Top Healthcare Technology Trend Predic ons for 2014

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1 IHS Technology Top Healthcare Technology Trend Predic ons for 2014 IHS Medical Devices & Healthcare IT A Complete Source of Market Intelligence

2 Page 1 Top Healthcare Technology Trend Predic ons for 2014 Top Technology Trend Predic ons for 2014 Healthcare expenditure containment con nues to be the main focus of healthcare systems globally. However, the key ques on facing healthcare ins tu ons is whether this will be done through short term cost cu ng or through investment in long term solu ons. Healthcare funding uncertain es plagued a number of developed markets in Declining reimbursement across North America and Western Europe has resulted in deferred spending and a shi to lower cost, lower func onality devices in some instances. IHS predicts that innova ve product development and streamlining procurement ini a ves will dominate the medical devices landscape in 2014, in an effort to reduce spiraling healthcare expenditure. This paper predicts the impact of cost containment strategies on the following markets in 2014: Medical Displays Remote Patient Monitoring (Telehealth) Medical Imaging Equipment Healthcare IT Clinical Care Devices Medical Displays Opportuni es exist for medical grade displays IHS forecasts that by the end of 2017, healthcare expenditure in the US will exceed $3 trillion. Radiology comprises approximately $175 billion of this expense annually and as many healthcare systems try to curb these costs by shi ing away from fee for service, radiologists will need to adjust to a new delivery framework. Over me this means opera ng as a cost center rather than a revenue stream, and exis ng within a risk based payment system within Accountable Care Organiza ons (ACOs) and Pa ent Centered Medical Homes. Maximizing a pre determined pool of dollars per pa ent will be a key driver of success under the new payment system, which means measured use of imaging will be necessary. However, this is not necessarily a nega ve development within the imaging industry as lowering the volume of images under review may actually reduce human error and improve diagnosis, enabling be er pa ent outcomes. IHS believes that the shi in payment incen ves in the US is important to note, but that it is expected to have a rela vely mild impact on the forecast for medical grade displays. This is due to the fact that many innova ve healthcare systems already efficiently coordinate their radiology departments within the network, and do not view them as an addi onal revenue opportunity. In addi on, radiology will remain at the center of diagnosis, and maintenance of the displays will remain cri cal. As a result, the global market for medical grade displays is set to rise by nearly 30 percent from 2012 to 2017, reaching $3.2 billion during Addi onal factors will drive this demand including improving economic condi ons, the unleashing of postponed demand and rising sales in La n America, Europe, the Middle East and Asia. That said, there are cost considera ons taking place that could restrict long World Market for Medical Displays Revenue ($US Millions) Inc Participating in a valuebased reimbursement structure will require scale, which is inevitably leading to more partnerships and health system consolidation.

3 Page 2 Top Healthcare Technology Trend Predic ons for 2014 term growth for medical grade displays including those used for radiology. These considera ons include: Limi ng redundancy in displays through iden fica on of opportuni es to leverage a single display for mul ple applica ons. As physical space within the facility is precious, providers are trying to consolidate use cases. Scru nizing energy usage by device as a way to reduce costs, in addi on to limi ng the purchase of new displays. There will be a compe ve advantage for display manufacturers that can provide the most energy efficiency. Many US hospitals, health systems and independent physician prac ces are faced with decisions surrounding their ability to meet accountable care targets as required from CMS and commercial payers. The decision to be made is whether or not independence can be successfully maintained, or if strategic alignments and partnerships need to be made in order to obtain a con nuum of care that is increasingly expected. Par cipa ng in a valuebased reimbursement structure will require scale, which is inevitably leading to more partnerships and health system consolida on. For display manufacturers, this means selling to fewer customers and these customers will likely be in the form of purchasing boards. Declining reimbursement has led to reduced uptake and high upfront cost of equipment has restricted growth. However, the emergence of mobile health hubs in recent years has acceler- The World Market for Telehealth - Patient by Conditions Patient Distribution Total Number of Patients = 725,000 Remote Pa ent Monitoring (Telehealth) Demand meets technology to drive telehealth growth 13% CHF COPD Efficiently managing increasing levels of chronic disease and an aging popula on requiring long term care presents a significant challenge to healthcare providers globally. Efforts to reduce healthcare expenditure have led to reduced hospital visits and pa ents being treated outside the hospital environment. This has led to an increased interest in remote monitoring technology. Development in the telehealth sector is heavily dependent on external economic factors, specifically reimbursement. Declining reimbursement has led to reduced uptake and high up front cost of equipment has restricted growth. However, the emergence of mobile health hubs in recent years has accelerated growth. Mobile health hubs are either tablets or smartphones that work as gateways for peripheral devices, and cost one third of the price of a conven onal health hub. The current volume of mobile health hubs represent a frac on of the total amount of health hubs, however IHS expects mobile telehealth solu ons to become the standard in remote pa ent monitoring. As a result, the number of pa ents treated through telehealth is forecast to increase drama cally. IHS es mates that 482,700 pa ents were treated through telehealth in This number is forecast to nearly double in 2014 resul ng in an es mated 725,000 pa ent monitored through telehealth solu ons. 19% 12% 49% Diabetes Hypertension Mental Health Others

4 Page 3 Top Healthcare Technology Trend Predic ons for 2014 The World Market for Retrofit X Ray Equipment Revenues by Product Type ($US Millions) Medical Imaging Equipment Digital X ray Retrofit solu ons in X ray only provide short term solu ons. Hype surrounding retrofit flat panel detector (FPD) upgrades for exis ng analog, computed radiography and mobile X ray systems has dominated the general radiography X ray market for the last two years. Yet retrofit solu ons only offer short term benefits as a stop gap solu on for some user groups. It is true that upgrading to FPD technology offers significant benefits in terms of efficiency and lower radia on dose, at a price point approximately 50 percent lower than a new FPD system. For users in small hospitals and clinics with limited budgets and li le access to credit, this may be the only op on for FPD technology for the next 3 5 years. For the majority of users in large and mid size hospitals, extending the lifecycle of aging analog systems may not be as advantageous. The main focus of these users during austere mes is on efficiency, flexibility and workflow. Aging systems o en lack newer features such as automated posi oning and integra on with healthcare IT systems, o en making a brand new system more cost effec ve in the long term despite the ini al higher systems price. Complica ons in terms of servicing and legality of retrofi ed solu ons have also limited demand. Therefore, retrofit upgrades appear to be knee jerk reac on to the economic challenges of late, offering the most to users in small clinics or with lower pa ent volumes. For larger hospital suppliers, long term gains provided with replacement FPD system is the most a rac ve op on Retrofit Kit for Fixed X ray Retrofit Kit for Mobile X ray Hype surrounding retrofit flat panel detector (FPD) upgrades for existing analog, computed radiography and mobile X-ray systems has dominated the general radiography X-ray market T he World Market for Ultrasound Imaging E quipment by Application Changing Application Mix, Units Long term saving key focus for ultrasound innova on to suffer 250,000 Healthcare provider cost management has re shaped the ultrasound market a er a rapid diversifica on of clinical use. While expecta on of system image quality and standards has steadily increased, user focus has shi ed away from advanced features towards improvement in workflow, user interface and efficiency. Smarter features such as auto measurement, pre defined se ngs and touch interfaces are becoming increasingly common, offering significant longterm cost savings. This has been most prominent in the swathe of new pointof care applica ons, where systems are increasingly used for procedural guidance rather than complex diagnosis. This trend has undoubtedly been at the cost of brand new ultrasound technology innova on, with suppliers realigning research and development priori es towards efficiency rather than cu ng edge diagnos c technology. Looking to 2014, this trend will con nue, with user focus remaining on replacement of aging systems with smarter, more efficient systems. The rela vely low cost of ultrasound compared to other modali es will further drive steady demand, assuming vendors can provide evidence of long term cost saving provided with ultrasound. 200, , ,000 50, Traditional Applications Non-Traditional Applications Point-of-Care While expectation of system image quality and standards has steadily increased, user focus has shifted away from advanced features towards improvement in workflow, user interface and efficiency.

5 Page 4 Top Healthcare Technology Trend Predic ons for 2014 Specialist use advanced imaging systems aim to alleviate healthcare spending crunch Advanced imaging systems such as MRI and CT have been the scapegoats for over spending on medical imaging in the last five years, reflected in the significant decline observed in these markets over the period. Underu liza on and self referral in the US market prompted significant scru ny on use and spending on advanced imaging, resul ng in drama c cuts and new guidelines last year. Outside the US, dire economic condi ons in Western Europe further impacted market demand, offset in part by growth in China and South East Asia. Innova on has also been sluggish, with the only notable major developments offering new silent systems and in the final emergence of detailed MRI imaging of the liver. Despite these developments, user need for cost saving will con nue and intensify, with most users focusing on more crea ve solu ons to cut costs. In the short term, system demand will remain subdued, as budget restric ons will con nue to limit new or replacement systems. Users are also becoming more crea ve in maximizing opportunity for advanced imaging. Use of applica on specific systems is predicted to become increasingly common, par cularly in large hospitals. Systems designated for emergency medicine, cardiology or extremity imaging offer significant benefits in terms of cost in the shortterm, reducing pressure on mul applica on systems and increasing total pa ent volume. The key challenge is in user educa on, with many healthcare providers unaware of the significant advances and benefits of extremity MRI or non dental cone beam CT outside of niche applica ons. Longer term, replacement of the aging installed base of central mul modality workhorse solu ons will become an increasing priority, especially as integra on with healthcare IT networks is more vital for healthcare providers. World Market for CT Equipment Revenues ($US Millions) 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1, Total Revenue Growth 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% Under-utilization and self-referral in the US market prompted significant scrutiny on use and spending on advanced imaging, resulting in dramatic cuts and new guidelines last year. Healthcare IT Health Informa on Exchange (HIE) remains a US Centric market In 2013, more than half of the overall HIE market remained in the United States. Government funding and growing demand for easy access to pa ent data are the primary reasons for the successful adop on of HIE in the US. HIE adop on is also substan al in Nordic countries, Canada, Australia, and New Zealand. New Zealand s HIEs are at a higher level of maturity than the United States despite their much lower expenditure on HIEs. There is reason to be concerned about the future health of HIEs in the US as several exchanges have shut down due to financial instability. Despite this, the US market for HIE is likely to con nue growing and remain the largest market for HIE through World Market for MRI Equipment Revenues ($ millions) 4,000 3,500 3,000 2,500 2,000 1,500 1, Revenue Growth 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% -0.5% Analy cs capabili es provides major incen ve for HIE usage In the United States, health informa on exchanges that provide analy cs capabili es are in demand for clinical decision support and improved management of pa ent care. Although analy cs capabili es are currently used in a minority share of HIEs in the US market, stage 3 of meaningful use legisla on

6 Page 5 Top Healthcare Technology Trend Predic ons for 2014 is likely to drive further sales of mature HIEs with analy cs capabili es through Addi onally, analy cs modules in HIE provide hospitals with the ability to obtain managed decision support that could poten ally aid in the reduc on of wasteful healthcare spending. However, the high cost of managing these HIEs and the lack of analy cs usage in exchanges throughout the US could poten ally threaten the long term advancement of the HIE market. Demand for interoperability and cost savings in healthcare IT industry drives VNA (Vendor Neutral Archive) market growth In 2012, there was tremendous growth in VNA sales in the US, and the rapid adop on of VNAs is likely to con nue through Vendor neutral archives provide the greatest versa lity of informa on that can be stored and accessed among healthcare providers. VNAs are helping to drive down healthcare costs by elimina ng the need for manual delivery of health related images and documents, and reducing the space required for storing pa ent data in order to be able to provide the best care for pa ents. VNAs provide the level of interoperability needed for hospitals within network to submit and retrieve informa on from a central repository nearly instantaneously. On a global basis, IHS expected annual VNA studies to increase by nearly 20 percent in Clinical Care Devices Sleep apnea diagnosis wakes up to home sleep tes ng Sleep apnea affects an es mated 40 million people in the US alone. Undiagnosed, sleep apnea can lead to serious health complica ons. However, much of the world s popula on has low awareness of the disease and remain undiagnosed. The global home sleep tes ng market is projected to reach $36.8 million in 2014, represen ng 7.1 percent growth from Increasing levels of obesity, comorbidi es and Obstruc ve Sleep Apnea (OSA) are crea ng a significant burden on healthcare providers globally. Therefore, transferring tes ng and therapy to the home where possible is vital to reduce these costs. This shi is forecast to be seen most predominantly in the US market where declining reimbursement for sleep laboratories and Special Benefit Companies are driving uptake of Ambulatory / Home Portable Devices (Una ended). Home sleep tes ng presents the highest growth market in the sleep diagnos c devices segment. Ambulatory / Home P ortable S leep T es ting Devic es Unit S hipments 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5, Ambulatory / Home Portable Devices The global home sleep testing market is projected to reach $36.8 million in 2014, representing 7.1 percent growth from Ambulatory / Home Portable Devices Growth Profile Units Shipment Growth Profile Sub-Acute & Home Ventilators 8.0% 7.0% 6.0% 5.0% Home Care Unit Shipments Sub-Acute Unit Shipments 20.0% 15.0% 10.0% 5.0% 0.0% Rising COPD levels to drive investment in home care ven la on Chronic Obstruc ve Pulmonary Disease (COPD) is the fourth leading cause of death globally and providing cost effec ve treatment of chronic disease con nues to present a significant challenge. As such, efficient management of COPD is a key focus for ven lator manufactures. Homecare ven lators are forecast with the strongest growth over the coming years, with unit shipments projected to reach 147,907 in Strong growth in the sub acute ven lators segment is also predicted in 2014, driven by the US. The Centers of

7 Page 6 Top Healthcare Technology Trend Predic ons for 2014 Medicare and Medicaid Services (CMS) re admi ance reduc on program ac vely penalizes hospitals for re admi ance of COPD pa ents. Consequently, sub acute facili es act as a stop gap between the hospital and the home. PC Based Res ng ECG systems forecast to experience slow uptake despite financial benefits Historically, the cardiology market has been slow to follow IT integra on, however this is changing as the importance of IT increases in the healthcare sector. PC based res ng ECG devices present a more cost efficient solu on to their cart based counter parts and have experienced moderate uptake in the last two years. In developed markets uptake of PC based devices is driven by the physician clinic, offering low level connec vity and data storage. A similar trend is seen in emerging regions where uptake of PC based devices is crea ng a cost effec ve solu on, providing the ECG acquisi on device in addi on to low level EMR. Despite this, uptake has been lower than expected due to a preference for the high feature set found in cart based systems. Par cularly in the hospital, robust cart based systems are preferred, especially as replacement cycles are extended in order to reduce costs. Consequently, despite the financial benefits of PC based devices, uptake is forecast to be lower than tradi onal cart based systems from 2013 to As chronic illness and long-term care become a focus of healthcare providers globally, IHS projects that strong unit shipment growth for disposable ambulatory pumps will be realized in Disposable ambulatory infusion pumps offer effec ve pain management solu on Disposable ambulatory infusion pumps are forecast with the strongest growth in The preference for these devices is driven by their ease of use and wide applica on for a number of therapies including an bio cs, chemotherapy and pain relief. As chronic illness and long term care become a focus of healthcare providers globally, IHS projects that strong unit shipment growth for disposable ambulatory pumps will be realized in The developed US market is leading uptake of disposable ambulatory pumps, unit shipments are forecast to increase by 6.8 percent from 2013 to Growth here is expected to be promoted by two key government ini a ves: Growth Profile Ambulatory Infusion Pumps & Total Infusion Pump Market 10.0% 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% The Hospital Consumer Assessment of Healthcare Providers and Systems (HCAHPS) assess pa ent percep ons in many areas, including pain management. The CMS Readmission Reduc on Program has increased focus on effec ve pain management to reduce hospital readmissions and the associated costs. Disposable Ambulatory Total Infusion Pumps Market

8 Page 8 Top Healthcare Technology Trend Predic ons for 2014 About Medical Devices & Healthcare IT Research from IHS The Medical Devices & Healthcare IT Group at IHS is part of IHS Technology. The group is an interna onal supplier of high quality and in depth market research to the medical devices industry, providing market research and consultancy services on a diverse range of products and applica ons. The group produces reports on medical imaging, including ultrasound, MRI and X Ray, clinical care devices including infusion pumps, cardiology devices and respiratory care, and healthcare IT, including PACS, RIS, CVIS, and VNA. The group also provides analysis on telehealth, consumer medical devices, medical displays, performance monitoring and other wearable technologies. The Medical Device and Healthcare IT team s insigh ul analysis, based on a rigorous primary research methodology, provides a thorough assessment of the current status of these markets, and forecasts the impact of significant trends over the coming years. Contribu ng Analysts Shane Walker, Senior Manager, Performance monitoring and other wearable technology, HCIT, medical displays, telehealth Stephen Holloway, Associate Director, Medical imaging equipment Kelly Patrick, Associate Director, Clinical care devices Nicola Goatman, Analyst, Medical imaging equipment Sarah Jones, Analyst, Medical imaging equipment Benjamin Niu, Analyst, Medical imaging equipment Bryan Turnbough, Analyst, Healthcare IT Roeen Roashan, Analyst, Consumer medical devices, remote pa ent monitoring Holly Ingram, Analyst, Clinical care devices

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