish, Ranguelova, Shrier, & = Broadben,=20 2001) indicates that women are twice as likely as men to visit health = sites.=20 In addition, Internet users diagnosed with a serious illness in the = past year,=20 whether young or old, visit medical information sites more frequently = than=20 their healthier cohorts. A 1999 study reported in Nature documented = more than=20 15,000 health information Web sites categorized at the prime tier of = both the=20 Yahoo and Netscape directories. Yet, health information on the web is = not=20 limited to simple non-interactive informational sites. For example, = there are=20 many specialized online support groups that offer active mailing = lists. Rice=20 (2001) reported that a search on Liszt.com yielded 278 health-related = mailing=20 lists. In 1995, the last date individual newsgroup readership figures = were=20 provided (Rice, 2001); half of the top 10 Usenet newsgroups were = concerned=20 with health topics.=20
In addition to being a source for health or medical information, = the Web is=20 also a site for health-related commercial activity. With respect to = online=20 health purchasing behavior, of those who go online three times per = week=20 (defined as active Web users), more than 6 percent purchased = nonprescription=20 health products, almost 9 percent purchased prescription medications = and just=20 under 6 percent bought some type of formal healthcare service (Yonish = et al.,=20 2001). To date, an estimated 2.5 million consumers have actually used = a=20 medical practice Web site, but more than 35 million report that they = would=20 like to (Guglielmo, 2001). Physicians are hearing this message. Up to = 37=20 percent of all physicians already have some kind of Web presence and a = quarter=20 of net-connected physicians use e-mail to communicate with patients=20 (Guglielmo, 2001).=20
E-health as a commercial activity can be schematically = conceptualized as=20 four major categories, namely medical equipment and supplies, health=20 insurance, medications and clinical services (Whitten, Steinfeld, = &=20 Hellmich, 2001)=20
Medical Equipment and Supplies
Health commodity items are perhaps the easiest to transition from=20 traditional hard copy catalogs to online publications. Traditionally, = health=20 providers must work through a company sales representative or = distribution=20 middleman in order to purchase medical equipment and supplies for = their=20 clinics or offices. The web offers an opportunity for staff to shop on = the web=20 for everything from hospital beds to bedpans and tongue depressors. = This=20 category refers to all items that are tangible and require physical=20 transportation for delivery.=20
There are two separate sets of potential clients for medical = equipment and=20 supplies. The first are industry members. These would include = hospitals,=20 doctors' offices, outpatient health centers, home health agencies, = nursing=20 homes, and medical laboratories. Any organization that provides direct = or=20 indirect patient services is able to purchase equipment and supplies = necessary=20 to supply that care through these web sites. The second set of clients = for=20 this category is comprised of the care recipients. This would include = the=20 actual patient or a family member or non-professional caretaker of a = patient.=20 There is a host of medical equipment and supplies that are directly = purchased=20 by the actual patient such as special functioning beds, wheelchairs, = canes,=20 glucose monitors and strips, blood pressure monitors, or bulk items = such as=20 wound care dressings and bandages. It appears that the preponderance = of=20 e-commerce sites currently being developed are directed at businesses = rather=20 than individuals, which is logical given current computer = dissemination and=20 utilization trends.=20
Health Insurance
Payers of health services obviously play a pivotal role in the = entire=20 health system. Currently, most health insurance companies are = utilizing the=20 web for informational purposes. However, some companies are utilizing=20 e-commerce in one of two ways. First, following the traditional = independent=20 agent structure of the insurance system, insurance companies use the = Web to=20 enable agents to order policies for their clients electronically. = Second,=20 insurance companies are utilizing the Internet to bypass independent = agents,=20 and sell health insurance policies directly to the end consumer. Some = sites=20 provide consumers with electronic forms to speed up the process of = obtaining=20 health insurance. Other sites go a step further and actually support = the=20 online purchase of health insurance.=20
Medication
Consumers use a wide range of prescription and over-the-counter = medications=20 for prevention and treatment purposes. Medications include anything=20 traditionally provided in the health section of a supermarket or drug = store or=20 products supplied only through a physician's prescription. E-commerce = sites=20 offering medication products are emerging in three distinct forms: [1] = online=20 sales of over-the-counter medications that are delivered directly to = the=20 consumer; [2] ordering of prescription medications on-line that can be = picked=20 up by the consumer or delivered directly to the home or office and; = [3] direct=20 marketing with on-line consultation service for a specific product = available=20 by prescription only.=20
Clinical Services
The Internet serves as an innovative source for the actual = acquisition of=20 medical care and services. The purchasing of medical diagnoses, = treatment=20 recommendations, ongoing care management, or a simple second opinion = from a=20 licensed health provider falls in this category. These services could = be=20 theoretically purchased from a physician, nurse, nurse practitioner, = physician=20 assistant, psychologist, social worker, or = speech/physical/occupational=20 therapists. Currently, the handful of forays into cybermedicine = appears to be=20 coming from a few enterprising physicians who have set up medical = practices on=20 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=20 connected to a real doctor who offers a diagnosis as well as a = prescription if=20 warranted. This new service is often touted for its potential to solve = the=20 issue of access for people who are unable to see a physician in her = office due=20 to geographic, economic or time constraints. However, the practice of = medicine=20 is a highly regulated business and this modality of service raises a = number of=20 perplexing questions ranging from licensure requirements to efficacy = of care.=20 Additionally, there are worries that Internet-based clinical service = provision=20 opens the door to increased probability of misrepresentation of health = provider credentials, as well as patient attempts to fake illness in = order to=20 obtain prescription drugs.=20
Though health information on the web is obviously popular and an = important=20 application, it is not challenged by the many stringent health = guidelines and=20 requirements that confront the other categories of e-health firms.=20 Specifically, online pharmacies and clinical providers face the same = strict=20 legal and delivery-based barriers that confront traditional health = firms.=20
Barriers to Provision of Online Health = Services
The US Department of Health and Human Services recently submitted = its=20 Telemedicine Report to Congress for FY 2001 (Health and Human = Services, 2001).=20 The report, released in May 2001, describes the key issues facing the=20 telehealth industry. The report states that the some of the issues = have been=20 present over the past several years but are now moving to the = forefront with=20 the widespread adoption of the Internet. The report includes the = following=20 five issues as the biggest challenges facing delivery of health = services and=20 products online:=20

Lack of Reimbursement-Congress has introduced nine bills to deal = with=20 reimbursement. On December 20, 2000, Congress passed legislation = that=20 eliminated fee splits and telepresenter requirements, expanded the = types of=20 allowable health providers eligible to present patients via video=20 conferencing to a distant specialist, and increased the geographic = rural=20 area limits for reimbursement. Important to note is the assumption = that=20 online services will mirror traditional delivery of care with such=20 assumptions that a health provider will be onsite to present a = patient to a=20 consulting provider in real time. In addition, e-health is = potentially blind=20 to geography. With current telehealth legislation, potential = consumers=20 residing anyplace other than designated rural areas will not be = eligible for=20 reimbursement.=20
Legal Issues-Cross-state licensure is still an issue. In = essence, a=20 health provider or pharmacy must be licensed in every state in which = it=20 serves clients. The paperwork and fees for licensure in multiple = states is=20 not insignificant. However, online providers must also comply with = this=20 strict requirement. The federal government is particularly = interested on=20 illegal online pharmaceutical sales. In FY 2001, the Federal Drug=20 Administration initiated 40 Internet-related investigations and is=20 continuing to investigate suspected criminal activity related to = Internet=20 drug sales. Of the 130 currently open Internet-related = investigations, 64=20 are Internet pharmacy cases where the focus is on the possible = dispensing of=20 prescription drugs without a prescription. So far, the FDA has = initiated 285=20 Internet investigations and has made 88 Internet-related arrests.=20
Safety and Standards-Widely adopted standards and guidelines are = considered vital. Without widely adopted standards and guidelines,=20 interoperability and interconnection of equipment could pose a = problem as=20 ehealth providers attempt to utilize peripheral medical and data=20 transmission devices. In addition to technical standards, HHS calls = for=20 clinical protocols and guidelines to ensure an acceptable minimum = standard=20 of care is provided online.=20
Privacy, security, and confidentiality-The Health Insurance = Portability=20 and Accountability Act (HIPAA) mandates privacy rules that became = effective=20 in April, 2001. While the most publicized aspect of this bill is its = assurance of health insurance portability, it also contains key = provisions=20 designed to guarantee the security and privacy of health information = and to=20 enforce standards for electronically transmitted health information. = Because=20 privacy is a top priority among health consumers, enactment of = HIPAA's=20 privacy standards eventually promised to remove one of the most = significant=20 barriers to e-health activities. However, the current act does not = clearly=20 delineate what is necessary for an online firm to be in formal = compliance=20 with HIPAA guidelines.=20
Telecommunications Infrastructure-HHS is concerned about the = existence=20 of an adequate spectrum for future e-health applications. In order = for=20 online providers to provide services such as smooth = videoconferencing or=20 telemetry, consumers and providers will require an infrastructure = that=20 offers affordable broadband solutions.
In addition to the = legal and=20 regulatory challenges faced by e-health providers, there are also = barriers=20 related to the delivery of health services. Rice (2001) explains = another key=20 barrier, namely the patient-provider relationship. The communication = between a=20 patient and physician "has a tremendous impact on the quality of = health care"=20 (Harris and Associates, 1997, p.1). Health communication literature in = this=20 field documents that patients believe that their physicians don't = listen well=20 and provide explanations that are confusing. As a result, many = patients avoid=20 seeing their doctors and postpone obtaining medical advice (Harris and = Associates, 1997). Somehow, online providers must manipulate an = electronic=20 medium to address these communication challenges. After all, patients = will be=20 unwilling to receive care through this medium if the communication = interaction=20 is inferior to a less-than-perfect traditional visit.=20
Another significant challenge can be found in provider ambivalence = (Mittman=20 & Cain, 2001). Currently, the medical culture in the United States = is=20 extremely cautious and conservative. Physician practices have adopted=20 information technologies at significant rates for routine = administrative=20 functions such as scheduling or electronic claims. Physicians are, = however,=20 simultaneously threatened and fascinated by the Web. They understand = the value=20 of well-informed patients yet also worry about losing control over the = interactions they have with patients (Mittman & Cain, 2001).=20
During the past five years, online health activity has grown so = that it=20 must be taken seriously. Use of the web for health information has = enjoyed the=20 greatest activity to date, due in large part to its ability to avoid = many of=20 the barriers confronting those wishing to provide actual health = services and=20 products online. Because this unique niche of online providers = receives so=20 little attention in the academic literature, we now turn to a case = study of=20 two such online firms to address the business strategies employed by = pure=20 online health service firms.=20
Research Question 2: What are the competitive strategies and = business=20 models of e-health companies?
In order to understand more fully how e-health services are = evolving, we=20 conducted case studies of two online firms - one an electronic = pharmacy, and=20 one providing actual online physician consultation services. We chose = these=20 two areas because they are among the most visible e-health services = today,=20 involve some of the thorniest policy issues in the emerging e-health = sector,=20 and represent a more revolutionary approach to e-health than cases = where=20 online services are mainly used to supplement an existing physical = business or=20 clinical practice.=20
Before providing a brief overview of the cases, we first introduce = a basic=20 framework for understanding the competitive strategy and business = models of=20 e-commerce firms. We then use this framework to structure our = presentation of=20 the cases.=20
Business Models and Competitive Strategy in = Electronic=20 Commerce
E-commerce firms in many ways are no different from traditional = firms in=20 terms of the basic competitive strategies they employ. The competitive = strategy literature, best represented by the works of Michael Porter = (Porter,=20 1980, 1985) suggests that firms basically follow two generic = strategies to=20 gain a competitive edge in their industries: 1) they either seek to = obtain a=20 leadership position in terms of their costs of doing business, = allowing them=20 to charge equivalent prices to competitors while enjoying larger = profits, or=20 2) they attempt to differentiate themselves from competitors, = positioning=20 their products and services as premium goods that can demand a higher = price.=20 Substrategies within these two areas involve focusing on specific = segments of=20 a market for each versus pursuing a broad mass market in the given = industry.=20
Information technology researchers have extended the basic = competitive=20 strategy approach, by showing how the creative use of information and=20 telecommunications technologies to link to customers can be used to = pursue=20 these generic competitive strategies. In particular, IT and = telecommunications=20 networks have been used to lower the costs of many value chain = activities=20 (e.g., improving coordination with suppliers, reducing inventory = holding=20 costs), differentiate firms (e.g., offering an 800 number for = customers to=20 call in at no expense), and to extend reach into new markets (e.g., = telephone=20 and online ordering via catalogue) (Porter & Millar, 1985). An = interesting=20 side effect of the use of IT and telecommunications networks is that = it helps=20 firms create "lock-in" in various ways - that is, it enables sellers = to raise=20 the costs their buyers would incur if they attempted to switch to a = new=20 vendor. Higher switching costs arise particularly as buyers make = investments=20 in hardware, software and know-how in order to do business in this = way, and=20 firms exploit the captured transaction histories in network-based = exchanges to=20 provide useful services to customers (Bakos & Treacy, 1986; = Johnston &=20 Vitale, 1988; Steinfield, Chan & Kraut, 2000; Shapiro & = Varian, 1999).=20
Today, as e-commerce continues to develop, these basic competitive=20 strategies underlie many of the emerging Internet-based businesses.=20 Transaction cost theory is often used to explain the mechanisms by = which=20 networks help firms achieve competitive advantages (Steinfield, Kraut = &=20 Plummer, 1995). Essentially, Internet firms attempt to compete with=20 traditional ones by taking advantage of the dramatic cost savings they = can=20 enjoy due to the ability to enter markets without a physical presence=20 (Steinfield & Whitten, 1999). Buyers take advantage of the lower = search=20 costs afforded by the network, enabling distant suppliers of goods to = compete=20 with local ones. Internet firms can save both on building costs and = inventory=20 holding costs. Additionally, because most transactions are automated, = they=20 hope to obtain a cost advantage through lower labor costs. Internet = firms also=20 seek to differentiate themselves by offering such conveniences as = seven-day,=20 twenty-four hour access, useful product-related information, software = agents=20 that provide comparison shopping information, community-building = services such=20 as online discussions with other customers, online help and = after-sales=20 services, and many other many value-added services (Steinfield & = Whitten,=20 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=20 value-added services, in addition to the other benefits that the = Internet=20 provides in terms of cost savings and differentiation.=20
Because of the many novel ways in which Internet-based businesses = have=20 sought to carve out their niche in the marketplace, e-commerce = researchers=20 also have focused on the basic business models through which products = and=20 services are provided and revenues obtained (Rappa, 2001; Timmer, = 1998). Rappa=20 (2001) defines a business model as "the method of doing business by = which a=20 company can sustain itself -- that is, generate revenue. The business = model=20 spells out how a company makes money by specifying where it is = positioned in=20 the value chain." Among the more common e-commerce business models = noted by=20 Rappa are: 1) a variety of forms of electronic brokerage in which = Internet=20 firms match buyers and sellers usually in return for a commission on=20 transactions, 2) advertiser models where information, goods or = services are=20 offered for free or below cost to end consumers to build traffic, = allowing=20 revenues to be obtained from advertising, 3) infomediary models, where = Internet firms gather data about the consumers who visit their Web = site and=20 use their services and then sell this market data to other firms, 4) = merchant=20 models where firms derive revenue simply from selling products online = much as=20 retailers sell them offline, 5) manufacturer models where producers of = goods=20 bypass their traditional downstream channels and sell directly to end = buyers,=20 6) affiliate models where firms attract visitors and direct them to = other=20 vendors' sites, and then receive commissions from these other vendors, = 7)=20 community models where end users provide content for each other, = usually=20 allowing the host Internet firm to derive advertising revenue from the = traffic=20 that is generated, and finally 8) subscription and utility models, = where firms=20 offer information or services on either on a flat-rate basis (e.g., = monthly=20 subscription for unlimited use) or a metered (pay-per-use) basis,=20 respectively. Although it is possible to separate out these various = approaches=20 to generating revenue in e-commerce, in reality most Internet firms = rely on=20 various combinations in order to sustain themselves.=20
Unfortunately, most of these business models have not proven to be=20 successful for the vast majority of Internet firms (often called = digital=20 pureplays or dot.coms). Over the past several years, the pure Internet = model=20 has given way to hybrid forms of e-commerce, whereby firms combine = their=20 traditional brick and mortar businesses with e-commerce (see = Steinfield,=20 Bouwman & Adelaar, 2001; Steinfield et al., 2001). Steinfield et = al.,=20 (2001) suggest that such "click and mortar" firms obtain competitive=20 advantages from cost reductions, value-added services and extension = into new=20 markets made possible by exploiting the synergies between their = physical and=20 virtual presence. In addition, and perhaps of critical importance for=20 e-health, click and mortar firms can rely on their physical presence = to help=20 establish trust and lower consumers' risks for the use of online = services.=20

The Case Studies
Given the above = theoretical=20 background on e-commerce, we can now explore the business models and=20 competitive strategies found in the two e-health pureplay businesses. = For this=20 study, the researchers employed a case study methodology, which = afforded the=20 researchers the ability to study the phenomenon in-depth and allow=20 organizational members to describe their world as they see it, rather = than how=20 a researcher has predetermined it to exist (Yin, 1994). Two ehealth = service=20 firms consented to this study, both of which operate in the eHealth = arena, but=20 offer different health care services to their consumers. One company = (dubbed=20 ePharmacy) focuses exclusively on the sale of prescription = pharmaceuticals and=20 over-the-counter health products. Through its online pharmacy, = customers can=20 purchase prescription and OTC drugs, as well as a wide selection of = other=20 healthcare products in a secure manner from their homes or workplaces, = 24=20 hours a day, seven days a week, with a simple point and click on a = personal=20 computer. In contrast, the other online health firm (dubbed eDoctor) = is one of=20 the Internet's dominant sites for real time online medical = consultations,=20 where the majority of consultations result from emergency room and = doctor's=20 office consultations, both domestic and abroad.=20
The researchers employed two qualitative data collection = techniques. First,=20 in-depth phone interviews were conducted with corporate officers in = each firm=20 (e.g., Chief Financial Officer, Chief Operating Officer, Marketing = Director,=20 etc.) in order to reveal the internal organizational structure and = business=20 trends of the companies, interface issues, marketing strategies, as = well as=20 comparing and contrasting the online health world to the traditional = health=20 care realm. In addition, archival data such as business plans and = websites=20 were analyzed and compared between the companies in order to compare = styles,=20 business structures, and technical issues endemic to each company.=20
An Online Pharmacy
The first case study involved a company that was primarily in the = business=20 of selling prescription drugs online. This was a pure Internet = startup, rather=20 than an existing pharmacy that added an online channel.=20
ePharmacy focuses exclusively on the sale of (1) prescription=20 pharmaceuticals, (2) over-the-counter (OTC) pharmaceuticals, (3) = vitamins,=20 minerals, supplements (VMS) and herbal products and (4) related = healthcare=20 products. The Company has invested over $10 million in = state-of-the-art=20 technology and facilities including fully automated pharmaceutical = dispensing=20 equipment that enables the company to fulfil customer orders rapidly = upon=20 receipt of the order via the Internet. ePharmacy began selling OTC=20 pharmaceuticals and other healthcare products through its website in = May 1999=20 and began sales of prescription drugs and providing healthcare = information in=20 late October 1999. With respect to prescription pharmaceuticals, the = company=20 had the ability to service over 75 million insured lives as well as = the entire=20 cash-pay market which accounts for over 20% of the prescription = market.=20
ePharmacy's target markets include the estimated $120 billion U.S.=20 prescription pharmaceutical market, the estimated $22 billion U.S. OTC = pharmaceutical market and the $11 billion U.S. vitamin market. = Currently, most=20 of these products are sold through bricks-and-mortar retail pharmacies = and a=20 smaller percentage, particularly prescription pharmaceuticals for = chronic=20 conditions, are purchased by mail.=20
The company's long-term goal involves development of a = comprehensive=20 pharmacy services vertical portal-delivering all aspects of pharmacy = services=20 to consumers as well as business constituencies within the healthcare=20 industry. The online pharmacy allows customers, via the Internet, to = receive=20 comprehensive drug and healthcare information, and correspond = privately with=20 pharmacists.=20
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=20 healthcare. The hiring and operations began in the early part of 1999, = and=20 then focused on creating an infrastructure (business and technical) = from which=20 to begin. At the time of data collection, ePharmacy employed 150 = workers in=20 such departments as marketing, financing, and most importantly, = operations.=20 ePharmacy has the facilities to fill between 20,000 to 21,000 = prescriptions=20 per day, or about ten thousand in a seven and a half-hour shift. In = order to=20 operate at an efficient level, ePharmacy has a fifty-thousand square = foot=20 physical location, which houses the automated dispenser that is = connected to=20 high levels of interfacing and interconnectivity between the automated = dispensing equipment and the rest of the company.=20
ePharmacy employs the services of United States Postal service, = which=20 disseminates their prescriptions as well as any other items such as = OTC's and=20 related healthcare products. Shipping is free for prescription orders; = however, for all non-prescription items, the cost of shipping is = assumed by=20 the consumer. ePharmacy actually subsidizes a portion of the shipping = in order=20 to ameliorate the process of doing business on the web, as well as = sustaining=20 customer loyalty. Moreover, ePharmacy also provides prescription = reminders=20 through the use of email. For example, if an individual has a = prescription for=20 a chronic drug, and the prescription is for more than a single = dispense,=20 ePharmacy advises the customer when the refill is coming to an end. In = effect,=20 the company is attempting to turn each chronic drug customer into a = loyal=20 customer by providing a service that is not readily available from=20 traditional, physical pharmacies.=20
In order to fully receive service from ePharmacy, customers must = provide=20 information such as name, address, and billing information. Payment = for all=20 healthcare items usually involves credit cards, but the company also = accepts=20 check and money orders when applicable. In addition to traditional = e-commerce=20 payment, ePharmacy also accepts third party payers, such insurance = companies.=20 Insurance companies normally cover the cost of the prescription. In = that case,=20 the customers must provide payment information for their co-pay, and = also=20 provide information concerning their insurance company, as well as = their=20 coverage plan. Naturally, the company confirms the insurance coverage = and the=20 authenticity of the prescription. ePharmacy checks the accuracy of the = prescription against the patient's medical history, as well as = unearthing and=20 verifying any possible interactions with other drugs.=20
ePharmacy's Web site offers a reference desk to potential and = current=20 customers, which is a database of information relating to drug = interaction,=20 vitamin information, and other pharmacy-related information that the = customers=20 can access. Further, in-house publications are also available to = consumers.=20 The company offers this service to the consumers in order to allay any = questions or concerns pertaining to the online, or traditional, = pharmaceutical=20 field. ePharmacy feels this combination of products and information = affords=20 them an edge in terms of competing for consumers. The site becomes a=20 "one-stop-shop" Web site that offers a vast array of medical and=20 pharmaceutical information.=20
All information disseminated and originating from the site is fully = encrypted, and where there are areas on the site where information is=20 traveling back and forth-it is strictly one-way communication. In = addition,=20 the company utilizes secure Web pages to take all orders and to = display=20 prescription information. No personal information can be accessed by = or=20 released to any third-party, doctor, etc. without consent. All = information is=20 stored in a secure database behind a firewall. Customer accounts are=20 accessible over the Internet only by entering a user name and = password.=20 Presently, ePharmacy uses Secure Socket Layer (SSL) software, a = security=20 standard supported by common Web browser software, including Microsoft = Internet Explorer (3.0 and higher) and Netscape Navigator (2.0 and = higher).=20 Sensitive information such as passwords, address, and credit card = information=20 is encrypted using 56-bit encryption for transit over the Internet. = ePharmacy=20 argues that encryption makes business transactions over the Internet = even more=20 secure than purchasing by telephone. While select departments at = ePharmacy=20 have access to contact information and aggregate demographic = information, only=20 departments with necessary access can view health and insurance = information.=20 This site has additional security measures in place to prevent the = loss,=20 misuse and alteration of the information under the company's control.=20
Lessons Learned from ePharmacy
The business model for the online pharmacy is mainly a virtual = merchant=20 model, whereby revenues are derived directly from the sales of = prescription=20 drugs. Their hope was that due to their lower operating costs, they = could=20 offer prescription drugs at prices that were competitive with those of = brick=20 and mortar pharmacies. Hence their dominant competitive strategy was = to seek a=20 cost leadership position in the pharmacy retail sector.=20
However, the online pharmacy clearly sought to differentiate itself = from=20 brick and mortar-based competitors in a number of ways. Four specific = sources=20 of differentiation discussed in the interviews were:=20

Convenience. Consumers no longer need to leave home to fill=20 prescriptions, since they could be ordered online and delivered to = them at=20 home. This was particularly important for homebound consumers.=20
Anonymity and private transactions: For many buyers of = prescription=20 drugs, the ability to ask sensitive questions in private, rather = than in=20 front of other customers or a pharmacist that they may know outside = of the=20 pharmacy, is an advantage.=20
Rich information: The ability to complement the provision of = drugs with=20 additional content is a distinct advantage. The online pharmacy = provided=20 detailed information about the drugs, including potential = interactions and=20 side effects.=20
After-sales service: The online pharmacy offered a number of = after-sales=20 services to prescription drug buyers that would be hard for = traditional=20 pharmacies to replicate. This included allowing customers to email = any=20 questions they had about taking prescription drugs, and sending = automatic=20 reminders when prescriptions should be refilled.
Like many = other=20 e-businesses, the online pharmacy took advantage of the ease with = which=20 complementary products could be sold on their site. These other = products added=20 to the potential sources of revenue.=20
However, the online pharmacy faced many challenges. The cost of = delivery=20 had to be absorbed or added to every sale, and since quantities of=20 prescription drugs are usually not large, little efficiency was = possible for=20 home deliveries. In addition, many people obtain prescription drugs = only when=20 they become ill, and need medication right away. For these customers, = even=20 overnight delivery represents an intolerable delay.=20
Several challenges result directly from the complex structure of = the=20 healthcare industry. The online pharmacy was fighting to be listed as = an=20 approved supplier of prescription drugs by the major health insurance=20 companies. Without this, customers would not be reimbursed for their=20 medication expenditures, making it unlikely that they would substitute = the=20 online service for a traditional one recognized by their insurance = provider.=20 And, even if they could be reimbursed for online prescription drug = purchases,=20 the current model requiring customers to pay upfront via credit card = is far=20 less attractive for those with prescription drug coverage who only = have to=20 make small co-payments or do not have to pay at all at their local = traditional=20 pharmacy.=20
Many of these challenges would not apply to a traditional pharmacy = that=20 provided an integrated e-commerce offering to its customers. Indeed, = the=20 online pharmacy faced stiff competition from click and mortar = pharmacies that=20 offered immediate pick-up of prescription drugs ordered online as well = as the=20 advantages of approved coverage by insurance providers. Indeed, as a=20 postscript on this interview, by June of 2001, the online pharmacy has = ceased=20 independent operation, and now directed online inquiries for = prescription=20 drugs to an established click and mortar pharmacy.=20
An Online Physician's Consultation = Service
The second case study was an online physician consultation service. = Founded=20 in July 1999 by three emergency room doctors, eDoctor has a proven = business=20 model and the only Internet malpractice insurance policy ever written. = A full=20 60% of the company's demand for consultations comes from abroad. The=20 substantial traffic to the company's site has been generated without=20 advertising or registering with a search engine. eDoctor estimates = that by=20 2005, 10% of the 1.1 billion annual emergency room and doctor office=20 consultations in the United States will be conducted online. eDoctor = enjoys a=20 "first to market" advantage in this rapidly growing field. = Specifically, the=20 company provides one-on-one consultations between physicians and = patients. The=20 doctors who started the company noticed many people were coming into = the=20 emergency room because they had forgotten their prescription = somewhere, and to=20 get the prescription, they would need to see a local doctor. This = niche need=20 is the primary impetus for eDoctor, but other ancillary factors also = played a=20 role in its creation. For example, the founders believed a platform = existed=20 for a Web site that dispenses medical information and services for = emergency=20 room situations. Further, this company would offer this service to = executives=20 or other people traveling abroad who do not have access to their = regular=20 medical outlets, or who have just forgotten a prescription. eDoctor is = a=20 liaison between the patient, local doctors, and medical services.=20
eDoctor's target market includes American executives traveling = abroad,=20 specifically customers who need medical advice or attention, but = cannot locate=20 or reach their primary care physician. The Web site allows consumers = to=20 contact and communicate with U.S. trained and certified doctors, and = when=20 necessary, these doctors can prescribe medication to the consumer and = then=20 overnight the product to the patient. eDoctor has emergency room = physicians=20 that are on call, 24 hours a day, seven days a week for those = customers=20 requiring immediate attention. Conversely, the company can also set up = an=20 appointment and meet with that physician immediately (non-emergency), = or if it=20 is a specialist they are interested in, the doctors can arrange that=20 appointment as well.=20
In order to receive services from the company, patients must log = onto the=20 network with a credit cared, as well as divulge medical information, = personal=20 information and other ancillary items germane to the specific visit. = Since=20 emergency consultations are the major impetus for the company, medical = records=20 are not necessary required for all patients due to the uniqueness of = the=20 situation. However, the standard medical information is required of = the=20 patients (e.g., current medication, past surgeries or ailment, and = allergies=20 to medicine). In addition to medical information, the patient must = also=20 provide information on their primary care physician in order to relay = the=20 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=20 visiting the doctor-this reduces any liability indemnity as well as = increases=20 the potential for assistance. Interestingly, if a patient is seeking = an=20 immediate medical consultation from one of the emergency medicine = physicians,=20 he or she will first complete payment for the physician's service = through the=20 secure CyberCash credit card processing system. Then, the patient will = complete the registration form, which includes personal information, = past=20 medical history, and review of systems, as well as some specific = questions=20 relating to the immediate medical concern.=20
If a patient is seeking an appointment with one of the other = physicians in=20 another specialty, the patient will first go through the secure = CyberCash=20 credit card processing system for a credit card authorization, which = will not=20 result in a charge to the card; it will verify the validity of the = credit=20 card. The patient will then provide preliminary information (personal, = past=20 medical history, and nature of the medical problem or question). Next = the=20 patient will be brought to the eDoctor's Appointment Center, where she = will be=20 able to set up an appointment with the chosen physician. The patient = will be=20 given an appointment ID, which will allow reentry to the site for the = actual=20 consultation with the doctor. When the patient returns for the = appointment, he=20 or she will fill out the review of systems form and then proceed with = the=20 actual consultation. The patient is not charged for the = appointment-based=20 consultation until it has concluded.=20
All patient information on eDoctor is fully encrypted, which means = personal=20 medical information and online consultation is secured through SSL = encryption,=20 and will not be accessible to anyone other than the company's = physician. After=20 the patient has completed the registration process (either for an = immediate=20 consultation with one of the Emergency Physicians, or when they return = to the=20 company's Web site for an appointment with a non-Emergency physician), = she=20 will be brought to the eDoctor's "Doctor's Office," where the = physician, after=20 briefly reviewing the supplied patient information, will join the = patient in a=20 secure, encrypted, "one-on-one," virtual conference room environment. = The=20 physician will then provide the type of service requested during the=20 registration for that visit. There is no "pre-set" format for the = dialogue=20 with the physician; the doctor may ask additional questions, depending = on the=20 nature of the medical problem, and will help guide the patient through = the=20 consultation.=20
If initiation of medical treatment is deemed warranted by the = doctor at the=20 time of consultation, prescription medication can be provided by = "pharmacy=20 call-in" by the physician. If the patient is traveling or away from = home, the=20 eDoctor physician can arrange delivery of U.S.-formulated prescription = medication to almost anywhere in the world. If the patient is seeking = an=20 appointment with one of the non-emergency medicine specialists, and = needs to=20 submit electronic data such as ultrasounds or x-rays, specific = instructions=20 from the physician will be provided at the time of the consultation. = At the=20 conclusion of the online consultation, the company's doctor will = provide the=20 patient with detailed discharge instructions. Patients may print these = by=20 clicking with the mouse on the browser's print button, or else "copy = and=20 paste."=20
Lessons Learned from eDoctor
This e-health firm relies primarily on a brokerage model, serving = as an=20 intermediary service that connects patients with physicians for secure = e-mail=20 or Internet-based video consultations. Patients can either choose = their=20 preferred physician, if their doctor has registered with the service, = or allow=20 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.=20
Their primary competitive strategy is a differentiation-focus = strategy,=20 allowing them to offer a premium service mainly directed at a = particular=20 segment of the market, the international business traveler. As a = broker, they=20 must have a strategy to bring both "buyers" (patients) and "sellers" = (doctors)=20 into their business. They promote their services to physicians, and = also use=20 patients to "pull" their preferred doctors into the service. Given = their need=20 to create a critical mass of physicians and patients registered with = the=20 service, this service benefits from their "first mover" advantage, = since it is=20 unlikely that doctors will want to sign up with more than one such=20 intermediary.=20
Particularly for international business travelers, their service is = differentiated from the alternative source of medical consultation by = their=20 ability to offer:=20

English-language physician consultations in countries where = English is=20 not the native language=20
Access to a US trained physician while traveling abroad, = including=20 secure email to a patient's regular doctor if enrolled in the = service=20
Access to prescriptions for familiar drugs which can be = delivered almost=20 anywhere in the world=20
Immediate access to a physician when needed.
The = physician=20 consultation service also faces a number of challenges. Like the = online=20 pharmacy, lack of physical presence is a problem when patients need = immediate=20 in-person attention or immediate medication. Even with prescription = drug=20 delivery, the delays may not be tolerable. In addition, as with the = previous=20 case, the reimbursement issues raised by lack of recognition by health = insurance companies makes it difficult for patients to choose in = preference to=20 a traditional in-person physician consultation. Even though many = travelers=20 need to pay in advance of services anyway when obtaining medical = treatment=20 abroad, they still are able to obtain reimbursement from their = insurance=20 companies. This is not necessarily the case for online consultations. = Hence=20 the target market is limited to those who can afford to pay outright = for their=20 healthcare, or receive this as an executive perquisite from their = companies.=20
State licensure requirements are another barrier being addressed by = this=20 firm. In this case, the strategy to have consumers recruit their own=20 physicians is a smart way to try to pull in doctors already licensed = in the=20 states from which patients seek services.=20
Other challenges faced by this firm follow from their focus on = travelers=20 and from their reliance on Internet-based communications only. = Internet access=20 may not be available in all locations, or may be so poor that services = such as=20 Web-based video do not work. Moreover, there is little possibility to = use many=20 of the available phone-based remote diagnostic instruments now = becoming more=20 common in telemedicine. Even if Web-based interfaces were developed = for these=20 instruments, it is not clear that travelers would always have them on = hand.=20
Despite these problems, the online physicians service has not yet = succumbed=20 to the dot.com bust afflicting so many other Internet start-ups. Its = first=20 mover advantage, ability to offer some service immediately without the = need=20 for physical delivery, focus on linking patients to their own regular = and=20 trusted physicians where possible, and clear focus on an unmet need of = business travelers are all possible explanations.=20

Conclusion
Our examination of = current e-health=20 trends, as well as our two case studies, demonstrates the tremendous = potential=20 for health-related commercial activity on the Internet. Accessibility = to=20 health services via the Web adds value in many ways that go beyond = simple cost=20 efficiencies. For example, the ePharmacy firm demonstrated the = potential for=20 more private and personal communication with an online pharmacist. A = customer=20 does not need to yell a personal or embarrassing question to the = pharmacist=20 with ten people in line right behind him. Or, the eDoctor company = showed us=20 the potential value of accessing care in one's native tongue from = anywhere in=20 the world. In addition, the prospect of immediate access to care, 24 = hours a=20 day, seven days a week might prove quite appealing to niche markets = such as=20 travelers. Clearly, there are health service needs not currently being = met in=20 the US health system.=20
However, our examination of the barriers facing ehealth from the US = health=20 system also pointed out the almost insurmountable challenges. = Requiring a=20 physician or pharmacist to hold a current license in every state in = which they=20 service a client is expensive and time consuming. Perhaps the greatest = barrier=20 is found in how health care is paid for in the United States. Online = health=20 providers cannot currently compete with health care that is paid for = by third=20 party payers. In addition to the uphill battle to persuade insurance = companies=20 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=20 their health care costs" that they should pay for these health = services out of=20 their own pockets. So, in addition to the legal and regulatory = requirements,=20 online health firms are also trying to shift many cultural norms = enshrined in=20 the US health delivery system.=20
Recent moves towards integration with traditional businesses or=20 pre-existing health care providers provide preliminary evidence that = the click=20 and mortar model may perhaps be the optimal strategy for e-health. The = best=20 chance for success in the delivery of online health services may exist = through=20 the combination of a traditional business with a physical site and a=20 convenient Web presence. The physical location permits easier = compliance with=20 extant legal and regulatory requirements. The Web site enables = providers to=20 tap into additional value-added services that customers may demand as = the=20 health care market grows increasingly competitive. Indeed, we may find = that=20 health care organizations wishing to thrive will be required to = provide care=20 through a new click and mortar paradigm of care.=20

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About the Authors
Pamela Whitten is Assistant = Professor=20 of Telecommunication at Michigan State University. She was formerly = Assistant=20 Professor in the Department of Family Medicine at the University of = Kansas=20 Medical Center. Her work has appeared in Journal of Telemedicine = and=20 Telecare, Telemedicine Journal, The American Journal = of=20 Hospice & Palliative Care, Journal of Continuing = Education in the=20 Health Professions, Science Communication, and=20 Geriatrician:Journal of the American Society on Aging.=20
Address: 409 Communication Arts Building, = Michigan State=20 University, East Lansing, MI 48824-1212.=20
Charles Steinfield is = a=20 professor in the Department of Telecommunication at Michigan State = University.=20 He has been a visiting professor and researcher at a number of = institutions in=20 the U.S. and in Europe. These include the Institut National des=20 Telecommunications in France, Delft University of Technology in the=20 Netherlands, Bellcore, and the Telematica Instituut in the = Netherlands. He has=20 also taught courses for the Helsinki School of Economics and Business=20 Administration in their annual summer Interactive Telecommunications = Programs=20 and was a summer visiting researcher at the French national = telecommunications=20 research laboratory, CNET. He is a recipient of MSU's Distinguished = Faculty=20 and Teacher-Scholar Award, and was also awarded a nine-month Fulbright = research grant to study information services usage in France=20
Address: 436 Communication Arts Building, = Michigan State=20 University, East Lansing, MI 48824-1212.=20
Seth = Hellmich is=20 a graduate student and research assistant in the Department of=20 Telecommunication at Michigan State University. =
Address:=20 402 Communication Arts Building, Michigan State University, East = Lansing, MI=20 48824-1212.=20
=A9Copyright 2001 Journal of Computer-Mediated Communication=20

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