ANALYSIS
Finding the Right Tech Model for Patient Care Management

The number of diabetes patients and those with the potential for diabetes has grown substantially over the past decade and continues to expand. This trend creates a tremendous demand for innovative care solutions and service models. New service innovations will take advantage of the latest monitoring and communication technologies. As a result, the diabetic care service sector will experience a boom period with annual revenues topping US$1.9 billion in 2013 and growing at a five-year CAGR (compound annual growth rate) of 33 percent.

Technology will transform diabetic care management in the following ways:

• More effective: Diabetic monitoring technology will shed more light on consumers' vital-sign trends and behavioral patterns, and modern-day communication platforms can deliver the data in real time or in an aggregate form to users and caregivers. Analytical software turns data into knowledge for better decision making. The result is more effective glucose control and better control of diet, exercise and insulin delivery.
• More personal: Consumers can interact with care management applications on a personal device with a customized plan and a more engaging experience. As a result, consumers will be more willing to adhere to care plans and follow advice, leading to better outcomes and lower utilization of resources.
• More convenient: Access to professional help, personal information and educational material is made easy through connected care devices and programs. From phones, the Internet and mobile devices, consumers have the ultimate flexibility in managing their conditions and interacting with service providers. This convenience factor enhances the efficacy of a care program through better compliance and just-in-time advice at critical moments.

Market Readiness

The question is when, not if, these changes take place. For one thing, these technologies are still striving to find the right business models to take root, grow and flourish.

For instance, Parks Associates views mobile phone-based diabetic care management applications as attractive growth opportunities, but most vendors still rely heavily on angel investors and have yet to find a sustainable revenue model. Business models that are being tested include software licensing (e.g., iPhone apps), test-strip sales (BodyTel), mobile virtual network operator (MVNO) monthly service (Generation One), and disease management (Sensei).

None of these attempts has turned in sizable revenues or impressive subscriber numbers yet. Most of these models target consumers directly. But is there opportunity for payers, particularly self-insured employers, to engage solution providers in the product development cycle and provide subsidies for enrolled employees? Alternatively, if one is targeting the consumer market, would large wireless carriers in North America, which have millions of subscribers, be good partners for mobile diabetic care services?

The popularity of health applications, as witnessed in the Apple (Nasdaq: AAPL) App Store, illustrates such an opportunity, but companies such as AT&T (NYSE: T) have largely ignored it. The MVNO concept will be put to a test when Qualcomm (Nasdaq: QCOM) launches its Lifecomm mobile service early in 2009. Many small vendors, and maybe some big-name carriers, will closely examine Lifecomm's service scope, pricing and strategic directions to assess market readiness.

Technical Questions

Besides business model issues, many technologies also face distrust from key stakeholders. Payers, who pay close attention to balance of risk versus reward, do not want to reimburse technologies that fail to meet their internal ROI goals or do not show substantial improvement over existing procedures and services. Overuse is also a payers' concern when physicians over-prescribe the solution even if it is not medically necessary.

Physicians, on the other hand, fear that these technologies will increase their already heavy workloads and that they will not be compensated for the time spent interacting with and giving advice to their diabetes patients. The primary care physician medical home model could alleviate these concerns and pave the way for family doctors to get involved in the business of chronic care management. The structure of reimbursement under the medical home model favors technology adoption. Reimbursement rates, set by CMS, pay more to physician practices using home monitoring technologies than those without. CMS' recent fee proposals put the difference between the base rates of tier-one and tier-two medical home models at only $12, an amount that some argue is not big enough to encourage direct investment in home health monitoring technologies, but Parks Associates contends that for large group practices, economies of scale could make the $12 differential an attractive business opportunity.

The current fee schedule under CMS is so unfavorable to physicians that they are desperately in need of additional revenues. Therefore, physicians will show a high level of interest in the medical home model. Currently, private and public payers are rolling out pilot and demonstration projects. Positive outcomes from these programs will lead to a more lenient reimbursement environment for technology vendors operating through the physician groups.

Disease Management

Parks Associates holds that disease management is also a key sector for technology vendors. The concept of disease management has evolved so dramatically in the past five years that it is now an umbrella term covering areas from wellness management to complicated case management practices. Its operational model also expands beyond the nurse call-center approach to include other types of clinicians (pharmacists, homecare nurses, dieticians, etc.) using a variety of communication technologies (Internet, e-mail , text messages, TV services, etc.) in multiple locations (home, outpatient service center, retail clinics, or virtual spaces online). Technology vendors can find their way into this redefined DM industry by demonstrating the ability to achieve better outcomes at lower costs. Key areas where technology can play a big role include member recruitment and engagement, compliance monitoring, user feedback and consultation, operational efficiency, and performance evaluation. Improvements in these aspects are of critical value to most DM companies today as they are under tremendous pressure to deliver on their promises.

Specific to the diabetic care market, the weight-loss/fitness applications in the consumer and corporate wellness markets are near-term opportunities for the tech industry. Integrated diabetic care management services (blending DM, Web tools, and biometric data collection) are another good venue for technology vendors to find entry points. Despite limited short-term prospects, the physician market, through the medical home model, will provide returns to the tech industry over a long-term timeline.