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Doctors Competing Against Each Other: What's Good for Patients May Not Be Good to On-Demand Healthcare Platforms

Thursday, September 23, 2021

Telehealth appointment with doctor

Just as you can get a ride through Uber and book a room through Airbnb, you can use an on-demand service platform to make an appointment with a doctor. The doctor will see you through a computer, tablet or smartphone.

Such remote consultations help extend healthcare resources from cities to rural areas and may also keep patients from making unnecessary visits to hospitals. Companies offering telemedicine through online platforms include Amwell and Doctor On Demand in America and ChunYu Doctor in China.

Doctors may provide service through these healthcare platforms in their spare time, while working full-time at clinics or hospitals — or they may even offer their services primarily through the platform. Most are independent contractors on the platforms, competing against other doctors providing the same type of care.

But while competition among doctors may benefit patients, too much competition may hurt the platform.

"If you allow doctors to compete very fiercely with each other, they will hurt the revenue of the platform because doctors are going to compete on price," says Yixuan Liu, assistant professor in Purdue University's Krannert School of Management. "They are going to lower the price and the platform will not earn enough revenue."

Liu and her collaborators, Xiaofang Wang of Renmin University of China, and Stephen Gilbert and Guoming Lai of McCombs School of Business at The University of Texas at Austin, used a mathematical model to study competition and participation in on-demand healthcare platforms, which have been growing in popularity, particularly during the coronavirus pandemic.

"Our study provides some useful insights for the operations of such types of healthcare platforms," Liu says. "It's an emerging business model, but little has been studied about the strategies of the three parties involved in such platforms."

As they describe in a paper entitled "Pricing, Quality and Competition at On-Demand Healthcare Service Platform," the researchers used their model to derive a distributive equilibrium that could be divided into three regions according to the commission rates set by the platform.

In the region with high commission rates, a small number of doctors participate, not enough to serve all the patients. In this region, when commission rates are decreased, doctor participation and market coverage increase, while service quality and price remain the same.

"Very intuitively, if the platform charges a high commission rate, physicians are not that willing to join the platform," Liu says. "So there will be a smaller number of doctors joining the platform. If there are a very small number of doctors on the platform, they won't compete with each other. There is ample demand for them to serve."

In the region with intermediate commission rates, doctor participation is high enough to serve all the patients, and doctors compete on service quality but not price. In this region, a decrease in commission rates increases doctor participation and service quality, as well as price.

The third region has low commission rates and even more doctors participate, competing on both service and price. A further decrease in commission rates increases doctor participation and service quality, but lowers the price.

"It's very critical for the platform to manage competition among doctors," Liu says. "The platform can use various tools, such as controlling the service price or lowering the commission rate to control the competition. That is the main implication of our study."

Using the equilibrium framework, the researchers also investigated the impact of two types of healthcare platforms: one that controls commission rates only and another that controls both commission rates and service prices. They found that when a platform sets commission rates only, it may attempt to set a higher rate to curb competition. But when it controls both commission rates and service prices, it may lower the commission rate while setting a high service price. This increases doctor participation and service quality, benefiting both doctors and the platform without hurting patients.

The researchers also explored what happens when patients have different needs or when the service quality of doctors varies significantly. They found that the platform is most profitable when patient heterogeneity is either small or large – not in between. They also found that the platform generally makes more profit when doctors are more heterogeneous.

By Melvin Durai