To introduce or not? Strategic analysis of hospital operations with telemedicine

Despite its efficiency in reducing the impact of pandemics (e.g., the COVID-19), whether to introduce telemedicine as an additional way to serve chronically ill patients remains controversial for hospitals in many countries. This paper builds a stylized model to investigate a hospital’s telemedicine strategy and the corresponding impacts on its operations regarding outpatient management of chronic diseases. We implement our analysis from three key concerns of the hospital in the presence of a pandemic: the differences in medical consumption and reimbursement between in-person and telemedicine modalities and the effort cost of infection reduction resulting from the pandemic. We find that in the absence of the pandemic, the hospital prefers to introduce telemedicine when the differences in medical consumption and reimbursement are both small. In the presence of the pandemic, we find that the introduction of telemedicine does not always benefit the hospital and that it is better not to introduce telemedicine in some cases since it may exacerbate the negative influence of the pandemic on the hospital’s total costs. Furthermore, we surprisingly find that the hospital may set greater in-person capacity but less telemedicine capacity in response to the outbreak of the pandemic under certain conditions, which contradicts public beliefs. Finally, we show that social welfare can be improved by introducing telemedicine when the effort cost of infection reduction and the difference in reimbursement are both of moderate size. The condition under which social welfare is improved tightens with a greater difference in medical consumption.