Remote Patient Monitoring (RPM), the monitoring of patients outside a traditional clinical setting, has received an influx of capital over the past few years. The space saw a growth spike in 2020, courtesy of the pandemic.
Is this a transient hype, or did the pandemic catalyze a shift to remote healthcare services for good? Here, we’ll take a closer look at some primary driving forces for RPM adoption, and point out what we believe to be the most exciting opportunities.
Office and outpatient is the #1 spending among the unproportionally high chronic disease healthcare expenses
Patients with chronic diseases incur an unproportionally high healthcare expenses. It’s estimated that $1.65 trillion—about 75% of total healthcare spending—went to those with at least one chronic condition. The expense grows exponentially among patients with multiple chronic diseases; patients with 5 chronic diseases cost 14 times more than those with no chronic condition.
Among the cost breakdown, “office and outpatient” make up the majority of expenses (with a close contender being “Inpatient” expenses in the patient group with 5+ chronic disease group). This makes sense given a shift from inpatient to outpatient services.
Average hospitals’ outpatient revenues grew from 28% in 1994 to 47% in 2016, nearly at a split point. The movement was encouraged by hospitals’ need to cut down costs while providing more quality service to the patients. The trend raised a question of what’s next after outpatient care.
Home health is still a very small proportion of the total expense today, but could it offload some volume from outpatient services, reducing costs even further while providing all that’s needed from the comfort of your home?
Too much demand for healthcare services, not enough healthcare professionals
The shortage of healthcare professionals was already a problem before the pandemic. It was made front and center in 2020 and guaranteed to remain a challenge with the aging population, the prevalence of multiple chronic diseases, and the extended lifespan.
A pre-pandemic study estimated ~91,000 physician shortage in 2020, a figure that was likely surpassed by the unexpected demand. By 2030, a ~140,000 physician shortage was projected. The shortage is driven in part by retirement. In 2018, 44% of physicians were 55+ years old. It’s a matter of time until they retire.
Physicians are not the only occupation in high demand. Registered nurses are expected to be in shortage at ~200,000 positions per year between 2016-2026. Similar to the physician population, 51% of registered nurses were 50+ years old in 2018. The need to minimize time spent on each patient, decrease costs, while maintaining a high standard of care is prominent.
Outpatient service is a prime candidate for healthcare professional resource optimization. Afterall, with a policy push to reduce costs, enabled by advances in technologies, they already shifted from inpatient to outpatient services, so why not a step further to remote patient monitoring.
The devil is in the details
While the move to RPM seems intuitive in theory, we believe the following factors play a key role in determining real-world implementation:
Urgency to adopt: do-or-die
At the onset, RPM is positioned as an additional procedure. It’s a tough space to break into unless there’s a crystal clear reason why remote monitoring can add value to the existing healthcare services. A general offer, such as collecting vital data for analytical purposes for the next visits, does not quite make the cut. It boils down to the urgency for particular indications, where RMP could prevent or allow for mitigation plans of a drastic negative outcome. With mortality or acute hospital care admission as alternative paths, RPM is worth the trouble and the upfront costs.
Well established monitoring solutions are no exception to the rule. From a need-based perspective, Sudden Cardiac Death (SCD) and arrhythmia (abnormal heart rhythms) are responsible for 15-20% of global death. In a high-risk group, a device called Implantable Cardioverter-Defibrillator (ICD) is used to monitor the heart rates. If abnormality is detected, the ICD automatically releases electric shock to restore a regular heart rhythm, preventing sudden death by arrhythmia. Various trials have been conducted to evaluate the effect of ICD on mortality, and while the figures vary, they showed an overall decrease in mortality rates. Given a life-or-death situation, it comes as no surprise that the ICD global market was estimated to be $11 billion in 2020.
Another example is a monitoring solution to help prevent the dead-in-bed syndrome in diabetes type I patients. Evidence showed a high correlation between the mortality and nocturnal hypoglycemia (low blood sugar level). While the single-use self-monitoring of blood glucose (SMBG) has been around since the 1980s, its discrete reads are only sufficient for determining appropriate insulin treatments, but fall short of giving warning signs while the patients are asleep. Medtronic launched a real-time continuous glucose monitoring device (CGM) in 2004, whose constant reads allow for early detection of hypoglycemia and hyperglycemia. The use of CGM showed a significant decrease in hypoglycemia events in critically ill patient groups. In 2019, CGM global market was estimated at $4 billion. While costs are still prohibitive in comparison to the SMBG, advances in technologies are believed to help drive down the costs with multiple players such as Abbot and DexCom in the space today.
B2B business model: monetary incentives for payers and providers
Similar to how we look at other investment opportunities, we mainly focus on companies targeting B2B businesses. That rules out probably more than half of the companies in this space, tackling RPM consumer-facing products. It’s not that we have anything against B2C, we just don’t usually have the insights and confidence to predict consumer behaviors to adopt.
B2B path often takes more time, and requires that the economic incentives of the payers and providers are aligned. Though we believe that it is a more straightforward route with underlying rationales to predict uptakes.
Circling back to why we’re interested in RPM in the first place, what excites us most are opportunities that directly reduce healthcare spending; not simply a nice-to-have or optional monitoring, but a solution that leads to pragmatic, cost-reduction actions. Often, the metrics are reflected in terms of hospitalizations. Essentially, RPM is an attempt to minimize unnecessary or preventable visits at outpatient and inpatient services.
While rather broad, it is estimated that RPM can help save $6 billion of healthcare costs per year. The top-down view may have limited impact when it comes to specific implementation, but it’s backed by the payers’ interest in the economic benefits of RPM. Between 2018-2020, CMS has issued a series of reimbursement policies to help promote RPM. This is directly addressing a consensus in the industry that cost reimbursement was the top hurdle for telehealth and RMP implementation. The policies include setup/training: $18.77, device: $62.44, clinical staff service 20+ min per month: ~$33-$52, additional 20 min with clinical staff services: ~$33-$42, and collection & interpretation by physicians: $59.19 for 30min+ within 30 days.
While the recent RPM reimbursement amounts may add up, it is still not a substantial sum, considering the additional hours required for the process. Registered nurses’ median hourly rate is $30.34, and they’re usually running low on staff. Thus, it is crucial that the RPM solution provides economic value to the providers, beyond the bottom-line RPM reimbursements.
Since, the hospitals already operate under a pretty thin margin (<1% operating margin pre-pandemic), it’s unrealistic to expect that they would splurge on the latest “innovation” without a clear economic outcome. The providers’ economics is often tied to the clinical metrics such as readmission rates that are penalized by the payers, length of stay, and complications requiring additional procedures within a fixed billable reimbursement amount. These outcomes usually become evident as part of an early pilot run with the hospitals.
Fitting in with the current workflow
Even if RMP solutions can help reduce costs for the hospitals and promise to improve clinical outcomes, they need to fit in with the healthcare professionals’ workflow in order to get adopted. As mentioned above, there are already shortages of physicians and nurses, so whatever is offered should fit into their routines rather than piling on what might feel like an unnecessary work.
Proven accuracy and evidenced-based clinical outcome
While we invest in early-stage companies, we look for those with working prototypes that already show acceptable performance. Reasonable accuracy (or even better, superior to existing non-remote monitoring methods) is a bottom line criteria we look for, ideally demonstrated in relevant subject populations.
RPM holds the promise to reduce healthcare expenses, by helping offload outpatient services and ease the shortage of healthcare professionals. As a fund investing in early-stage companies, we understand that it’s unlikely that all the boxes will be checked off at our stage, though we are in search of teams with a clear understanding of how to get there. The following are what we actively look for in our prospective RPM investments:
- Urgency to adopt: do-or-die
- B2B business model: monetary incentives for payers and providers
- Fitting in with the current workflow
- Accuracy and beneficial clinical outcome