Table of Contents INTERNET-BASED HEALTHCARE MONITORING SYSTEM FOR REMOTELY QUERYING INDIVIDUALS

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1 INTERNET-BASED HEALTHCARE MONITORING SYSTEM FOR REMOTELY QUERYING INDIVIDUALS Table of Contents Executive Summary Scope Description of the Technology General Description Important Technical Attributes Benefits of the Technology Opinions of Technical and Commercial Experts Opportunities Addressed / Problems Solved by the Technology Opportunity the Technology Facilitates Competition/Alternative Technologies Users of Similar Technologies Advantage over Competition Potential Unwanted Effects of the Technology Intellectual Property Position Technology Ownership Appropriate Methods of Intellectual Property Protection Competitors Patents Ownership Issues Potentially Impacting Commercialization Potential Markets Market Research Methodology Needs Addressed by the Technology Products and/or Services Potential Buyers and Licensees Key Benefits Test Data Needs Health and Future of Target Industries Potential Market Size Persons with Chronic Diseases and the Elderly Managed Care Organizations Canada Competitors / Substitutes Potential Scenarios Market Entry Keys and Barriers Potential Value of Technology Marketing Strategies Positioning Product and Service Differentiation Pricing Alliance Human and Organizational Factors Affect Commercialization Technology Commercialization /11/2000 page 1

2 5.2 Positive/Negative Passion and Credibility Factors Management Issues that Affect Commercialization Technology Transfer Model Technology Transfer Recommendations National and Global Issues Barriers and Facilitators Other Factors Government Supported Research for Partners or Competitors External Programs to Support Commercialization Direct and Indirect Government Policies Collaborators Metrics of Success Commercialization Recommendations Comments from the Industry Barriers to Market Success Keys to Overcome Barriers Capital and Resource Needs Recommendation and Next Steps Appendix A /11/2000 page 2

3 Executive Summary This new technology is an Internet-based health management tool designed to improve the quality of care for patients with chronic illnesses (i.e., congestive heart failure, diabetes, asthma, depression, coronary heart disease, HIV or hypertension) in addition to reducing the cost associated with that care. This new technology is called the My Health Computer (MHC) which includes the My Health Personal Information Appliance (for patients) and the myhealth.com website (for caregivers). The My Health serves as a two-way communications link between the patient and the website and consists of a simple four button device that plugs into any phone outlet, home or away from home. The device prompts the patient to answer questions. These responses are automatically transmitted to a secure database through a toll-free telephone number and follow-up questions or feedback are sent back to the patient. With the data that are collected, healthcare providers perform proactive healthcare management by alerting the caregiver to intervene when necessary in order to prevent critical situations before they happen. Since its launch in September 1999, the technology has been in the Demonstrating stage of commercialization, and is now poised to cross the Market Transfer Gap, to reach the Promoting stage. This assessment will address the potential for the My Health Computer technology to be fully commercialized. The authors recommend that the developers of the technology continue with commercialization, based on the following information: The telemedicine industry is a young and rapidly growing industry, which provides an opportunity for a new technology such as the MHC. The MHC can be used to record daily trends in health status, thus allowing elderly people to remain independent longer, with better health. This is a growing segment of the U.S. population. The MHC can be implemented at a lower per patient cost than traditional home care visits, thus providing an attractive option to cost conscious managed care organizations. In this market niche of telemedicine, there are only a few competitors, and each currently serves a slightly different (or narrow) customer base. There is also a significant opportunity in exporting the technology to countries such as Canada, which view telemedicine very favorably, import extensively from the U.S. in this market, and have initiated public programs to further the development and adoption of telemedicine. If MHC could gain just a 2% market share of the estimated 90 million people that have chronic illnesses, the monthly revenues from fees alone would be $45 million, with potential annual revenue being $540 million. Benefits (Section 2)--The most important benefit of the technology is proactive healthcare management. The device prompts the patient to answer questions such as How is your stomach feeling today, Mrs. Jones? with a choice that might comprise Great, Fine, Poor, or Much Worse. These responses are automatically transmitted to a secure database through a toll-free 8/11/2000 page 3

4 telephone number and follow-up questions or feedback are sent back to the patient. Feedback is tailored to each patient s condition and based on a series of related questions, the caregiver can get a fairly comprehensive picture of the patient s condition. Different responses can be assigned risk levels and the caregiver can prioritize attention to those patients who need it most. With the data that is collected, healthcare providers perform proactive healthcare management by alerting the caregiver to intervene when necessary in order to prevent critical situations before they happen. This service can be provided at a lower per patient cost when compared to home visits by health professions. Opportunity (Section 2)--The technology is entering the market at a time that the new infrastructure of home health care is in the development stage. MHC has the opportunity to be involved in defining the standard platform or product that will become the basis of later business. Based upon convenience, cost savings and improved healthcare provided by MHC, there appears to be a significant opportunity to be an early entrant into the new infrastructure. Successful early entrants have an opportunity to grab a share of the marketplace. Competitors (Section 2)--The current competition is somewhat fragmented. The players in this field do not compete head-to-head. This is due primarily to the fact that this niche of the telemedicine industry is still in its infancy. Two of the largest competitors to My Health Computer are LifeChart.com and LifeMasters Supported SelfCare Inc. These two groups have a combined patient base of about 15,000. The current substitutes for the treatment of patients with chronic illnesses are: 1) regular visits by the patient to a healthcare professional s office to monitor the progression of and receive treatment for the disease, and 2) regular visits by a homecare nurse to a patient s home to perform tests that measure the progression and effects of the treatment of the disease. Intellectual Property Status (Section 3)--MHC is in an excellent position for commercializing its technology from an IP perspective. They have patented the system and the hardware for making the system work. In addition, they can capitalize on the advantages of facilitating connections to other medical devices, such as glucose meters, by incorporating a universal portal into the My Health. Thus, they have the potential of becoming an enabling technology for the many other health monitoring technologies that can be used at home. Potential Markets (Section 4) There are a number of ways to estimate the potential market for this technology. One estimate puts the market for use of home monitoring technologies at 2.5 million people. Second, there are an estimated 500 million home health visits by nurses conducted annually. The MHC could be used in lieu of some portion of these visits. However the current market is estimated, there is clearly the potential for an increased future demand. The Census Bureau projects that the elderly population will more than double between now and 2050, when it will reach a total of 80 million people. Also, spending in home health care is expected to almost double from 1999 to 2008, going from $35 billion to $65 billion. Buyers of the technology could include managed care organizations, hospitals, pharmacies, and doctors. The key benefits being sought by the buyers are: ongoing health monitoring of patients; cost savings through reduced hospital, ER, clinic, or in-home visits; improved productivity of healthcare staff; 8/11/2000 page 4

5 faster response time and ability to spot disease trends; enhanced clinician access to patients; and improved patient compliance with regimens. Canada presents an especially attractive export opportunity. The import market in Canada for medical equipment is strong. Canadian imports of U.S. medical equipment have exceeded industry forecasts, growing from US$1.17 billion in 1997 to US$1.32 billion in The two attributes that distinguish this technology from competitors or substitutes are lower average treatment costs and automated interpretation of daily data and personalized patient treatment. The following briefly describes these two attributes. 1. Lower average treatment cost per patient--the MHC average cost of $3,100/year is approximately 68% less than the cost of $9,600/year for a homecare nurse to perform the same duties. 2. Automated Interpretation of Daily Data and Personalized Patient Treatment-- The My Health collects daily patient data that is sent to the healthcare provider for interpretation. This collection and early interpretation of daily data is important in the management of chronic diseases, due to the potential of identifying symptoms at an early stage and to perform treatments before patient health deteriorates. Organizational Factors (Section 5)--MHC. has a strong management team that has a good background in both medical technology and the Internet. The company has been successful in getting patents to protect the technology. In the past year MHC has grown from 10 employees to 100 employees. Since the launch of the MHC product in April 1999, the company has formed alliances with large hospitals, insurance companies, and pharmaceutical companies to further establish its position in the telemedicine market (Section 5). Technology Transfer Issues (Section 6)--Currently, a significant barrier to the widespread adoption of telemedicine in the U.S. is the federal policy on Medicare coverage for telemedicine activities. On January 1, 1999, Medicare began paying for teleconsultations in rural health professional shortage areas only. This first-ever national policy on Medicare reimbursement for telemedicine services was the result of the Balanced Budget Act of On the other hand, in the U.S. there are a large number of actors interested in the widespread adoption of telemedicine. Due to the complexity of the issues, a number of federal agencies are engaged in the development of policy regarding telemedicine. These include the Office for the Advancement of Telehealth, the Joint Working Group on Telemedicine, and the Food and Drug Administration, among others. The Office for the Advancement of Telehealth is dedicated to the diffusion of this technology. There are also several industry trade organizations dedicated to the adoption of telemedicine and the resolution of technical/legal issues. Despite the federal government position on reimbursement under Medicare, other buyers and managed care organizations have demonstrated an interest in home health monitoring devices, as shown by the current sales of MHC, the alliances it has already formed, and the presence of competitors. As noted above, Canada presents a significant export opportunity. U.S. companies have been major suppliers of medical equipment to Canada, with U.S. suppliers providing 74% of total Canadian imports of medical equipment in Additionally, Canada has launched an $80 million 8/11/2000 page 5

6 dollar program, called Canada Health Infostructure Partnerships Program. The purpose of the program is to promote innovative application of information and communication technologies to bring better health and health care services to Canadians. The successful transition of the MHC technology from the demonstrating to the promoting stage of the commercialization process would be measured by the following metrics: To increase sales of the units by 25% over the first year; To create at least one alliance with another medical monitoring equipment manufacturer and home health care agency, in order to expand the uses and increase market penetration of the MHC; and To achieve a positive cash flow within 12 months. 8/11/2000 page 6

7 1. Scope The field of telemedicine, though still in its infancy, is a fast growing field in both the academic community and industry. This field will continue to grow as medical technologies advance, telecommunications are improved, policies are developed to allow Medicare reimbursement, and the U.S. population continues to age. Telemedicine is used in a variety of ways to enhance the quality of life for millions of patients with critical (and not so critical) illnesses. Many Universities are involved in telemedicine research and development in an effort to bring quality healthcare and education to rural areas of the U.S., where it may be difficult and burdensome for patients to obtain healthcare. It may also be difficult for healthcare providers in those rural areas to get the educational training needed to provide quality healthcare. The technology assessed in this document is the My Health Computer (MHC), which includes the My Health Personal Information Appliance and Online service (website). The MHC allows two-way communication between the patient and the healthcare provider and allows the healthcare provider to monitor a patient s condition via the Internet. The MHC allows healthcare providers to monitor the conditions of patients with congestive heart failure, diabetes, asthma, depression, coronary heart disease, HIV and hypertension. The MHC s services will be expanded further to monitor glucose levels, blood pressure levels, post-operative follow-ups, weight loss and wellness. The MHC is currently used by hospitals to monitor patients in the congestive heart failure program, and by pharmacies to monitor patient s consumption of prescribed medications. The MHC is poised to enter the mass market, or in the words of V.J. Jolly to cross the Market Transfer Gap to reach the Promoting Stage of the commercialization process. In this assessment, we examine the potential for this technology to reach full commercialization. The applications of telemedicine range from ordinary uses such as emergency calls to experimental uses such as telesurgery, in which a surgeon perform surgery on a patient at a distant location using robotic instruments. Other uses of telemedicine include patient care, education, research, administration, and public health. Even with the rapid growth of telemedicine and its variety of uses, obstacles or constraints exists that impact moving the technology to the next stage of technology innovation. Some of the obstacles that exist are: limited research lack of hardware and software standards issues about confidentiality and privacy of medical records (such as pictures, recordings, videos, and x-rays that are transmitted electronically) legal issues about minimum standards for practice medical licensure when patients and clinicians are in different states professional liability. In addition, because of the potential impact of telemedicine on staffing levels and responsibilities, many clinicians may view telemedicine as an economic threat. Finally, some uses such as home monitoring of patients, which is provided by the MHC product, and interactive video for psychiatric consultations have raised questions about the codes of conduct that should govern these procedures. This assessment will describe the MHC technology in detail and address the commercial value of the MHC technology. The assessment will also provide a listing of the MHC s attributes and 8/11/2000 page 7

8 benefits, identify problems solved by the technology, identify competing and alternative technologies, as well as identify opportunities the technology facilitates. An assessment of the intellectual property positions of the technology, potential markets, and human and organizational factors will also be addressed in this document. The assessment will also describe the next step in moving the technology from the demonstrating stage to the promoting stage of technological innovation. Finally, to demonstrate the commercial value of the technology, the assessment will address collaborative partnerships and will recommend proceeding with the technology due to the market interest in telemedicine, and the benefits and attributes of the MHC technology. Another recommendation offered is for MHC, Inc to give future consideration to the export of its MHC telemedicine product and services. The assessment will also describe the next step in moving the technology from the demonstrating stage to the promoting stage of technological innovation. 2. Description of the Technology 2.1 General Description This new technology is an Internet-based health management tool designed to improve the quality of care for patients with chronic illnesses (i.e., congestive heart failure, diabetes, asthma, depression, coronary heart disease, HIV or hypertension) in addition to reducing the cost associated with that care. This new technology is called the My Health Computer (MHC) which includes the My Health Personal Information Appliance (for patients) and the myhealth.com website (for caregivers). The My Health serves as a two-way communication link between the patient and the website and consists of a simple four-button device that plugs into any phone outlet, home or away from home. This area of technology is commonly referred to as remote monitoring of patients. 2.2 Important Technical Attributes The MHC platform consists of two parts: a secure web-site for sending queries and viewing patient responses, and the My Health patient appliance. The My Health is an easy-to-use information appliance that enables caregivers to remotely collect data on a patient's symptoms, behavior, and knowledge, as well as data from a variety of home medical devices such as blood glucose meters and blood pressure cuffs. The MHC is currently deployed on Sun Solaris servers, with connections to the Oracle8 database. 2.3 Benefits of the Technology The most important benefit of the technology is proactive healthcare management. The device prompts the patient to answer questions such as How is your stomach feeling today, Mrs. Jones? with a choice that might comprise Great, Fine, Poor, or Much Worse. These responses are automatically transmitted to a secure database through a toll-free telephone number and follow-up questions or feedback are sent back to the patient. Feedback is tailored to each patient s condition and based on a series of related questions, the caregiver can get a fairly comprehensive picture of the patient s condition. Different responses can be assigned risk levels and the caregiver can prioritize attention to those patients who need it most. With the data that is collected, healthcare providers perform proactive healthcare management by alerting the caregiver to intervene when necessary in order to prevent critical situations before they happen. 8/11/2000 page 8

9 The technology also provides other key benefits as follows. For the managed healthcare organizations (MCOs): ongoing health check for patients, cost savings, improved productivity of healthcare staff, faster response time, and ability to spot trends early. 1 And for the patient: convenience in use, improved healthcare, daily health monitoring, early disease detection, prevention of critical medical situations, and the assurance of privacy of medical data. 2.4 Opinions of Technical and Commercial Experts Various interviews of technical and medical experts were conducted to assess the value of the technology. They are identified below and their opinions footnoted within this document. Persons contacted included: Dr. Jeff Jones, M.D., IT and Statistics expert living in Kansas City and involved in a company that is developing enabling technology similar to the My Health Shawn Smith, Director of Marketing for My Health Computer, Inc. Raydeen White, R.N., Home Healthcare Nurse practicing in rural Kansas Cheri Hill, Records Manager, Daily Home Care, reported on typical costs for home visits by health care professionals. Jerry Watson, National Accounts Manager for Medical Rentals of America reported on the possible markets for the technology. Bill Sera, Southwest Region Accounts Manager for Home Medical Devices, commented on the criteria used for accepting devices that are sold by their company. In general, the consensus from those interviewed is that the telemedicine industry is growing exponentially and that the MHC is a technology that seems to fit the growing needs of the telemedicine market in both costs savings and healthcare improvement. These interviews are summarized in the Appendix A. 2.5 Opportunities Addressed / Problems Solved by the Technology The most pervasive and costly chronic illnesses, such as diabetes, asthma, depression, cardiovascular disease, HIV, congestive heart failure, and hypertension, affect more than 90 million people in the U.S. alone and account for approximately $425 billion in annual treatment costs. 2 People with these chronic diseases could benefit from daily health monitoring, since early identification of symptoms of declining health could result in earlier treatment and prevention of health crises. 2.6 Opportunity the Technology Facilitates The opportunity that the technology facilitates is getting into what is potentially the new infrastructure of home health care at a time that is early in the development stage and possibly to define the standard platform or product from which the area of business will grow. Based upon convenience, cost savings and improved healthcare provided by MHC, unless growth in this direction is prevented by one or more of the barriers described in section 6.2 of this study, there 1 accessed 7/1/ accessed on 7/4/00 8/11/2000 page 9

10 appears to be a significant opportunity to be an early entrant into the new infrastructure. Successful early entrants have an opportunity to grab a share of the marketplace. The further opportunity that the technology facilitates is the capability of a more sophisticated level of monitoring various illnesses/diseases with one appliance than just the simple question and response format. The My Health appliance has been built with a universal porthole that allows the patient to connect to a medical device, such as a glucose meter or blood pressure gauge, for automatic transmission to MHC s secure website, where the healthcare provider can interpret the data and conduct follow-up inquiries to any health concerns. MHC is currently working with a number of medical device manufacturers to develop compatible products, which are expected to be on the market shortly. The appliance is, therefore in essence, a collection center for data for different types of illnesses/diseases. Use of this single device to transmit data from various medical devices also facilitates the need for simplicity: fewer devices to be used by the patient, and more acceptance and compliance in using the My Health appliance. 2.7 Competition/Alternative Technologies Competition in the niche of online healthcare will be increasing, due to the opportunities in this market. The current competition is somewhat fragmented. The players in this field do not compete head-to-head. This is due primarily to the fact that this niche of the telemedicine industry is still in its infancy. Two of the largest competitors to My Health Computer are LifeChart.com and LifeMasters Supported SelfCare Inc. These two groups have a combined patient base of about 15,000. LifeChart.com is a company established in mid 1999 out of Silicon Valley, focusing on asthma and diabetic patients, but with the intent to further expand its services to include the monitoring of patients with cardiovascular and other health related problems. Thus far, its funding has come from Nokia. 3 LifeChart.com has approximately 5,000 subscribers who pay $10 each month for monitoring of asthma. 4 The second competitor to My Health Computer is LifeMasters Supported SelfCare Inc. Established in 1994 as a disease management services provider, LifeMasters now offers, through the use of either a touch-tone telephone or the Internet, a technology-enabled service that prompts patients to enter their vital signs into LifeMasters's central database. The company s technology allows health care providers to monitor and interact with patients with diabetes, congestive heart failure, coronary artery disease, asthma, and chronic obstructive pulmonary disease. The current substitutes for the treatment of patients with chronic illnesses are: 1) regular visits by the patient to a healthcare professional s office to monitor the progression of and receive treatment for the disease, and 2) regular visits by a homecare nurse to a patient s home to perform tests that measure the progression and effects of the treatment of the disease. If a home health care agency sends someone to a patient s house, they would bill Medicare from $70 to $150 per visit, depending on the type of health care provider involved accessed on 6/10/00. 4 Finger on the Pulse in The Standard, April 3, on the web at accessed 7/30/00 5 Conversation with Cheri Hill, Daily Home Care, 7/28/00. 8/11/2000 page 10

11 2.8 Users of Similar Technologies A similar technology to the My Health appliance is the general Internet appliance that accesses the Internet through the touch of a button without going through the rigorous exercise presented by the computer interface. Companies such as Compaq, Dell and Gateway are building these Internet appliances. Users include stock brokers/money managers, such as Merryl Lynch, service companies, such as Netpliance, Inc. in Austin, and the general public who wants to have easy access to the Internet. These appliances are becoming very popular in today s Internet market. As stated by Netpliance, Inc: We've combined an Internet appliance, Internet service, and a consumer portal in a single, friendly package. Now users can be served instant, personal, relevant content with just the touch of a button Advantage over Competition The following describes two attributes that differentiate the MHC and My Health from direct competitors or substitutes. (a.) Lower Average Treatment Cost per Patient: The average monthly cost associated with patient monitoring using the MHC is much less than the cost of using a homecare nurse ($9,600/year) to perform the same duties. These actual figures will vary depending on a number of factors, including the disease being treated and type of home health care professional involved. (b.) Automated Interpretation of Daily Data and Personalized Patient Treatment: The data collected by the My Health is automatically transmitted to a central data server and analyzed for data points that are beyond the bounds set by the health care provider. If a high or low data point is identified, then action can be initiated automatically. This action could be to request that the patient take the reading again, to dispatch a home health care person to check on the patient and verify readings, or to inform the doctor so that s/he might consult with the patient. These procedures are set up in advance and can be personalized by the doctor for the patient s condition. The collection of daily data is a big plus in the management of chronic diseases, with the potential for early identification of deteriorating patient health and early treatment of symptoms. The advantage of this technology over competing telemedicine technologies is that it can be customized to address any scenario, versus being limited to only one illness or condition. (c.) Flexibility of Use: The MHC appliance is built with a universal porthole that can be connected to various medical devices, such as glucose meters, blood pressure cuffs, and asthma respirator meters. With this porthole feature, the MHC offers the capability of monitoring a variety of illnesses using only one appliance, unlike its competitors, which are set up to monitor one illness at a time. This flexibility to transmit a variety of data from a single device provides a significant advantage over MHC s competitors. The combination of the above attributes lower cost, personalized treatment allowing early identification and treatment of problematic trends, and flexibility will appeal to both the MCO, the health care provider (doctors, nurses) that would prescribe or recommend the unit, and the end-user. 6 accessed 8/6/00 8/11/2000 page 11

12 2.10 Potential Unwanted Effects of the Technology A potential unwanted or undesirable effect of the remote monitoring technology is further depersonalization of medical treatment. Depending upon how it is used, it could result in the patient seeing the doctor less often. The extent to which the patient faithfully complies with the physician s directions as to diet, exercise, or compliance with medical prescriptions may be affected by the lack of personal contact. Less contact with the medical professional may also result in patients being monitored only in effect by technicians and software routines, not doctors. Other illnesses or symptoms, which are often detected by a doctor while examining a patient for an existing condition, may now be less likely to be detected. On the other hand, knowing of this potential problem, a generalized overall health review response program could be added to the normal question series periodically or a mandatory in office appointment scheduled periodically, or some combination of both. 3. Intellectual Property Position 3.1 Technology Ownership My Health Computer had 16 patents issued in Patent Number 5,55,555, issued June 4, 1999, describes a networked system for interactive communication and remote monitoring of individuals. John Jones, the CEO of My Health Computer, is identified as the inventor on the patent. This patent covers the entire My Health Computer system, including: a central server, a remote interface for entering patient dialogues, and a remotely programmable apparatus connected to the server via a communication network. The other 15 patents pertain to all aspects of the MHC as well as other telemedicine technologies. These patents range from methods of information display, to dose measurement in syringes, to a method for treating a medical condition using a microprocessor-based video game. 3.2 Appropriate Methods of Intellectual Property Protection The utility patent, such as that secured by My Health Computer, is the most appropriate approach for protecting the intellectual property of a new process and new machine. This information on intellectual property is drawn from William N. Hulsey III, Basic Outline of Intellectual Property Law for Entrepreneurs and Small Businesses, Austin. Other types of intellectual property protection, such as copyrights, trademarks and trade secrets would not be suitable for protection of this type of technology. Copyrights are intended to protect a form of expression, and not the underlying idea. The types of materials protected by copyright include literary works, pictorial, graphic and sculptural works, movies, sound recordings, and computer programs. Trademarks are used to protect words, slogans, logos, pictures, symbols, letters, configurations and other many other designs. They are used to identify the originator of a good. However, they would not provide protection against duplication of a process and machine. 8/11/2000 page 12

13 Potentially, the My Health Computer could have protected its intellectual property through a claim of trade secrets. It can be used to protect computer technology, whether hardware or software, and whether subject to patent protection. Reasons for not using the claim of trade secrets in this case include: Trade secret laws vary from state to state, There are numerous loop holes in trade secret laws, thus making it easy to loose that protection, and Trade secrets do not protect one from reverse engineering or improper licensing. 3.3 Competitors Patents At this time there are two competitors to the My Health Computer, and a host of companies that provide a substitute service. This analysis will look at competitors only, since the substitutes do not involve technology or intellectual property protection. A patent search of the United States Patent and Trademark Office s Patent Bibliographic Database identified four patents issued to ENACT Health Management Systems, the predecessor to LifeChart.com, a competitor to MHC. The most recent patent, No. 5,732,709 issued in March 1998, covers ENACT s home monitoring device for asthma and systems that support the device. No patents were held by LifeMasters Supported SelfCare, which is an on-line health data collection system that uses the patient s computer or a telephone to collect data from the patient at home. Ten other patents issued in were identified using the query home health. The technologies range from drug delivery devices to medical devices to monitoring systems. They could portend future developments in telemedicine, especially with respect to monitoring patients at home. Information on three of the more relevant patents is displayed in Table 1. Eastman Kodak (Patent No. 6,014,432) is an example of a much more sophisticated system, which allows doctors to see and hear the patient and vice versa. All of these technologies are significantly different from the MHC technology. Table 1: Other Patents on Telemedicine Inventions Pat. No. Subject Date Issued 6,055,506 Outpatient care data system 4/25/00 6,007,459 Method and system for providing physical therapy 12/28/99 services 6,014,432 Home health care system 1/11/00 As the research indicates, there are a number of other entities actively engaged in patenting devices for collecting data and/or communicating back to patients in locations remote from the health care provider. However, these inventions cover a wide variety of different types of home health monitoring and communication equipment. 8/11/2000 page 13

14 3.4 Ownership Issues Potentially Impacting Commercialization MHC is in an excellent position for commercializing its technology from an IP perspective. They own the IP for the system and the hardware for making the system work. In addition, they can capitalize on the advantages of facilitating connections to other medical devices, such as glucose meters, by incorporating a universal portal into the My Health. Thus, they have the potential of becoming an enabling technology for the many other health monitoring technologies that can be used at home. 4. Potential Markets 4.1 Market Research Methodology The team used the following research methodology: 1. Potential market segments were identified by talking with My Health Computer staff 2. In depth Internet research was conducted to confirm these initial markets to identify additional markets to analyze international markets 3. Telephone interviews were conducted with technical and medical experts 4.2 Needs Addressed by the Technology Buyers of the technology are looking to address two health care issues concurrently: Controlling the costs associated with providing health care to the chronically ill or a growing elderly population; and Providing services that improve the health of these patients, thus resulting in reduced per patient costs for treatment. 4.3 Products and/or Services The My Health Computer could provide a platform for a number of devices that could be attached to the My Health. One device already approved by the FDA is a blood glucose measurement instrument that attaches to the My Health. This device relays the information to the My Health Computer via the My Health. Other devices could include an asthma measurement tool or a device that measures blood pressure. There are many possible types of medical monitoring devices that could be attached to the My Health. It is designed with a universal porthole to accommodate this potential market need. 4.4 Potential Buyers and Licensees The potential buyers of the technology are Managed Care Organizations (MCO s) and companies that provide home health care services to the chronically ill. Other potential buyers are the prison industry, the military, pharmacies, hospitals and associations such as the American Diabetic Association. 8/11/2000 page 14

15 Possible licensees are large telemedicine equipment suppliers such as Home Medical Development and foreign companies in the health care industry or suppliers to one of the sectors listed above. 4.5 Key Benefits. The key benefits being sought by the buyers are 7 : ongoing health monitoring of patients cost savings through reduced hospital, ER, clinic, or in-home visits improved productivity of healthcare staff faster response time and ability to spot disease trends enhanced clinician access to patients improved patient compliance with regimens 4.6 Test Data Needs To prove effectiveness and efficiency, the following types of data are needed: average treatment costs health outcomes for end-users Results from demonstration studies would be the basis of claims of superiority, in comparison to competitors or substitutes. 4.7 Health and Future of Target Industries. The future health of the MCO s is stable and improving. This analysis is borne out from the realization that overall spending on healthcare, as a percentage of Gross Domestic Product, is increasing. Structural changes centered around the expansion of managed care have been the major transformative force in health markets in recent years, and have played a major role in restraining, but not stopping growth in healthcare spending. The effect of this phenomenon on the health sector's share of GDP has been augmented by a business cycle expansion that has lifted growth in GDP. This development is poised to continue over the period as shown in Figure 4-1. The trend that has historically driven rapid growth in health expenditures, particularly technological change, is still in place and will continue to drive underlying demand for medical services (see Figure 4-2). Therefore this growth in spending will help MCO s. 8 One factor that is keeping the future of MCO s from looking great is the 1997 Balanced Budget Act. (BBA). Spending on home health care and nursing home spending is expected to decelerate as the impact of the BBA depresses public spending and slower growth in the population over 85 years reduces growth (in the near term) in underlying demand for these services. 9 However, as discussed in Section below, the number of elderly will continue growing for many years. Figure 4-1: Projections of 7 accessed 7/30/ website National Health Expenditures Projections accessed on 8/1/ website National Health Expenditures Projections accessed on 8/1/00 8/11/2000 page 15

16 U.S. Health Expenditures as a Percentage of Gross Domestic Product % of GDP 16.50% 16.00% 15.50% 15.00% 14.50% 14.00% 13.50% 13.00% 12.50% Year Figure 4-2: Projections of U.S. Home Health Care Expenditures $ Billions Years 4.8 Potential Market Size There are several different ways to look at the potential market size for the MHC. Below is a discussion of potential market size by end users, by possible purchasers, and internationally Persons with Chronic Diseases and the Elderly Chronic Diseases--The most pervasive and costly chronic illnesses, such as diabetes, asthma and hypertension, affect more than 90 million people in the U.S. alone and account for approximately $425 billion in annual treatment costs. 10 The following is a list of the estimated number of people in the US with major diseases that are potential users of the My Health Computer and the My Health accessed on 7/4/00 8/11/2000 page 16

17 Disease Number in US 11 Congestive Heart Failure 5,000,000 Depression 17,000,000 Diabetes 16,000,000 Cardiovascular Disease 50,000,000 Asthma 20,000,000 Hypertension 43,000,000 HIV 1,500,000 The National Library of Medicine reports there are a half billion home health visits by nurses conducted annually. 12 Another home telemedicine technology company estimates there are 2.5 million people with chronic illnesses that could use home medical monitoring technology. 13 Elderly--There were an estimated 34.4 million elderly citizens in the U.S. in The Bureau of the Census projects that the elderly population will more than double between now and 2050, reaching a total of 80 million. One in five Americans will be elderly. Most of this growth will occur between 2010 and (Sixty-Five Plus in the United States, Bureau of the Census, Statistical Brief, issued May 1995) These elderly could benefit from the in-home monitoring provided by the technology, if the technology delivers improved health outcomes, as promised. It is likely that there is a fair amount of duplication between the two groups discussed in this section: persons with a chronic illness and the elderly. These statistics are simply presented to provide a sense of the scope of possible market segments and changes over time Managed Care Organizations In 1999 enrollment in managed care plans in the U.S. totaled 181 million people. There are nine managed care organizations in the U.S. that have over one million people enrolled. 15 The total enrollment for the nine largest plans is 134 million, which was 74% of all plan enrollees. Although the lack of Medicare reimbursement is a significant barrier to use of this technology by MCOs, if a good case can be made that use of the technology reduces costs, then MCOs could be interested. In addition, Medicare authorized reimbursement in rural areas with a shortage of health professionals. In 1990, 26% of the elderly population lived in rural areas (latest available data) accessed on 7/4/00 12 Telemedicine Related Programs at accessed on 8/4/00 13 Webside Manner in Individual Investor Magazine, July 2000, on the web at accessed 8/4/00 14 U.S. Census Bureau. Population of 65 Years and Over and 85 Years and Over, Region and State: Feb. 11, 2000, on the Internet at accessed 8/4/00 15 Major Managed Care Plans, Managed Care Fact Sheets. Managed Care On-Line Information Exchange, , on the web at 16 Hobbs, Frank B. and Bonnie L. Damon. Current Population Reports: Special Studies. 65+ in the United States. Report No. P April /11/2000 page 17

18 This translates into an elderly rural population of 8.9 million. Currently 26% of Medicare recipients are on managed care plans. 17 This yields an estimated 2.3 million rural elderly Americans on managed care plans that could receive reimbursement by Medicare for telemedicine activities (8.9 million people x 26%) Canada The home care industry in Canada is growing, the result of more acute, rehabilitative and longterm care services being provided at home. Public expenditures were $2 billion Canadian in , an increase of 4.8% over the previous year. Public home care expenditures more than doubled from 1991 to This represents an average annual rate of increase of almost 11 % over that period. Home care spending accounted for 4% of all public health spending in Canada in These figures do not include private expenditures for health care. Overall, the import market in Canada for medical equipment is strong. Canadian imports of U.S. medical equipment have exceeded industry forecasts, growing from US$1.17 billion in 1997 to US$1.32 billion in Sales of technologically advanced equipment to hospitals is expected to continue to do well, because hospital administrators view investment in new, automated, and technologically advanced equipments as a way to decrease costs and increase efficiency. 19 Hospitals can use the MHC technology to monitor post-hospitalization care, thus decreasing rehospitalization or the need for visits by home health professionals. Community and home care service structures have emerged in order to provide health care at a lower cost to a rapidly aging population. Demand for home care services is one of the strongest growth areas for medical equipment. 20 Table 4-1 displays statistics on the medical device market in Canada. Table 4-1: Canadian Market Statistics for Medical Devices (Millions of U.S. Dollars) Total Market Size 1,701 1,903 2,157 Total Local Production ,040 Total Exports 1,173 1,321 1,508 Imports from the United States ,119 Source: Canada FY2000, U.S. Commercial Service, Country Commercial Guide Center 4.9 Competitors / Substitutes 17 Managed Care National Statistics, Managed Care Fact Sheets. Managed Care On-Line Information Exchange, , on the web at 18 Public Home Care Expenditures in Canada, to Health Care Policy Division, on the web at 19 Canada FY2000, Country Commercial Guide, US Commercial Service, on the web at accessed 8/5/00 20 Canada FY2000, Country Commercial Guide, US Commercial Service, on the web at accessed on 8/5/00 8/11/2000 page 18

19 Competitors--Two of the largest competitors to My Health Computer are LifeChart.com and LifeMasters Supported SelfCare Inc. These competitors and their competitive technologies have been discussed extensively in section 2.7. Substitutes--The most common substitute for meeting the need for home health monitoring is to send out homecare staff to a patient s home. This has also been previously discussed in Section Potential Scenarios The following is a discussion of possible scenarios resulting from the launch of this technology. Worst Case Scenario--Just as in the case of any medical technology, there is the potential for a huge lawsuit, with associated negative publicity. The scenario is not hard to imagine, in today s media hungry world. If a person were to die while using the My Health (even if there was no direct link between the device and the cause of death), TV and newspapers could run the story and indirectly start the spread of misinformation that ties this person s death to the device. The message would be: remote medical care could kill you. This type of misinformation is very difficult to control and counter. Additionally, this scenario could lead to regulations by the government to restrict usage of such devices. Competitor Reaction--Competition in the telemedicine industry is expected to increase, as the technology becomes more accepted. There appears to be a number of approaches to home health monitoring technologies, based on the companies already providing this service. Thus, one could expect more companies to enter the market, as public policy and technology issues are debated and resolved and demonstrations of cost-effectiveness are made. Failure to Adopt Technology Standards--Another danger facing this technology and its competition is that of the lack of technology standards. In order for home monitoring technology to gain wider acceptance, industry standards must be established so that all competitors can use a common network backbone to implement their company s products. If there is no standard for the technology, then different company s technologies will not be compatible with each other. This lack of a standard will stall the development and wider acceptance of the MHC and its competitors Market Entry Keys and Barriers Key to Entry--The key to entry into this market appears to be experience in either health care or telecommunications. Telemedicine is supported by telecommunications companies, such as Nokia, GTE, and ATT. A listing of members of the Industry Advisory Board of the American Telemedicine Association includes ATT, GTE, and Nokia, as well as companies with medical technology interests, such as Eastman Kodak and Home Medical Development. 21 Barrier to Entry--Most medical devices must be approved by the Food and Drug Administration. 22 Attachments to the My Health for monitoring vital signs or other indicators will require approval. This approval takes time and significant financial commitment accessed 8/4/00 22 Long-Distance House Calls: Telemedicine Moves into the Home, Willis, Judith Levine. in FDA Consumer Magazine, May-June /11/2000 page 19

20 4.12 Potential Value of Technology. The potential value of this technology is large and therefore difficult to estimate. There are very many unknown variables that could alter the value equation, thereby making even a calculated analysis almost meaningless. However, here is an example that will provide a sense of the size of the potential value of this technology: If MHC could gain just a 2% market share of the estimated 90 million people that have chronic illnesses, the monthly revenues from fees alone would be $45 million, with potential annual revenue being $540 million. This amount does not include the sale price of the unit or the MCO s setup fees Marketing Strategies The following is a list of the strategies that are recommended in order for this technology to cross the Market Transfer Gap identified by Jolly Positioning The MHC positioning statement would be: The MHC is a revolutionary in-home health management system in the home health management industry because it lowers costs, while enhancing patient care Product and Service Differentiation The two attributes that distinguish this technology from competitors or substitutes are lower average treatment costs and automated interpretation of daily data and personalized patient treatment. These were described in detail earlier in section 2.8. The following briefly addresses these two attributes. Lower Average Treatment Cost per Patient--The MHC average cost is less than half the cost of $9,600/year for a homecare nurse to perform the same duties. These figures may vary depending on the type of disease treated and type of home health care professional involved. 24 Automated Interpretation of Daily Data and Personalized Patient Treatment-- The My Health collects daily patient data that is sent to the healthcare provider for interpretation. This collection and early interpretation of daily data is important in the management of chronic diseases, due to the potential of identifying symptoms at an early stage and to perform treatments before patient health deteriorates Pricing The pricing of the service for the HNN and the My Health includes a setup fee, a per patient fee and a monthly fee. The customer (i.e., the MCO) would be charged a setup fee, which would cover the programming needed to customize the dialog for each disease the MCO identified for treatment. The MCO is also charged an initial feee per patient using the MHC, to cover the My Health and shipping plus a monthly charge per patient using a My Health. 23 Commercializing New Technologies, Vijay K. Jolly, Harvard Business School Press,1997) 24 Conversation with Cheri HIll, Home Daily Care, 7/28/00 8/11/2000 page 20