How telemedicine can benefit AZ Hospital

COVID- has illustrated the critical infrastructure needs within the overall healthcare system in the United States. The ability to provide relevant healthcare services in an affordable and convenient manner are not only critical to individuals but also to the national security interests of the nation. Pandemics, although rare, can have a debilitating impact on society. As we have seen throughout history, these pandemics can cripple operations, results in high levels of death, and shutter businesses. All of these occurred during the pandemic as nearly 540,000 people have died to date. In addition, millions of individuals lost their jobs, livelihoods and income due to inadequate healthcare infrastructure. In addition, healthcare expenditure trends that were occurring prior to the pandemic show no signs of abating. Currently, healthcare expenditures account for roughly 18% of US GDP or $3.6 Trillion. On a per capita basis, these expenditures are the highest in the world at roughly $11,000 per person. By 2028 healthcare costs are expected to account for 1 out of every 5 dollars of GDP or roughly $18,000 per person. Currently the median household income is roughly $68,000 according to the census bureau. As such, healthcare costs account for roughly 16% of household income. This trajectory is simply unsustainable particular as healthcare trends overall do not seem to be abating. Chart 1 below indicates the rise in healthcare cost since 1962

Chart 1

These healthcare trends to do appear to be abating due primary to the demographics prevailing in the market today. For one, the overall population is becoming much older and living longer. As such they will demand additional healthcare services over a longer duration. Baby boomers have been a critical element to the profitability of the overall healthcare industry. Baby boomers have large amounts of discretionary income, they are also living longer and will therefore demand healthcare services. As they have a lower amount of time to live, they are less price sensitive and are willing to pay premium prices for healthcare services. These trends create significant headwinds of the industry as it has a large, wealth, and captive audience.

Telemedicine is a solution to many of the trends presented above. It helps to provide a lower cost solution that can ultimately bring down costs of healthcare treatment. Telemedicine can also be delivered during a pandemic which makes it particularly useful during periods of massive social and economic unrest. The service quality is similar if not better for many routine checkups or procedures thus saving time and for all stakeholders involved. Finally, telemedicine helps to reduce absenteeism due to cancelations as individuals can utilize services from the comfort of their own home (Alleman, 2002).

The global telemedicine industry is roughly $20B dollars. In 2020 alone the industry has grown over 90% due primarily to the COVID-19 pandemic. Here, shelter in place orders caused individuals to be apprehensive with their overall travel plans to the hospital. In addition, the threat of COVID-19 caused an increase in the use of telemedicine as consumers were fearful, they may have acquired it. Work from homes trends also increased the use of telemedicine as consumers were much more familiar and comfortable using online channels and mediums of exchange. As a result, the entire industry saw a large increase in adoption rates and proficiency within the market. Chart 2 below indicates the overall growth rates within the industry.

Chart 2

As it relates to AZ general hospital specifically, telemedicine can diversity the product offerings and income stream of the organization. This product offering can ultimately help the hospital gain a larger share of wallet with consumers will also reducing overhead expenses related to customer cancellations. Telemedicine will allow the company to earn higher profit margins over the long term while also improving customer service. Initially profit margins will shrink as the company needs to invest heavily in the telemedicine infrastructure. This typically includes additional servers to store data, increased security measures to protect the customers personal information, appointment scheduling software and other hard costs. Soft costs will include aspects such training personnel on how to proper use the system, deciding what services will ultimately be provided by the system, and limitations of the product offering. As a result, many of these elements will take time, human capital, and financial capital to deploy effectively. The company must also have staff available to help alleviate any technical issues that might occur throughout the process. Once the product offering has been established and operational, profit margins should increase due to economies of scale and low variable costs. As variable costs are low, each time the company generates revenue from offering the service, profit margins can increase in direct proportion to the revenue (Aoki, 2003).

As noted above, telemedicine provides the company with a diversified income stream that provides optionality to both the company and its customers. As the pandemic has illustrated, have optionality is a benefit for companies who are looking to take market share. In this instance, the ability to offer a strong product offering both physically and online helps the company to further entrench itself in the lives of customers while also improving service levels. The customer can choose what they want and are therefore willing to pay premium prices for the option of doing so (Abney, 2004).