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Strategic Review of Healthcare Information Technology

Opportunities and threats associated with accelerating HIT adoption

By Scientia Advisors

November 2009

Scientia Advisors, LLC

Boston ■ Palo Alto

Scientia Advisors LLC

One Main Street, 7th Floor

Cambridge, MA 02142

www.scientiaadv.com

http://www.scientiaadv.com/

All materials copyrighted and can not be used without explicit permission2Scientia Advisors LLC

Agenda

Geography Review3

Market Overview2

The Electronic Health Record Market4

Clinical Decision Support Systems5

Conclusion6

About Scientia1


Scientia Advisors: A Global Strategy Consulting FirmScientia combines superior strategic process, scientific knowledge, business savvy,

and extensive resources to deliver actionable results for clients

TECHNICAL KNOWLEDGE

MARKET & OPERATIONS EXPERIENCESTRATEGY PROCESSES

GLOBAL NETWORK OF KOLS

A Global Strategy Consulting Firm

Growth Strategy Specialists

» PROPRIETARY TOOLS

» DETAILED ANALYSIS

» INTERACTIVE DECISION-MAKING

» CLOSE CLIENT COLLABORATION

» 60+ YEARS COMBINED INDUSTRY EXPERIENCE

» UP-TO DATE MARKET INSIGHTS

» REGULATORY & POLICY CHANGES

» REIMBURSEMENT LANDSCAPE

» TEAMS ENTIRELY OF SCIENCE & BUSINESS

EXPERTS

» PUBLISHED THOUGHT LEADERS

» NETWORK OF KEY OPINION LEADERS &

SUBJECT MATTER EXPERTS

» 25,000+ SCIENTISTS, MEDICAL

PRACTITIONERS, & INDUSTRY PARTICIPANTS


Scientia Advisors: Global Strategy ConsultingUtilizing its continuously expanding network of experts, Scientia has helped

clients across the globe realize new opportunities in the life sciences

WHERE WE WORK

Obstetrics & Gynecology

Renal Oncology PsychiatryEndocrinologyCritical Care

MedicinePharmacology

Neurology Otolaryngology Urology HematologyRespiratory/Pulmonary

Dermatology Ophthalmology

Infectious Disease Cardiovascular Gastroenterology AnesthesiologyRheumatology Surgery Pediatrics

Our clients

Our offices

North America 17,700+experts

South America100 +

experts

Europe6,100+ experts

Rest of World500 +

experts

Africa

100 +

experts

Australia100 +

experts

…And Constantly Expanding into New Areas of Functional Strategic Expertise


“The What”Industry Characterization &

Screening

Strategy Process: Scientia’s Proprietary ToolsOur process has been designed to develop growth strategy in a bottom-up and

fact-driven manner and customized for each client’s needs

Timeline

“The Why”Opportunity Assessment &

Competency Fit“The How”

Strategy Development


Technical Knowledge: Expertise Across Health & WellnessScientia’s technical knowledge is readily applied in our analyses to help clients

uncover potential for new opportunities

Life Science Expertise Including: Target Markets Including:

Diagnostics

Medical Devices

Biological Sciences

Therapeutics

Clinical Practice

Physical Sciences

Drug Delivery

•Cardiovascular/Metabolic•Oncology•Infectious Disease

Life Science Tools•DNA Sequencing•Microarrays•Cell Biology

•Oncology•Infectious Disease•Genetic

•Cardiovascular•Orthopedic•Neurological

•Excipients•Services•Delivery Technologies

Examples:

Conferences Webinars20+ talks at industry conferences» Mass High Tech » Intl Molecular Medicine Tri-Conference» Partners Healthcare Personalized Med.» Stem Cell Biomanufacturing

Articles & References» Medical Device Daily» Wall Street Journal» Science» Pharmaceutical Executive

Industry & Market Reviews» Vascular Disease» Future of Cancer Diagnostics» Cell Therapy» Pharmacogenomics

PublicationsAttended by 500+ healthcare execs» Vaccines» High Value Diagnostics» Functional Foods» Point of Care

Life Science Thought Leadership, 2008-2009


Market Understanding: Scientia’s Creative OutlookScientia looks at a broad range of markets through many different view points;

by technology, patient care continuum, market channel, etc.

PREVENTION/ HEALTHY LIFESTYLE

HEALTHY ENVIRONMENT/ APPLIED MARKETS

IN VITRO DIAGNOSTICS

MEDICAL DEVICES / IT

THERAPEUTICS

DISCOVERY TECHNOLOGIES

DRUG PRODUCTION

Prevention

Diagnostics

Treatment and Monitoring

Source: Scientia Analysis, Datamonitor, SG Cowen Therapeutics Outlook 2007, Roche Investor Presentation 2002, Frost & Sullivan

Therapeutics

* Includes products and services revenue of suppliers such as Pharma, MedDevices and Diagnostics to the health care buyers (hospital, physicians offices or consumer); for functional foods the number shown is the revenue of consumer package good companies. This scope does not include healthcare delivery services (e.g. revenue from physician services, hospital charges)

Total: $1.2 Trillion

Global HealthcareScientia Estimates (2007)*

Med Devices

Functional Foods

Other^

Inf Ctrl/ Wound Care

IVDLife Sci Tools

HealthIT

Therapeutic

Patient Care Continuum

^ Includes services such as CRO, laboratory testing services. Also includes “Applied Markets”


Global Network of KOLS: ScientiaNETWe have access to 25,000 experts from industry, academia, and medical

practice that provide immediate insight and expertise to clients

We ask the right people the right questions to analyze, document, and presentresults in a time and cost efficient manner

• Execute surveys with experts in the field

• Collect, analyze, and report results

• Organize face-to-face meetings & interviews

• Organize and conduct telephone interviews

INTERVIEWS SURVEYS PANELS

ANALYSIS


Scientia Advisors: Client Testimonials Scientia’s clients tell it best…

TECHNICAL KNOWLEDGE

MARKET & OPERATIONS EXPERIENCESTRATEGY PROCESSES

GLOBAL NETWORK OF KOLS

A Global Strategy Consulting Firm

Growth Strategy Specialists

“Scientia’s ability to structure and visually

depict information helped us clarify our own

thoughts”Vice President Strategic Initiatives , Top 5 Indian

Pharmaceuticals Company

“They start with the critical domain expertise in

therapeutics and tools so that no time is wasted ‘getting up to speed’.”

General Partner, Leading Healthcare Venture Capital Firm

“A unique access to industry experts for relevant insights

combined with solid financial analysis ensures

the recommended opportunities and strategies

are well grounded.”General Manager - Health &

Wellness, Fortune 50 Company

“They are a firm that can assist with big thinking

and they have substantive experience with the

practical constraints of execution…”

President & CEO, Startup Life Science Informatics Company


Agenda

Geography Review3

Market Overview2



Conclusion6

About Scientia1


Source: Scientia Analysis, Datamonitor, SG Cowen Therapeutics Outlook 2007, Frost & Sullivan

• Healthcare IT will be a greater share of healthcare spending in the future:

» Interventional products - therapeutics and

medical devices – have historically captured

~90% of sales

» As the healthcare system experiences

declining marginal benefit from new drugs and

medical devices, the growth of these markets

will slow

» Increasing emphasis on the appropriate use of

existing interventions is shifting the focus to

the Healthcare IT market

» This shift in focus underlies the HIT growth

opportunity

Therapeutics

2008 Total: $1 Trillion

WW Healthcare Market

Therapeutics, ~<5% CAGR

Medical Devices,

~9-10% CAGR

HIT, ~11% CAGR

IVD, ~10% CAGR

The Scientia Healthcare Thesis

HIT and the WW Healthcare MarketOver time, healthcare IT will expand its share of sales; Scientia’s view is that

healthcare markets are shifting to enable better use of existing cures


Healthcare Information Technology (HIT) DefinitionThe definition in the ARRA1 is a useful definition given the bill’s importance;

Scientia establishes alignment with well selected definitions

Healthcare Information Technology (HIT):

“Healthcare Information Technology” is defined as “hardware, software, integrated technologies or related licenses, intellectual property, upgrades, or packaged solutions sold as services that are designed for or support the use by health care entities or patients for the electronic creation, maintenance, access, or exchange of health information1.”

Source: Scientia analysis; 1The American Recovery and Reinvestment Act of 2009

Includes Clinical and Non-Clinical Hospital Information Systems (HIS), Laboratory Information Systems (LIS), Hospital Information Systems (HIS), Certified Electronic Health Records (EHR) Technology, Multiparameter Bedside Monitors, Point-of-Care Testing Data Management Solutions (POCS EDS), Remote Patient Monitoring Services

Excludes any and all networking infrastructure (such as switches, wireless routers, etc.), computer equipment (laptops, etc.) and software that is not included in a packaged HIT solution; subscriptions to electronic medical journal publications; advertising revenue generated from websites; any and all R&D applications such as bioinformatics (including infrastructure, workflow solutions, analysis and content); software used in the context of therapeutic or medical device manufacturing; any devices or software used outside of healthcare; in vitro diagnostics including software and/or algorithms; medical devices


HIT Market Segmentation and Sub-SegmentationHIT sub-segmentation provides solution-level resolution; Scientia cuts through

ambiguity through rigorous sub-segment definition work

HIT

Sources: Scientia analysis; HIMSS Analytics, Triple Tree; Frost & Sullivan; Kalorama Information

Segments

Hospital

• Middleware

• Hospital Point-of-Care Testing Data Management Systems (POCT DMS)

• Central Patient Monitoring Stations

• Hospital Multiparameter Patient Monitors (bedside)

• Non-Clinical HIS

» Administrative

» Accounting & Financial

» Management

• Clinical HIS (Inpatient Certified EHR Technology)

Specialty

• Infection Control Systems

• Oncology IS (OIS)

• Cardiology IS (CIS)

• Emergency Department IS (EDIS)

• Perioperative & Anesthesiology IS (P&AIS)

• Intensive Care Unit IS (ICUIS)

• Lab IS (LIS)

• Radiology IS (RIS)

• Picture Archiving & Communications Solutions (PACS)

Ambulatory

• Alternative MultiparameterPatient Monitors (bedside)

• ePrescribing Systems

• Ambulatory Certified EHR Technology

• Physicians Practice Management Solutions (PPMS)

Home & Other

• Personal Health Records (PHRs)

• Home Health Agency IT

• Remote Patient Monitoring


Worldwide Healthcare IT MarketHIT is expected to grow at an impressive rate, particularly given its size

• In the near term, government incentives in the US and abroad will catalyze hospitals’ and physicians’ adoption of clinical HIT applications

• Adoption by smaller, more risk averse and more cost sensitive hospitals with less experience in HIT implementation and use will have a profound impact on market dynamics

» Leading players with large installed bases, proven

products and a streamlined route to “meaningful use of

EHRs” are likely to gain share

» Lower risk, lower cost approaches such as remote hosting

may become popular for certain small hospitals

» HIT companies will lend hospitals the capital required to

finance IT investments given difficulties in financial

markets and the fact that stimulus incentives do not kick

in for several years

• Longer term, the market is a target for disruptive innovations

that may be made available at dramatically lower price points

» Frustration with existing solutions and vendors has lead

to increasing interest in the development of freely

available open source solutions that could handle

applications from patient registration to CPOE

WW HIT Market

Source: Scientia analysis; HIMSS Analytics; Triple Tree; Frost & Sullivan; Kalorama Information; CIBC Capital Markets; The Congressional Budget Office; The Healthcare Blog

2008 2013

Home and Other

Ambulatory

Departmental / Specialty

Hospital

~$35 B

~$60+ B

11%

Key Trends and Growth Drivers


The Healthcare Information ChainAn understanding of how information flows to and from the patient

environment is critical for identifying opportunities in HIT

HIS: Hospital Information System; PPMS: Physician’s Practice Management Solutions; POCT DMS: Point-of-Care Testing Data Management Solutions; MW: Laboratory Middleware; LIS: Laboratory Information Systems; OIS: Oncology Information Systems; PIS: Pharmacy Information System; CPOE: Computerized Physician Order Entry

Clinical Diagnostics Healthcare ITLegend:

Non-Clinical

Clinical

Non-Clinical

Clinical

FRONT OFFICE BACK OFFICE

HIS: Administrative Solutions (Hospital) and Front-End PPMS (Ambulatory):• Patient registration• Scheduling

Dx FOCUS Rx FOCUSPOC IVD

POCT DMS

MW

LIS

Imaging Modality

RIS/ PACS

PIS

HIS: Financial & Accounting Solutions (Hospital) and Back-End PPMS (Ambulatory)

HIS: Management Solutions (Hospital) and Back-Office PPMS (Ambulatory)

• Claims Management• Supply Chain Management

Inpatient or Ambulatory

EHR

Patient Monitors

Lab IVD

Source: Scientia Analysis; ScientiaNET


Agenda

Geography Review3

Market Overview2



Conclusion6

About Scientia1


EU:

• Germany – Better IT for Better Health, ~$1B, began 1993

• Norway – More Health for Each bIT, ~50MM, began 1997

• U.K. – National Programme for IT, ~$12B, began 2002

North America:

• US - HITECH, ~$20B, began 2009

• Canada –Health Infoway, ~$1B, began 1997

ROW:

• China - Golden Health Project (1985), HIT spending mandates (2004), Health Informatization Plan, (2006)

• Australia – Health Connect, $100MM, began 2000

Government Sponsored HIT InitiativesGovernment mandates to improve healthcare efficiency are driving the WW

HIT opportunity; Scientia closely monitors government initiatives

Source: Scientia Analysis, Anderson GF, Frogner BK, Johns RA, Reinhardt UE. Health care spending and use of information technology in OECD countries. Health Aff (Millwood) 2006;25:819-31.


HIT Segmentation by GeographyHIT players may be missing opportunities by adopting a single region focus.

Scientia can assist with a global perspective

WW HIT Market, 2008

• North America

• EU

• ROW

Key Takeaways

• In the near term, North America will generate the majority of incremental revenues, but long term, international expansion will be key to top line revenue growth

• North American leaders may nearly double their addressable market by aggressively expanding internationally

» HIT firms, such as Cerner, are taking a lead in developing international business

• The ROW has the greatest potential for growth due to government mandates, low HIT saturation, and the opportunity to “leap frog” to modern systems:

» Siemens is currently the only top 10 Chinese HIT vendor

Total $36.5 B

Source: Scientia analysis; Kalorama Information; Frost & Sullivan; Philips Health Informatics


The Chinese HIT Market

Source: Scientia Analysis, Jiechen Jiang / Export HIS, IDC, Frost & Sullivan

Healthcare IT Market in ChinaThe accelerating Chinese HIT market is a clear example of opportunity in

foreign markets

Key Trends and Market Drivers

Top 10, ~43%

2003 2008 2013

~$0.5 B

~$1.5 B

~20%

~$4.0 B

~25%

• Chinese healthcare modernization began in

1985 with the Golden Health Project

• In 2004, the Chinese government mandated

that hospitals spend 5% of revenues on HIT. In

2006, the Health Informatization Plan 2006 –

2010 was released, further driving the HIT

market

• Despite these government efforts, the current

state of HIT adoption in China is relatively low:

»The Ministry of Health concludes that 70

– 80% of hospitals need HIT upgrades,

particularly digital medical records, PACS

and clinical decision support systems

»Only 31% of hospitals have an

established HIS

HIS: Hospital Information System


Agenda

Geography Review3

Market Overview2



Conclusion6

About Scientia1


Certified Electronic Health Record (cEHR) TechnologyThe stimulus bill’s definition of “certified EHR technology” drives EHR

product features

Source: Scientia analysis, 1American Recovery and Reinvestment Act of 2009

(Certified) Electronic Health Record Technology1:

An electronic record of health-related information on an individual that-A. includes patient demographic and clinical health information, such as medical history

and problem lists; andB. has the capacity—

i. to provide clinical decision support;ii. to support physician order entry;iii. to capture and query information relevant to health care quality; andiv. to exchange electronic health information with, and integrate such information from other source

Includes High quality ambulatory and inpatient EHR technology (such as those certified by the Certification Commission for Health Information Technology)

Excludes low quality ambulatory and inpatient EHR technology that does not allow “meaningful use of certified EHR technology,” specialty EHRs that are embedded in acute care, cardiology, oncology and other specialty information systems


2008 2013Inpatient (Clinical Hospital Information Systems) Ambulatory

Electronic Health RecordsThe US stimulus package is driving rapid adoption of EHR technology

Source: Scientia analysis; American Recovery and Reinvestment Act of 2009; Frost & Sullivan; Kalorama Information; CIBC Capital Markets; The CBO

cEHR Definition1

• The US stimulus package is driving a shift in

spending towards EHR technology, driving growth

» Hospitals and physicians that fail to become meaningful

users in the allotted time will be penalized with lower

reimbursement rates

• Inpatient EHRs (Clinical HIS) will continue to be the

larger of the two markets

» The high complexity of individual hospitals requires

significant customization, driving up the cost of

implementation and maintenance

• The inclusion of CDS in the definition of a certified

EHR technology will lead to the widespread

adoption and use of this important application

» CDS has implications for other healthcare markets such

as pharmaceuticals and IVD

Key Trends and Growth Drivers

$14 B

14%

Clinical Decision Support (CDS)

Capture of Information Relevant

for Health Care Quality

Patient Demographic and

Clinical Information

Healthcare Information

Exchange (HIE)

Computerized Physician Order

Entry (CPOE)

$27 B

WW cEHR Market


Agenda

Geography Review3

Market Overview2



Conclusion6

About Scientia1


Clinical Decision Support System DefinitionCDSS draws from available information and makes recommendations

Clinical Decision Support Systems (CDSS):

“Clinical Decision Support systems link health observations with health knowledge to influence health choices by clinicians for improved health care.”

Components of a CDSS include:

• A medical knowledge base

• An inference mechanism (usually a set of expert-derived rules

Four key functions of a CDSS include:• Administrative: Supporting clinical coding and documentation, authorization, and referrals

• Managing clinical complexity and details: Keeping patients on research and chemotherapy protocols; tracking

orders, referrals follow-up, and preventive care

• Cost control: Monitoring medication orders; avoiding duplicate or unnecessary tests

• Decision Support: Supporting clinical diagnostic and treatment plan processes; promoting use of best practices,

condition-specific guidelines, and population-based management.”

Source: Scientia analysis; 1Dr. Robert Haywood, Centre for Health Evidence; 2Perreault L, Metzger J. A pragmatic framework for understanding clinical decision support. Journal of Healthcare Information Management. 1999;13(2):5-21.; Open Clinical (openclinical.org); Wikipedia


CDSS SegmentationCDSS can be a valuable add-on for a variety of products ranging from EHR

technology to patient monitors

Sources: Scientia analysis; company websites

cEHR Market Segments

Hospital Information

Systems (HIS)

Ambulatory EHR

Specialized EHR (e.g.

Oncology IS)

CDSS

Segments

Modality-Specific CDSS Tools

On-Modality Off-Modality

Modality-Agnostic CDSS Tools

cEHR CDSS Modules

• e.g. TheraDocfor infection control

Reference Tools

• e.g. DXplain

• e.g. Event Surveillance feature of IntellivueMonitors from Philips

• e.g. QTSM ECG analysis algorithms and services from iCardiac

Independent of cEHR technologycEHR: Certified Electronic Health Record


Example of a CDS Rule embedded in an EHRClinical decision support rules will catalyze meaningful standardization in

healthcare with significant consequences for healthcare market participants

Source: Scientia analysis, ScientiaNet, *Partners’ Healthcare

Screen Shot of the First Genetic Clinical Decision Support Rule at Partners*

Key Takeaways

• By reminding physicians of “easy to learn, easy to forget” information, CDSS tools can decrease variation in provider practices


Agenda

Geography Review3

Market Overview2



Conclusion6

About Scientia1


Scientia’s Overall HIT ThesisAccelerated HIT adoption will create opportunities and threats for HIT

players and those in clinical diagnostics

Opportunities and Threats for the HIT Industry:

• Opportunity to sell more inpatient and outpatient EHR technology; threat of

declining specialty (departmental) information system sales

»The HITECH act will shift provider budgets towards enabling “meaningful use of EHR

technology” rather than specialty systems such as laboratory information systems (LIS),

radiology information systems (RIS), picture archiving and communications systems (PACS),

etc.

• Opportunity to expand internationally; threat posed by new entrants

»Emerging markets such as China are rapidly expanding their healthcare IT spending

»The entry of American HIT leaders, such as Cerner, may take share from international rivals

in European and ROW markets; HIT companies with disruptive cost basis from countries such

as India may disrupt the American market

• Opportunity to provide high value Clinical Decision Support Systems (CDSS)

»There is significant need in the US and abroad for greater standardization in healthcare

service provision; HIT companies can address this need by selling high value CDSS

implementations


CONTACT INFORMATION

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Strategic Review of Healthcare Information Technology€¦ · Strategic Review of Healthcare Information Technology ... Our process has been designed to develop growth strategy in