Telemedicine Implementation Plan for AZ Hospital (2021)

Executive Summary

The COVID-19 pandemic has exposed critical infrastructure needs within the overall healthcare system in the United States. Providing relevant healthcare services affordably and conveniently is critical to individuals and to the nation's security interests. Pandemics, although rare, can have a debilitating impact on society. The pandemic has claimed the lives of hundreds of thousands of people and caused millions to lose their livelihoods — losses attributable in large part to inadequacies in healthcare infrastructure.

Furthermore, the cost of accessing healthcare services has shown an increasing trend over the years, and the current pandemic has only accelerated this unsustainable trajectory. Telemedicine is a solution to many of these trends. It is a lower-cost alternative that will eventually reduce the overall cost of healthcare services, and it can be delivered during a pandemic — making it a vital tool during periods of massive social and economic unrest. As lockdowns have forced individuals to remain indoors and observe social distancing, many patients have grown apprehensive about in-person hospital visits. Telemedicine will offer patients an opportunity to access quality healthcare from the comfort of their homes, making it an attractive proposition for consumers.

The current pandemic has revealed significant gaps in the United States healthcare system, creating genuine business opportunities for ventures in this space. Telemedicine has gained particular popularity amid the ongoing pandemic, allowing patients to receive quality, affordable care remotely. In the case of AZ Hospital, this opportunity is especially compelling because the hospital already offers in-patient services and has a well-established, loyal customer base. The implementation process is therefore expected to be relatively seamless, with fewer struggles to attract initial consumers. Telemedicine can diversify both the product offerings and the income stream of the organization, ultimately helping the hospital capture a larger market share and higher profit margins. The hospital's dual offering will allow patients to choose between telemedicine and in-person services, and this flexibility will support steady growth in the customer base.

The hospital will also establish partnerships with other telemedicine service providers who focus exclusively on telehealth and do not offer in-patient services such as X-rays. One obstacle the hospital is likely to face is competition from already well-established telemedicine providers such as Doctor on Demand, created by Dr. Phil and his son Jay McGraw. Strategies have been designed to address this challenge. Another obstacle is the rapid advancement of technology, which makes evaluations vulnerable to obsolescence as key software and hardware components move from state-of-the-art to out of date.

Telemedicine has special characteristics, most notably that it is not a discrete or single technology but rather a large, diverse connection of technologies, clinical practices, and organizational arrangements. Its implementation depends on a complex technical and human infrastructure affected by rapid changes in the technology environment. Realism and persistence are therefore essential for those working to demonstrate the promise of this service.

A systematic and rigorous evaluation will be necessary, as with any new technology. Decision-makers must have sufficient information to compare the effects of telemedicine services against other healthcare strategies across dimensions of cost, access, and quality. They must also fully analyze the implications of the telemedicine infrastructure and the requirements necessary for sustaining the product offering beyond the initial stages. Careful project and evaluation planning is therefore essential.

A forecast of operational and financial results was conducted using current market share data and competitor analysis. The conclusion reached is that the operation is most likely to succeed. Because the hospital already has a well-established and loyal customer base, marketing efforts required to attract initial telemedicine consumers should be limited, translating into stronger profit margins more quickly. A competitive analysis was also conducted to evaluate the degree of competition the hospital would face in this new venture, and a strategy to address that competition was developed.

First, the hospital will use a pricing strategy that captures more customers by operating at lower costs during the initial implementation stages, with prices increasing after a larger consumer base has been established. Second, the hospital's ability to offer both in-patient visits and an online component provides a competitive advantage over organizations offering telemedicine alone, and the seamless transition between online and offline services will reinforce that advantage.

On the financial side, the pricing strategy is designed to lead to higher profit margins over time. The initial strategy will revolve around a low monthly base fee and consultation fees based on the services demanded by the consumer. Although the hospital may experience financial pressure in the early stages due to this pricing model, prices will be adjusted once the product has established a larger and more loyal consumer base.

Project Description

This proposed project aims to develop and implement telemedicine and its related infrastructure throughout AZ Hospital. The project will improve organizational efficiencies while enhancing the overall quality of care, reduce appointment cancellations, increase revenue, and simultaneously minimize healthcare costs. Healthcare is currently undergoing fundamental change. Baby boomers continue to utilize services at an alarming rate, the overall population is aging, and the healthcare infrastructure must adapt to these shifting dynamics. An older baby boomer generation is living longer and utilizing more services than previously anticipated. Currently, 18% of the United States Gross Domestic Product is consumed by healthcare expenditures, meaning that roughly one in every five dollars spent in the United States goes toward healthcare (American Health Care: Spending and the Federal Budget, 2018). The COVID-19 pandemic has further exposed deep inequities in the system related to treatment and quality of care. A large-scale pandemic essentially overwhelmed the healthcare system, causing unnecessary death and inadequate treatment, and has created the need for unprecedented healthcare stimulus across many developed nations (Baron, Hirani & Newman, 2017).

Consequently, significant changes will need to be made in healthcare delivery and quality of service going forward. Infrastructure must be in place to absorb excess patient capacity when a pandemic occurs. Healthcare institutions also need to be ready to mobilize quickly and to expedite vaccine approval and other mitigation methods. The quality of care must aim for preventative measures to keep the public informed about circumstances related to pandemics and to address factors such as obesity and other individual health concerns that amplify disease impacts on society (Browning, 2015).

This project is necessary because telemedicine will provide strong economic benefits for the organization while enhancing service delivery to the consumer. The COVID-19 pandemic identified large structural weaknesses within the healthcare system, as hospitals were overwhelmed and their capacity to care for patients was severely limited. Through telemedicine, the organization can use electronic communications and software to provide clinical services to patients without requiring personal visits. This approach could have been utilized during the COVID-19 pandemic to help prevent the spread of the virus to other patients and healthcare workers. To avoid similar outcomes in the future, institutional changes must be made now.

The telemedicine service will enable healthcare providers to deliver services electronically. Personal visits are not always necessary: follow-up medical visits, medication management, and certain consultations can all be conducted through electronic means. Telemedicine will provide these services in a manner equivalent to in-person visits, using video conferencing to administer care. Evidence supports the necessity of this investment, as pandemics and other health emergencies will inevitably occur again. By leveraging telemedicine now, services can be offered to consumers continuously with little to no disruption.

Healthcare expenditures continue to rise. Currently, 18% of GDP is attributable to healthcare expenditures (American Health Care: Spending and the Federal Budget, 2018). With telemedicine, costs can be reduced significantly since hospitals no longer need the administrative overhead associated with in-person visits, and those cost savings can be passed directly to the consumer.

The global telemedicine market is estimated at roughly $56 billion in 2021, with an anticipated annual growth rate of approximately 22% between 2021 and 2028 — a rise attributed to increased consumer demand and growing telemedicine adoption rates (Telemedicine Market Size Analysis Report, 2021).

The key personnel needed will be technology-focused. The organization will need a Chief Technology Officer who can leverage their expertise to deliver technology and adoption solutions. A legal team will be needed to evaluate the regulatory implications of the implemented telemedicine service and to determine which products and services can be provided. A small marketing team will also be required to promote the value of the service, oversee the design of information materials, manage social media campaigns, and coordinate other promotional channels.

Situation and Industry Analysis

From an economic viewpoint, the admission process and transfer regulations are vital, as organizations continuously look for ways to increase revenues and grow volume across every service line. Inefficiencies in these processes sacrifice the quality of healthcare and reduce the profitability of the enterprise. Lower profitability limits the organization's ability to attract and retain high-quality employees and to invest in innovative technologies that could further improve healthcare quality or accelerate treatment procedures. The current admission and transfer processes at AZ Hospital are fragmented: the West and East side locations follow different algorithms, and the organization cannot accurately track patients moving to other facilities, whether inside or outside the organization. To develop the correct service lines and increase volumes, consistent and well-defined transfer and admission processes are essential (Adams, 2019).

The COVID-19 pandemic has exposed infrastructure gaps in the United States healthcare system. The provision of affordable and convenient healthcare services is critical to individuals and to national security. As history has demonstrated, pandemics cripple operations, cause high levels of death, and force business closures — all with a profound impact on the nation as a whole. Since the onset of the current pandemic, nearly 540,000 people have died while millions have lost their income sources due in part to inadequate healthcare infrastructure.

Healthcare expenditure trends that predated the pandemic show no signs of slowing. Currently, healthcare expenditure accounts for roughly 18% of US GDP, or approximately $3.6 trillion in monetary value. On a per-capita basis, these expenditures are the highest in the world at roughly $11,000 per person. By 2028, healthcare expenditure projections reach roughly $68,000 per person according to Census Bureau data. As a result, healthcare costs account for approximately 16% of total household income — a trajectory that is simply unsustainable.

These trends persist primarily because of demographic shifts. The population is becoming older and living longer, which increases the demand for additional healthcare services over an extended period. Baby boomers have been a critical driver of profitability in the overall healthcare industry: they have significant discretionary income, live longer, and demand healthcare services accordingly. Because they have a finite life span, they tend to be less price-sensitive and are willing to pay premium prices for care. Such demographic trends create a large, wealthy captive audience for the industry.

In 2020, the telemedicine market grew by 23.5% to reach $186 billion (Telemedicine Market Size Analysis Report, 2021). Much of this growth is attributed to the COVID-19 pandemic, which illuminated many weaknesses in the United States healthcare system. During the pandemic, hospitals were forced to operate significantly beyond their capacity, the country lacked sufficient personal protective equipment for healthcare workers, and there were not enough ventilators to meet the needs of critically ill patients. Serious ailments went improperly treated because hospitals were overwhelmed, and the overall cost of healthcare increased as personnel availability declined.

As a result, telemedicine has risen in popularity as a solution to many of these trends. It provides a lower-cost alternative that automatically reduces the cost of healthcare treatment. Additionally, telemedicine can be delivered during a pandemic, making it especially valuable during periods of immense economic and social unrest. The quality of service delivered through telemedicine is equal to, if not better than, routine in-person visits. This saves time for every stakeholder involved and helps reduce absenteeism resulting from appointment cancellations, since individuals can receive services from the comfort of their homes (Greiwe, 2019).

The global lockdown forced people to remain indoors, causing individuals to become apprehensive about in-person hospital visits. The pandemic threat also drove increased telemedicine use, as consumers feared possible virus exposure. The shift to remote and home-based work further increased telemedicine adoption, as consumers became more comfortable using online channels. The result was a large increase in adoption rates and digital proficiency across the industry.

For AZ Hospital specifically, telemedicine can diversify its products and income stream. Offering these products can help the hospital capture a larger share of consumer spending while reducing the overall expenses associated with in-patient appointment cancellations. Telemedicine will allow the company to achieve higher profit margins in the long run while simultaneously improving customer service. Previously, profit margins would have been extremely low because of the heavy investment required in telemedicine infrastructure — including additional servers for data storage, increased security measures to protect customers' personal information, and appointment scheduling software. Soft costs include determining which services the system will provide, training personnel to use it correctly, and managing the limitations of the product offering. These elements require time, financial capital, and human capital for effective deployment. Once the product offering is established and operational, profit margins are expected to increase due to economies of scale and low variable costs. Since variable costs are low, every incremental unit of revenue generated by the service increases profit margins proportionally (Wang et al., 2019).

Telemedicine also offers AZ Hospital a diversified income stream that creates optionality for both the organization and its customers. As the pandemic demonstrated, optionality is of great benefit to companies seeking a larger market share. The ability to offer strong products both online and physically will help the company become more deeply embedded in customers' lives while improving service delivery. Consumers who can choose how they engage are more willing to pay premium prices for those options (Adams, 2019).

Competition in this industry is fierce, in part because of the increasingly low barriers to entry. Any hospital with sufficient human and financial resources can establish a telemedicine product. Pure-play telemedicine companies requiring no physical presence have also emerged. For instance, Doctor on Demand, created by Dr. Phil and his son Jay McGraw, provides seamless online consultations through video conferencing and recently closed a $21 million Series A investment led by Venrock. Additionally, American Well seeks to provide consumers with convenient access to medical care extending beyond urgent care to include chronic care management and post-surgical follow-ups. Many competitors have business models that customers find compelling, and the industry's exponential growth attracts new entrants continuously (Cogan & Vogel, 2017).

AZ Hospital has a unique competitive advantage over these competitors because it combines in-person visits with the online component. Some consumers will still opt for an entirely in-person experience, which many competitors cannot provide. Moreover, AZ Hospital offers a range of services that can only be delivered in person. Competitors operating exclusively online are limited in the services they can offer. By combining both capabilities, the organization can serve a broader range of patient needs while still providing telemedicine to those who prefer it.

Strengths

Weaknesses

Opportunities

Threats

Telemedicine is undergoing exponential growth. Since April 2020, telemedicine utilization has improved from less than 1% to 44%. The industry forecast is that telemedicine will become a standard healthcare service offered across all healthcare systems. According to research conducted by Forrester, a global research firm, virtual healthcare visits in the United States should rise to approximately half a billion within the next decade. As such, patients will increasingly choose healthcare providers based on the quality of their telemedicine offerings. According to the CDC, chronic diseases that can be avoided through preventive healthcare account for about 75% of the nation's healthcare expenditure. With healthcare expenditure currently at approximately $4 trillion, preventive care services account for about $3 trillion annually. By providing more convenient access to follow-up care, telemedicine treatment, and specialists for faster diagnosis, hospitals will reduce readmissions, shorten in-patient stays, prevent complications, and lower the overall cost of treatment (Atkinson & Ezell, 2019).