Home Monitoring Devices: Why Innovation Doesn't Pay in Healthcare

Remote monitoring devices -- which can help patients take care of themselves at home with assistance from doctors and nurses elsewhere -- have been the "next big thing" in healthcare for several years now. As the baby boomers enter their golden years, big companies like Intel (INTC) and GE smell a golden opportunity, and smaller companies are entering the arena with venture capital financing. But the field won't really take off until there's a way to reward doctors for using the technology.

Today, despite all the talk about changing physician financial incentives, most doctors are still paid on a fee-for-service basis for seeing patients in their offices. When they do something for patients outside the office -- unless they go to the hospital or a nursing home -- they receive little or nothing. While Medicare does pay physicians a small amount for supervising home care, it's not a major part of their revenues.

So the challenge for companies that want to sell remote monitoring technology is to get the docs aboard. One startup that's trying to do that is Watermark Medical, which offers a home device and a Web site for diagnosing sleep apnea. Today, this serious condition is most often diagnosed in sleep clinics, at a cost of about $4,000.

Watermark's home sleep apnea testing device is a headband equipped with sensors and a tube that is inserted into a patient's nose. While the patient sleeps, data from the sensors is uploaded to a website that's monitored by sleep apnea professionals. They deliver a report to the doctor about the patient's diagnosis. The physician charges $250-$450 per test and keeps $100-$150 of that. While the doctor pays Watermark $4,000 for the diagnostic device, it creates a new revenue stream. About 1,000 physicians are now using the product to do 4,000 tests a month.

What makes this business model feasible is that Medicare pays for home sleep apnea testing. If most commercial insurers did the same, it would be an even more lucrative proposition, because many patients with sleep apnea are under 65. Watermark, funded partly by former Apple (AAPL) CEO John Sculley, is now looking to branch out into other home monitoring devices.

Meanwhile, GE is focusing some of its formidable resources on home monitoring as part of its $6 billion, five-year program to improve healthcare around the world. In the first year of this "Healthymagination" initiative, the company has spent about $700 million on R&D and has invested $250 million in an equity fund focused on healthcare technology companies. The company says the R&D effort has already resulted in the release of two dozen new products. Among them are the portable handheld Vscan ultrasound and the relatively inexpensive Brivo CT unit. In addition, GE has partnered with Intel and the Mayo Clinic to study the uses of remote monitoring devices in home care. (Intel's Atom microprocessor, by the way, is used in the Watermark apnea product.)

GE and its partners clearly have the prowess to create advanced products that could help provide better healthcare at a reduced cost. And it definitely makes sense to move as much care as possible out of expensive institutional settings. Wherever possible, primary care doctors and patients should deal with medical problems, leaving care in hospitals and skilled nursing facilities as the last resort.

Yet because of our antiquated method of financing healthcare, most physicians won't support such innovations in home care. To change this mindset, entrepreneurs must offer new types of reimbursement. That's where GE and the other titans of industry could learn something from little startups like Watermark.

Image supplied courtesy of jurvetson at Flickr.