Impact of Telehealth and Process Virtualization on Healthcare Utilization

Technological advancements and the COVID-19 pandemic have catapulted process virtualization across many industries, including healthcare, where telehealth has enabled significant digital transformation of care delivery. Although telehealth has been proposed as a potential solution to improve access to care and restrain runaway healthcare costs, it can increase spending if telehealth use leads to new types of resource utilization. Drawing on the lens of process virtualization theory, we study the impact of telehealth on healthcare utilization by examining visit-level patient data of telehealth use in facilitating e-visits with healthcare providers. On average, a telehealth visit reduces the number of future outpatient visits by 13.6% (or 0.15 visits), equal to a reduction of $239 in total cost within 30 days after the visit. Our results suggest that the benefits of telehealth use are observed primarily among diseases with high virtualization potential. Specifically, patients with mental health, skin, metabolic, and musculoskeletal diseases exhibit a significant reduction of 0.21 outpatient visits per quarter (an equivalent cost reduction of $179) when they are treated via telehealth, suggesting a substitution effect with respect to traditional clinic visits. Our research identifies the boundary conditions that determine the nuanced impact of telehealth on care utilization and shows that its effectiveness depends on the process virtualization potential of different diseases. Our findings have several practical and theoretical implications for fostering telehealth use in a value-based healthcare environment, especially for diseases with high virtualization potential where telehealth use should be promoted to bend the cost curve.

History: Rajiv Kohli, Senior Editor; Wenjing (Wendy) Duan, Associate Editor.

Funding: I. R. Bardhan thanks the Foster Parker Centennial Professorship and the Dean’s Research Excellence Grant at the McCombs School of Business for generous financial support.

Supplemental Material: The online appendices are available at https://doi.org/10.1287/isre.2023.1220.