Philips Takes the Lead in Home Health Care
Cardiovascular disease can be extremely costly, especially when it hits seniors. In fact, heart failure is the biggest cause of hospitalization among elderly people and a huge drain on health-care budgets. The disease will cost the European Union economy $280 billion this year alone.
Amsterdam-based Royal Philips Electronics is trying to put itself at the forefront of efforts to rein in those expenses. The company recently developed a "smart bed" that contains tiny, high-tech electronic sensors that can measure patients' vital signs, movement, and breathing as they sleep. The bed is based on the notion that costly treatment could be avoided if heart patients were constantly monitored—completely unobtrusively—while they went about their normal daily activities at home. The data are analyzed and fed back instantaneously to doctors, enabling them to intervene early and potentially avoid expensive hospitalization.
The bed is just one of several products Philips is developing to help move health care out of pricey hospitals and into homes, where patients are more comfortable and costs more easily contained. Alongside General Electric (GE) in the U.S. and Germany's Siemens (SIE), Philips has long been one of the world's top three makers of medical-imaging equipment. But executives at the 118-year-old Dutch company have been angling for a leading position in home health care for the past decade. "We saw the trends emerging and realized that home health care was a significant business opportunity," says Don Spence, head of Philips Home Healthcare unit.
Recognizing a convergence of an aging population, a rise in chronic disease, and the subsequent burden on global health-care systems, Philips relied heavily on acquisitions to gain a foothold. Since 2006, Philips has spent $6 billion snapping up home health-care companies, including Lifeline, a maker of personal emergency-alert systems. Home health accounted for $1.4 billion, or 13%, of Philips' total health-care business revenue last year, and Spence expects the business to grow by 10% a year over the next five years.
Philip's foray into the home health-care market began with the 2001 acquisition of Hewlett-Packard (HPQ) spin-off Agilent Technologies Health Care Solutions Group, a leader in patient-monitoring technologies. That deal, coupled with Philips' successful 2004 launch of HeartStart—a defibrillator sold at places like Target (TGT) and Amazon.com (AMZN)—persuaded the company to move more aggressively into home health care. So it purchased breathing-device maker Respironics, as well as Raytel Cardiac Services, a provider of remote cardiac-monitoring services. Philips also picked up Health Watch Holdings, building up its offerings in the field of safety monitoring, where its market-leading position was already secured by Lifeline. Such additions are helping Philips hold its own against aging-in-place competitors such as GE and Intel (INTC). "Despite a lot of noise from GE and Intel, Philips for the last decade has invested heavily in this space," says Laurie Orlov, principal analyst at consulting firm Aging in Place Technology Watch.
The home health-care unit of Philips has four divisions: sleep, home respiratory, respiratory drug delivery, and home monitoring. Since acquiring Respironics in 2007, sleep is now the largest unit, accounting for 60% of home health-care's revenues. The company offers a broad range of oxygen, ventilation, and monitoring products to treat breathing disorders such as sleep apnea, which causes sufferers to stop breathing hundreds of times a night. Philips' Spence points out that such disorders are strongly linked to congestive heart failure and diabetes, both common in elderly patients. The home respiratory unit, which accounts for 15% of sales, is focused mainly on patients with chronic obstructive pulmonary disease.
cost-effectiveness studies are in progress
Thanks to Lifeline, Philips now has 60% of the market for personal emergency-response gear. Subscribers pay $30 to $90 a month for the service, which enables users to press a button on a watch or pendant that instantly alerts medically trained call center staff in the event of a fall. Lifeline has 750,000 subscribers in the U.S. and Canada, up from 470,000 in 2006. It has an additional 200,000 contracts with assisted-living and nursing homes.
But it is "telemonitoring"—using technology to remotely monitor and manage patients with chronic disease—that offers the biggest opportunity. For the last seven years, Philips' Telehealth Solutions has offered services such as the telestation, which enables clinicians to remotely monitor patients in their homes. And now it's pilot-testing Motiva, an interactive patient-monitoring system, in Europe. Similar to Intel's Health Guide, Motiva lets doctors keep tabs on patients in the home remotely by asking them a series of questions then feeding back the information to doctors. Motiva also tracks vital signs, provides relevant educational information, and broadcasts medication reminders. But unlike Health Guide, which gathers information from a variety of devices, such as blood pressure cuffs worn by the patient, Motiva is housed within patients' televisions and operates over a broadband connection. "In choosing the TV, Philips has picked a much smarter platform for telehealth than Intel has," says Aging in Place Technology Watch's Orlov.
As with many health-care breakthoughs, the big obstacle to innovations such as Motiva and the smart bed going mainstream is the question of who should pay for them. Without large-scale studies to prove cost-effectiveness, Medicare and most private insurers are unwilling to pick up the tab. Philips is working hard to improve coverage for such technologies, says Walter van Kuijen, head of home monitoring at Philips. The company has launched several pilot studies with European health-care systems and insurers. One of the biggest is a collaboration with Britain's National Health Service (NHS) that's testing Motiva in 1,000 heart-failure patients. Philips hopes that if it can prove cost-effectiveness, health systems will be more willing to embrace such innovations. "Technology is not the issue; the key is aligning all the stakeholders, including the payors, who need to have the courage to allocate tomorrow's gains to today's investments," says van Kuijen.