Scrip's Strategic Guide to E-healthcare

Scrip's Strategic Guide to E-Healthcare: Global regulatory, legal and economic implications for the pharmaceutical, medical device and health service industries

The arrival of e-commerce is the most far-reaching and dynamic business development in decades. This new publication from Scrip Reports provides an integrated overview of the developing role of information systems and IT in healthcare delivery, and explores the way in which the internet and electronic transactions are changing the way healthcare goods and services are traded on a global basis.

This report is a high-level strategic decision-support resource and reference tool. It supplies in-depth analysis and appraisal of all the major issues to be considered when developing a new business plan for e-healthcare.

Scrip's Strategic Guide to E-Healthcare will provide invaluable advice to senior level executives on major topics, including:

Publication: December 2000 Ref: BS1075E
Pages: 150+
Price: £695/$1,460/¥167,000

ABOUT THE AUTHORS

Panos Kanavos is a lecturer in International Health Policy at the London School of Economics. He has published extensively on the pharmaceutical industry and wider health policy issues. Dr Kanavos has conducted research for several international organisations, including the European Commission, the European Parliament, the Organisation for Economic Co-operation and Development and the World Health Organization.

Jenny Abramson is a graduate of Stanford University, California, USA, where she studied sociology. As the recipient of a Fulbright Scholarship, she spent the academic year 1999�2000 at the London School of Economics carrying out research on innovations in healthcare. Some of that research is incorporated in this manuscript. Ms Abramson is now working with the Boston Consulting Group in the US.

ABOUT THE AUTHORS
CONTENTS
LIST OF TABLES
LIST OF FIGURES
EXECUTIVE SUMMARY
ES.1 Internet access: statistics
ES.2 Effect on different countries
ES.3 The Internet and health goods and services
SCOPE AND METHODOLOGY
LIST OF ABBREVIATIONS

CHAPTER 1 THE INTERNET AND ISSUES FOR BUSINESS AND CONSUMERS
1.1 Introduction: technology and policy frameworks for e-commerce
1.2 Access
1.3 Regulation
1.3.1 Self-regulation versus state-regulation
1.3.2 National versus international regulation
1.4 Encryption
1.5 Privacy protection
1.5.1 Personal data protection law in the European Union
1.5.2 US approach

CHAPTER 2 OVERALL IMPACT OF THE INTERNET: EFFECTS ON THE ECONOMY AND THE HEALTHCARE INDUSTRY
2.1 Introduction
2.2 Growing impact of the Internet
2.3 Areas of business growth for Internet-based healthcare
2.3.1 Effects on consumers
2.3.2 Effects on doctors
2.3.3 Legitimacy and market for online companies
2.3.3.1 Effect of the Internet on drug and medical device prices
2.3.4 Publicly-funded healthcare systems
2.4 Outstanding issues
2.4.1 Regulation
2.4.2 Marketing regulation issues
2.5 Concluding remarks

CHAPTER 3 LEGAL AND REGULATORY ISSUES
3.1 Introduction
3.2 Regulation in context: the European environment
3.2.1 The European Community's E-Commerce Directive
3.2.2 Barriers to e-commerce
3.2.2.1 Regulatory constraints
3.3 Regulation in context: the US perspective
3.3.1 US case studies
3.4 Self-regulation
3.4.1 Objectives of the International Healthcare Coalition
3.4.1.1 The International Healthcare Coalition's Code of Ethics for healthcare on the Internet
3.4.2 Objectives of Health Internet Ethics
3.4.2.1 Health Internet Ethics participants
3.5 Final remarks

CHAPTER 4 TAXATION ISSUES
4.1 Introduction
4.2 E-trade and principles of taxation
4.3 Taxation: US situation
4.4 Update on the European Union perspective
4.4.1 Obligations faced by business
4.4.2 Further developments of a value-added tax system for e-commerce
4.4.3 Proposed taxation changes
4.5 Final remarks

CHAPTER 5 THE INTERNET AND DIRECT-TO-CONSUMER ADVERTISING: CURRENT REGULATORY ISSUES
5.1 Introduction
5.2 Issues
5.3 Current status of regulation of the advertising and promotion of healthcare and medicinal products
5.3.1 International regulation
5.3.2 Regulation in the US
5.3.3 Regulation in the European Union
5.3.3.1 Advertising regulations in the United Kingdom
5.3.3.2 Advertising regulation in Germany
5.3.3.3 Advertising regulation in Italy
5.3.3.4 Advertising regulation in Belgium
5.3.3.5 Advertising regulation in France
5.3.4 Steps to harmonisation
5.3.5 Other issues
5.4 Recent developments in direct-to-consumer advertising in the US
5.4.1 The Food and Drug Administration on direct-to-consumer advertising
5.4.2 Labelling
5.4.3 Supplement
5.4.4 Consumer response
5.4.5 Off-label ruling in the US
5.4.6 Print advertisements
5.4.7 Direct-to-consumer advertising drives US pharmaceutical growth
5.5 Recent developments in direct-to-consumer advertising in the European Union
5.5.1 European firms can publish product information
5.5.2 Directive on E-commerce and the internal market
5.6 Recent developments in direct-to-consumer advertising in New Zealand
5.6.1 Legislation
5.6.1.1 Legal component
5.6.1.2 Voluntary component
5.6.1.3 Case study: direct-to-consumer prescription medicine advertising in New Zealand
5.6.2 The debate
5.6.3 Advertising Code in New Zealand
5.6.4 Regulatory framework
5.7 Recent developments in direct-to-consumer advertising in Australia
5.8 Recent developments in direct-to-consumer advertising in the United Kingdom
5.8.1 Criteria for pre-vetting
5.8.2 The Medicines Control Agency and human rights
5.8.3 Borderline products
5.9 Support for direct-to-consumer prescription medicine advertising from outside the pharmaceutical industry
5.9.1 US Food and Drug Administration (December 1999)
5.9.2 Robyn K Stent (December 1998)
5.9.3 Swedish Analysis (October 1999)
5.9.4 International patient groups (March 1997)
5.9.5 Comments on the doctor/patient relationship
5.10 Final remarks about direct-to-consumer advertising in healthcare

CHAPTER 6 IMPACT AND IMPLICATIONS OF DIRECT-TO-CONSUMER ADVERTISING
6.1 Introduction
6.2 Evidence on direct-to-consumer advertising
6.3 Direct-to-consumer advertising: evidence from the pharmaceutical and medical device sectors
6.3.1 Promotion of Biomatrix's Synvisc directly on television
6.3.2 US advertising campaign for Glaxo Wellcome's Imitrex
6.3.3 Roche's Xenical US campaign
6.3.4 SmithKline Beecham's Avandia direct-to-consumer campaign in the US
6.3.5 UK companies push direct-to-consumer advertisement rules
6.3.6 Novartis Lescol adverts
6.3.7 Pfizer direct-to-consumer advertising campaign for Viagra
6.3.8 US diret-to-consumer advertising campaign for Rezulin
6.3.9 Information on side-effects
6.3.10 Direct-to-consumer advertising in the medical devices industry
6.3.10.1 Zimmer
6.3.10.2 Allergan
6.3.10.3 McGhan
6.3.10.4 Medtronic
6.3.10.5 Heartport
6.4 Opinion of stakeholders
6.4.1 Direct-to-consumer advertising in the United Kingdom
6.4.2 Warning on Internet medicine sales
6.4.3 Report calls for direct-to-consumer advertisements
6.4.4 Debate over the benefits of direct-to-consumer marketing in the US
6.4.5 Contrary surveys on the value of direct-to-consumer advertisements
6.4.6 Television advertisements versus the web
6.4.7 Direct-to-consumer advertisements educate but confuse
6.4.8 Television direct-to-consumer advertising soars in the US
6.4.9 American Medical Association gives qualified support to direct-to-consumer advertising
6.5 Final remarks

CHAPTER 7 TELEMEDICINE: APPLICATIONS AND CLINICAL BENEFITS
7.1 Introduction
7.2 What is telemedicine?
7.3 History of telemedicine
7.4 Applications of telemedicine
7.5 Problems with telemedicine
7.6 Clinical benefits of telemedicine
7.6.1 Emergency hospital and hospital teleconsultation systems
7.6.1.1 Clinical benefit
7.6.2 Emergency general practioner and hospital consultation systems
7.6.3 Elective hospital and hospital teleconsultation systems
7.6.3.1 Clinical benefit
7.6.3.2 Elective general practioner and hospital teleconsultation systems
7.6.3.3 Home care and nursing care
7.7 Discussion and final remarks

CHAPTER 8 TELEMATICS AND TELEMEDICINE AT EU LEVEL
8.1 Introduction
8.2 Developing new tools
8.3 Meeting needs
8.4 Priorities
8.4.1 Users
8.4.2 Research tasks
8.4.2.1 Cluster 1: multimedia medical records
8.4.2.2 Cluster 2: increasing the resources available to the medical professions and improving health service management
8.4.2.3 Cluster 3: telemedicine and new telematic services
8.4.2.4 Cluster 4: information services for citizens and healthcare workers
8.4.2.5 Cluster 5: integrated applications for digital sites
8.4.2.6 Cluster 6: support issues specific to telematics for healthcare
8.4.2.7 Cluster 7: industrial user groups, exploitation of results and standards
8.4.2.8 Tasks
8.5 Future needs for health telematics
8.5.1 Telematics applications in healthcare: informatics and communications
8.5.1.1 Are any new breakthroughs needed in technology development in order to bring down the cost of telemedicine services, or should industry focus more on system integration of existing technologies?
8.5.1.2 Is technology 'push' sufficient to guarantee widespread implementation of telemedicine in Europe?
8.5.1.3 What technologies are needed to ensure encryption, security, confidentiality of patient data and to authenticate medical advice?
8.5.1.4 To what extent are standards, patents and certification an issue in telemedicine technology development?
8.5.1.5 In what areas are standards needed in order to accelerate the global deployment of telemedicine, especially to primary healthcare centres and to individuals? What steps can, or should, be taken to expedite development of global standards?
8.5.2 Medical technology
8.5.2.1 Are any new breakthroughs needed in technology development in order to bring down the cost of telemedicine services, or should industry focus more on system integration of existing technologies?
8.5.2.2 High bandwidth applications and continuing medical education (CME)
8.5.2.3 Is technology 'push' sufficient to guarantee widespread implementation of telemedicine in Europe?
8.5.2.4 What technologies are needed to ensure encryption, security, confidentiality of patient data, and to authenticate medical advice?
8.5.2.5 To what extent are standards, patents and certification an issue in telemedicine technology development?
8.5.2.6 In what areas are standards needed in order to accelerate the global deployment of telemedicine, especially to primary healthcare centres and individuals? What steps can or should be taken to expedite development of global standards?
8.5.3 Market development
8.5.3.1 What are the best examples of successful telemedicine implementation and what lessons can be drawn from such examples?
8.5.3.2 Lessons learnt from the above initiatives
8.5.3.3 Evidence suggests that telemedicine activities are not profitable. Why not? What is needed to make the widespread deployment of telemedicine sustainable? Who should pay for such services?
8.5.3.4 What and where are the best telemedicine opportunities for European industry, taking into account its competitive strengths?
8.5.3.5 Is there a need for market research to identify the best opportunities, and should the European Commission support such research?
8.5.3.6 Are the markets for telemedicine typically characterised by one-off buyers, or are there opportunities for large orders (which would permit economies of scale)?
8.5.4 Legal and policy issues
8.5.4.1 Who bears the liability for telemedicine services delivered anywhere and how can such liability be enforced across national borders?
8.5.4.2 What are the prospects for building telemedicine into national healthcare strategies in Europe?
8.5.4.3 Is a telemedicine law or policy necessary? What issues should such a law or policy cover?
8.5.4.4 Are there any regulatory or trade barriers standing in the way of export opportunities for telemedicine?
8.5.4.5 What specific steps should the European Commission take to enforce technical, medical, legal and ethical standards for telemedicine and/or turn them into law?
8.5.4.6 What is the competence of the European Commission in developing a telemedicine policy that addresses liability, reimbursement and regulatory issues?
8.6 Concluding remarks

CHAPTER 9 TELEMATICS AND TELEMEDICINE IN THE US
9.1 Introduction
9.2 Telemedicine: implications for patient confidentiality and privacy
9.2.1 What is healthcare information?
9.2.2 Electronic misappropriation of health information
9.2.3 Implications of network vulnerabilities for telemedicine systems
9.2.4 Final remarks on patient confidentiality and privacy
9.3 Licensure barriers to inter-State use of telemedicine
9.3.1 State licensure laws
9.3.2 Potential penalties and sanctions
9.3.3 Out-of-state consultation statutes
9.3.4 Telemedicine consultation: is it the practice of medicine?
9.3.5 State regulation of telemedicine
9.4 'Copyrightability' of factual compilations
9.5 Food and Drug Administration regulation of telemedicine devices
9.5.1 Legal basis for FDA regulation of telemedicine
9.5.2 Food and Drug Administration regulation of software
9.5.3 Final remarks on regulatory issues
9.6 Technology adoption and dilemmas for providers
9.7 Medicare telemedicine regulation, rules and administrative legal process
9.7.1 Payment for teleconsultations in rural health professional shortage areas
9.7.2 Practitioners eligible to be consulting and referring practitioners
9.7.3 Conditions of payment
9.7.4 Billing for teleconsultation
9.7.5 Payment policy for telemedicine
9.7.6 What is currently reimbursable?
9.7.7 Several Bills seek to solve Medicare reimbursement issues
9.8 Medicaid and telemedicine
9.8.1 US States where Medicaid reimbursement of services utilising telemedicine is available
9.8.1.1 Arkansas
9.8.1.2 California
9.8.1.3 Georgia
9.8.1.4 Illinois
9.8.1.5 Iowa
9.8.1.6 Kansas
9.8.1.7 Louisiana
9.8.1.8 Montana
9.8.1.9 North Dakota
9.8.1.10 Oklahoma
9.8.1.11 South Dakota
9.8.1.12 Texas
9.8.1.13 Virginia
9.8.1.14 West Virginia

CHAPTER 10 INTERNATIONAL APPLICATIONS OF TELEMEDICINE
10.1 Introduction
10.2 US experience
10.2.1 Telemedicine and planned expansions in the US Department of Medicine
10.3 Tele-consultation reimbursement changes
10.3.1 Current reimbursement policy
10.3.2 Criticisms of reimbursement approach
10.3.3 Reasons for the Healthcare Financing Administration's reluctance to cover teleconsultations
10.3.4 The future
10.4 Recent applications of telemedicine in the US (January-June 2000)
10.4.1 The National Institutes of Health Bioengineering Consortium's meeting on nanotechnology
10.4.2 Specialised help for rural stroke patients
10.4.3 Federal agencies worked with GE Medical Systems on developing digital mammography
10.4.4 Inoveon working on diabetic blindness
10.4.5 US Department of Defense is working to prevent medical errors
10.4.6 Medical record keeping
10.4.7 The National Cancer Institute (NCI) and Centers for Disease Control (CDC) collaboration
10.4.8 Anchorage Applied Science Laboratory
10.4.9 Long-range plans for the National Library of Medicine
10.4.10 Client Profile: Midwest Rural Telemedicine Consortium, US
10.4.11 Telemedicine for US embassies
10.5 Successful telemedicine applications in the European Union
10.5.1 European Health Telematics Observatory (EHTO)
10.5.2 Denmark
10.5.3 Finland
10.5.3.1 LifeChart.com (www.LifeChart.com)
10.5.3.2 ProWellness Ltd (www.ProWellness.com)
10.5.3.3 Virtual Hospital (www.atuline.com)
10.5.3.4 KONSU (www.datawell.fi)
10.5.4 Germany and Russia
10.5.5 Germany, South Africa and Croatia
10.5.6 Greece
10.5.7 Italy
10.5.8 Portugal
10.5.9 Spain
10.5.9.1 Telecare service in a campus environment
10.5.9.2 Radiology
10.5.9.3 Dermatology
10.5.10 Sweden
10.5.11 The United Kingdom
10.6 Successful telemedicine applications in Latin America
10.6.1 Telemedicine in Southern Brazil
10.7 Successful telemedicine applications in other countries
10.7.1 Telemedicine in Taiwan
10.7.2 Telemedicine in Japan
10.7.2.1 Legal issues in Japanese telemedicine
10.7.3 Australia
10.7.4 New Zealand
10.8 Final remarks

CHAPTER 11 PHARMACEUTICALS AND THE INTERNET: KEY CONCEPTS
11.1 Introduction
11.2 E-commerce: impact on research and development and business processes
11.2.1 E-procurement
11.2.2 Communication
11.3 E-commerce: impact on marketing
11.4 E-commerce strategies and projects
11.5 E-commerce: impact on distribution
11.6 Clinical governance: how large will be the effects of e-commerce?
11.6.1 What is good governance?
11.6.2 The challenge of remaining informed
11.6.3 Emerging pressures
11.7 The Internet: building new health communities
11.8 Conclusions

CHAPTER 12 REGULATORY DEVELOPMENTS IN THE TRADING OF HEALTHCARE GOODS ON THE INTERNET
12.1 Introduction
12.2 Legal restrictions on the promotion of pharmaceutical products and services on the Internet
12.3 Regulation of content by administrative agencies in the US
12.3.1 Food and Drug Administration regulations
12.3.2 Federal Trade Commission regulations
12.3.3 Other restrictions and concerns regarding the content of home pages
12.3.3.1 Copyright laws
12.3.3.2 False advertising and defamation
12.3.4 Other legal concerns regarding the content of Internet home pages
12.3.4.1 Product liability
12.3.4.2 Name of the domain site
12.3.5 Final remarks
12.4 Regulation of content by administrative agencies in the EU
12.4.1 Advertising (Directive 92/28)
12.4.2 Distance delivery (Directive 97/7)
12.4.3 Requirement for a marketing authorisation (Directive 65/65)
12.4.4 Classification (legal status) Directive 92/26
12.4.5 Labelling (Directive 92/27)
12.4.6 Telesales and tele-advertising (Directives 89/552 and 97/36)
12.4.7 Wholesaling (Directive 92/25)
12.4.8 National provisions
12.4.8.1 Pharmacists' monopoly
12.4.9 Recent advances in regulatory practices
12.4.9.1 E-Commerce Directive approved
12.4.9.2 Standardisation of e-submissions
12.4.9.3 Commission seeks views on implications of e-pharma

CHAPTER 13 HEALTHCARE PRODUCTS AND THE INTERNET: IMPACT ON KEY STAKEHOLDERS
13.1 Introduction
13.2 Patients
13.2.1 Specific examples of e-commerce opportunities
13.2.1.1 Long-term treatments
13.2.1.2 Chronic diseases or repeat treatments
13.2.1.3 Elderly, handicapped and disabled patients
13.2.1.4 Remote rural areas
13.2.1.5 Working households
13.2.1.6 Computer-centred purchasers
13.2.1.7 Low-income patients
13.2.2 Potential benefits for patients travelling across national borders
13.2.2.1 Who would order abroad?
13.3 Doctors
13.3.1 Direct-to-consumer advertising
13.3.2 Internet crime
13.4 Pharmacists
13.4.1 Pharmacy practice in the US
13.5 Wholesalers and distributors
13.5.1 Pitfalls of ordering on the internet
13.6 Pharmaceutical companies
13.6.1 Trademarks
13.6.2 Electronic research and development
13.7 Case histories
13.7.1 Case 1: IMS Health and TriZetto
13.7.2 Case 2: Walgreens
13.7.3 Case 3: Merck-Medco
13.7.3.1 History of the company
13.7.3.2 PAID Prescriptions LLC
13.7.3.3 Merck-Medco Rx Services
13.7.3.4 Summary
13.7.4 Case 4: US distributors to form e-exchange
13.7.5 Case 5: Eli Lilly
13.7.6 Case 6: Indiemed.com
13.8 Final remarks

CHAPTER 14 CONCLUSIONS
14.1 Internet: an issue of supply and demand
14.2 How is the healthcare market affected?
14.3 What is happening in practice?
14.4 Final remarks

REFERENCES AND FURTHER READING
USEFUL WEBSITES

APPENDIX 1 E-TRADE: PRICE CONTROLS AND REIMBURSEMENT FOR MEDICINAL PRODUCTS IN OECD COUNTRIES
APPENDIX 2 E-TRADE-RELATED REGULATORY ISSUES IN THE EUROPEAN UNION AND US
A2.1 Regulatory issues in the European Union
A2.1.1 Marketing authorisations for medicinal products
A2.1.1.1 Centralised System
A2.1.1.2 Mutual Recognition System
A2.1.2 Directive 93/42/EEC: medical devices
A2.1.3 Classification of human and prescription only medicines
A2.1.4 Leafleting and labelling
A2.1.5 Advertising
A2.1.6 The Distance Selling Directive
A2.1.7 Self-regulation/other legislation
A2.2 Regulatory issues in the US
A2.2.1 US marketing authorisations
A2.2.2 Medical devices
APPENDIX 3 TELEMATICS FOR HEALTHCARE: GENERAL OBJECTIVES

list of tables
Table ES.1 US Internet Commerce Forecast
Table 7.1 Number of published papers including any measurement of clinical benefit by type of application
Table 7.2 Emergency hospital�hospital teleconsultation systems
Table 7.3 Elective hospital�hospital teleconsultation systems
Table 7.4 Elective GP�hospital teleconsultation systems
Table 8.1 Outline of objectives and tasks for the European Union's Telematics Applications Programme
Table 10.1 Latin American demographics impacting telemedicine deployment
Table 11.1 Results of the 1999 World Wide Web Survey: ranking of companies across seven analytical functions
Table 13.1 Amoxycillin (selected year 1999)
Table 13.2 Ranitidine (selected year 1999)
Table 13.3 Percentage of EU and US pharmaceutical R&D executives agreeing with statements about web technologies in R&D
Table 13.4 Price comparisons of different e-pharmacies, March 2000
Table A.1 National controls on supply
Table A.2 Pricing and reimbursement of pharmaceuticals in Australia, Japan and US.

list of figures
Figure ES.1 Access to the Internet, 1995-2001 (millions)
Figure 2.1 Internet users as a percentage of total population
Figure 2.2 Internet users in Latin America (millions)
Figure 2.3 Home Internet statistics in Latin America
Figure 2.4 Internet % of revenue in 2000
Figure 2.5 Internet sales: % of revenue in 2005
Figure 6.2 Spending on direct-to-consumer advertising in the US, year ending March, 1999 ($ million)
Figure 10.1 Estimated value of the Australian telemedicine industry, 1997�1999 (Aus$ million)
Figure 14.1a Shift of supply curve due to the Internet
Figure 14.1b Shift of the demand curve due to the Internet
Figure 14.2 Forecasts of online healthcare retail and online prescription drug (POM) sales, 1999-2004 ($ million)
Figure 14.3 Forecasts of online sales of nutraceuticals, OTC drugs and health and beauty products, 1999-2004 ($ million)
Figure 14.4 Paradigm shift in pharmaceuticals and medical devices

EXECUTIVE SUMMARY

ES.1 Internet access: statistics
According to various Internet sources, figures for 2000 reveal that over 180 million people across the globe have access to the Internet, over half of these in North America and approximately 30% in Europe (Figure ES.1). This figure is expected to increase to over 230 million people in 2001 and to over 400 million by 2003. Internet traffic is doubling every 100 days. The number of global users increased by 55% in the year 1998�1999. The number of Internet hosts increased by 46%, while the number of servers rose by 128%. The volume of new web domain registrations increased by 137%. It is expected that these numbers will continue to grow in the future. It is predicted that, by 2003, 50% of the world's population will be online. By 2005, the majority of people living in industrialised nations, as well as a growing group of people in developing countries, will have Internet access and will be frequent surfers of the web. According to a University of Texas study, in 1998, 1.2 million Internet-related jobs were created and the sector's average growth was 175% in 1994�1998.

The Internet has become essential to numerous sectors in the business world. According to a report by Forrester Research of Massachusetts, US (see www.forrester.com), nearly 50% of Information Technology (IT) executives expected the Internet either to have a 'huge' or 'significant' impact on their sales processes over the next five years. This is due in part to the benefits that the Internet has on direct communication with customers, other businesses, trade associations, regulatory bodies, the press and subsidiary companies. In addition, over 50% of companies planned to introduce electronic commerce (e-commerce) solutions by the end of 1999.

While global online retailing was worth $14.9 billion in 1999, business-to-business e-commerce was worth $43 billion. By 2003, approximately 90% of companies expect to have links with customers or suppliers through the Internet. Twenty percent of corporate decision makers will purchase up to half of their annual purchases over the Internet. The lower transaction cost on the business-to-business level makes the Internet an unquestionable source of savings. As a result, estimates suggest that business-to-business e-commerce will rise to $1,440 billion by 2003 (London Financial Times, February 10, 2000). In addition, online retail trade for 1998 ranged between $7 billion and $15 billion. Analysts now predict Internet retail sales of between $40 billion and $80 billion by 2002. Others believe that $102 billion is a more accurate estimate of retail sales, although all these figures are rough estimates. The largest slice of the e-commerce cake belongs to the US, where Internet commerce is expected to grow significantly over the next few years.

Eighty percent of current Internet revenue comes from business-to-business transactions, rather than direct business-to-consumer (20% of the total amount of transactions). This 80:20 split is expected to remain as volume grows. For healthcare industries, such as pharmaceuticals, there are several significant opportunities, such as electronic procurement, the likelihood of a global supply chain, and customer orders.

It is important to understand this transformation both in terms of its geographic distribution �the varied effect that the Internet has had, and will have, on different continents � as well as its affect on different industries.

ES.2 Effect on different countries
In almost every industry, US Companies are proving quicker to use the Internet to cut costs, streamline business processes and find new markets. From total sales handled electronically to percentage of GDP due to electronic commerce, the US is the world leader. Boston Consulting Group (BCG) estimates that the US handled $770 billion of electronic commerce transactions in 1999 compared to $330 billion for the rest of the world combined. By 2003, BCG predicts this figure to be $2,800 billion for the US and $1,800 billion for the rest of the world. The US averages a 30-month lead over Europe in implementing web technology, US dot-coms are, in principle therefore, better placed to grab the rising European online sales even though Forrester Research predicts that European online sales could increase by an average of 150% each year until 2004.

There are a few obstacles preventing an increase in electronic trade in Europe similar to that seen in the US: bandwidth costs are higher in Europe; there are fewer IT skilled employees available; and, unlike US dot-com companies � which are often created from scratch, many of the European brands are spinoffs of existing companies. Some examples of this include Dixons, and Boots in the UK, and Frnac in France. Europeans often tend to view dot.coms as a way of extending their existing businesses instead of starting new ones. This can often cause problems as some CEOs are unwilling to make significant and often necessary changes to the company. If European companies are too slow to change their ways, they lose out to competitors � often US companies. At the same time, this may also be an issue of computer literacy or access. Only 20% of Europeans have computers versus 50% of Americans.

The US also enjoys advantages of scale in terms of having a critical mass of users, a single language and currency and ready sources of venture capital. Conversely, a true single European market does not yet exist, and the amount of technology across Europe varies greatly by county. To that end, it is not surprising that the US has got a significant time lead over most of its competitors, amongst them most of the EU and Japan.

Finally, tax regimes in many European countries work against dot.coms by both taxing them heavily and making them subject to national insurance contributions from employees. In Germany, for example, share options are often taxed at higher rates than capital gains.

The only countries that follow the US with a relatively short lag time (2�2.5 years) are the UK and Germany. In most EU countries the lag time is much longer.

By comparison with the US, the take up of the Internet by health services is somewhat different in the EU, from a strategic perspective. In Europe, the paradigm of Internet use broadly suggests that it:

In the US, however, the Internet is:

To complicate matters further, the EU seems to be resolutely pro-taxation. In a working paper of the Tax and Customs Union, the European Commission says the consequence of taxation should be the same for goods and services regardless of the mode of commerce and/or whether delivery is effected online or offline. In the US, the Internet is in effect untaxed for Americans under a moratorium introduced by the 1998 Internet Tax Freedom Act. This prevents state legislatures from imposing any new taxes, at least until it expires in 2001. A bill was also introduced in the House of Representatives in late January 2000 (Cox-Wyden Bill), to make the moratorium permanent.

Of course, even if the current moratorium prevents new taxes from being levied, many US states already have a use tax. This is a mirror tax to the sales tax and is collected where goods are bought out-of-state, for example through a catalogue or on the Internet.

ES.3 The Internet and health goods and services
Healthcare is characterised by considerable peculiarities and agency relationships that make it quite distinct from other industries. The presence of several agents in the organisation and delivery of healthcare (health insurance, physician, pharmacist, wholesaler, manufacturer of medicines and medical devices) makes it a special industry with extensive regulation of the behaviour of the different players.

Despite regulations and agency relationships, the use of the Internet in the organisation and delivery of health services has increased quite considerably across the board of healthcare. Differences exist in its use across borders such differences result because of cultural and regulatory issues.

Indeed, regulation plays a significant role in conventional health services organisation and delivery, particularly in pharmaceuticals and medical devices. The widespread use of the Internet has, in turn, generated a series of regulatory concerns relating to the following issues:

The relevance of the Internet in the organisation and delivery of health goods and services encompasses the whole range of activities, and includes mainly the following:

However, the fundamental question is 'where is the uptake of the Internet going to lead?' Clearly, there are strategic implications for all stakeholders. Pharmaceutical companies, for example, have to focus more on the end-consumer, whereas in the past they focused on the doctor. Similar implications exist for pharmacies and wholesalers, as well as for the overall responsiveness of the health service and its perception by the consumer/patient.

It remains to be seen whether the Internet will revolutionise the way healthcare is organised and delivered, or whether it will simply be a different way of doing the same thing. Much depends on the attitude of decision-makers in different countries and the regulatory stance they adopt. This report suggests that there is a several-tier attitude on this, based on policy-makers' reactions in the US, the EU and other geographical areas.

At the other end of the spectrum, it may be the unseen side of the Internet and e-business that will revolutionise the way in which parts of the healthcare industry innovate. This applies, for instance, to web-based systems for making sense of the billions of bits of data from both inside and outside the companies, that go into the discovery, development and regulatory processing of new pharmaceutical products. According to some estimates, integrating 'e' with R&D, could cut out up to a fifth of the cost of bringing a significant drug to market, by making it easier to focus on the best candidate compounds and weeding out the less useful ones before they consume too much time and money. It could also add a couple of years to the patent life of the product that would ensue.

© PJB Publications Ltd. 2000
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