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The Digital Healthcare Roadmap

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Our initial foray into the evolution of digital technologies in healthcare and our analysis of what we came to call Digital Healthcare

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The Digital Healthcare Roadmap

  1. 1. Equity Research Industry Analysis Fall 2013 The Digital Healthcare Roadmap The Four Stages of Healthcare Digitization: The Nexus of Digital Healthcare Technology and Health Information Management Digital Healthcare Sector Steve Rubis (202) 778-4780 ● rubiss@stifel.com
  2. 2. Digital Healthcare 1 Industry Analysis — Fall 2013 Table of Contents Preface 2 The Four Stages of Healthcare Digitization 3 Unlocking the Value of Data 8 The Demographic Trends Driving Digital Healthcare and Why Investors Should Pay Attention 14 The Accelerators of Digital Healthcare Innovation 27 Qualcomm Life 28 Rock Health 31 StartUp Health 32 Healthbox 33 Blueprint Health 34 Digital Healthcare Technology Industry Overview 35 Many Exciting Opportunities and Many Ways to Invest 39 Clinical Back-Office and Clinical Front-Office 41 Analytics 46 Health and Wellness/Gamification 48 Medical Devices (Sensors/Monitoring/Imaging) 51 Diagnostics/Genomics/Clinical Trials 53 Provider Information/Insurance/Education 54 Fitness 56 Diabetes 58 Cardiovascular Diagnostics/Sensors 59 Telehealth 60 Conclusion: Who Leverages Digital Healthcare and Investment Potential? 62 Important Disclosures and Certifications 63 Stifel does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. All relevant disclosures and certifications appear on pages 63 and 64 of this report.
  3. 3. Digital Healthcare 2 Industry Analysis — Fall 2013 Preface What is Digital Healthcare? We believe digital healthcare companies are engaged in the pursuit of leveraging technology to transform all aspects of healthcare. Digital healthcare technology companies specifically look to leverage Internet and mobile technology to improve healthcare by providing networks with interoperability and providing mobility to the clinic. At the same time, digital healthcare companies are leveraging these technologies to incentivize consumers to engage and take ownership of their health. What is Health Information Management? We define health information management as the maintenance of health records by pen and paper or digitally in hospitals, physician offices, health departments, and insurance companies. In our view, electronic medical records (EMRs) and electronic health records (EHRs) are creating the basic digital foundation needed to create a fully integrated digital healthcare eco-system. What are the Four Stages of Healthcare Digitization? In our view, digital healthcare technology and health information management are converging to create a digitized healthcare system. We believe that convergence will move the focus of healthcare digitization from building a foundation to an integrated eco- system that drives reduced healthcare costs through the value of analytics. In our view, there are four stages of healthcare digitization, which we describe below. Stage 1 – Digitizing the Clinical Back-Office (enterprise systems solutions). We believe Stage 1 consists of building the basic digital infrastructure for healthcare. We believe the focus of Stage 1 revolves around companies developing technology around EMRs/EHRs, revenue cycle management (RCM), and pharmacy benefit management, essentially digitizing the back-office infrastructure of a doctor‟s office or hospital. Stage 1 solutions are often enterprise-type systems and do not always exhibit robust interoperability between disparate systems. Stage 2 – Digitizing the Clinical Front-Office and Back-Office (Internet and mobile solutions). We believe Stage 2 consists of developing and implementing digital healthcare technologies that involve the patient (e.g., wireless monitoring, health and wellness tracking, et al.). In our view, the commonality among Stage 2 companies is a focus on leveraging the web, mobile, and the cloud to create interoperable solutions, provide mobility to the clinic, as well as facilitating consumer engagement in healthcare decisions. Stage 3 – Integration. We believe integration consists of healthcare IT companies and digital healthcare companies uniting through partnerships or acquisitions to create a complete eco-system (closed loop of patient, provider, and healthcare organization/institution). We believe interoperability and mobility will allow healthcare to transform outcomes and cost of care by unlocking the value of data. Stage 4 – Monetization. We believe monetization consists of unlocking the value of healthcare data via analytics to all participants in the healthcare industry (e.g., healthcare IT companies, digital healthcare companies, managed care organizations, and even pharmaceutical companies). Where Are We Now in Terms of the Four Stages? We believe the digital transformation of healthcare is currently in Stage 1 and the beginning of Stage 2. Clinician adoption of EMR/EHR technology illustrates that the basic digital foundation is in place. In our view, the development of digital healthcare technologies is driving the next stage of development by striving for interoperability of systems, mobile solutions, and engaging patients in healthcare decisions and processes. Our Thesis. We believe the digital transformation of healthcare will occur in four stages. In our view, current efforts remain focused on building out the necessary technological infrastructure to drive digitalization. We believe that digital healthcare technology will provide the catalyst for the digitalization of healthcare to move from the foundation stage to the integration stage, which is characterized by interoperability of disparate systems and solutions. Digital healthcare technology is engaging patients with their healthcare, providing the necessary foundation to drive healthcare costs lower in the future. In our opinion, the creation of a fully integrated digital healthcare system will lead to the ability to unlock the value of healthcare data in order to drive down costs of care throughout the system.
  4. 4. Digital Healthcare 3 Industry Analysis — Fall 2013 The Four Stages of Healthcare Digitization We believe the digitization of healthcare represents an important secular investing theme that will play out over the next decade. The promise of healthcare digitization lies in the possibility of driving reduced healthcare costs. We note that McKinsey estimates that digital healthcare technology may drive $300 billion to $450 billion in cost savings annually. In our view, these estimates represent the potential associated with the digitization of healthcare. We believe that the digitization of healthcare remains in the very early stages and the current focus lies in building the digital foundation (digitizing the clinical back- office and clinical front-office). Once all constituents of the healthcare industry (clinicians, hospitals, and patients) are digitized, then new technological solutions leveraging mobile and other new technologies born out of digitization should move healthcare toward the goal of significant cost reductions. In our view, healthcare digitization will develop through four stages. The focus of Stage 1 is developing a basic digital infrastructure that moves the clinical back-office (medical records, billing, et al.) from pen and paper to digital. Stage 2 will be driven by the development of new digital healthcare technologies that leverage the wireless infrastructure digitizing the clinical front-office (communication with patients, scheduling, monitoring, diagnostics, et al.). The focus of Stage 2 is on developing wireless healthcare solutions leveraging mobile technology (smartphones and tablets) that allow patients and clinicians to better understand healthcare issues. In our view, an important aspect of Stage 2 lies in driving consumer adoption and closing the digital healthcare eco-system. We believe without patient buy-in, the digitization of healthcare will likely begin and end with the clinical back-office. In Stage 3, companies will begin to integrate developments achieved in Stage 1 and Stage 2; at this point we believe companies will focus on how to close the eco-system in terms of their respective business models. Lastly, in Stage 4, constituents will begin to focus on driving meaningful analysis off of the vast data created by digitized healthcare. We believe Stage 4 represents the greatest opportunity for the digitization of healthcare, but also represents the least defined opportunity, as we remain in the early stages of healthcare digitization. In Exhibit 1, we provide a diagram that explains our framework, “The Four Stages of Healthcare Digitization.” Exhibit 1: The Four Stages of Healthcare Digitization Explained Investment Area(s)Beneficiaries Technological Focus The Four Stages of Healthcare Digitization Stage 1 • Digitizing the Clinical Back-Office Stage 2 • Digitizing the Clincial Front-Office Stage 3 • Integration Stage 4 • Monetization EMRs/EHRs RCMs PBMs CROs Digital Healthcare Combines Stage 1 and Stage 2 Entire Healthcare SupplyChain Clinicians Hospitals Consumers Clinicians Closes the Eco-system by Integrating Stage 1 and Stage 2 Constituents Focus on Leveraging the Value of Data Healthcare IT Companies Digital Healthcare Companies In Stage 3, we believe Healthcare IT companies will acquire Digital Healthcare companies. Additionally, Digital Healthcare companies will become IPO candidates The Entire Eco-system: Healthcare IT Digital Healthcare Technology Managed Care Organizations (MCO)s Pharmaceuticals Source: Stifel Stage 1 – Digitizing the Clinical Back-Office. Stage 1 of healthcare digitization focuses on building a digital infrastructure that allows clinicians (doctors, nurses, healthcare providers), hospitals, and other healthcare organizations to move operations from pen and paper into the digital era, bringing medical records, billing procedures, pharmacy management, and other relatively basic tasks online. Investment opportunities in Stage 1 are for the most part healthcare IT companies focused on providing EMR/EHR
  5. 5. Digital Healthcare 4 Industry Analysis — Fall 2013 technology to healthcare, but also include companies focused on revenue cycle management, pharmacy benefit management, and even contract research organizations. As clinicians become more comfortable with digitization over time, we believe workflow will become more efficient and clinicians will become more receptive to leveraging more complex digital healthcare solutions. We note that Government stimulus represents a major catalyst driving Stage 1 as the Health Information Technology for Economic and Clinical Health (HITECH), part of the American Recovery and Reinvestment Act (ARRA) of 2009, authorized $22 billion in incentives to drive the modernization of health information technology systems. Stage 2 – Digitizing the Clinical Front-Office. In Stage 2, the digitization efforts focus not only on the clinical back-office, but also the clinical front-office. We believe Stage 2 digitization is about closing the digital healthcare eco-system through interoperability, mobility, and consumer engagement. The focus of Stage 1 is digitizing basic clinical back-office tasks that will likely result in more efficient clinician workflow. In our view, Stage 1 does not involve using digital technology to transform patient care or provide technological solutions that allow patients an easier time of tracking their own health. Really, the focus of Stage 2 digitization lies in leveraging wireless technology (smartphones and tablets) to develop digital healthcare solutions that allow patients to not only better understand their health, but also allow them to make behavioral adjustments to their health. In our view, this stage represents the beginning steps for healthcare leveraging digital technology to drive reduced healthcare costs. We note that Stage 2 digitization is being driven by multiple catalysts: (1) the Affordable Care Act, which shifts the focus of healthcare decisions to consumers/patients, and (2) the proliferation of wireless technology and high adoption rates among consumers and physicians. The convergence of these two catalysts has led to the development of myriad companies focused on attacking different areas of healthcare through digital technology. Stage 3 – Integration. We believe Stage 3 represents the creation of a fully integrated digital healthcare eco-system, which includes clinicians, hospitals, and patients. In Stage 3, companies will focus on ways to integrate the digitized clinical back-office and the digitized clinical front-office. The goal of integration will be to provide more complex solutions that help lead to reduced healthcare costs throughout the system. We believe the integration of Stage 1 and Stage 2 will provide the necessary technological tools for Accountable Care Organizations (ACOs) and other healthcare organizations to truly better understand their patient populations, leading to improved healthcare outcomes and reduced costs. Stage 4 – Monetization. We believe Stage 4 represents the Holy Grail of healthcare digitization as it represents monetizing the value of data through reduced healthcare costs. In Stage 4, the integrated digital healthcare tools of Stage 3 allow numerous constituents to analyze large data sets in order to drive better understanding of patients and their health, in turn leading to lower costs. According to a recent McKinsey & Company study, the promise of integrating digital healthcare and analytics may lead to an estimated $300 billion to $450 billion in cost savings for the U.S. healthcare complex. Where Are We in Terms of the Four Stages? In terms of the Four Stages of Healthcare Digitization, we believe that we are in the early development phase of Stage 1 and Stage 2. In terms of Stage 1 – Digitizing the Clinical Back-Office, we believe that digitization remains low, as according to HIMSS roughly 80% of clinicians are using a component of a basic EMR/EHR, and less than 40% of clinicians are using a more complex integrated EMR/EHR solution. In our view, these statistics suggest that the digitization of the clinical back-office remains a developing theme. At the same time, we believe that innovative digital healthcare technologies are beginning to hit their stride. Technology companies are conducting clinical trials testing wireless devices (e.g., Qualcomm Life testing devices from Asthmapolis and Zephyr) in order to understand the possible impacts digital healthcare technology may have on care outcomes. We believe that wearable computing, especially devices focused on tracking health data, seem to be one of the more well developed areas of digital healthcare. Also, we believe there are companies already working to monetize healthcare data, most notably managed care organizations (MCOs) with a health data analytics function.
  6. 6. Digital Healthcare 5 Industry Analysis — Fall 2013 We believe numerous companies are participating in the continued digitization of healthcare. In our view, some participants are focused on a single stage of digitization. Companies participating in healthcare digitization range from healthcare IT companies to digital healthcare companies, to technology companies and managed care organizations, as well as pharmaceutical companies. At the same time, some companies are starting to extend their focus to other stages (e.g., EMR/EHR companies integrating digital healthcare technologies into their platforms (Athenahealth‟s acquisition of Epocrates or Aetna‟s acquisition and integration of iTriage)). We believe that companies focused on creating integrated solutions across all stages of digitization are best positioned to capitalize on the ongoing digitization of healthcare. Below we provide a breakdown of companies participating and companies that are possible beneficiaries of digitization by stage and focus. The first stage of healthcare digitization, in our view, focuses on digitizing the clinical back-office. We define the clinical back-office as tasks associated with health information management (e.g., medical records, billing, revenue cycle management, or essential tasks not associated with direct influence of care outcomes). The solutions and technologies that are digitizing the clinical back-office are aimed at generating a more efficient infrastructure. Companies participating in Stage 1 likely fall into one of four categories: EMR/EHR providers, revenue cycle management providers, pharmacy benefit managers, logistics, or contract research organizations. We provide a list of prominent public and private companies that we believe are participants in Stage 1 digitization in Exhibit 2. Exhibit 2: Key Companies Participating in the First Stage of Healthcare Digitization ($ in millions) EMRs / EHRs Ticker Market Cap Revenue Cycle Management (RCM) Ticker Market Cap Pharmacy Benefit Managers (PBM) Ticker Market Cap Logistics / Misc. Ticker Market Cap Athenahealth ATHN $3,956.1 MedAssets MDAS $1,422.1 BioScrip BIOS $779.5 Owens & Minor OMI $2,153.2 Cerner CERN $16,023.2 HMS Holdings HMSY $2,103.9 ExpressScripts ESRX $53,346.3 Omnicell OMCL $807.6 Allscripts MDRX $2,565.9 Accretive Health AH $904.6 Walgreens WAG $46,739.9 Merge Healthcare MRGE $250.1 Greenway Medical GWAY $474.5 Quality Systems QSII $1,264.5 CVS/Caremark CVS $72,019.3 Computer Programs and Systems CPSI $638.2 Premier, Inc. Private Catamaran Corp CTRX $11,471.6 Epic Private eClinicalWorks Private M*Modal Private MEDITECH Private Stage 1: Digitizing the Clinical Back-Office: EMRs / EHRs / RCMs / PBMs / Logistics / Misc. Source: Company documents, FactSet, and Stifel The second stage of healthcare digitization, in our view, focuses on digitizing the clinical front-office. We define the clinical front-office as essential tasks in a clinician‟s workflow aimed at driving a healthcare outcome (e.g., monitoring, tracking information, et al.). We believe an essential component of digitizing the clinical front-office consists of bringing patients into the fold. In our view, innovative companies focused on developing digital healthcare technologies seek to solve a healthcare issue through wireless/mobile technology, but also recognize that patient participation is vital to reducing costs. Both public and private companies are participating in Stage 2 with public company participants being Internet healthcare focused companies, large technology companies, and even diagnostic companies. Innovative private digital healthcare companies are focused on a myriad of topics: medical records, analytics, diagnostics, wearable computing, health and wellness, et al. We provide a list of prominent public and private companies we believe are participants in Stage 2 digitization in Exhibit 3.
  7. 7. Digital Healthcare 6 Industry Analysis — Fall 2013 Exhibit 3: Key Companies Participating in the Second Stage of Healthcare Digitization ($ in millions) Company Ticker Market Cap Company Ticker Market Cap Company Ticker Company Ticker WebMD WBMD $1,667.0 Vocera VCRA $450.9 Jawbone Private Sotera Wireless Private eHealthinsurance EHTH $513.8 Streamline Health STRM $92.1 Castlight Health Private Prodea Systems Private Google GOOG $292,918.6 iRobot IRBT $966.3 PracticeFusion Private RedBrick Health Private Apple AAPL $452,631.4 Nuance NUAN $6,101.1 AirStrip Technologies Private Healthline Networks Private Samsung 005930.KS $163,245.0 Model N MODN $337.9 23andMe Private CareCloud Private Medidata Solutions MDSO $2,434.8 Illumina ILMN $9,902.1 MedSynergies Private Glumetrics Private Healthstream HSTM $933.6 Orasure OSUR $287.4 ZocDoc Private Kareo Private c8Medisensors Private Audax Health Private FitBit Private Oscar Private Blue Health Intelligence Private Kinnser Software Private Withings PrivateHumedica (Owned by UnitedHealth) Stage 2: Digitizing the Clinical Front-Office and Clinical Back-Office (Interoperability/Mobile/Consumers) Source: Company documents, FactSet, Rock Health, StartUp Health, and Stifel The third stage of healthcare digitization, in our view, focuses on integrating the technological advances in digitizing the clinical back-office and clinical front-office. Participants in this stage seek to build platforms that provide innovative solutions aimed at changing clinical outcomes, but also providing the essential digital backbone needed to do so. We believe that large technology companies, diagnostic companies, and even managed care organizations are early participants in this stage of digitalization. We provide a list of select prominent public companies we believe are participants in Stage 3 digitization in Exhibit 4. First, we list Qualcomm (QCOM: $68.02, not covered) because of its significant efforts to build a digital healthcare eco-system through its Qualcomm Life subsidiary. Alere (ALR: $31.98, not covered) represents a medical diagnostics company working to integrate diagnostics, health monitoring, and information technology solutions in one eco-system. Dexcom (DXCM: $26.67, not covered) represents a medical device company focused on developing glucose monitors integrated with a software platform that facilitates data communication between patients and doctors. In terms of healthcare IT companies, we list Athenahealth (ATHN: $107.36, not covered) because of its acquisition of Epocrates, Cerner (CERN: $46.70, not covered) as it begins to focus on leveraging the value of data, and Allscripts (MDRX: $14.41, not covered) because of its focus on population health management, and acquisitions of digital healthcare companies dbMotion and Jardogs. We include United Health (UNH: $74.06, Buy, covered by our colleague Tom Carroll), Aetna (AET: $65.11, Buy, covered by Tom Carroll), and WellPoint (WLP: $87.29, Buy, covered by Tom Carroll), as each of these managed care organizations operates an analytics organization, and these organizations have started to collaborate with other healthcare constituents to leverage the value of data. Exhibit 4: Key Companies Participating in the Third Stage of Healthcare Digitization ($ in millions) Company Ticker Market Cap Company Ticker Market Cap Company Ticker Market Cap Qualcomm QCOM $116,683.3 Athenahealth ATHN $3,956.1 United Health UNH $75,296.8 Alere ALR $2,614.5 Cerner CERN $16,023.2 Aetna AET $24,227.4 Dexcom DXCM $1,903.6 Allscripts MDRX $2,565.9 WellPoint WLP $26,096.3 Stage 3: Integration: Technology Integrators and Analytics Source: Company Documents, FactSet, and Stifel
  8. 8. Digital Healthcare 7 Industry Analysis — Fall 2013 The fourth stage of healthcare digitization, in our view, focuses on unlocking the untapped value of healthcare data through monetization. We believe the participants and beneficiaries of Stage 4 encompass a wide range of industries and constituents ranging from healthcare IT companies to technology companies to pharmaceutical companies. Any company extracting value from healthcare data or providing services to reduce healthcare costs through better outcomes or more targeted advertising, et al., is a participant in this stage. While we believe there are many participants and possible beneficiaries of healthcare digitization, we believe there are companies at risk of disintermediation. First, we believe the greatest risk is posed to companies focused on solutions that target either just the clinical back-office or just the clinical front- office. Companies that do not extend their focus to understanding the possible opportunities associated with integrating current technologies with new digital healthcare innovations will likely be (1) acquired, (2) disintermediated, or (3) become irrelevant. Additionally, we believe the wearable computing space, specifically those companies focused on tracking health data, e.g. FitBit, Jawbone, Withings, et al., may disintermediate global-branded consumer weight- loss services companies. Wearable computing companies are combining social networking with wearable computing to allow consumers to more easily track their fitness, health, and even weight, as well as allowing consumers to compete against one another. Lastly, these companies are analyzing consumer data inputs in order to provide feedback on how to make the healthiest choices in real-time. Now we attempt to better understand the potential value of healthcare data and the potential cost savings that healthcare data may provide in the next section of this report, Unlocking the Value of Data.
  9. 9. Digital Healthcare 8 Industry Analysis — Fall 2013 Unlocking the Value of Data The ultimate potential for digitizing healthcare lies in the ability to drive reduced costs. The U.S. Government has committed significant stimulus dollars via HITECH/ARRA to be used for updating healthcare information technology infrastructure. We believe these efforts are building the foundation for the further digitization of healthcare. Additionally, the Affordable Care Act (ACA) is shifting the focus of healthcare decisions to the consumer, which is serving as a catalyst to drive the development of digital healthcare technology solutions focused on the clinical front office. What remains untapped is the potential value locked in the massive data sets generated throughout the healthcare supply chain. In our view, the “Holy Grail” of healthcare digitization lies in reducing healthcare costs through data and analytics. We believe several government initiatives are helping drive the digitization of healthcare, including the HITECH Act, the Health Data Initiative (HDI), and the Affordable Care Act. In our view, the goals of these programs align well with our Four Stages of Healthcare Digitization framework. Through the HITECH Act, the government funding has created an impetus for healthcare professionals to adopt electronic medical record technologies, in turn creating a foundation for further digitization. Through the Health Data Initiative and Affordable Care Act, the government is providing the impetus for the healthcare industry to create a foundation for digitized data and analytics, which we believe represents a significant catalyst for the continued development of digital healthcare technologies. In Exhibit 5, we provide a summary of these key government programs, as well as their key provisions and potential outcomes. First the HITECH act provides $22 billion worth of incentives for providers to adopt and utilize electronic health technology and records. The Health Data Initiative, launched in 2010, and now known as the Health Data Consortium, represents a public-private partnership made up of 17 organizations. The Health Data Initiative aims to help Americans understand health and healthcare performance in their communities, and ultimately facilitate improvement. Lastly, the Affordable Care Act focuses on bringing affordable care to consumers and brings roughly 30 million new patients under coverage. We believe the Affordable Care Act makes numerous provisions that will help further development of a digitized data and analytics eco-system for healthcare. Exhibit 5: Summary of Key Government Programs Driving Healthcare Digitization • Enables new payment models • Provides new ways for patients and providers to engage • Reduces medical errors • Increases use of latest research and evidence • Patients can compare provider value • Providers can better evaluate appropriate use of drugs and treatments • Manufacturers can optimize R&D • Insurers can design more engaging programs • Organizations can distill quality information and create products to inform consumers • Enables coverage for about 30 million more patients • Providers focus on outcomes, perform newer unneeded activities • Reduces reimbursement for readmissions • Providers increase productivity • Eliminates reimbursement for hospital-acquired infections • Demand for hospitals declines • Supports patient-centered medical homes • Patients become sensitive to value • Creates Accountable Care Organizations (ACOs) • Moves toward paying for full episodes of care rather than fee for service HITECH Act: Health Data Initiative: Affordable Care Act: • Provides incentives for use of electronic health technology and records • Releases government health data into the public sector Initiative Provisions Potential Outcomes Source: Castlight Health, HITECH Act (www.healthit.gov), Health Data Initiative (www.hhs.gov), and the Affordable Care Act (www.hhs.gov) In our view, the HDI initiative and the ACA provide a major catalyst for moving towards a fully integrated digital healthcare eco-system. The HDI initiative “liberates” health data allowing innovators and developers across the country to tap into data sets from CMS, CDC, FDA, and NIH, in order to drive
  10. 10. Digital Healthcare 9 Industry Analysis — Fall 2013 innovation. Information provided by HDI includes clinical care provider quality information, nationwide health service provider directories, databases of the latest medical and scientific knowledge, consumer product data, community health performance information, government spending data, et al. A major focus for HDI has been on making existing data machine-readable, downloadable, and application programming interface accessible, while protecting privacy. Furthermore, HDI sponsors innovation using its library of data sets through numerous events as well as its annual Health Data Initiative Forum (Health Datapalooza). We note that the ACA also makes several provisions for a digitized data and analytics eco-system for the improvement of healthcare. While the ACA focuses on expanding the insured population by more than 30 million, the ACA also makes numerous provisions focused on building an integrated digitized data and analytics eco-system. Several sections of the ACA represent provisions for the development of data and analytics applications for healthcare; we highlight a few of the provisions below: Section 3013 – Quality Measure Development. This section sets the standards for measuring performance and improvement of population health or of health plans, providers of services, and other clinicians in the delivery of health services. Section 3022 – Medicare Shared Savings Program. This section outlines the establishment of Accountable Care Organizations (ACOs). Section 4302 – Understanding Health Disparities. Data Collection and Analysis. The section calls for healthcare programs to enhance their data collection and data reporting in order to reduce disparities. Section 6301 – Patient-Centered Outcomes Research. This section sets guidelines for comparative clinical effectiveness research and establishes a Patient Center Outcomes Research Institute (PCORI). Section 10305 – Data Collection; Public Reporting. This section calls for a strategic framework for public performance reporting. Section 10332 – Availability of Medicare Data for Performance Measurement. This section calls for the creation of qualified entities; establishes qualifications for using Medicare claims data for analysis. A major provision of the ACA revolves around the development of Accountable Care Organizations. The Centers for Medicare and Medicaid defines ACOs as: groups of doctors, hospitals, and other health care providers, who come together voluntarily to give coordinated high quality care to their Medicare patients. These organizations exist to drive lower healthcare costs, improve the quality of outcomes, and improve the care experience. ACOs achieve these goals through payment models that reward quality care coordination and quality outcomes. We believe a key component of ACO success will be the use of data and analytics. In January 2013, McKinsey published a study entitled “The „big data‟ revolution in healthcare: Accelerating value and innovation,” which analyzed the possible impact of data analysis on the healthcare industry. The report estimates that unlocking the value of data in healthcare might lead to between $300 billion and $450 billion in savings compared to the $2.6 trillion baseline U.S. healthcare costs as of 2010. In Exhibit 6, we illustrate the estimated savings scenarios based on five focus areas: health tracking, coordinated care, best provider, accountable care, and digital healthcare. Health tracking, which consists of patients taking control of their health through tracking and behavioral change, is estimated to drive between $70 billion and $100 billion in savings. The coordinated care category, which represents a fully integrated digital healthcare organization, is estimated to drive between $90 billion and $110 billion in savings. The best provider category, which focuses on ensuring patients always see the highest quality provider and provider of best fit, is estimated to drive between $50 billion and $70 billion in savings. The accountable care category, which consists of tying provider reimbursement to performance, is estimated to drive savings between $50 billion and $100 billion. Lastly, the digital healthcare category, which consists of leveraging new technologies to improve healthcare, is estimated to drive between $40 billion and $70 billion in cost savings.
  11. 11. Digital Healthcare 10 Industry Analysis — Fall 2013 Exhibit 6: The Potential of Unlocking the Value of Healthcare Data $70 $90 $50 $50 $40 $- $20 $40 $60 $80 $100 $120 Health Tracking Coordinated Care Best Provider Accountable Care Digital Healthcare EstimatedSavings($billions) Estimated Cost Savings: Low Estimate $100 $110 $70 $100 $70 $- $20 $40 $60 $80 $100 $120 Health Tracking Coordinated Care Best Provider Accountable Care Digital Healthcare EstimatedSavings($billions) Estimated Cost Savings: High Estimate Total Estimated Costs Savings (Low Estimate) = $300 Billion Total Estimated Costs Savings (High Estimate) = $450 Billion Source: American Diabetes Association, American Hospital Association, HealthPartners Research Foundation, McKinsey Global Institute, National Bureau of Economic Research, U.S. Census Bureau While we believe that the potential of unlocking healthcare data remains untapped, we do believe there are examples of companies that are working on unlocking the value of data. We provide a few examples of these companies below. At the most basic level, we believe companies such as WebMD (WBMD, $33.09, Buy) and competitors are analyzing vast consumer data sets to drive more efficient healthcare advertising. These companies have been able to develop robust mobile app eco-systems, creating a stickier user experience across their platforms. A consumer using mobile apps makes the platform a daily or weekly destination in order to track health data, whereas before a consumer might visit once every few months. The stickier user experience has led to the development of vast consumer data sets regarding demographics and other health-related information. The data can then be analyzed in order to drive better ad targeting, as well as more efficient marketing ROI. We believe the use of general healthcare-like data to drive more efficient advertising represents an early step toward unlocking the value of healthcare data. We note that wearable computing technology companies are focused on driving consumer health engagement, but also utilizing data to provide health behavior advice. Companies such as Fitbit, Jawbone, and Withings are developing a suite of smart-devices that allow consumers to better track their health and fitness. Providing consumers the ability to track their health information creates large data sets and allows these companies to leverage analytics to provide feedback to consumers. Each of these company‟s device suites not only collects a consumer‟s health information, but also uses that information to provide feedback, allowing the consumer to make optimal health choices. Additionally, there are several companies in the managed care space working to better monetize and understand healthcare data. We note that managed care providers United Health, Aetna, and WellPoint each operate their own analytics division. United Health‟s OptumInsight provides technology, consulting, and analytics solutions to different stakeholders throughout the healthcare system. Aetna‟s ActiveHealth provides population health management solutions in order to help manage healthcare costs. We note that ActiveHealth‟s MyActiveHealth personal health record is integrated with its consumer-facing mobile app iTriage. Lastly, WellPoint‟s Healthcore provides clinical outcome research services to health plans, pharmaceutical companies, and government agencies. We believe each of these entities shows that significant value lies in analyzing and understanding vast healthcare data sets to drive reduced healthcare costs.
  12. 12. Digital Healthcare 11 Industry Analysis — Fall 2013 Exhibit 7: Real Life Examples of Leveraging Healthcare Data Pharma and Payors Employers and Employees Tracking Employees Health and Wellness Drive Benefit Costs Lower Blue Cross Blue Shield of California Nant Health AstraZeneca Well Point's HealthCore CVS/Caremark Use HealthCore and AstraZeneca Clinical Trial Data to more efficiently allocate R&D spending WebMD Conducting studies to determine the most effective and economical treatments for chronic illnesses and other common diseases Constituents Partners What Are They Working On Goal Payors and Providers Developing an integrated technology system allowing doctors, hospitals, and health-plans to deliver more coordinated and personalized evidence-based care. Performance Improvement Source: McKinsey & Company, and Stifel In Exhibit 8, we provide a diagram of who we believe are the key constituents of digital healthcare. In our view, constituents include consumers, digital health technology providers, healthcare IT companies, managed care organizations, and biopharmaceutical companies. The commonality among these constituents is that each entity has the opportunity to extract value from innovation in digital healthcare technology. Consumers are able to better track their daily activities, allowing consumers to more easily adopt healthy habits and healthy lifestyles. Digital healthcare technology companies are able to provide innovative mobile apps and devices that foster healthier lifestyles and life choices for consumers. The opportunity for healthcare IT companies lies in integration of these innovative technologies. We believe that integrating these consumer-focused technologies allows healthcare IT companies to go beyond digitizing the undigitized medical records by providing a more efficient, convenient, and interactive healthcare experience for consumers and physicians. We believe the integration of consumer-focused digital healthcare technology will also unlock value to managed care organizations and biopharmaceutical companies. First, MCOs will be able to utilize the vast amounts of consumer- and physician-generated data to better understand their patient populations, which should help drive costs down. Lastly, biopharmaceutical companies will be equipped to better target possible consumers of drugs, leading to greater marketing efficiency and likely better patient outcomes. Exhibit 8: Key Constituents of Healthcare Data Physicians Technology Companies Healthcare IT companies Healthcare Professionals Digital Healthcare Companies Managed Care Organizations Patients Pharmaceutical Companies Constituents of the Digital Healthcare Ecosystem Source: Stifel
  13. 13. Digital Healthcare 12 Industry Analysis — Fall 2013 We provide a diagram of what we believe to be a representation of the digital health eco-system in Exhibit 9. The eco-system consists of the key constituents we identified in Exhibit 8, but also includes technology companies and digital healthcare companies. In our diagram, Qualcomm Life‟s 2Net Hub represents the center of the eco-system. The hub allows several digital technology companies to leverage 3G technology, providing mobile solutions to physicians and patients. Entities like WebMD are working with technology providers such as Qualcomm Life and other digital technology providers to aggregate data across several different devices to help patients better understand their health. We believe this portion of the network offers significant promise to healthcare IT companies, MCOs, and even biopharmaceutical companies. In our view, leveraging consumer-facing digital healthcare technologies shifts electronic health records from a nice technological advancement to an essential innovation that truly drives value through the healthcare chain through cost reductions. We believe this extends even further to MCOs and ACOs, as these entities should be able to better analyze and understand health risks with those patients they cover. Exhibit 9: The Digital Healthcare Eco-System Source: Company documents, and Stifel We believe the crux of digital healthcare lies in the continued development and leverage of mobile technologies. In our view, the ways in which WebMD and other online health information companies use mobile in their business models can be applied to the digital healthcare industry. Both WebMD and other online health information companies operate consumer- and physician-facing portals for health information that combine both the PC-based Internet and mobile devices to deliver information. We believe the development of an integrated multi-screen PC/mobile app eco-system represents an essential component of success for online health information companies.
  14. 14. Digital Healthcare 13 Industry Analysis — Fall 2013 In Exhibit 10, we provide a diagram of what we call the Mobile Virtuous Circle, which describes the value and how WebMD and other online health information companies leverage mobile eco-systems. These companies have developed their own eco-system of mobile apps and data trackers that allow consumers to further customize how they interact with their own health. The apps these companies have built allow for customization and allow consumers to track some form of health data. In turn, the ability to track health data makes the app “sticky”, driving increased and more frequent consumer engagement. At the same time, user engagement and data input creates a large database of information, which can then be analyzed and monetized. Given these companies are predominantly advertising driven, the data analysis can be used to prove out ROI metrics to biopharmaceutical advertisers and consumer products companies. We believe the mobile Virtuous Circle extends to all digital healthcare companies as they seek to monetize data and reduce costs. Exhibit 10: The Mobile Virtuous Circle Consumers Use Eco-System to Track Health Data Mobile Eco- System Becomes Destination Large Data Set Develops Company Drives Value Via Data Analysis Mobile App Eco-System Created Source: Stifel The promise of digitized healthcare lies in analyzing data in order to drive cost of care reductions. We believe that as healthcare professionals and hospitals continue to build out a digital foundation, new, more complex digital healthcare technology solutions will emerge. In our view, healthcare IT companies, managed care organizations, and even pharmaceutical companies will utilize these technologies to analyze data in order to extract value throughout the healthcare industry. Next, we review the technological and demographic trends driving the shift toward digital healthcare technologies.
  15. 15. Digital Healthcare 14 Industry Analysis — Fall 2013 The Demographic Trends Driving Digital Healthcare and Why Investors Should Pay Attention We believe the adoption of digital healthcare among clinicians and consumers remains in the early stages. The ubiquity of Internet access and usage among Americans and increasing proliferation of mobile devices (smartphones and tablets) has created an environment rife for adoption of digital healthcare. Clinicians exhibit a high rate of adoption of mobile technology, which we believe is significantly higher than mainstream America. Despite high adoption rates, we believe that the utility of digital health technology among clinicians remains untapped, as utilized technologies are for the most part focused on performing the simplest of tasks (drug information and medical research). At the same time, we believe consumer adoption of digital healthcare remains nascent, but we believe consumers/patients exhibit a strong appetite for digital solutions to their healthcare problems. Consumers/patients seem to be digitally engaged across all age groups, as well as gender. Currently, consumers/patients exhibit an appetite for digital health information via the online channel. While consumer/patient adoption of mHealth remains relatively low, we believe that adoption trends will improve as more meaningful solutions for healthcare problems are introduced, and note that demographic trends (high adoption among Millennials and Generation X‟ers) further support improving adoption trends. The ubiquity of Internet access and mobile connectivity continues to grow in the United States and globally. We estimate Internet penetration in the United States to be roughly 87% as of 2012 (Exhibit 11). Additionally, estimates from Nielsen Online and The Pew Internet & American Life Project suggest that smartphone penetration and tablet penetration are roughly 56% and 34% in the United States as of 1H13, respectively. In our view, these trends are providing the foundation for the development of digital healthcare technologies, and have set a foundation for widespread adoption of digital healthcare solutions. We believe digital healthcare remains in the early innings of development and adoption, as we believe adoption trends will continue to grow, and digital healthcare solutions are in the early stages of development with the expectations that a plethora of new solutions and business models will be introduced over time. Exhibit 11: Internet Usage Has Become Ubiquitous in the U.S. 2007 2008 2009 2010 2011 2012 301.2 304.1 306.8 309.4 311.6 313.85 212.1 220.1 227.7 239.9 245.2 273.8 70% 72% 74% 78% 79% 87% U.S. Population U.S. Internet Users % Penetration 60% 65% 70% 75% 80% 85% 90% 95% 100% 0.0 50.0 100.0 150.0 200.0 250.0 300.0 2007 2008 2009 2010 2011 2012 U.S.InternetUserPenetration U.S.InternetUsers(millions) U.S. Internet Users and Penetration 2007 to 2012 U.S. Internet Users % Penetration Source: Internet World Stats, ITU, Nielsen Online, and U.S. Census Bureau
  16. 16. Digital Healthcare 15 Industry Analysis — Fall 2013 While Internet usage has become ubiquitous as 87% of Americans now have access to the Internet, we believe that smartphone and tablet usage will continue to increase over the next several years. In Exhibit 12, we illustrate mobile computing device penetration for the 2009 to 1H13 period. Between early 2009 and early 2013, we estimate that smartphone penetration in the United States has nearly tripled, no doubt driven by the innovative iPhone and Android devices. Additionally, we note that tablet penetration among Americans has increased more than 10 times between 1H10 and 1H13. Current estimates from Nielsen Online and the Pew Internet & American Life Project suggest that smartphone and tablet penetration among Americans stands at an estimated 56% and 34%, respectively. Over time, we believe that these devices will prove to be invaluable to changing healthcare in the United States and abroad. Exhibit 12: Mobile Device Adoption Continues to Ramp in the U.S. Devices 1H09 2H09 1H10 2H10 1H11 2H11 1H12 2H12 1H13 Smartphone Penetration 16% 19% 21% 26% 35% 45% 46% 47% 56% Tablet Penetration 0% 0% 3% 5% 8% 10% 18% 25% 34% 0% 10% 20% 30% 40% 50% 60% 1H09 2H09 1H10 2H10 1H11 2H11 1H12 2H12 1H13 UserPenetration(%) U.S. Mobile Computing Device Penetration 1H09 to 1H13 Smartphone Penetration Tablet Penetration Source: Nielsen Online, and Pew Internet & American Life Project We believe clinician adoption of digital technologies (smartphones and tablets) will play an important role in the digitization of healthcare. If mobile technologies are prevalent among mainstream Americans, then clinicians and physicians represent power users of mobile technologies. Mobile technology adoption among physicians appears to be significantly higher than for mainstream America. According to Manhattan Research‟s “Taking the Pulse 2012” survey, smartphone and tablet adoption among physicians stood at 85% and 62%, respectively, as of 1Q12 (Exhibit 13). A more recent survey from Epocrates suggests that adoption rates may be higher and the survey estimates that smartphone and tablet adoption among physicians will be 94% and 85%, respectively, by 2014 (Exhibit 14). In Exhibit 13, we provide an illustration of physician adoption of mobile technology (smartphones and tablets) for the 2001 to 2012 period. Physician adoption of smartphones more than doubled between 2001 and 2012, whereas physician adoption of tablets has doubled in roughly a year. Based on Manhattan Research‟s “Taking the Pulse U.S. 2012” survey of 3,015 practicing physicians across the U.S., roughly 85% of physicians utilize a smartphone and 62% utilize tablets. We expect adoption to increase further over the coming years as new technologies are tested and proven in terms of monitoring chronic diseases, diagnostics, health and wellness, and data analytics. In our view, as new digital healthcare solutions are validated, mobile devices will become an essential part of a physician‟s daily workflow.
  17. 17. Digital Healthcare 16 Industry Analysis — Fall 2013 Exhibit 13: Historical Adoption Trend for Physicians and Mobile 2001 2004 2007 2009 2010 2011 2012 30% 40% 50% 64% 72% 81% 85% 35% 62% Mobile Device Smartphone Tablet 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 2001 2004 2007 2009 2010 2011 2012 UserPenetration(%) Physician Adoption of Mobile Technology 2001 - 2012 Smartphone Tablet Source: Manhattan Research, “Taking the Pulse U.S. 2012”, 1Q12 According to Epocrates “2013 Mobile Trends Report: Maximizing Multi-Screen Engagement Among Clinicians”, adoption of mobile technologies among clinicians will increase significantly in 2014. The survey queried 1,063 healthcare professionals regarding their usage of mobile devices and likelihood of mobile device usage over the next 12 months, illustrated in Exhibit 14. The survey illustrates the already high digital engagement among clinicians, as the overwhelming majority of respondents are multi-screen users (PC, smartphone, and tablet). According to the survey, roughly 82% of respondents will be multi- screen users by 2014. Exhibit 14: Clinician Adoption of Mobile Devices Continues to Increase 99% 78% 34% 28% 100% 86% 53% 47% 100% 94% 85% 82% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Computer Smartphone Tablet Digital HCP MobilePenetration(%) Clinicians' Adoption Of Mobile 2012 2013 2014E Source: Epocrates 2013 Mobile Trends Report: Maximizing Multi-Screen Engagement Among Clinicians
  18. 18. Digital Healthcare 17 Industry Analysis — Fall 2013 Additionally, the increasing appetite for multi-screen solutions among clinicians is not limited to a few indications, but rather extends across many healthcare professional focus areas, including clinicians focused on chronic health, general practitioners, nurse practioners, as well as physician assistants. In Exhibit 15, we provide an illustration of current adoption rates and expected future adoption rates for several types of clinicians. We think as doctors become more connected across mobile devices, they will begin to accept new digital healthcare technologies. In turn, we believe this will lead to increased consumer usage of digital healthcare technologies and applications. Physician comfort should lead to broad acceptance of mobile solutions, which should help further increase consumer adoption of more advanced digital healthcare solutions. Exhibit 15: Clinician Mobile Adoption Extends Across Several Categories 59% 54% 48% 44% 40% 30% 84% 88% 85% 77% 77% 76% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Oncology Cardiology Primary Care Psychiatry Nurse Practitioner Physician Assistant MobilePenetration(%) Mobile Adoption By Clinician Focus 2013 2014E Source: Epocrates 2013 Mobile Trends Report: Maximizing Multi-Screen Engagement Among Clinicians Not only are clinicians adopting mobile technology more so than mainstream society, but also clinicians are utilizing mobile technologies in their daily workflow as well. In Exhibit 16, we provide an illustration of physician usage of smartphones and tablets in their daily workflow based on the “Wolters Kluwer Health 2013 Physician Outlook Survey” conducted in April 2013, which queried 300 physicians. The survey found that eight of 10 physicians are using smartphones and six of 10 physicians are using tablets. According to the survey, smartphone and tablet usage seems to make up about 25% or less of a physician‟s workday. In our view, these estimates seem low, and likely do not reflect physician usage of these tools outside of work hours. We note that the “Epocrates 2013 Mobile Trends Report: Maximizing Multi-Screen Engagement Among Clinicians” found that smartphone usage can account for upwards of 40% of a typical clinician‟s time at work. Additionally, the report found that nurse practitioners and physician assistants were the predominant users of mobile devices during the workday. Additionally, the study found that clinicians‟ usage of mobile devices dominated the hours of 5 P.M. to 5 A.M., suggesting that mobile devices currently do more to extend the clinician workday.
  19. 19. Digital Healthcare 18 Industry Analysis — Fall 2013 Exhibit 16: Physicians’ Usage of Mobile During the Workday 51-75% of day 8% 76-100% of day 11% 26-50% of day 14% No usage 21% 1-25% of day 46% Smartphone Usage (iPhone, Android, et al.) 51-75% of day 4% 76-100% of day 7% 26-50% of day 13% 1-25% of day 37% No usage 39% Tablets (iPad, Kindle Fire, et al.) Source: Wolters Kluwer Health 2013 Physician Outlook Survey, April 2013 We note that physicians are using mobile in a variety of ways to aid their daily workflow. In Exhibit 17, we illustrate how physicians are using mobile devices based on the “Wolters Kluwer Physician Survey.” According to the survey, physicians typically use mobile devices for looking up drug information, medical research, and evidence-based clinical reference tools at the point of care. Other workflow uses for mobile seem to be dictated by form factor, as more physicians use tablets to access medical records/data (think large screen size), or more physicians communicate with patients via smartphone than tablet. In our view, the survey really only provides details on some of the most basic usage of mobile in a physician‟s daily workflow. We believe the promise of mobile for physicians lies beyond the uses reflected in Exhibit 17. We note that entities such as Qualcomm Life are actively partnering with hospitals to test mobile medical devices and applications that go beyond basic physician uses of mobile. In our view, the physician use of mobile reflected in Exhibit 17 illustrates how clinician adoption of digital healthcare technologies remains in the very early stages. Exhibit 17: What Physicians Are Using Mobile Devices for in Their Workflow 13% 24% 43% 17% 50% 63% 20% 55% 9% 12% 17% 33% 42% 43% 44% 72% 0% 10% 20% 30% 40% 50% 60% 70% 80% Other Reimbursement / Billing Medical Records / Data Communication w/ Patients Evidence-Based Clinical Reference Tools at Point of Care Medical Research Communication w/ HCPs Drug Information Respondents(%) Mobile Device Uses Tablets Smartphone Source: Wolters Kluwer Health 2013 Physician Outlook Survey, April 2013
  20. 20. Digital Healthcare 19 Industry Analysis — Fall 2013 In Exhibit 18, we go one step further and analyze how clinicians use mobile applications in their daily workflow based on the “2 nd Annual HIMSS Mobile Technology Survey”, which queried 180 healthcare professionals. We find it striking that the majority of mobile application usage remains focused on the most basic healthcare functions: viewing patient information and viewing non-protected health information (non-PHI). We note that between 45% and 55% of respondents are using mobile apps for moderately complex functions such as clinical notifications, tracking work lists, education/training, and collecting patient data at the bedside. Less than 40% of respondents are using mobile apps for complicated healthcare functions such as patient data analysis and monitoring patient data from medical devices, and less than 25% of clinicians are referring patients to mobile apps. In our view, the potential of digital healthcare remains untapped, as clinicians continue to underutilize mobile apps for the most part. We expect that clinicians will begin to use mobile apps for more complex healthcare functions over the next few years, and that clinicians referring patients to mobile apps will increase significantly as well. Exhibit 18: How Clinicians Are Using Mobile Applications in Their Daily Workflow 23.9% 26.7% 34.4% 34.4% 37.8% 37.8% 38.3% 45.0% 45.0% 46.1% 51.7% 64.4% 65.0% 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% Refer Patients to the Use of Apps for Health-Related Items Capture Visual Representationof Patient Data Monitor Data from Medical Devices Secure CommunicationRegarding Patients Analysis of Patient Data E-prescribing Use Bar Code Reader on Mobile Device Collect Data at the Bed Side Use for Educational / Training Tracking Work Lists Clinical Notifications Look Up Non PHI Health Information View Patient Information Clinicians' Use of Mobile Apps in Workflow Source: 2nd Annual HIMSS Mobile Technology Survey, sponsored by Qualcomm Life In our view, the adoption of electronic medical records and electronic health records represents the foundation of developing a digitized healthcare system. At the most basic level, the adoption and implementation of EMRs and EHRs provide clinicians a basic familiarity with digitized healthcare that will help clinicians accept technological advances in the healthcare space. In Exhibit 19, we provide an illustration of EMR/EHR system adoption among office-based physicians in the United States according to the Healthcare Information and Management Systems Society (HIMSS). Based on the survey, an estimated 72% of office-based physicians were using some form of EMR or EHR. Additionally, the survey estimated that roughly 40% of office-based physicians were using a basic EHR system (patient history and demographics, patient problem lists, physician clinical notes, comprehensive list of patients‟ medications and allergies, computerized orders for prescriptions, and ability to view laboratory and imaging results electronically). While the significant acceptance of some form of EMR/EHR suggests mainstream adoption of digital healthcare, the much lower 40% penetration of basic EMR/EHR systems suggests there is room to improve. We believe that as office-based physicians increase their adoption of basic EMR/EHR systems, clinicians‟ comfort with developing digital healthcare technologies will increase.
  21. 21. Digital Healthcare 20 Industry Analysis — Fall 2013 Exhibit 19: Clinician Adoption of EMR and EHR Technology 18.2% 17.3% 17.3% 20.8% 23.9% 29.2% 34.8% 42.0% 48.3% 51.0% 57.0% 71.8% 10.5% 11.8% 16.9% 21.8% 27.9% 33.9% 39.6% 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011E 2012E EMR/EHRPhysicianPenetration(%) Office-Based Physicians with EMR/EHR Systems Any EMR/EHR Basic System Source: CDC/NCHS, National Ambulatory Medical Care Survey, 2001 - 2012 In Exhibit 20, we analyze EMR/EHR adoption trends by looking at the HIMSS Analytics Electronic Medical Record Adoption Model (EMRAM). The data in Exhibit 20 looks at EMR/EHR adoption rates across healthcare organizations according to the eight stages of adoption according to HIMSS Analytics. According to HIMSS Analytics, the EMRAM represents an eight-step process that allows a healthcare organization to track their level of EMR adoption compared to other healthcare organizations. Adoption stages range from Stage 0, where EMR integration remains nearly non-existent, to Stage 7, where the entire healthcare organization has integrated EMR technology. Additionally, ambulatory-focused healthcare organizations can track their progress using the Ambulatory Electronic Medical Record Adoption Model (A-EMRAM). We believe the data provided in Exhibit 20 further illustrates how the digitization of clinicians and healthcare organizations remains focused on the digitization of the most basic core functions. We believe the digital healthcare companies focused on EMRs/EHRs, health and wellness, diagnostics, analytics, sensors, and telehealth will ultimately drive EMRAM adoption higher. Introducing new, innovative, and meaningful digital healthcare solutions should provide an impetus for further digitization. Exhibit 20: HIMSS Analytics EMRAM Adoption Trends 2% 10% 19% 15% 35% 9% 4% 7% 1% 1% 5% 1% 10% 27% 5% 50% 0% 10% 20% 30% 40% 50% 60% Stage 7 Stage 6 Stage 5 Stage 4 Stage 3 Stage 2 Stage 1 Stage 0 EMRAdoptionBasedonHIMSS AnalyticsDatabase(%) EMR Adoption Model (EMRAM) Trends 2Q13 EMRAM A-EMRAM Source: HIMSS EMR Adoption Model (EMRAM)
  22. 22. Digital Healthcare 21 Industry Analysis — Fall 2013 We believe consumer adoption of digital healthcare technology represents an important and necessary step toward the digitization of healthcare. As we note in our framework, Four Stages of Healthcare Digitization, the ultimate goal of healthcare digitization is to drive the cost of care lower. Fundamentally, we believe that the only way to truly reduce healthcare costs is to include consumers/patients, as they ultimately have the final say in whether or not they choose to live a healthy lifestyle or not. Given the importance of the consumer/patient population, we believe it is worthwhile to review how these constituents are using digital healthcare currently. In our view, consumer/patient adoption of digital healthcare remains in the early stages of development. Nevertheless, we believe that consumers exhibit a strong appetite for digital healthcare solutions. In our view, consumer/patient usage of digital healthcare, much like clinicians, remains focused on the simplest solutions and significant opportunity exists to further develop digital healthcare capabilities. Lastly, we believe that investors should think not “if”, but “when” in terms of consumer adoption of digital healthcare. We believe that current trends suggest that as consumers/patients exhibit a strong appetite for digital healthcare solutions, adoption trends should improve over time as digital healthcare solutions move beyond weight-related and information-focused apps to more complex solutions. Additionally, we believe that consumer/patient adoption trends benefit from demographics, as both Millennials and Generation X‟ers exhibit a high proclivity for technology, which should in turn translate into interest in meaningful and useful digital healthcare apps. In Exhibit 21, we provide a breakdown of online health-related search trends for American adults based on a survey from the Pew Internet & American Life Project. According to the survey, roughly 72% of respondents stated they had performed an online health-related search query in the last 12 months, whereas in 2010, roughly 66% of respondents had never done an online health-related search query. Additionally, most American adults searching for health-related information online are focused on a specific disease or medical problem, or a certain treatment or procedure. We believe American adults‟ online health-related search activity illustrates a strong appetite to engage with better understanding their healthcare, as well as engaging new digital healthcare technology solutions. We believe that as digital healthcare technologies begin to tackle more complex issues, more adults will be engaged digitally with their healthcare. Exhibit 21: American Adults Go Digital in Order to Understand Their Health 11% 12% 14% 15% 16% 16% 19% 20% 25% 27% 43% 55% 72% 0% 20% 40% 60% 80% Reduce Healthcare Costs Pregnancy Caring for an Aging Relative / Friend Test Results Drug Safety / Recalls Advertised Drug Food Safety / Recalls Other Health Issues Health Insurance, includingMedicare and Medicaid Weight Loss / Control Certain Medical Treatment / Procedure Specific Disease or Medical Problem At Least One of the Topics Below Online Health Search Trends Source: Pew Internet & American Life Project, “Health Online 2013,” January 15, 2013
  23. 23. Digital Healthcare 22 Industry Analysis — Fall 2013 We believe that the digitization of healthcare benefits from demographics, specifically the high proclivity for technology among younger generations, which should help drive consumer adoption of digital healthcare technology over time. In Exhibit 22, we provide a look at online health-related search queries of American adults by age group. Overall, online health-related search queries skew toward younger generations as expected, but we note that all age groups exhibit a high proclivity for online health-related searches. Specifically, more than 70% of respondents aged 18 to 64 performed an online health-related search query in the last 12 months and more than 50% of respondents over the age of 65 had performed an online health-related search query as well. More importantly, when looking at online health-related search queries regarding specific diseases, medical problems, medical treatments, or procedures, engagement among older populations increases significantly. Based on the Pew survey, more than 39% of respondents aged 18 to 64 performed an online health-related search query regarding a specific disease or medical problem, and of those 65 and older 36% of respondents had performed a similar search query. We believe these results illustrate the basic fact that consumers/patients turn to digital channels to better understand their health, as well as to find healthcare solutions. Exhibit 22: Profile of Online Health-Related Search Queries by Age Group 0% 20% 40% 60% 80% Other Health Issues Reduce Healthcare Costs Pregnancy Caring for an Aging Relative / Friend Test Results Advertised Drug Drug Safety / Recalls Food Safety / Recalls Health Insurance, includingMedicare and Medicaid Weight Loss / Control Certain Medical Treatment / Procedure Specific Disease or Medical Problem At Least One of the Above Topics Online Health Searches By Age 65+ 50-64 30-49 18-29 Source: Pew Internet & American Life Project, “Health Online 2013,” January 15, 2013 In Exhibit 23, we look at the demographics of online health-related search queries among American adults by gender. According to the Pew survey, online health-related search queries are well utilized by both men and women, as 72% of all respondents reported conducting an online health-related search query in the last 12 months. The results also found a striking difference between male and female usage, as 65% of males had performed an online health-related search query, but 79% of females had performed similar queries. As one drills down into specific topics, the results suggest that women are more engaged with their health through digital channels. We believe the high usage rates among both men and women further suggest our belief that consumers/patients remain interested in increasing their usage of digital healthcare technology.
  24. 24. Digital Healthcare 23 Industry Analysis — Fall 2013 Exhibit 23: Profile of Online Health-Related Search Queries by Gender 0% 20% 40% 60% 80% 100% Other Health Issues Reduce Healthcare Costs Pregnancy Caring for an Aging Relative / Friend Test Results Advertised Drug Drug Safety / Recalls Food Safety / Recalls Health Insurance, includingMedicare and Medicaid Weight Loss / Control Certain Medical Treatment / Procedure Specific Disease or Medical Problem At Least One of the Above Topics Online Health Searches By Gender Women Men Source: Pew Internet & American Life Project, “Health Online 2013,” January 15, 2013 According to a Brookings Institute study from May 2012, roughly 75 million individuals (roughly 30% of the U.S. population) had used mobile phones for health information and apps in 2012. Despite seemingly strong adoption, a recent study from Ruder Finn suggests that American adoption of mHealth apps remains nascent. According to Ruder Finn‟s “mHealth Report,” only 16% of all respondents accessed mHealth apps regularly (at least once a week), which is about one-fourth the amount of respondents accessing social media and games via mobile regularly (Exhibit 24). The Ruder Finn survey also found several reasons as to why consumers do not use mHealth apps: 27% reported no need, 26% preferred to talk to a clinician in person, 11% expressed privacy concerns, 9% said mHealth apps were not useful, and 7% were unaware of mHealth apps (Exhibit 24). We believe consumers‟ lack of mHealth app usage will dissipate over time as clinicians become more digital and new innovative mHealth apps are introduced. Exhibit 24: Mobile App Consumption Among American Adults 0% 10% 20% 30% 40% 50% 60% 70% 80% Do Not Use Other Health/Healthy Living Hobbies Travel Sports Shopping News Games Social Media Consumer Mobile App Usage Tablet Smartphone All Source: Ruder Finn, “mHealth Report,” March 2013
  25. 25. Digital Healthcare 24 Industry Analysis — Fall 2013 Despite the fact that mHealth app usage seems low, consumers/patients seem to exhibit a high degree of interest in using mHealth apps. According to the Ruder Finn survey, more than 50% of respondents ages 18 to 44 were highly likely to adopt mHealth technology (Exhibit 25). Additionally, those with chronic health conditions and families seem to have a higher interest in adoption of mHealth solutions. We believe the survey findings illustrate that adoption is not a question of “if”, but “when” consumer/patient adoption of mHealth will go mainstream. As new digital healthcare solutions are tested, proven, and introduced to society, we believe that consumers will likely embrace digital healthcare solutions that can solve complex healthcare needs, especially if these solutions can be integrated to make daily life easier. Exhibit 25: American Adults Show High Interest in mHealth Solutions 42% 59% 42% 53% 31% 31% 40% 54% 52% 65% 0% 10% 20% 30% 40% 50% 60% 70% No Children Has Children No Chronic Condition Has a Chronic Condition 65+ 55 to 64 45 to 54 35 to 44 25 to 34 18 to 24 Likelihood of mHealth Adoption Source: Ruder Finn, “mHealth Report,” March 2013 In Exhibit 26, we illustrate consumer mHealth app usage trends according to the Ruder Finn “mHealth Report.” According to the survey, more than 40% of respondents are using mHealth apps for what we believe represents basic functionality (e.g., health and wellness, fitness, weight-loss, and general health information). We believe the list of functions the survey queried for further illustrates the opportunity for new and innovative uses in the future. We believe that the significant adoption of mHealth for the most basic health and wellness functions highlights the potential of digital healthcare adoption for more complex healthcare issues. In our view, consumers/patients will adopt strong digital healthcare technologies that allow better management of their healthcare. Exhibit 26: The Potential of mHealth Apps Remains Significant 1% 4% 7% 9% 9% 10% 13% 23% 41% 46% 48% 48% 49% 0% 20% 40% 60% Smoking Cessation Other Health Info Private Medical Provider Medication Reminder Health Education (Children) Sleep Aid / Monitor Advice on Long-term Medical Conditions Apps to Acces Magazines, et al. General Health Info Nutrition Fitness / Training Calorie Counter Healthy Eating Consumer mHealth App Usage Source: Ruder Finn, “mHealth Report,” March 2013
  26. 26. Digital Healthcare 25 Industry Analysis — Fall 2013 In Exhibit 27, we illustrate areas where consumers believe health apps can be introduced to improve patient care. We note that less than 50% of respondents had an opinion that health apps can improve patient care. Consumer/patient responses identified access to test results, monitoring, and patient health records as the greatest areas for mHealth apps to improve patient care. Again, we believe that survey results show that consumers remain focused on digitization of basic opportunities. Exhibit 27: Areas Health Apps Can Improve Patient Care 11% 13% 18% 21% 24% 26% 30% 33% 42% 0% 10% 20% 30% 40% 50% Lifestyle / Healthy Living Advice Sent to Patients Apps Will Not Improve Care Virtual Consultations for Remote Patients Text Message Updates from GP's and Surgeons Mobile Devices to Record Data Real-Time in-Home Monitoring Data Patient Health Records Monitoring Devices That Send Alerts Access to Test Results Health Apps for Improving Patient Care Source: Ruder Finn, “mHealth Report,” March 2013 We note that both clinicians and consumers/patients are utilizing mobile apps to better understand health issues. In Exhibit 28, we provide an illustration of consumer health app growth between February 2010 and April 2012. According to mobi health news, there were 13,607 consumer health apps available for Apple‟s iPhone as of April 2012. Additionally, Exhibit 28 provides a breakout of these 13,607 consumer health apps available for Apple‟s iPhone by category as of April 2012. Exhibit 28: The Proliferation of Consumer Health Apps 118 226 271 336 493 665 694 739 962 1,111 1,415 1,915 2,207 2,455 0 500 1,000 1,500 2,000 2,500 3,000 PHR Medication… Smoking Cessation Emergency Sleep Calculator Chronic Conditions Mental Health Women's Health Strength Training Stress & Relaxation Diet Cardio Other Consumer Health Apps by Category: April 2012 2,993 5,081 8,924 13,607 0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 Feb 2010 Aug 2010 Jul 2011 Apr 2012 Consumer Health Apps Growth: February 2010 to April 2012 Source: mobi health news, “An Analysis of Consumer Health Apps for Apple’s iPhone 2012,” July 2012
  27. 27. Digital Healthcare 26 Industry Analysis — Fall 2013 In Exhibit 29, we provide a list of major fitness apps and their reported number of downloads as of August 2013. According to mobi health news, MyFitnessPal exhibited the greatest amount of downloads at 40.0 million, and Endomondo exhibited the least amount of downloads at 16.0 million. The list compiled by mobi health news reflects those app developers that report downloads and user metrics regularly. We note the list omits both Fitbit and Jawbone, as these companies do not regularly update their user metrics. Exhibit 29: Fitness Apps Show Strong Consumer Traction 16.0 18.0 18.0 18.0 20.0 22.5 40.0 0.0 5.0 10.0 15.0 20.0 25.0 30.0 35.0 40.0 45.0 Endomondo Runtastic MapMyFitness Nike+ Azumio RunKeeper MyFitnessPal Major Fitness Apps > 16 Million Downloads Source: Company documents and mobi health news, August 2013 We believe that Stage 1 and Stage 2 of healthcare digitization are occurring concurrently, and remain in the very early stages of development. The high levels of adoption associated with the Internet, smartphones, and tablets has set a solid foundation for the digitization of healthcare to move forward. Clinicians exhibit significantly higher mobile adoption rates than consumers/patients, but clinician digitization remains focused on basic functions. While consumer/patient adoption of the Internet for understanding health issues remains high, consumer/patient adoption of mobile for understanding health remains relatively low. We believe that digital healthcare innovation in areas such as analytics, diagnostics, health and wellness, medical records, sensors, and telehealth will help drive increased adoption among clinicians and consumers/patients. In our view, digital healthcare innovation will continue to provide new and compelling solutions to complex healthcare problems, which should help clinicians and patients better manage health outcomes. Over time, we expect that digital healthcare technology innovation will drive the integration of the digital clinician and digital patient over the next few years. Next, we explore the important entities responsible for driving digital healthcare innovation forward.
  28. 28. Digital Healthcare 27 Industry Analysis — Fall 2013 The Accelerators of Digital Healthcare Innovation We believe several digital healthcare accelerators and technology companies are driving the development of Stage 2 (digital healthcare adoption and development) and subsequent shift into Stage 3 (integration). Since 2011, several digital healthcare-focused accelerators have emerged to help digital healthcare focused startups get up and running. We note that these accelerators typically provide startups with seed capital typically around $20,000, significant back-office resources, mentoring, and advice from extensive expert networks. In return, startups provide the accelerator with an equity stake typically between 2% and 10%. In this section, we provide a summary description of these accelerators, as well as one hybrid called Qualcomm Life. In Exhibit 30, we provide a timeline illustrating the development of digital health accelerators between 2005 and 2011, which comes from the California HealthCare Foundation. The timeline highlights the convergence of three major trends, which have led to the successful emergence of health accelerators. Since 2006, the U.S. Government has placed significant emphasis on facilitating the digitization of healthcare. Second, venture capital models have evolved from simply providing capital in exchange for equity to providing startups a wider suite of mentoring and business development solutions to go along with modest capital investment. Lastly, the proliferation of digital and mobile devices has been exponential since the introduction of innovative devices, e.g., iPhone and iPad. The convergence of these three trends has led to a proliferation of entrepreneurs focused on solving healthcare problems by developing digital solutions. Exhibit 30: The Development of Health Accelerators: 2005 to 2011 HealthCare Accelerators Digital / Mobile ONC Established 1st Health 2.0 Conference ARRA ACA Health Accelerators Emerge Facebook at 1 million users iPhone Launched App Store Introduced iPad Launched Y Combinator Founded TechStars, Seedcamp Excelerate Labs,500 Startups, TechStars Boston 2005 2007 2009 2011 Source: California HealthCare Foundation, “Greenhouse Effect: How Accelerators Are Seeding Digital Health Innovation,” February 2013 ARRA stands for American Recovery and Reinvestment Act ACA stands for Affordable Care Act Below we provide summaries regarding Qualcomm Life and important digital healthcare accelerators including Rock Health, StartUp Health, Healthbox, and Blueprint Health. Other healthcare technology- focused accelerators include NY Digital Health Accelerator, StartX Med, and TigerLabs Health. We note that several technology companies working on digital healthcare solutions include Apple (AAPL, $498.22, Buy, covered by Aaron Rakers), Intel Ventures (INTC, $22.67, Buy, covered by Kevin Cassidy), Nuance (NUAN, $19.66, Hold, covered by Tom Roderick), IBM (IBM, $183.03, Buy,
  29. 29. Digital Healthcare 28 Industry Analysis — Fall 2013 covered by David Grossman), et al. We realize that our list may omit some entities and fully expect this list of entities to grow significantly over time. Who Is Qualcomm Life? Qualcomm Life is a subsidiary of Qualcomm focused on helping healthcare companies solve their wireless medical device connectivity issues. The primary focus of Qualcomm Life is to develop a wireless health eco-system based on the Qualcomm Life 2net Hub device. Rick Valencia serves as Vice President and General Manager of Qualcomm Life. Don Jones serves as Vice President, Global Strategy and Market Development for Qualcomm Life. James Mault serves as Vice President and Chief Medical Officer for Qualcomm Life. Qualcomm Life is a subsidiary of Qualcomm and is based in San Diego, California. More information can be obtained at the company‟s website www.qualcommlife.com. What is the Qualcomm Life 2net Platform? The eco-system consists of wireless medical device solutions integrated on Qualcomm Life‟s 2net Platform, analytics for aggregating medical device data, and facilitates interoperability between different devices. The Qualcomm Life 2net Hub sits at the nexus of the eco-system and facilitates 3G and 2G connectivity with wireless medical devices, and is an FDA Class I medical device. Entities focused on healthcare services or disease management can leverage the platform to treat a patient remotely via various medical devices from eco-system partners. The 2net Platform business model consists of facilitating wireless healthcare solutions via its managed network of digital healthcare technology services. Secondly, the 2net Platform is working to develop solutions for biometric data aggregation and further data analysis. Lastly, the company provides application support to its eco-system partners. We note that the Platform‟s partner eco-system consists of three types of companies: (1) wireless medical device companies, (2) healthcare services companies, and (3) healthcare payers. According to Qualcomm Life, these companies can then connect with the platform through four gateways: (1) a standalone FDA-listed external device (2net Hub), (2) medical devices with an embedded cellular component, (3) medical data sent from mobile phones, and (4) service platform integration between the medical grade 2net Platform to an eco-system partner via application programming interfaces (APIs). Exhibit 31: Qualcomm Life Key Developments February 2012 November 2012 Launces 2net Hub in Europe with Telbios and Cystelcom as its first customers Announces additional partnership and expands 2net Hub to Canada Announces WebMD partnership Acquires HealthCircles and expands 2net Hub to Scandanavia with Infogosoft, e- mergency, and Viewcare A/S as its first customers August 2013 Announces investment in Fitbit March 2013 May 2013 July 2013 Announces first wireless health care customer in France: MEDECIN DIRECT Date Event Announces investment in AirStrip Technologies and additional partnerships December 2012 Qualcomm forms the Qualcomm Life subsidiary and launches $100 million venture fundDecember 2011 Qualcomm Life Development Timeline Source: Company documents
  30. 30. Digital Healthcare 29 Industry Analysis — Fall 2013 Qualcomm Life Announces Partnership with WebMD. In March 2013, Qualcomm Life and WebMD announced a partnership focused on enabling consumers to access and manage wireless health data across an array of fitness, wellness, and medical devices. The goal of the partnership is to make biometric data available, actionable, and relevant to consumers in order to help consumers better manage their health and fitness. Furthermore, the partnership allows for integration of the Qualcomm Life 2net Hub with various WebMD offerings, ultimately providing consumers and physicians a connected healthcare experience. Most importantly, the partnership establishes an open eco-system of digital health apps and third-party devices across various disease categories and lifestyle interests. We believe this represents an integral partnership for the future success of both Qualcomm Life and WebMD. In our view, the open app eco-system allows WebMD to better personalize health offerings, possibly extend its mobile advertising reach to additional devices, and provides Qualcomm Life with a meaningful aggregation platform for consumers to track their health data flowing through the 2net Hub eco-system. Qualcomm Life Acquires HealthyCircles. In May 2013, Qualcomm Life announced the acquisition of HealthyCircles, which marked a shift for Qualcomm Life into front-end software. We believe the acquisition provides important new capabilities for Qualcomm Life‟s 2net eco-system that further entrenches Qualcomm Life at the forefront of developing digital healthcare technologies. HealthyCircles is a care coordination management platform providing enterprise clients with private-label branded web, mobile, and multi-lingual solutions and services. The company was founded in order to address the shifting reimbursement landscape under the Affordable Care Act (ACA). HealthyCircles provides services addressing hospital readmission reduction, care transitions, home health monitoring and management, Accountable Care Organizations, and Patient-Centered Medical Homes (PCMH). The acquisition allowed Qualcomm Life to combine its 2net Hub and HealthyCircles to capture new data sets focused on medication history, lab data, care teams, and self-assessment data. Qualcomm Life Launches Clinical Trial in San Diego to Test Digital Healthcare Technology for Treatment of Children’s Asthma. Recently, Qualcomm Life and partner Rady Children‟s Hospital-San Diego announced the launch of a digital healthcare technology clinical trial focusing on children with asthma. The clinical trial will test digital healthcare technology from Asthmapolis and Zephyr, as well as the Qualcomm Life 2net Hub. Fifty participants between the ages of seven and 17 will be selected, as the project seeks to understand the correlation between time and location, as well as patient health indicators (heart rate, respiratory rate, and activity) in order to better individualize asthma treatment. Each participant will receive a 3G-enabled testing kit consisting of two Asthmapolis sensors used to track inhaler usage, a Zephyr BioPatch used to track heart rate, respiratory rate, and activity, as well as a Qualcomm Life 2net Hub. Additionally, parents and patients can track health information via Asthmapolis‟ mobile apps and patient dashboard. Physicians can access patient data via the ZephyrLIFE Home portal to view wireless contextualized vital sign data. Scripps Wired for Health Trial Tests Digital Healthcare Technology, Including the Qualcomm Life 2net Hub. In July, the Scripps Translational Science Institute (STSI) launched its Scripps Wired for Health Trial. STSI will select trial participants from its employee population with a focus on employees and family members that have generated high healthcare costs during the 2012 plan year. The clinical trial will test digital healthcare technology from several companies; some devices include Sanofi’s IBG Blood Glucose Meter, Withings Blood Pressure Monitor, and the AliveCor Heart Monitor with each device being linked via Qualcomm Life’s 2net Hub. Participants in the wireless device group will also test Qualcomm Life‟s HealthyCircles Care Orchestration Engine, an enterprise platform designed for care coordination and management. Qualcomm Life and Palomar Health launch Google Glass Incubator. Qualcomm Life and Palomar Health launched an incubator, based in San Diego, California, to evaluate the application of wearable computing in medicine. The incubator will focus on assessing the medical benefits of Google Glass in both consumer and clinical applications with a focus on improving biometric data and wireless health management. Research and development efforts will focus on (1) augmented reality guided clinical applications, (2) user experience paradigms for clinical navigation of complex data, (3) physiological monitoring, (4) genomic information mapping, and (5) consumer-oriented health and wellness applications. Additionally, the incubator will leverage Qualcomm Life‟s HealthyCircles orchestration engine, which facilitates communication between doctors, EHRs, and biometric medical devices.
  31. 31. Digital Healthcare 30 Industry Analysis — Fall 2013 Qualcomm Life Invests in Fitbit. In August 2013, Qualcomm Life announced an investment in Fitbit through its Qualcomm Life venture fund. The Fitbit investment marks the ninth such digital healthcare investment made by the Qualcomm Life Fund in 1.5 years. Strategic Partners. We believe Qualcomm Life is at the forefront of developing a highly functional wireless network for digital healthcare companies. The Qualcomm Life wireless eco-system consists of more than 100 companies and ranges from universities to startups to publicly traded healthcare technology companies such as Greenway Medical (GWAY, $15.95, not covered) and WebMD. We provide a summary of Qualcomm Life‟s eco-system partners in Exhibit 32. Exhibit 32: Qualcomm Life’s Eco-system Partners Ximed Zeo, Inc. Zephyr Viewcare A/S VRI WebMD Wireless-Life Sciences Alliance Withings Worrell Inc. Telcare Telsano Trapollo Tri-City Medical U.S. Preventive Medicine, Inc. Venture Manufacturing Santech Health Scripps Health Sensei Sotera Wireless, Inc. Sweetwater Health Telbios SpA Predictably Well Preventice Radish Systems Rady's Children's Hospital and Health Care Rock Health S3 Group Omron Healthcare, Inc. Open mHealth Orange Business Services Perminova PMD Exports, Inc. Polymap Wireless MD Revolution Messe Dusseldorf GmbH mHealthAlert Microsoft HealthVault MIR - Medical International Research Monitored Therapeutics myHealthAccount Nonin Medical, Inc. Noom, Inc. NurseBuddy Infogosoft Ingram Micro Integron Ion IT Group Jointly Lifetime Health Diary HealthyCircles Heart To Heart Network HelloHealth HMM Group IDG Independa, Inc. Greenway Medical Technologies Happtique Health Companion, Inc. Health Founders Health Numeric HealthSaaS, Inc. FitLinxx ForaCare, Inc. Geneva Healthcare Get Real Health GlobalLogic goBalto, Inc. Diversinet Corp e-mergency Elbry's Entra Health Systems ERT FatSecret CellTrust Ceretec, Inc. ChoiceMMed Citrusbyte CleverCap Connected Care Solutions Continua Health Alliance ConversePoint Dexcom, Inc. Digifit, Inc. AT&T Mobility Aventyn, Inc. BodyMedia, Inc. Cambridge Temperature Concepts Care Technology Systems Case Western Reserve University American Heart Association American Stroke Association American Telemedicine Association ANT+ Apsora Asthmapolis Qualcomm Life Eco-system Partner Companies A&D Medical ActiveCare Advanced Warning Systems, Inc. Agile Edge Technologies, Inc. AirStrip AliveCor, Inc. Source: Company documents, Qualcomm Life In Exhibit 33, we provide a summary of Qualcomm Life‟s investments that comprise the Qualcomm Life Fund. We note that the Qualcomm Life Fund portfolio consists of nine interesting digital technology startup companies. Exhibit 33: Qualcomm Life Portfolio Company Summary Source: Company documents, Qualcomm Life
  32. 32. Digital Healthcare 31 Industry Analysis — Fall 2013 Rock Health Rock Health is a non-profit seed accelerator for digital health startups. The accelerator boasts a strong network of startup executives, industry executives, and venture capital investors. Halle Tecco serves as the Chief Executive Officer and was a co-founder of Rock Health. Sarah Pollet is the Chief Operating Officer, and oversees the daily business operations of Rock Health. Nate Gross serves as Medical Director and was a co-founder of Rock Health. Rock Health is headquartered in San Francisco; additional information can be found at the accelerator‟s website www.rockhealth.com. Structure and Focus. The accelerator is exclusively focused on digital healthcare startups in the concept stage or early stages of development (pre-VC). Typical startups selected for the accelerator are developing software or hardware products for consumers and/or enterprise customers. Residencies last four months and include a demo day with roughly 15 startups per class. Startups can elect to receive funding in the form of a $100,000 convertible note. Terms of the note vary by the startup‟s maturity, and startups can still participate in the accelerator without accepting investment. Strategic Partners. Rock Health benefits from several strategic partners ranging from venture capital investors to the government to technology providers, see Exhibit 34. Exhibit 34: Rock Health’s Strategic Partners Source: Company documents, Rock Health In Exhibit 35, we provide a summary of Rock Health‟s current portfolio companies. We note that Rock Health‟s current portfolio consists of 58 interesting digital technology startup companies. Exhibit 35: Rock Health Portfolio Company Summary Source: Company documents, Rock Health
  33. 33. Digital Healthcare 32 Industry Analysis — Fall 2013 StartUp Health StartUp Health is a national academy for health and wellness entrepreneurship. StartUp Health Academy provides health and wellness innovators with a structured curriculum to help build a sustainable long-term growth business in the healthcare sector. The Academy‟s goal is to help 1,000 Health Transformers (entrepreneurs) build sustainable growth businesses over the next decade. Steven H. Krein serves as the Chief Executive Officer and was a co-founder of StartUp Health. Unity Stoakes serves as President and was a co-founder of StartUp Health. Howard Krein, M.D., Ph.D. serves as StartUp Health‟s Chief Medical Officer. StartUp Health is headquartered in New York City. More information can be found at the Academy‟s website www.startuphealth.com. Structure and Focus. The accelerator is “stage” agnostic, but presents itself as “grad-school” for startups, whereas incubators are “undergrad.” The curriculum lasts 12-36 months and is focused on customer development in order to build sustainable long-term growth businesses in healthcare. The first class consisted of 24 companies and the second class will consist of nearly 75 companies. The accelerator provides infrastructure, resources, and services to entrepreneurs focused on building sustainable growth businesses in healthcare. StartUp Health receives between 2% and 10% of equity in the entrepreneur‟s company with a cost of 6% to 7% of equity for early-stage startups. Strategic Partners. StartUp Health benefits from several strategic partners ranging from venture capital investors to the government to technology providers, see Exhibit 36. Exhibit 36: StartUp Health’s Strategic Partners Government PartnersScholarship Partners Perk Partners Advisor Partners StartUp Community Source: Company documents, StartUp Health In Exhibit 37, we provide a summary of StartUp Health‟s current portfolio companies. We note that StartUp Health‟s current portfolio consists of 40 interesting digital technology startup companies. Exhibit 37: StartUp Health Portfolio Company Summary StartUp Health Portfolio Current Companies Source: Company documents, StartUp Health
  34. 34. Digital Healthcare 33 Industry Analysis — Fall 2013 Healthbox Healthbox offers an accelerator program for healthcare technology entrepreneurs focused on stimulating innovation, and enabling entrepreneurial success through a collaborative, global ecosystem in order to drive change in healthcare. Healthbox is focused on early-stage high-potential healthcare technology startups addressing meaningful industry challenges. Promising healthcare technology startups can receive resources, support, and a network to enable rapid development and growth through the Healthbox accelerator program. Nina Nashif serves as Chief Executive Officer and founded Healthbox. Yechiel Engelhard serves as Entrepreneur in Residence. More information can be found at the accelerator‟s website www.healthbox.com. Structure and Focus. The Healthbox accelerator program typically lasts four months, and includes a demo day, as well as one to two classes per year. Accelerator classes typically consist of 10 companies and are based in one of five cities: Chicago, Boston, London, Jacksonville, or Nashville. Startups receive $50,000 in seed capital, as well as a wide range of resources and support. We note that startups benefit from particularly close ties with BlueCross BlueShield Venture Partners. Strategic Partners. Healthbox benefits from several strategic partners ranging from venture capital investors to healthcare IT to technology providers, see Exhibit 38. Exhibit 38: Healthbox’s Strategic Partners Source: Company documents, Healthbox In Exhibit 39, we provide a summary of Healthbox‟s current portfolio companies. We note that Healthbox‟s current portfolio consists of 43 interesting digital technology startup companies. Exhibit 39: Healthbox Portfolio Company Summary Source: Company documents, Healthbox
  35. 35. Digital Healthcare 34 Industry Analysis — Fall 2013 Blueprint Health Blueprint Health is an accelerator program geared toward healthcare companies seeking help to find customers and capital. The program lasts three months and the majority of the startups‟ executives must commit to work from Blueprint‟s New York headquarters. The foundation of the program is access to a network of more than 150 healthcare entrepreneurs, investors, and industry executives. Blueprint Health‟s headquarters are in New York City. More information can be obtained at the accelerator‟s website www.blueprinthealth.org. Startups receive $20,000 in cash, as well as over $50,000 in perks, which include legal, hosting, human resources, public relations, and other services. In return for these perks and resources, startups must provide a 6% equity stake to Blueprint Health. Strategic Partners. Blueprint Health benefits from several strategic partners ranging from venture capital investors to healthcare IT to technology providers. According to the Blueprint Health website, the accelerator program benefits from partnerships with insurance companies (eight total), hospitals (12 total), healthcare IT companies and startups (31 total), biopharmaceutical companies (two total), and venture capital firms (22 total), see Exhibit 40. Exhibit 40: Blueprint Health’s Strategic Partners New York Presbyterian Montefiore Hospital Partners Healthcare Johns Hopkins Hospital University of Pennsylvania Health System Greenwich HospitalRobert Wood Johnson University HospitalCedars Sinai Medical Center Mayo Clinic United Healthcare Cigna Premera BCBS Regence BCBS Aetna ZocDoc Phressia ShapeUp Keas Alliance Health Activate Networks Happtique MedHelp Community Health Systems Ascension Health Kaiser Permanente HealthiNation Definity Health Eliza Liazon Cerner Healthcare IT / Startups Vitals Teladoc Zeel Patients Like Me Founder Collective Google Ventures Health Enterprise Partners Heritage Group Highland Capital Partners Aberdare Ventures Bessemer Venture Partners Cardinal Partners Edison Ventures Essex Woodlands FirstMark Capital Epocrates Medivo Sermo HLM Venture Partners InterWestKleiner Perkins Caufield & Byers Milestone Venture Partners Mohr Davidow Ventures Decision Resources Massive Health Health 2.0 Zeo Objective Health Kaplan Health Biopharmaceuticals Venture Capital Union Square Ventures OrbiMed Blueprint Health's Strategic Partners Physic Ventures Psilos Rho Ventures Safeguard Scientifics WebMD Allscripts Insurance Partners Hospital Partners Humana Well Point Pfizer Johnson & Johnson Simplee Red Brick Health Source: Company documents, Blueprint Health In Exhibit 41, we provide a summary of Blueprint Health‟s alumni portfolio companies. We note that Blueprint Health‟s alumni portfolio consists of 39 interesting digital technology startup companies. Exhibit 41: Blueprint Health Alumni Portfolio Company Summary Blueprint Health Alumni Portfolio Companies Summer 2013 Winter 2013 Summer 2012 Winter 2012 Source: Company documents, Blueprint Health

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