Service Systems with Heterogeneous Customers: Investigating the Effect of Telemedicine on Chronic Care

Abstract

Medical specialists treating chronic conditions typically face a heterogeneous set of patients. Such heterogeneity arises because of differences in medical conditions as well as the travel burden each patient faces to visit the clinic periodically. Given this heterogeneity, we compare the strategic behavior of revenue-maximizing and welfare-maximizing specialists and prove that the former will serve a smaller patient population, spend more time with the patients, and have shorter waiting times. We also analyze the impact of telemedicine technology on patient utility and the specialists’ operating decisions. We consider both the case when specialists can freely set their own fee for service and the case when fees are set exogenously by a third-party payer. We prove that with the introduction of telemedicine, the specialists become more productive and the overall social welfare increases, although some patients, unexpectedly, will be worse off. Our analytical results lead to some important policy implications for facilitating the further deployment of telemedicine in the care of chronically ill patients. This paper was accepted by Serguei Netessine, operations management.