Given the above theoretical background on e-commerce, we can now explore the business models and competitive strategies found in the two e-health pureplay businesses. For this study, the researchers employed a case study methodology, which afforded the researchers the ability to study the phenomenon in-depth and allow organizational members to describe their world as they see it, rather than how a researcher has predetermined it to exist (Yin, 1994). Two ehealth service firms consented to this study, both of which operate in the eHealth arena, but offer different health care services to their consumers. One company (dubbed ePharmacy) focuses exclusively on the sale of prescription pharmaceuticals and over-the-counter health products. Through its online pharmacy, customers can purchase prescription and OTC drugs, as well as a wide selection of other healthcare products in a secure manner from their homes or workplaces, 24 hours a day, seven days a week, with a simple point and click on a personal computer. In contrast, the other online health firm (dubbed eDoctor) is one of the Internet's dominant sites for real time online medical consultations, where the majority of consultations result from emergency room and doctor's office consultations, both domestic and abroad.
The researchers employed two qualitative data collection techniques. First, in-depth phone interviews were conducted with corporate officers in each firm (e.g., Chief Financial Officer, Chief Operating Officer, Marketing Director, etc.) in order to reveal the internal organizational structure and business trends of the companies, interface issues, marketing strategies, as well as comparing and contrasting the online health world to the traditional health care realm. In addition, archival data such as business plans and websites were analyzed and compared between the companies in order to compare styles, business structures, and technical issues endemic to each company.
An Online Pharmacy
The first case study involved a company that was primarily in the business of selling prescription drugs online. This was a pure Internet startup, rather than an existing pharmacy that added an online channel.
ePharmacy focuses exclusively on the sale of (1) prescription pharmaceuticals, (2) over-the-counter (OTC) pharmaceuticals, (3) vitamins, minerals, supplements (VMS) and herbal products and (4) related healthcare products. The Company has invested over $10 million in state-of-the-art technology and facilities including fully automated pharmaceutical dispensing equipment that enables the company to fulfil customer orders rapidly upon receipt of the order via the Internet. ePharmacy began selling OTC pharmaceuticals and other healthcare products through its website in May 1999 and began sales of prescription drugs and providing healthcare information in late October 1999. With respect to prescription pharmaceuticals, the company had the ability to service over 75 million insured lives as well as the entire cash-pay market which accounts for over 20% of the prescription market.
ePharmacy's target markets include the estimated $120 billion U.S. prescription pharmaceutical market, the estimated $22 billion U.S. OTC pharmaceutical market and the $11 billion U.S. vitamin market. Currently, most of these products are sold through bricks-and-mortar retail pharmacies and a smaller percentage, particularly prescription pharmaceuticals for chronic conditions, are purchased by mail.
The company's long-term goal involves development of a comprehensive pharmacy services vertical portal-delivering all aspects of pharmacy services to consumers as well as business constituencies within the healthcare industry. The online pharmacy allows customers, via the Internet, to receive comprehensive drug and healthcare information, and correspond privately with pharmacists.
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 healthcare. The hiring and operations began in the early part of 1999, and then focused on creating an infrastructure (business and technical) from which to begin. At the time of data collection, ePharmacy employed 150 workers in such departments as marketing, financing, and most importantly, operations. ePharmacy has the facilities to fill between 20,000 to 21,000 prescriptions per day, or about ten thousand in a seven and a half-hour shift. In order to operate at an efficient level, ePharmacy has a fifty-thousand square foot physical location, which houses the automated dispenser that is connected to high levels of interfacing and interconnectivity between the automated dispensing equipment and the rest of the company.
ePharmacy employs the services of United States Postal service, which disseminates their prescriptions as well as any other items such as OTC's and related healthcare products. Shipping is free for prescription orders; however, for all non-prescription items, the cost of shipping is assumed by the consumer. ePharmacy actually subsidizes a portion of the shipping in order to ameliorate the process of doing business on the web, as well as sustaining customer loyalty. Moreover, ePharmacy also provides prescription reminders through the use of email. For example, if an individual has a prescription for a chronic drug, and the prescription is for more than a single dispense, ePharmacy advises the customer when the refill is coming to an end. In effect, the company is attempting to turn each chronic drug customer into a loyal customer by providing a service that is not readily available from traditional, physical pharmacies.
In order to fully receive service from ePharmacy, customers must provide information such as name, address, and billing information. Payment for all healthcare items usually involves credit cards, but the company also accepts check and money orders when applicable. In addition to traditional e-commerce payment, ePharmacy also accepts third party payers, such insurance companies. Insurance companies normally cover the cost of the prescription. In that case, the customers must provide payment information for their co-pay, and also provide information concerning their insurance company, as well as their coverage plan. Naturally, the company confirms the insurance coverage and the authenticity of the prescription. ePharmacy checks the accuracy of the prescription against the patient's medical history, as well as unearthing and verifying any possible interactions with other drugs.
ePharmacy's Web site offers a reference desk to potential and current customers, which is a database of information relating to drug interaction, vitamin information, and other pharmacy-related information that the customers can access. Further, in-house publications are also available to consumers. The company offers this service to the consumers in order to allay any questions or concerns pertaining to the online, or traditional, pharmaceutical field. ePharmacy feels this combination of products and information affords them an edge in terms of competing for consumers. The site becomes a “one-stop-shop” Web site that offers a vast array of medical and pharmaceutical information.
All information disseminated and originating from the site is fully encrypted, and where there are areas on the site where information is traveling back and forth-it is strictly one-way communication. In addition, the company utilizes secure Web pages to take all orders and to display prescription information. No personal information can be accessed by or released to any third-party, doctor, etc. without consent. All information is stored in a secure database behind a firewall. Customer accounts are accessible over the Internet only by entering a user name and password. Presently, ePharmacy uses Secure Socket Layer (SSL) software, a security standard supported by common Web browser software, including Microsoft Internet Explorer (3.0 and higher) and Netscape Navigator (2.0 and higher). Sensitive information such as passwords, address, and credit card information is encrypted using 56-bit encryption for transit over the Internet. ePharmacy argues that encryption makes business transactions over the Internet even more secure than purchasing by telephone. While select departments at ePharmacy have access to contact information and aggregate demographic information, only departments with necessary access can view health and insurance information. This site has additional security measures in place to prevent the loss, misuse and alteration of the information under the company's control.
Lessons Learned from ePharmacy
The business model for the online pharmacy is mainly a virtual merchant model, whereby revenues are derived directly from the sales of prescription drugs. Their hope was that due to their lower operating costs, they could offer prescription drugs at prices that were competitive with those of brick and mortar pharmacies. Hence their dominant competitive strategy was to seek a cost leadership position in the pharmacy retail sector.
However, the online pharmacy clearly sought to differentiate itself from brick and mortar-based competitors in a number of ways. Four specific sources of differentiation discussed in the interviews were:
Convenience. Consumers no longer need to leave home to fill prescriptions, since they could be ordered online and delivered to them at home. This was particularly important for homebound consumers.
Anonymity and private transactions: For many buyers of prescription drugs, the ability to ask sensitive questions in private, rather than in front of other customers or a pharmacist that they may know outside of the pharmacy, is an advantage.
Rich information: The ability to complement the provision of drugs with additional content is a distinct advantage. The online pharmacy provided detailed information about the drugs, including potential interactions and side effects.
After-sales service: The online pharmacy offered a number of after-sales services to prescription drug buyers that would be hard for traditional pharmacies to replicate. This included allowing customers to email any questions they had about taking prescription drugs, and sending automatic reminders when prescriptions should be refilled.
Like many other e-businesses, the online pharmacy took advantage of the ease with which complementary products could be sold on their site. These other products added to the potential sources of revenue.
However, the online pharmacy faced many challenges. The cost of delivery had to be absorbed or added to every sale, and since quantities of prescription drugs are usually not large, little efficiency was possible for home deliveries. In addition, many people obtain prescription drugs only when they become ill, and need medication right away. For these customers, even overnight delivery represents an intolerable delay.
Several challenges result directly from the complex structure of the healthcare industry. The online pharmacy was fighting to be listed as an approved supplier of prescription drugs by the major health insurance companies. Without this, customers would not be reimbursed for their medication expenditures, making it unlikely that they would substitute the online service for a traditional one recognized by their insurance provider. And, even if they could be reimbursed for online prescription drug purchases, the current model requiring customers to pay upfront via credit card is far less attractive for those with prescription drug coverage who only have to make small co-payments or do not have to pay at all at their local traditional pharmacy.
Many of these challenges would not apply to a traditional pharmacy that provided an integrated e-commerce offering to its customers. Indeed, the online pharmacy faced stiff competition from click and mortar pharmacies that offered immediate pick-up of prescription drugs ordered online as well as the advantages of approved coverage by insurance providers. Indeed, as a postscript on this interview, by June of 2001, the online pharmacy has ceased independent operation, and now directed online inquiries for prescription drugs to an established click and mortar pharmacy.
An Online Physician's Consultation Service
The second case study was an online physician consultation service. Founded in July 1999 by three emergency room doctors, eDoctor has a proven business model and the only Internet malpractice insurance policy ever written. A full 60% of the company's demand for consultations comes from abroad. The substantial traffic to the company's site has been generated without advertising or registering with a search engine. eDoctor estimates that by 2005, 10% of the 1.1 billion annual emergency room and doctor office consultations in the United States will be conducted online. eDoctor enjoys a “first to market” advantage in this rapidly growing field. Specifically, the company provides one-on-one consultations between physicians and patients. The doctors who started the company noticed many people were coming into the emergency room because they had forgotten their prescription somewhere, and to get the prescription, they would need to see a local doctor. This niche need is the primary impetus for eDoctor, but other ancillary factors also played a role in its creation. For example, the founders believed a platform existed for a Web site that dispenses medical information and services for emergency room situations. Further, this company would offer this service to executives or other people traveling abroad who do not have access to their regular medical outlets, or who have just forgotten a prescription. eDoctor is a liaison between the patient, local doctors, and medical services.
eDoctor's target market includes American executives traveling abroad, specifically customers who need medical advice or attention, but cannot locate or reach their primary care physician. The Web site allows consumers to contact and communicate with U.S. trained and certified doctors, and when necessary, these doctors can prescribe medication to the consumer and then overnight the product to the patient. eDoctor has emergency room physicians that are on call, 24 hours a day, seven days a week for those customers requiring immediate attention. Conversely, the company can also set up an appointment and meet with that physician immediately (non-emergency), or if it is a specialist they are interested in, the doctors can arrange that appointment as well.
In order to receive services from the company, patients must log onto the network with a credit cared, as well as divulge medical information, personal information and other ancillary items germane to the specific visit. Since emergency consultations are the major impetus for the company, medical records are not necessary required for all patients due to the uniqueness of the situation. However, the standard medical information is required of the patients (e.g., current medication, past surgeries or ailment, and allergies to medicine). In addition to medical information, the patient must also provide information on their primary care physician in order to relay the 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 visiting the doctor-this reduces any liability indemnity as well as increases the potential for assistance. Interestingly, if a patient is seeking an immediate medical consultation from one of the emergency medicine physicians, he or she will first complete payment for the physician's service through the secure CyberCash credit card processing system. Then, the patient will complete the registration form, which includes personal information, past medical history, and review of systems, as well as some specific questions relating to the immediate medical concern.
If a patient is seeking an appointment with one of the other physicians in another specialty, the patient will first go through the secure CyberCash credit card processing system for a credit card authorization, which will not result in a charge to the card; it will verify the validity of the credit card. The patient will then provide preliminary information (personal, past medical history, and nature of the medical problem or question). Next the patient will be brought to the eDoctor's Appointment Center, where she will be able to set up an appointment with the chosen physician. The patient will be given an appointment ID, which will allow reentry to the site for the actual consultation with the doctor. When the patient returns for the appointment, he or she will fill out the review of systems form and then proceed with the actual consultation. The patient is not charged for the appointment-based consultation until it has concluded.
All patient information on eDoctor is fully encrypted, which means personal medical information and online consultation is secured through SSL encryption, and will not be accessible to anyone other than the company's physician. After the patient has completed the registration process (either for an immediate consultation with one of the Emergency Physicians, or when they return to the company's Web site for an appointment with a non-Emergency physician), she will be brought to the eDoctor's “Doctor's Office,” where the physician, after briefly reviewing the supplied patient information, will join the patient in a secure, encrypted, “one-on-one,” virtual conference room environment. The physician will then provide the type of service requested during the registration for that visit. There is no “pre-set” format for the dialogue with the physician; the doctor may ask additional questions, depending on the nature of the medical problem, and will help guide the patient through the consultation.
If initiation of medical treatment is deemed warranted by the doctor at the time of consultation, prescription medication can be provided by “pharmacy call-in” by the physician. If the patient is traveling or away from home, the eDoctor physician can arrange delivery of U.S.-formulated prescription medication to almost anywhere in the world. If the patient is seeking an appointment with one of the non-emergency medicine specialists, and needs to submit electronic data such as ultrasounds or x-rays, specific instructions from the physician will be provided at the time of the consultation. At the conclusion of the online consultation, the company's doctor will provide the patient with detailed discharge instructions. Patients may print these by clicking with the mouse on the browser's print button, or else “copy and paste.”
Lessons Learned from eDoctor
This e-health firm relies primarily on a brokerage model, serving as an intermediary service that connects patients with physicians for secure e-mail or Internet-based video consultations. Patients can either choose their preferred physician, if their doctor has registered with the service, or allow 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.
Their primary competitive strategy is a differentiation-focus strategy, allowing them to offer a premium service mainly directed at a particular segment of the market, the international business traveler. As a broker, they must have a strategy to bring both “buyers” (patients) and “sellers” (doctors) into their business. They promote their services to physicians, and also use patients to “pull” their preferred doctors into the service. Given their need to create a critical mass of physicians and patients registered with the service, this service benefits from their “first mover” advantage, since it is unlikely that doctors will want to sign up with more than one such intermediary.
Particularly for international business travelers, their service is differentiated from the alternative source of medical consultation by their ability to offer:
English-language physician consultations in countries where English is not the native language
Access to a US trained physician while traveling abroad, including secure email to a patient's regular doctor if enrolled in the service
Access to prescriptions for familiar drugs which can be delivered almost anywhere in the world
Immediate access to a physician when needed.
The physician consultation service also faces a number of challenges. Like the online pharmacy, lack of physical presence is a problem when patients need immediate in-person attention or immediate medication. Even with prescription drug delivery, the delays may not be tolerable. In addition, as with the previous case, the reimbursement issues raised by lack of recognition by health insurance companies makes it difficult for patients to choose in preference to a traditional in-person physician consultation. Even though many travelers need to pay in advance of services anyway when obtaining medical treatment abroad, they still are able to obtain reimbursement from their insurance companies. This is not necessarily the case for online consultations. Hence the target market is limited to those who can afford to pay outright for their healthcare, or receive this as an executive perquisite from their companies.
State licensure requirements are another barrier being addressed by this firm. In this case, the strategy to have consumers recruit their own physicians is a smart way to try to pull in doctors already licensed in the states from which patients seek services.
Other challenges faced by this firm follow from their focus on travelers and from their reliance on Internet-based communications only. Internet access may not be available in all locations, or may be so poor that services such as Web-based video do not work. Moreover, there is little possibility to use many of the available phone-based remote diagnostic instruments now becoming more common in telemedicine. Even if Web-based interfaces were developed for these instruments, it is not clear that travelers would always have them on hand.
Despite these problems, the online physicians service has not yet succumbed to the dot.com bust afflicting so many other Internet start-ups. Its first mover advantage, ability to offer some service immediately without the need for physical delivery, focus on linking patients to their own regular and trusted physicians where possible, and clear focus on an unmet need of business travelers are all possible explanations.