The Economic Analysis of Online and Offline Healthcare

Abstract

Online healthcare, which is also termed "telemedicine'", means using information and communication technologies to provide healthcare services over a distance. Online healthcare can be a substitute for traditional offline healthcare in treating patients with minor illnesses and a complement in treating major illnesses. Such substitution and complementarity between online and offline healthcare distinguish the online healthcare market from many other online business and services markets, in which the online and offline channels are substitutes only. This thesis provides the first analytical economic study of the effect of online healthcare on offline healthcare and, conversely, the effect of offline healthcare on online healthcare.

Following chapter 1, the introduction, and chapter 2, which provides background information and surveys existing literature on the issue of online healthcare, the remaining chapters each address different research questions and study the issue of online and offline healthcare under different market structures. Chapter 3 answers the following questions. Compared with the scenario where healthcare is provided only in offline divisions, will the introduction of online healthcare drive patients to seek online healthcare in an earlier period and hence help improve patients' welfare? The study of a single hospital in this chapter allows us to incorporate different distinguishing features of online and offline healthcare and study the effect of online healthcare while isolating the strategic interactions between hospitals. The single-hospital model serves as a benchmark for the remaining chapters. Next, chapter 4 studies the effect of competition on hospitals' choices of online and offline qualities and how online and offline qualities interactively affect each other under two regimes. First, offline qualities are exogenously determined; second, offline qualities are endogenously chosen by hospitals. Finally, chapter 5 studies the more general setting with N hospitals.

The thesis shows the following results. In equilibrium, the healthcare system provides extra incentives for patients to use online services and seek treatments in an earlier period, by which online healthcare serves as a ``forward-triage'' referring system sorting patients into different healthcare divisions. In symmetric equilibria, a hospital's offline and online qualities may be negatively or positively correlated; such a result is robust to market structure. Hospitals with symmetric offline qualities may choose an online quality that is negatively affected by the hospitals' offline quality. In this case, there is an online/offline quality trade-off issue in the sense that a healthcare system endowed with higher offline quality will diametrically oppositely provides a lower online quality, compromising the potentially high benefits of online healthcare. The trade-off issue in online/offline quality provision is further intensified under a healthcare system with asymmetric offline qualities: a hospital with higher offline quality always chooses a lower online quality than the other hospital. Under the case of endogenous offline quality, hospitals under duopolistic competition prioritize their investments in offline divisions and choose the best offline quality in equilibrium. In general, competition between hospitals drives hospitals to choose not only a higher offline quality but also a higher online quality. This thesis also presents rich policy implications and empirical implications. Show more