Emerging tele-ICU Industry Moves Beyond Early Adoption

Copyright © 2016 - 2017 Splash 4 Partners, LLC
tele-ICU: Moving Beyond the Early Innings
➢ What is a tele-ICU?
➢ Drivers of Adoption
➢ Market Evolution
➢ tele-ICU vs. Other Acute Care Telemedicine Services
➢ tele-ICU’s Limiting Growth Factors
Contact Us:
Jacob Grosshandler jgrosshandler@splash4partners.com
Richard Grosshandler rgrosshandler@splash4partners.com

The Emerging tele-ICU Industry
Splash 4 Partners (“S4P”) was recently engaged by a healthcare focused investment fund to help diligence the tele-
ICU industry in support of its investment in a company in the space. The following pages include a few high-level
highlights from S4P’s analysis of the tele-ICU industry and conversations with industry participants.
Contact S4P to leverage our principals’ years of experience in private equity, lending, and management consulting
to enhance your diligence findings and improve your business.

A tele-ICU (sometimes referred to as an “eICU”) provides intensive care units (“ICUs”) with remote access to critical staff—
critical care nurses, board certified intensivists, among other specialists—to monitor, consult, and treat patients. An tele-ICU is
akin to an air traffic control center where medical staff monitor patient vitals, perform check-ups on the patient via cameras,
and quarterback treatment/intervention with the staff physically at the ICU bedside.
The backbone of most tele-ICU systems in use today is Phillips Visicu. Visicu facilitates remote monitoring and data collection
while leveraging algorithms that help manage patient volumes, acuity levels, and care delivery. A typical tele-ICU team consists
of three critical care nurses and one physician (usually an intensivist) who may oversee 100 or more patients. The tele-ICU is
generally used as a supplement to the clinical staff at the bedside and will never fully replace the need for staff on-site, as an
ICU patient is on average touched by clinical staff 178 times a day.
What is a tele-ICU?
Source: S4P Interviews and Analysis.

tele-ICU Early Innings
tele-ICU is still an emergent service. Intensivist shortages, an aging population, and increased healthcare
consumption provide favorable tailwinds for further adoption.
~94k ICU Beds in the
U.S.
~10% - 20% of
Critical Care Beds
Covered by tele-ICU
Services
A Critical Care Bed
Turns Over 43x-64x
a Year in the U.S.
54 tele-ICU
Command Centers
Installed in the U.S.
as of 2012
Over 400+ U.S.
Hospitals Currently
Leverage tele-ICU
4% of Hospitals
Have 24x7
Intensivist Coverage
On-Site
Source:. CCM Journal • Volume 41 • Number 12; The Intensivist Company; NIH; Electronic Health Reporter; Society of Critical Care Medicine; Agency for Healthcare Research and
Quality; S4P Interviews and Analysis.

1998
Visicu is
founded
First Visicu
install at Sentra
Norfolk General
Visicu installed
at 32 tele-ICU
command
centers
41 active tele-
ICU command
centers covering
249 hospitals
UMASS study of
52 ICUs
quantifies
improvements
in ICUs
deploying a
tele-ICU
Emory
University &
Philips launch
eICU to support
hospitals in
Australia
2001 2006 2010 2013 20192016
Visicu’s original
patent set to
expire
Market
Beta
Driving Adoption &
Proving Efficacy
Expanding the
Market
Philips buys
Visicu for
$430mm
Visicu finds hospitals
willing to run trials and
test an eICU solution
Market expanded, but questions remain
around clinical efficacy, expense, and ROI
tele-ICU coverage capacity expands as
more providers look to sell tele-ICU
services as comfort with telemedicine
eases adoption concerns and superior
patient outcomes and ROI is proven out
The Evolution of the tele-ICU Market

“Hospitals were chasing something shiny when they installed EMRs. Since meaningful
use, they [hospitals] are poorer and not any better off. Now they are sobering up since
there has been little results [pay off]. Since the ICU is such a large percentage of the
budget, they are going to look for proven technology and services that will lower and
contain costs there.”
– tele-ICU Industry Expert
“Everyone knows what telemedicine is now. We used to have to educate constantly. The
market has matured and people know about tele-ICU and the results it can deliver for
patient care. The problem now is that telemedicine is what EMR was five years ago…the
‘it’ HCIT buzzword of the moment.”
– tele-ICU Industry Expert
tele-ICU Moving Beyond the Early Innings

Other acute care telemedicine services, such as tele-stroke and tele-psych, differ from tele-ICU continuous
monitoring in customer profile and delivery of care.
tele-ICU
▪ ICUs are more likely to be at hubs (i.e., providers of telemedicine
services) rather than spoke hospitals (i.e., consumers of
telemedicine services)—with exception. As such, the hospital is
not looking to “pack and ship” the patient.
▪ Variations in treatment protocols, processes, and available
prescription drugs across hospitals increases the complexity of
integrating a service.
▪ Specialist shortages driving adoption.
▪ Proven to increase quality of care while producing a financial
ROI for hospitals.
▪ Greater use case among smaller, more rural, and suburban
hospitals.
▪ Consumers of other acute care telemedicine services more likely
to be found in spoke, rather than hub hospitals.
▪ Consumers of acute care telemedicine are more likely to “pack
and ship” patients (may adopt telemedicine to try and keep
patients local).
▪ Episodic, on-demand coverage is the only model currently
available to emergency departments or other non-ICU acute
care hospital departments.
▪ Greater variety in hardware & software providers than in the
tele-ICU market.
▪ Specialist shortages driving adoption.
Other Acute Care Telemedicine
tele-ICU vs. Other Acute Telemedicine Services

▪ Capital costs to launch a new tele-ICU
command center range from $4 million - $8
million.
▪ Lower cost hurdle exists for hospitals that
already have the IT backbone to run other
telemedicine programs.
▪ Incremental cost to connect an additional
hospital to an existing tele-ICU is estimated to
be $40,000-$60,000.
Buy vs. Build Costs
Source: NEHI, Critical Care, Critical Choices: The Case for tele-ICUs in Intensive Care. December 2010; S4P Analysis.
While the benefits from implementing a tele-ICU program can be significant, the system cost is substantial.
Alternatives to incurring such capital investment from a do-it-yourself (“DIY”) option exists via a limited number of
outsourced tele-ICU service providers.
Example tele-ICU Command Center Capital Costs
Command Center Capital Costs $
tele-ICU Support Center Buildout & Servers $1,190,000
tele-ICU Licensing and Implementation Fees 2,400,000
ICU Equipment Costs 1,100,000
Network and Infrastructure Costs 260,000
Software Costs 80,000
ICU Facility Costs (Cabling, Electrical) 470,000
Patient Monitoring System Upgrade Costs 370,000
Project Management and Consultant Costs 1,230,000
Miscellaneous 20,000
Total $7,120,000

Continuous monitoring via a tele-ICU has proven results both in improving patient outcomes
and enhanced financial results. ICUs leveraging a tele-ICU solution, on average, experience:
tele-ICU Results
A 23% Decrease in
Patient’s Length of
Stay (“LOS”) in the
ICU
A Mortality Rate
27% Below the
National ICU
Average
Savings Ranging
from ~$2,000 to
~$5,000 per ICU
Patient
Source: TelehealthTechnology.org; NIH; S4P Analysis.

Limiting Factors for Telemedicine Adoption & Use
Many of the limiting growth factors are producing far less headwinds when compared to the recent past. Four of
the primary growth limiting factors in tele-ICU include:
Reimbursement
Rates
State Licensing
& Hospital
Credentialing(1)
Reimbursement from third party payors for telemedicine services has and continues to lag. With some form of
reimbursement parity laws in place ~30 states, many industry participants expect reimbursement for telemedicine
services to eventually be covered.
State medical licensing boards limit the geographic reach healthcare providers have to practice. Getting physicians
licensed across multiple non-reciprocal states and credentialed and privileged at each individual healthcare facility takes
considerable time, expense, and effort.
State Regulation
Historic restrictions protecting the localization of healthcare services has limited the adoption of telemedicine services.
However, greater physician shortages coupled with greater financial constraints for smaller healthcare providers has led
many states to ease restrictions and accelerate adoption of telemedicine.
Shortage of Skilled
Healthcare Labor
A shortage of between 62,000 and 95,000 physicians is expected between now and 2025, including primary care
physicians and specialists to say nothing of nurses and other clinical staff. Regulation that localizes the labor of healthcare
professionals exacerbates the growing shortages by region. Hospitals and other healthcare organizations increasingly
compete for skilled labor in order to service greater volumes of patients, often across a number of specialties.
Source: http://www.thune.senate.gov/public/index.cfm/2016/2/bipartisan-team-of-senators-introduces-legislation-to-expand-telehealth-services-improve-health-outcomes-and-
reduce-costs; S4P Research and Analysis.
(1) The Connect for Health Act, currently in front of Congress, is a bill that would help accelerate licensing across states and facilitate the delivery of services delivered via
telemedicine. Additionally, this bill would improve reimbursement coverage from CMS.

Other Questions & Themes Splash 4 Partners Explored
➢ Who are the key providers of tele-ICU services and technology?
➢ What is the market penetration rate for hospitals using a tele-ICU solution?
➢ What are the prominent models hospitals use to deliver / consume tele-ICU services (e.g., DIY, hub & spoke, etc.)?
➢ Considerations among competing tele-ICU business models, including delivery models, pricing, etc.
➢ How are hospitals acquiring / selecting telemedicine providers?
➢ How are telemedicine providers finding success in client acquisition?
➢ Industry perspectives on the future of tele-ICU services.
➢ Reimbursement trends and considerations in telemedicine.
➢ Scale implications and profit sustainability in tele-ICUs.

About Splash 4 Partners
Splash 4 Partners supports middle market businesses and financial
sponsors by accelerating growth and increasing profits. We provide
actionable insights and data driven solutions to executives and
investors in the health, wellness, education, and information
technology industries that:
➢ Identify new strategies to capture market share
➢ Expand existing relationships with current customers
➢ Explore evolving competitive dynamics of a market, and
➢ Align the firm’s capital structure with its long term objectives
Contact Us:
Jacob Grosshandler jgrosshandler@splash4partners.com
Richard Grosshandler rgrosshandler@splash4partners.com

Emerging tele-ICU Industry Moves Beyond Early Adoption

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