Wearables and the Affordable Care Act: A Rising Tide Will Lift SOME Boats

Dwight Rising Tide

 

 

18 months ago, I could count on one hand the number of wearables startups that from inception, had selling into the healthcare system deep in their DNA and/or a clear understanding of the trends in healthcare that could most affect their potential business trajectories. Whether the barriers were regulatory, legal, IT, time to market or other, there have been legitimate reasons to stay away from healthcare as a discussion point for distribution channels if you were an entrepreneur trying to raise capital.  In many contexts, it was a non-starter except if you were pitching a healthcare focused investor. This is changing rapidly, and figures to accelerate over the next 18-24 months. It presents investors and entrepreneurs in wearables with one of the really large value inflection points for wearables technology companies with utility that bleed over into the healthcare system.

I read Carmel Deamicis’s article in Pando Daily last week where she remarked that “people likely to benefit from fitness wearables aren’t using them”. In the article, she pointed out that the elderly, the unfit, and the chronically ill, are being ignored by Nike, Jawbone, Basis, Fitbit,, Misfits, and others,  and they shouldn’t be. And she’s right.  They are.  But there is a lot more to it than merely saying that selling into the cost drivers (baby boomers, co-morbid patients, etc) of the classic healthcare area are not  as “sexy” as selling into the fit, younger demographic. The main reason these companies and most others outside the health care system don’t, is that successful, capital efficient business building in that segment, with wearables, requires above all, that it fit within the protocols of any health care delivery system and gets paid for by insurance companies.  This has NEVER been easy! But my money is betting that it is about to change.

Our healthcare system is in massive transition accelerated by the Affordable Care Act. Massive consolidation of delivery systems is well upon us. It is beyond the scope of this article to outline all the reasons why, but the important developments are: (1) The past 10 years of creating digitization standards has made it less costly for any one acquirer to integrate a target from an IT standpoint; and (2) January 1 is the day when health care delivery systems get thrown into the ice cold bath that the ACA has drawn.

For those not following the space, let’s simply say (and admittedly I’m taking liberty here) that delivery systems are facing a radically different landscape for delivery of and payment for care. Which means, of course, that if you are a delivery system, you had better have a massive balance sheet to survive or, as has been explained to me, immediately find ways to scramble and drive significantly more revenue from patient care or cut significant amounts of operating costs. It’s the latter half of the equation that presents so much opportunity for wearables since the future is going to be more about keeping patients out of hospitals, emergency rooms, and labs.

To illustrate the point, consider the emergence of Accountable Care Organizations (“ACO”). Medicare will roll out a program as early as January, 1, 2015 that would offer Medicare beneficiaries incentives to commit to receiving their care from an ACO. A proposal called “Medicare Essential” would offer beneficiaries joining ACOs lower Part B premiums, deductibles, co-payments and may even eliminate their need for MediGap insurance.  It is likely private insurers will follow with similar incentives to their enrollees.  Hospitals may find it difficult to survive if they do not participate and for those that do participate, their revenue would be tied to the more than 50% of costs that are outside the four walls of the hospital.

One of the key takeaways from a recent conversation with Brady Davis, Director, Healthcare Strategy & Innovation at Oracle was among other things, that  as a result of all of this, “Healthcare is moving outside of the traditional four walls and the ability to engage the patient/consumer is critical for any healthcare organization to compete and succeed in this new paradigm.” In other words, although wearables are already gaining steam from consumers expect to see significant growth in provider and payer adoption as more regulatory incentives hit the market.

If you are a wearables company, anywhere in the supply chain, your next value inflection point may just be dependent on whether you will be first in line to benefit from the reshaping of our health care system and can fill the massive need for more revenue generation at the provider level or drive greater efficiencies to take cost out. Got technology, product or service that can save a provider millions by preventing early onset of chronic disease? Got technology, product, or service that can generate significant insurance covered revenue? If you do, you are about to see your value increase above the market rate.

Yes, the wearable hype cycle is in full swing, as we all know. And while most investors are spending time focusing on the companies owning consumer relationships and / or developing the next big thing in design driven wearables, I’ve always been most exciting about early stage wearables companies that sit at the intersection of four main areas: (1) Movement; (2) Accurate Advanced Sensor Fusion; (3) Computational Biology; and (4) Mobility and bleed into healthcare.  Those are the companies that have the biggest opportunities to serve the broadest segment moving forward, and hopefully deliver benefit to the segments most ignored by the early entrants into the “sexy” part of the wearables market.

 

 

, , , , , , , ,

Comments are closed.