Healthcare IT Supply of Medical Services

Would telehealth increase the price of health care?

Health Affairs December 2018 issue focuses on telehealth.  The general assumption is that telehealth is an unambiguous good.  Getting access to health care providers–particularly those who live in remote areas or have transportation challenges–is certainly a good thing. But could telehealth increase the price of health care?

In this thought exercise, pretend for a moment that health insurance did not exist and health care was bought and sold in a competitive market.  A general assumption is that telehealth increases the value of health care received.  This is likely true, but let us decompose value to patients as the net benefit from a health visit less the cost of the visit.  If telehealth provides the same quality of care as an in-person visit–of which I am skeptical having been on numerous video conferences–then the benefit from the visit to the patient would be the same.  However, the cost of accessing physician time goes down dramatically.  Rather than being stuck in a waiting room, people can do what they need to do around their house until the doctor is ready.  Also, patients don’t have to waste time on transportation.  On net, telehealth increases the demand for healthcare.

In the short-run, assume the supply of physicians are fixed and physicians are largely at capacity at a market clearing price.  If physicians need to purchase expensive telehealth technologies–which may be expensive due to HIPAA regulations rather than any large technology cost, physician would demand a higher price to cover these costs.  A rise in demand for health care and an increased marginal cost to suppliers mean that the market clearing price would rise.  Even if we move to the world with insurance, if copayments do not increase, wait times will rise.

The case that costs increase with telehealth, however, is only relevant in the short-run equilibrium case.  In the long-run, Americans could access health care providers from across the globe.  Thus, supply may not be fixed.  Also, physicians who are below capacity, could fill their time with telehealth options.  Just as Uber is able to better match riders and drivers, telehealth could help physicians who are under capacity to find new clients; thus prices may fall as the market becomes more efficient.

In short, the effect of telehealth on prices depends on: (i) how responsive suppliers (i.e., physicians and other health care providers) are to this changing dynamic, the (ii) the price of telehealth technology and (iii) patients perceived inconvenience cost of going to the physician, (iv) how third party payers (i.e., insurers) interact with the market, and (v) a number of other factors I probably am forgetting to mention.


1 Comment

  1. Interesting thought exercise. It’s easy to envision and agree with some of the conclusions; specifically the likely increase in demand following the lower cost of access enabled by telehealth. However, the fundamental premise expressed in the equation “Value = BenefitOfVisit – CostOfVisit” is misleading, or incomplete.
    Calculating the cost of a visit is relatively easy (fuel, tolls, fares, value of time); putting a number on the benefit is far more complicated. What value amount does one attach to a telehealth session where early diagnosis could make a substantial difference in prognosis and outcome?
    Consider the case where the alternative to an in-person visit is “no-visit” (I am currently working on a project involving health care access in an archipelago nation where the dispersion of the population makes coverage and access/transportation near prohibitive). How does one account for the cost to individuals, and national treasury, resulting from the deteriorating health conditions ensuing the lack of well-timed treatment?
    A more comprehensive view of the economic value of telehealth should also acknowledge its potential for applications in health education, as well as and primary and preventive health care, where HIPAA, expensive technologies, and other cost drivers need not apply. Here it makes sense to adjust the formula to account for the value of disease costs avoided altogether.
    Telehealth could end up facilitating instances of “superfluous” and “casual” demands for care; but in the end it is more likely it will help us rationalize and ultimately lower the cost of healthcare. My optimism is based on trust that data science and intelligent analysis will help us separate good uses of telehealth from bad.

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