17 May DHC '08: In healthcare, commercializing technology can be enticing, risky
Madison, Wis. – When it comes to healthcare, it’s an accepted truth that no two patients are the same, and equally accepted that no two patients ever receive the exact same treatment. As they treat more and more patients, care providers tend to develop their own style, improvising new solutions for ideal patient care. Some of them may be as simple as bedside manner and appointments, while others can go so far as to reinvent the hospital’s technical structure.
Now, with the growing market for healthcare technology – spanning from electronic medical records to telecommunications treatment options – many caregivers are wondering if what they have developed in-house has a place in the outside market. It’s an attractive proposition, especially when confronted with the rising expenses of healthcare, but experts in the field caution that it takes more than a working system to turn a profit.
Moving outside the hospital
At the 2008 Digital Healthcare Conference, one of those success stories was the Marshfield Clinic’s development of CattailsMD, an EMR system. Marshfield, being focused on the more sparsely populated regions of Wisconsin where doctors are less prevalent, needed a system to connect their patient information. The system now is spread across Marshfield’s 43 locations in a fully chartless environment.
With the success of the system inside the clinic infrastructure, Marshfield created Cattails to see if the options offered by the clinic could operate in an expanded market. Cattails turned the EMR into a product suite offering options such as Cattails Lab for laboratory orders and result reporting, Cattails Imaging for archiving radiology information, and Cattails Financial for billing and insurance reimbursement.
“This is a product developed inside a practice pushing out, instead of something pushing in,” said Bob Carlson, director of applied sciences for Marshfield Clinic. He noted there now are more Cattails users outside of Marshfield Clinic locations than inside.
Other commercial opportunities can come together as a fortunate set of circumstances, such as Merge’s eFilm software. The medical school at the University of Toronto wanted to purchase a picture archiving and communications system (PACS) for diagnostic imaging but was put off by the cost. William Mortimore, managing director of Healthcare Growth Partners and a founder of Merge, said that with each station costing thousands of dollars, the total cost of installation would have been over $15 million.
The university chose to develop the software in-house in 1997, and as a result of word-of-mouth and medical conferences, the software experienced a rush in popularity. eFilm was spun off from the university, and the company was purchased by Merge in 2002. Following the purchase, the software was downloaded 20,000 times by the end of that year.
“They recognized opportunity, set up a company to do this, and extended their vision to make it commercially viable,” Mortimore said.
Another sort of service
So what drives hospitals to cross over from caregivers to technical support? Jim Prekop, CEO of TeraMedica, suggested one of the first reasons companies may decide to market their technologies is as simple as wanting to share their good fortune. “I think people are very proud of the sweat equity for a successful product,” he said. “They intimately know the value and have an attraction to the outside world.”
Expanding the product can also help the provider find additional uses for it, meaning they can test the limits to determine new directions. Carlson said that Marshfield, being a regional organization, has few issues within its region, but when leaving that region they see a new level of investment they must compete with and they see what they must do to mitigate risks.
Be prepared to provide additional levels of service and support if the product takes off. Mortimore cited eFilm as an example where the program developed by the University of Toronto became a hit after it began distributing CDs of the program at medical conventions. The CDs received such a positive reception that the university began offering online downloads. That continued until administrators realized that demand was so high, the institution needed its own support structure to assist potential customers.
“Sometimes it happens to be an event in time where there was a need,” Mortimore said. “They were trying to solve an economic need [and] started giving it away until they realized it was costing them.”
Healthcare providers can see expansion of an IT project as necessary for their future development. Carlson said that as Marshfield continues to increase its involvement in technology, the costs increase along with it. Marshfield’s operational budget for IT now is $45 million a year, but by marketing Cattails to a larger audience the hospital can take those profits and use them for further development at the facility, itself.
“If we look at the next 10 years, it will consume a greater portion at Marshfield and we don’t know if that’s sustainable,” Carlson said. “Moving to a health assistant function, we think this will couple into the practice of medicine.”
Keep options within reach
So should all hospitals begin selling their technical developments? Trevor D’Souza, a managing director of Mason Wells, said that it is definitely an avenue that investors will take interest in, but there are many ways a healthcare provider can commit an error. For starters, since so many of these products are designed for the specific needs of an organization, it may not meet a need in other organizations.
Healthcare providers can tailor for a mainstream audience, but D’Souza said that from a developer’s standpoint it is far harder to build a system for commercial use than for custom use. He likened it to the difference between writing a one-page paper and a 10-page paper, pointing out that mainstream systems need to be accessible to a broader audience, whereas custom applications have more room to be converted when a new idea comes into play.
“It’s very uncommon that they would admit it, but from the point of view of committing it [the market error], it’s common,” D’Souza said. “It usually tends to be real specialty application built by a few very talented people.”
Prekop agreed that the often myopic view companies take when developing software applications is a major error. “When you’re in that model, you’re looking at your own organization. You [must] use a larger statistical sampling,” Prekop said. “In the market, the DNA of the product is not a single entity.”
To avoid this issue, Prekop and D’Souza both suggested it may be more advantageous for providers who want to commercialize their IT to not market their exact system, but to use the experience and architecture that drove the investment to tailor a new program for the general market. Building a new system for the general market, while complicated, is less expensive than the cost of converting a specialized system over to a new infrastructure.
“In my view, having built systems, it is in many respects easier to rewrite the application for commercial use. Take the knowledge and rules and re-architect it for commercial use,” D’Souza said.
In distributing the product, experts suggested that the best path is to have a separate entity look at the marketing, either a spin-off company or a specific department focused on the technology.
For all healthcare providers, the most important goal is to make sure the technology does not supplant its care mission. “One of my objectives is to look for alternative revenues, and one of the things I constantly hear is, `I don’t want you bringing down the mothership,’” Carlson said. “Watch very closely and ask if the risk is worth the effort.
“There is a need to understand that you’re not the only kid in the room. Our goal is not to disenfranchise the Marshfield Clinic but to broaden it.”
Other DHC coverage
• DHC 2008: EMRs stimulate interest in personal health records
• DHC 2008: Electronic data management top concern for CIOs
• Sharing your health information: Is California RHIO defying the odds?
• Partners CIO touts integration of genetics and electronic health records