Keywords

1 Motivation of Research

There is an increasing percentage of the population living in modern urbanized society where several factors drive the increase of the average lifespan of humans. The factors include i) greater access to medical facilities; ii) greater knowledge with regards to illness prevention; iii) new and advanced medical treatment for major illness; iv) shifts with regards to human behavior towards healthier dietary practices.

CEQ: “UN World Population Ageing, 2009” is not found in the reference list please check. From a World Ageing Report (United Nations, 2009) [21], the aging society in turn drives the healthcare market since people aged 60+ utilize 3–5 times more healthcare services than younger people. In 2009, 11¡percent¿ (606 million) of the global population was aged 60+. By 2050 this will be more than 22¡percent¿ of the entire population (2 billion). This is shown in Figure 15.1.

figure 1

From the study from Centers for Medicare and Medicaid Services (2004) [3], in 2004 the costs for healthcare in the United States have increased above 16 percent of the gross national product (GNP). This correlates with the fact that we are facing an aging population and an increasing number of chronically ill people.

Considering diabetes as an example, the proportion of persons of the age 65 with a chronic diabetes condition is approximately one in five (18.7¡percent¿) (Centers for Disease Control and Prevention, 2003) [2]. Even assuming that this ratio remains constant in the future and does not get worse, the expected overall increase in percentage of persons with chronic diabetes conditions due to the aging of society is quite alarming. This development is not restricted to the US but it is a worldwide problem that particularly developed countries are facing. Hence, a major challenge in healthcare is to improve the quality of care for an increasing number of patients using limited financial and human resources.

The major factors contributing to breakdown of current healthcare system are threefold, i) rising costs; ii) fast changing demographics; and iii) degrading quality. Global medical cost spending can be seen from the following Figure 15.2.

figure 2

If current trends hold, we can see by 2050, healthcare spending will almost double, claiming 20 30¡percent¿ of GDP for some economies in (Frost and Sullivan, 2008) [10]. Also, for almost all economies worldwide, healthcare spending per capita is rising faster than per capita income. As for changing demographics, health economics dictates a shift in spending away from treating and towards predicting, diagnosing and monitoring (as depicted in Figure 15.3).

figure 3

As for quality (Frost and Sullivan, 2008) [10], data in the following presents the current quality degradation.

  • 15¡percent¿ of patients admitted to hospital suffer an adverse event.

  • 8¡percent¿ of adverse events result in death.

  • 6¡percent¿ of adverse events result in permanent disability.

  • 10-20¡percent¿ of all adverse events are caused by medication errors.

  • 10-15¡percent¿ of hospital admissions occur because providers do not have access to prior care records.

  • 20¡percent¿ of laboratory tests are requested because the results of previous investigations are not accessible.

In light of the above, there is an urgent need to establish a new type of healthcare system. We will now try to define the building blocks for such a healthcare system. A clear trend is patient centric healthcare, which interconnects medical communities and virtualizes patient doctor relationship. This trend is depicted in Figure 15.4. Take note here, that throughout this chapter patient-centric healthcare and pervasive healthcare will be used interchangeably.

figure 4

1.1 Problem Statement

In light of the above, we find it interesting to research the business developments and opportunities for this emerging industry of pervasive healthcare systems. In addition, we must understand what drives this new healthcare system to competitiveness, meeting customer needs, and adding value. Therefore, the problem we will focus on addressing in this chapter is defined as follows.Problem Statement: Determine the factors and risks affecting the viable business model for pervasive healthcare systems - with a focus on sleep treatment devicesViability is assumed when both the users of the system and the providers of the system perceive sufficient value of their participation (Droes, et al., 2005) [7]. There are no theories on how to approach development of business models in healthcare. Business modeling is considered an effective approach to assess value creation and assess market adoption possibilities. Nevertheless, business modeling in traditional healthcare is a relatively new field in science, not to mention business model development for the emerging pervasive healthcare industry.

Many of the sleep enhancement devices readily available in the over the counter markets, are only marketed as non-treatment devices or relaxation related devices. To determine why a limited number of devices exist in the market that can claim actual medical treatment in a pervasive environment is very interesting. These factors may be used as criteria to determine whether the roadmap planned or developed for future devices will be successful.

The remaining of this chapter is organized as follows. In Section 15.2, we look into previous works which have looked into related business aspects for healthcare systems. In Section 15.3, we introduce our hybrid analysis methodology/approach to the research problem. In Section 15.3, we show the results and discussion when applying the hybrid methodology to the research problem. In addition, some risks are addressed. In Section 15.4, we give an analysis on the sleep industry and relate value chain. In conclusion, we summarize the contributions of this section and possible future research directions in Section 15.6.

2 Background and Literature Review

Pervasive healthcare systems, in which a large percentage focus on remote patient monitoring and management, are increasingly recognized as having the potential to help overcome the challenges of traditional healthcare mentioned in Section 15.1. Per its definition, in a remote pervasive healthcare system the caregiver is geographically separated from the consumer with the care plan being individually tailored to the patient needs.

This patient-centered concept, bringing the care from the hospital (or the doctor’s office) to the patient at home, results in cost-reduction and improved quality of care. Being able to more frequently observe the patient’ s state of health by performing remote measurements of the patient’s vital signs enables optimizing the patient’s medication and treatment accordingly to each individual patient’s needs.

This results in longer independent living for older patients and lower mortality rates. Through increased frequency of daily automated, but personalized, patient intervention, the care providers can manage a broader range of chronic disease patients meanwhile improving efficiency. However, the biggest opportunity for reduction in costs is not in lower costs for nurse visits but rather in a reduced need for high-cost chronic care and hospitalization.

In addition to the care being provided in a remote and personalized way, an important factor for enabling the success of future pervasive health systems is to make the last technological hop to the patient, wireless. This is also along the lines of technology development trend shown in Figure 15.5.

figure 5

By introducing wireless technology, cumbersome cables can be eliminated, enabling greater physical mobility and making the system more unobtrusive and ubiquitous for the patient. This is due to the fact that the technologies being considered for the wireless link at the patient side now range from enabling a simple cable-replacement to allowing real networking of vital sign measurement devices, as for example in the context of body sensor networks (BSN) (Forrester Research, 2004) [9]. An example of a patient-centric pervasive health system is shown in Figure 15.6.

figure 6

Pervasive Healthcare System Market Characteristics Market ScopeThe market perspective for pervasive healthcare systems, compared to traditional healthcare systems, focuses on a larger scope, that blurs the lines between populations and provides more personalized healthcare. This concept is depicted in Figure 15.6.

figure 7

As we can see from Figure 15.6, the pervasive healthcare industry compared to traditional healthcare focuses on all the different stages of heath of a human. In other words, monitoring and prediction is not only for people that are already ill, but also for the healthy, vulnerable, or affected. Therefore, addressing a broader scope of targeted customers in market terms provides us with a larger total addressable market (TAM).Market DynamicsHere, we shall look at i) the pros and cons that drive and restrain the market for pervasive healthcare industry; ii) the factors that individually and together affect the market; and iii) discuss how healthcare, technology, information trends explicitly or implicitly shapes the trend of the pervasive health market. The general market dynamics are shown in Figure 15.8.

figure 8

An abundance of patient-centric research has been set-forward. As we can see from the report (Frost and Sullivan, 2008) [10], the health care paradigm shifts clearly points out that pervasive health systems is the future (depicted in the following Figure 15.9).

figure 9

This pervasive healthcare trend arises from being a potential solution to the aforementioned problems existing in traditional healthcare–low quality and high rising costs. Interesting to note, from an industry competition point of view, this is just what makes healthcare different from other industries. As the paper from Porter and Teisberg (2004) [19] states, competition over the time should drive up quality while lowering costs for customers. However, this is not true for healthcare related business due to current policies, customer lack of information. Pervasive healthcare industry proves to be just the opposite. In addition, in the work from Grimson (2001) [11] states that “movement towards shared or integrated care in which the single doctor–patient relationship is giving way to one in which an individual’s healthcare is the responsibility of a team of professionals across all sectors of the healthcare system. This is being accompanied by a very significant growth in home care which is increasingly viable even for seriously ill patients through sophisticated telemedicine services facilitated by intelligent sensors, monitoring devices, hand-held technologies, and the Internet.” In the paper (Noel et al., 2004) [17] , they used actual case studies of around one hundred patients and found that tele-healthcare along with electronic health records has a positive impact in lowering medical costs and improving quality of treatment over a period of three months.

Many researches discuss the feasibility of such a pervasive health system. In papers, such as (Chronaki, Chiarugi, & Reynolds, 2006; Schmitt et al., 2007) [6, 20], they mentioned that interoperability of both physical wireless protocols and data format is the main obstacle to both business and technical feasibility. To be interoperable, certain standards and formats should be followed for product development or service providing. Thus the problem arises of license and royalty issues, which in business aspects, implicitly defines the non-trivial revenue sharing model. However, this remains yet to be defined and optimized.

This brings us to an important aspect that needs to be revisited - the concept of business model (Chesbrough & Rosenbloom, 2003)[4] state the concept business model is widely used, but rarely well defined (Branscomb & Auerswald, 2001)[1]. Sometimes the term business model is reserved for only one company and describes in the business model the role of that company in its environment. Other visions are that a business model is a model of profits, and the concept of generating these profits is considered to be the business model. These last visions do not describe the cooperation in networks or chains that might be required in order to create customer value (Haaker, Bouwman, & Faber, 2006)[12] Nevertheless, as mentioned in Section 15.1, business models for healthcare system are yet to be defined clearly and remains and open problem yet to be investigated.

3 Research Approach and Methodology

Here we use two models to determine the factors and risks that contribute to a viable business model for pervasive health devices. Take note that healthcare devices in general, compared to consumer products, are subject to extremely strict regulatory environments. This is especially non-trivial for devices that claim to have treatment purposes. In addition, the channels for marketing and selling such products are different – through conferences and hospital distribution channels.

From a business standpoint, the pervasive healthcare industry is an emerging market. New firms wanting to establish a foothold in the marketplace in this emerging industry will face several challenges. Therefore, the most important strategies the firm must address are i) identify competitive advantages and ii) capture and retain customers.

3.1 Hybrid Analysis

In light of the above, we use a hybrid analysis consisting of three models, i) Porter’s Five Forces (Porter, 1998)[18], to determine the industry/product’s competitiveness and ii) Delta Model (Hax & Wilde, 1999, 2003)[13,14], to determine the strategic options from a customer bonding point of view and adaptive processes that support the options. This hybrid model is depicted in Figure 15.10.

figure 10

We briefly explain the model used in the hybrid analysis in the upcoming subsections.

3.2 Porter’s Five Forces Model

Pervasive healthcare industry is relatively new compared to the traditional healthcare industry. Many of the companies just entering this industry are small to middle sized enterprises (SMEs) which either do not have the resources or the brand recognition of large firms. In the work of (Kleindl, 2000) [15], the authors used Porter’s five forces model to analyze the new competitive forces impacting SMEs. We therefore utilize this model in analysis to the pervasive healthcare industry.

The Five forces analysis looks at five key areas namely the i) threat of entry, where not only existing firms but also the possibility of new firms may enter the industry affects competition; ii) the power of buyers, where this considers the impact that customers have on a producing industry; iii) the power of suppliers, where this considers the producing industry relationship to raw materials used to create products, e.g., labor, component and other supplies; iv) the threat of substitutes, where this refers to products in other industries; and v) competitive rivalry, where competition among rival firms drives profit to zero. The following are main influences of determining the high or low effects of each force.Threat of Entry

  • Economies of scale e.g. the benefits associated with bulk purchasing.

  • The high or low cost of entry, e.g. how much will it cost for the latest technology?

  • Ease of access to distribution channels

  • Cost advantages not related to the size of the company

  • Will competitors retaliate?

  • Government action e.g. will new laws be introduced that will weaken our competitive position?

  • How important is differentiation

Power of Buyers

  • Are the buyers concentrated? If so, buyer power is powerful, e.g., there are a few buyers with significant market share

  • Are powerful if the cost of switching between suppliers is low

Power of SuppliersThe power of suppliers tends to be a reversal of the power of buyers.

  • Where the switching costs are high e.g., switching from one supplier to another.

  • Power is high where the brand is powerful

  • There is a possibility of the supplier integrating forward

  • Customers are fragmented (not in clusters) so that they have little bargaining power

Threat of substitutes

  • Where there is product-for-product substitution

  • Where there is substitution of need

  • Where there is generic substitution

Competitive RivalryThis is most likely to be high where entry is likely; there is the threat of substitute products, and suppliers and buyers in the market attempt to control.

3.3 Delta Model

For pervasive healthcare systems, one of the main business model characteristics is patient (customer)-centric concept. However, as we can see from the previous Porter’s five forces, the primary role of strategy is that the firm achieves a unique competitive advantage. In other words, the goal of the strategy is to beat your competitors by utilizing unique capabilities or resources. Seemingly, we need to put more emphasis on the customers. Therefore, we utilize the Delta Model proposed in Hax and Wilde (1999) [13] to analyze whether or not pervasive healthcare has the characteristics to support a customer-centric strategy. In addition, this model defines strategic positions that reflect fundamentally new sources of profitability, provides strategic alignment with the firm’s internal activities, and introduces adaptive processes that allow the firm to respond to uncertainties. These are all issues that new entrants in the pervasive healthcare industry have to address.

This customer-centric analysis on the firm focuses on utilizing to Triangle by offering three strategic options, i) best product, where the company bonds with the customer through intrinsic superiority of the product or service it provides; ii) total customer solutions, where the company bonds with the customer by keeping within close proximity to the client which allows the company to anticipate needs and work jointly to provide to develop products; and iii) system lock-in, where the company tries to gain a complementors’ share in order to lock-out competitors and lock-in customers (achieving a de facto proprietary standard, Hax & Wilde (2003)) [14]. This is depicted in Figure 15.11.

figure 11

Take note that the above strategic options need not be mutually exclusive. The firm may find its activities taking a hybrid position between two strategic options in the triangle.

The above triangle determines the firm’s business strategy. However, how to execute these strategies is yet another challenge. Hence, we can utilize a set of adaptive processes to support the three strategic options as follows.

  • Operational effectiveness–This process defines the providing the product/services to the customer. This addresses the most effective cost and asset infrastructure of the internal supply chain of the firm and should be extended to suppliers, customers, complementors.

  • Customer targeting–This process defines the business to customer interface. This addresses the customer relationship management which includes customer attracting, satisfying and retaining. This is to establish an optimized revenue infrastructure for the firm.

  • Innovations–This process ensures that there are upcoming new products/services to make the business sustainable. Take note that we do not restrain ourselves to only product/service innovation but also production and marketing capabilities such that the firm sustains superior financial performance.

These processes are considered to be continuous and suit a changing business environment. We use Figure 15.12 to show in detail how each process supports the various strategic options.

figure 12

The results and discussions based on applying the hybrid analysis to the research problem are given in Section 15.5.

4 Sleep Healthcare Industry

As shown in Figure 15.13, sleep healthcare industry is encompassed by three major role players – i) sleep medicine; ii) sleep technology; and iii) other sleep supportive devices.

figure 13

The supply chain of a typical sleep healthcare industry is shown in Figure 15.14. The value chain is depicted in Figure 15.14.

figure 14

5 Results and Discussion

We now apply the hybrid analysis in Section 15.3.1 to the problem statement taking into consideration the Sleep Coach Device (Chiang, et al., 2008; Liu, 2009) [5,16] as an example. We will first use Porter’s Five Forces for industry analysis (Porter, 1998) [18].Threat of New Entry

  • Newcomers need access to sleep medicine knowhow

  • Sleep medicine field is limited to a number of professionals

  • Regulations for treatment activities, even non-obtrusive technologies, are strict

  • Key ideas have been patented

  • Interoperability verification tests are time consuming

Supplier Power

  • Mobile Personal Digital Assistant (PDA) hardware platforms, e.g., Qualcomm, TI, Intel are highly standardized, therefore switching costs are low

  • Typical biofeedback sensors, e.g., heart rate, skin conductance (key metrics for human stress levels), are now highly standardized and commoditized

Buyer Power

  • Buyers can be subsidized (or reimbursed) by health insurance companies

  • No similar sleep treatment products in the market, therefore switching costs are high for the consumer

  • Price sensitivity for healthcare products is low especially for sleep treatment aides since sleep can be viewed as a necessity

Threat of Substitution

  • Most devices claiming to provide sleep treatment at home are only health supplements and not real treatments

Competitive Rivalry

  • Number of similar devices claiming sleep treatment at home are minimal

  • Quality will meet FDA requirements and sleep medicine standards

  • Low cost to leaving market

The five forces diagram is shown in Figure 15.15.

figure 15

In the following, we analyze a firm using the Delta Model. From the standpoint of best product, we have the following differentiations:

  • Provide at home diagnosis and treatment

  • Provide physician interactions

  • Straightforward and friendly user interface

  • FDA approved

From the standpoint of customer solutions, we have the following characteristics:

  • Customized treatment

  • Insurance coverage

From the standpoint of a system lock-in, we have the following characteristics.

  • Cooperation with sleep treatment centers in hospitals

  • Collaborate with professionals in the field of sleep medicine

  • Turnkey solution with both a patient side sleep coach and physician side sleep doc

We then use the matrix analysis to define the adaptive processes that support the above options as shown in following Figure 15.16.

figure 16

Risk FactorsHere, we discuss the factors from two viewpoints that may threaten the viability of the business model for pervasive healthcare systems. The first one is threats where the firm in the future can itself address. The second are externalities, where the firm cannot address these issues directly by strategies or decision made internally.Threats

  • Interoperability of Technology–as briefly stated in Section 15.2, many standards exist for communication protocols and data format. Development of services and products in the pervasive healthcare based on a non-mainstream standard will lead to waste of time and money to a large scale

  • Security Issues–Personal information, especially medical information have a higher risk of security breaches due to open communication between the hospital/physician to patient link

  • Complexity of Revenue Sharing Model–Still uncertain is the revenue between patients, insurers, hospitals, channels, providers. This is especially true as pervasive healthcare is carried out at home and not in a professional facility

Externalities

  • Ethical Issues–Health regulatory bodies are still uncertain on whether allowing home treatment or tele-treatment

  • Overdependence on Automated Processes–The higher the percentage the medical personnel use automated or digitized processes, which pervasive healthcare technology relies on, the easier it will be for these people to be helpless or lost if these processes fail

  • Big “cost’ impacts–This is a risk for all healthcare related developments in a sense not only in terms of money but also life and death

6 Conclusions

We have defined a problem statement for an emerging pervasive healthcare industry and a strong motivation to analyze the problem. Then we introduced a hybrid analysis framework approach to the research statement where we addressed the competitive advantages and customer bonding strategies for a pervasive healthcare industry. We also provided an initial analysis to the major players in sleep industry and the value chain. As for future research, there are several directions that are worthwhile looking into. As mentioned in the previous sections, optimization of the revenue sharing model for pervasive healthcare systems is still yet to be understood. We also need to define what it takes for a medical procedure (diagnosis/treatment) to be able to be transferred to a pervasive healthcare system. Finally, the current healthcare regulations do not address to complete aspect of a pervasive health system. To be able to overcome the ethical issues, regulations that ensure the safety of the procedure carried out in a remote place must be laid down.