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Telemedicine in Australia: Industry trends and business models

John Mitchell, Managing Director, John Mitchell & Associates

The following paper contains excerpts from the study we undertook for the Commonwealth Department of Industry, Science and Tourism (DIST) from September 1997 to February 1998. The study involved a scoping of the telemedicine industry in Australia and the final report was entitled "The telemedicine industry in Australia: from fragmentation to integration".

This paper is also based on our active involvement as telehealth consultants and evaluators for leading hospitals and State Health Departments. Insights into our telemedicine activities are provided on our web site at http://www.jma.com.au

The definition of telemedicine is a complex matter, not least because the term ‘telehealth’ is gaining in popularity as a replacement for ‘telemedicine’. Telemedicine is a term under threat because of the inevitable convergence of technology, so that it will, in future, be difficult to separate telemedicine from other electronic health care activities.

Our DIST research suggests that telemedicine consists of the following components:

• the delivery of health services (including clinical, educational and administrative services)
• at a distance
• through the transfer of information, including audio, video and graphic data
• using telecommunications
• and involving a range of health professionals, patients and other recipients.

The telemedicine industry in Australia is in an embryonic stage, there is a lack of healthy competition and the barriers to the industry’s development are substantial. In comparison, the telemedicine industry in the USA has many mature aspects, such as industry associations, research bodies, journals, healthy competition, private investment and high levels of use in some instances. On the other hand, substantial obstacles still need to be overcome, before the industry takes off in the USA in a dynamic, enduring manner.

There is no set definition of an industry and it is becoming increasingly difficult to define an industry’s boundaries, particularly in any areas that involve fast-changing information and communications technologies. Other factors that are blurring the boundaries of industries include globalisation and deregulation.

An industry can be defined loosely by

• the types of technologies used
• the markets
• or the stakeholders (e.g. customers, vendors, suppliers, users).

Research for the DIST study suggests that most people involved with telemedicine have difficulty seeing the industry as a range of technologies, markets and customers. Many buyers see one slice, such as videoconferencing technology, and no more. Very few people in Australia have a comprehensive view of the telemedicine industry in Australia. For most people, the telemedicine industry consists of the major equipment vendors, a number of integrators and the buyers. This narrow view is problematic where such people are in decision making positions within institutions and are making purchases that will have an impact on the organisation for the next 2-3 years.

One reason for this narrow definition is understandable: videoconferencing has so dominated the health market in Australia, that some people not only see telemedicine as videoconferencing, they see telemedicine as represented by one brand of videoconferencing equipment.

Telemedicine is benefiting from the trend towards the integration of technologies. There are a number of major groupings of telemedicine technologies, many of which are now converging on the desktop:

• telephone, fax, email technologies
• videoconferencing technology
• teleradiology technology
• telepathology technology
• online health information, using the World Wide Web
• medical records available over LANs and WANs.

In the early 1990s, telemedicine technology was predominantly seen as videoconferencing technology. However, videoconferencing is now being challenged for its pre-eminence by:

• the fast take-up of teleradiology equipment in the mid-1990s
• new interest in health information, provided on the Internet
• the recent arrival of call centres as examples of telemedicine.

The narrow definition of telemedicine as, say, ‘videoconferencing’, provides a barrier to development of the industry. It provides no profile for a wide range of software developers, equipment providers, transmission providers and knowledge workers who see themselves as part of the industry but are not readily acknowledged as part of it.

The definition of telemedicine as videoconferencing is also patently wrong, firstly because teleradiology is a pervasive and significant aspect of telemedicine and the technology used in sophisticated teleradiology systems is not videoconferencing.

This narrow definition of ‘telemedicine as videoconferencing’ does not stimulate adequate focus on key issues for developing the industry, such as:

• identification of the major environmental trends that may have an impact on the industry over the next three years
• an examination of the industry’s internal strengths and weaknesses
• an examination of the industry’s external opportunities and threats
• identification of barriers to entering the market
• the needs of various segments of the market
• the availability of core and peripheral equipment
• the quality of systems integration
• an understanding of customer motivations and unmet needs
• the opportunity to offer value-added aspects of products and services
• barriers to customer adoption.

In a healthy, vibrant telemedicine industry, these sorts of issues would have a public focus. The evidence provided through this report suggests that the telemedicine industry in Australia is not debating these sorts of issues in any depth and hence the industry is faltering, not thriving. Appropriate forums, associations and groups are needed in the telemedicine industry, to continually address these fundamental issues.

Discussions with industry representatives for the DIST report revealed that the market is expected to grow considerably in 1998, and in the next few years, due to:

• the increasing popularity of a number of cheaper videoconferencing units, in the price bracket of $10-20,000, leading to the purchase of multiple codecs for the one hospital building or for the development of application-specific networks (e.g. a mental health network in South Australia, managed by the Women’s and Children’s Hospital)
• the wider availability of the new European style of ISDN through local, digital Telstra exchanges is expected to lead to many more ISDN connections to community health centres and small hospitals, in locations where ISDN was not previously available
• ISDN usage is expected to grow in proportion to the number of new videoconferencing units and because of a growing interest in the more expensive 384kbps transmission rate, compared to the lower costs for 128kbps
• desktop videoconferencing, operating over the plain old telephone service (POTS), is expected to become used more frequently for telemedicine to the home
• industry representatives expect the teleradiology market to grow by 50% to $7.5m in 1998.

Telemedicine can be expected to grow even more in coming years, for the following additional reasons:

• the possibility of telemedicine consultations becoming eligible under the Medicare Schedules Benefit, as recommended in Health On Line
• private health practitioners embracing this currently public-dominated arena
• equipment and transmission options becoming economical and more widespread.

Hence, estimates of the growth of the telemedicine industry in Australia, based on consultations for the DIST study, are:

• 1997 $24m
• 1998 $36m
• 1999 $54m.

The full value of telemedicine cannot be gauged by these figures. Telemedicine needs to be seen as part of a new, flexible way to deliver health services. Telemedicine will also become increasingly enmeshed with the integrated application of other information and communication technologies. This integration will also add considerable value to the Australian economy and will change the delivery of health care permanently.

Mainstream videoconferencing-based telemedicine market segments in Australia include teleradiology, teleconsulting (particularly telepsychiatry) and telehealth education. Teleconsulting includes a range of applications: for example, tele-ophthalmology, tele-cardiology, tele-ophthalmology, tele-dermatology, tele-oncology and tele-paediatrics.

Emerging markets in telemedicine in Australia include:

• call centres
• telemedicine to the home
• telemedicine to aged care facilities
• correctional services telemedicine
• Aboriginal telemedicine
• Defence forces telemedicine
• ambulance telemedicine
• emergency, outback telemedicine
• combining digital communications at the GP’s desktop
• telehealth information on the Web
• export of telemedicine services to Asia.

It is estimated that telemedicine-to-the-home is to be the largest single application increasing the market in the USA in the next few years. The low cost of the technology involved and the benefits arising make this an attractive propositions for administrators. A current trial at The Queen Elizabeth Hospital in Adelaide is providing concrete proof of the value of telemedicine to the home.

The availability of desktop videoconferencing systems is likely to drive expansion of the market. However, desktop units are expected to be used in community health care, health information, staff contact and education and training, and not in clinical situations.

Strategic planning is essential for organisations involved in telemedicine, particularly because of the nature of telemedicine, as outlined above. In particular, telemedicine is changing all the time, due to improvements in technology, the development of new applications and the expansion of telecommunication networks. Telemedicine is unavoidably caught up in the massive changes occurring in information and communications technology,

Strategic planning for telemedicine at a Commonwealth and State level involves consideration of issues such as national coordination, remuneration, liability, standards, evaluation, ethics and technological infrastructure. Strategic planning for telemedicine at a regional level involves consideration of issues such as cost benefits, barriers and incentives to adoption, project management and project evaluation.

The vast majority of telemedicine activity in Australia is Government funded and occurs in public hospitals. One of the major challenges for telemedicine projects is to survive beyond the initial phases of Government subsidies. An important way to achieve sustainable development of telemedicine is to establish new projects in a business manner. Features of our recommended business model for Government funded projects include:

• the development of cost benefit analyses of the telemedicine project;
• a critique of the internal strengths and weaknesses of the organisation in relation to telemedicine and of the external opportunities and threats;
• the use of targets and forecasts of usage levels and types of usage, in any one year;
• an appreciation of the market for telemedicine, and segments and trends in the market;
• the development of both objectives and strategies to achieve those objectives.

A number of private hospitals and general practices have installed telemedicine systems in the last few years. Given the necessity to make profits in order to stay in business, the business models for these private operations will need to include all of the above points and in addition a close attention to financial matters such as:

• a break even analysis, to determine the volume of business required in order to break even in terms of profit and loss
• a projection of the level of activity required to achieve a given level of profitability or return on investment

We can learn much from radiology and pathology companies who have used teleradiology and telepathology techniques for a number of years. In fact, teleradiology is the largest single application of telemedicine in Australia, with an estimated 150 sites around the country. Interestingly, many of these companies use telemedicine not just to save time and expenses in transporting films and samples, but to provide a superior service to their clientele. This customer service focus is an indication that the technology of telemedicine has proved itself to be profitable and has become embedded in these companies’ corporate cultures.

In the USA, the move towards managed care has been a stimulus for the development of business models for telemedicine. Technology is being used as part of the mix of intervention strategies to improve health and to encourage wellness. It is no surprise that one of the major companies investigating telemedicine to the home in California is the large health insurance company, Kaiser Permanente.

There has been little discussion about how Australia could develop a strong, local telemedicine industry. Most of the attention in Australia has been on developing a variety of telemedicine applications, and speculating about export opportunities, not on developing a new industry. The cautious approach to exporting telemedicine in Health On Line (1997) contrasts with the urgent tone of the ‘Goldsworthy Report’ (1997) which advocates the development of an ‘Australian Inc’ export culture for information industries through the establishment of an export working group under the auspices of the Information Industries Council.

The DIST study of telemedicine in Australia suggests that some of the major barriers to telemedicine adoption relate to the nature of the industry, including the immaturity of the industry, the limited telecommunications infrastructure, the lack of appropriate dialogue between vendors and buyers about solutions required and the lack of partnerships in the industry. There are, of course, other substantial organisational, financial and attitudinal barriers to telemedicine adoption.

While there is encouragement for a national coordinating organisation in telemedicine, there is little agreement about whether it be focused on technology matters, such as the availability of infrastructure or standards; strategic planning; policy development; promotion; evaluation; marketing; or other issues. It may be unwise to burden any one national organisation involved in telemedicine with too many functions, particularly if there could be conflict within the organisation between commercial and Government agendas.

The telemedicine industry would benefit greatly by being part of a national approach to industry development. Of particular note is the call for Government to provide infrastructure, reduce obstacles, facilitate investment and build wealth through research and development.

The major roles that interviewees want Government to take are leadership, a regulatory approach in terms of ensuring a consistent approach across Government portfolios, providing forums for dialogue and laying off government intellectual property rights to the private sector willing to assume commercialisation risks.

The interviewees for the DIST study accepted that industry needed to provide leadership by nurturing consumer confidence and comfort with new systems and providing self-regulation by developing collaborative relationships with consumers.

Telemedicine is currently a fragmented, immature industry in Australia. If it is to develop and to influence the delivery of health care services in Australia, and to live up to its potential, it will need to be integrated effectively with mainstream health care. To achieve this integration, actions are required by all parties, including Government, businesses and consumers.