Scientia Decentralization Of Healthcare Presentation Fall08

The Decentralization of Healthcare
By Scientia Advisors

Scientia Advisors LLC
1 Broadway, 14th Floor
Kendall Square
Cambridge, MA 02142

2008
Scientia Advisors, LLC
Boston ■ Silicon Valley

All Materials copyrighted and can not be used without explicit permission

Major trends in healthcare
The next several years will see numerous changes due to these trends

Aging population: Growth of chronic
disease such as cardio-vascular illness,
cancer, as well as severe infections for
elderly
Drug resistant “super-bugs” and
Decentralized healthcare: Healthcare
hospital acquired infections have
delivery moving to clinics, pharmacies
become a major healthcare concern
and home healthcare
and warrant rapid patient diagnostics

Market convergence: Therapeutics
Increasingly empowered consumer:
and diagnostics; Imaging and In vitro
Increased awareness and
diagnostics; diagnostics and patient
understanding of health
monitoring

Increasing emphasis on “wellness”, Payment for performance:
health foods, preventative medicine, Payors are pushing for Rx-Dx
early diagnosis, progression integration, given the potential to
monitoring and tailored therapy reduce healthcare expenditure

Source: Scientia Analysis
All materials copyrighted and can not be used without explicit permission
-2-

The decentralization of healthcare
Advances in technology and strains on the current healthcare system are
driving patient treatment to physician offices, rapid clinics, and homes

Centralized Decentralized
HOSPITAL

Rapid
LAB ICU ER PO HOME
Clinics

 The increasing migration of healthcare from centralized, core hospital locations to
more point-of-care settings such as emergency rooms, outpatient clinics, rapid and
urgent care clinics, and the home
 A Decentralized Healthcare system aims to improve overall implementation of
healthcare programs, provide uniformity of healthcare standards across rural and
urban areas and lower costs by moving to more streamlined and efficient programs

ICU: Intensive Care Unit
ER: Emergency Room
PO: Physician Office

Source: Scientia analysis -3-

Decentralization provides patients with more widespread
access to healthcare services

HOSPITAL PHYSICIAN’S OFFICE
HOME
• Traditional first point of contact
GENERAL
• Major healthcare facilities • Non-emergent acute care,
CLINICS
• Treat many types of disease and management of chronic medical
injury conditions
• Deal with immediate threats to • Dermatology & Plastic Surgery
PO
• Ultrasound/CT Scans/X-Ray/MRI
health: ER/ICU
• High # of beds and long-term care • Endoscopy
• Specialized facilities for surgery, • Minimally Invasive Surgery
• Optical Services
plastic surgery, childbirth, ER
• Pharmacy
diagnostic labs, etc.
• Radiology
SPECIALIZED
• Trauma centers, rehabilitation, • Routine lab testing
ICU
• Immunizations
children's, geriatric, special needs,
etc.

H CLINICS

GENERAL/RAPID
• Non-emergent acute care,
management of chronic medical
conditions
• Women's health issues
HOME • Routine lab testing
• STD testing, work physicals and drug
testing
• Assisted Living • Certain immunizations
• Disease Management URGENT CARE
• Multi-parameter Remote Patient Same as GENERAL but also:
Monitoring • X-Rays
• Admin. of IV medications or fluids
• Lacerations/cuts that require sutures
or adhesives

-4-
Source: Scientia Analysis, Solantic, Harvard Vanguard Associates.

Major trends contributing to decentralization
Changes in patient care, consumers, and technology are driving the push towards
decentralization

Empowered Consumer: Patients are Demographic Shift: Aging population
taking greater ownership of their in developed world and some
healthcare. Internet provides easy, emerging economies are creating a
remote access to test results and need for proactive monitoring
medical records

Care Centers: Retail Care Centers and
Fewer Health Care Workers:
Urgent Care Clinics are emerging in
Understaffed hospitals and
drugstores, pharmacies, and super
emergency rooms result in longer
stores such as Wal-Mart and provide
length of stay for patients
fast, less expensive care

Technology Advancements: Advances Rising Health Care Cost: Health care
in electronics, microchips, wireless costs are pushing consumers and
broadband, etc. enable new, small, health care providers to search for
and easier to use instruments alternative methods of treatment

-5-

Trend towards patient (consumer) driven healthcare
Informed and empowered consumers are taking more control in managing their
health

Telemedicine & eHealth

• Consumers are becoming increasingly educated with regard to self care and diagnosis e.g. through self-
help books, the internet and numerous self-administered, home drug tests
• More and more health treatments and diagnostic services are being aimed at patient convenience e.g.
home MRI services
-6-
Source: Scientia analysis

Decentralization of healthcare delivery
Rise in the number of clinics will drive growth in POC of markets

Rapid clinics for common illness Growth of rapid clinics

Projected Number of Rapid Clinics in U.S., China, India
60,000
60000
50,000
50000
40000
30000
CAGR
20000 18%
10000 1,887
1,348
963
“Handles common illnesses, screenings
0
and immunizations”
2008 2010 2012 2012 2012
Urgent care clinics for non-life threatening emergencies
U.S China India

• The growth of rapid clinics will dramatically
influence the POC market
“Handles common illnesses,
injuries and minor trauma”
“Many rapid clinics are beginning to emerge
Same day telemedicine oncology clinics
and they will become big users of point of care
infectious tests.”
“Same day breast biopsy,
-Dr. Marcon, Nationwide Children's Hospital
results, and consultation with
UltraClinics™ Oncologist”
Sources: Scientia analysis, CAP Today, Kalorama; Solantic, Asia Pacific/China Equity Research –
Healthcare, Credit Suisse, British Medical Journal -7-

Electronic medical records
Emerging patient-centered approaches to medical record keeping will ease the
transfer of information across healthcare settings

Key takeaways
Clinics
 Traditional methods of medical
record keeping are a time and
Pharmacies Hospitals
cost burden on the healthcare
system
 Switching from a paper-based
system will reduce
redundancies during treatment
and will lower healthcare
spending
Dentists Diagnostic Labs
 Self-monitored health records
simplify the healthcare system
by giving power to the
consumer to manage their
health and associated costs
Remote Patient
Insurance Providers
Monitoring
Physician’s Office
Source: Scientia Analysis, Microsoft, GoogleHealth, Insurance Journal All materials copyrighted and can not be used without explicit permission
-8-

Advancements in technology promote decentralization
Small, easy-to-use, mobile devices allow for patient testing and monitoring in
clinics and at home with little or no expert assistance
SEMI-PORTABLE
TRADITIONAL
MOBILE EQUIPMENT FUTURE?
EQUIPMENT
EQUIPMENT

Bench-top and Small devices for
Large, stationary
handheld devices clinical and in-
equipment that
used in clinics home use
must be operated
and POs allowing requiring little to
by healthcare
for faster, on-site no professional
professionals
results assistance

Medical equipment is decreasing in size
and becoming easier to use

Source: Scientia Analysis, Roche -9-

Decentralization is happening today
Many technologies in medical devices and diagnostics have already migrated
away from the central hospital

DATA TRANSFER & ELECTRONIC MEDICAL
TECHNOLOGY ADVANCEMENTS HOME
RECORDS
• Continued technology • The penetration of
CLINICS
advancement and Healthcare with
innovation has PO
computerized information
enabled the migration systems is at a very early
of Hospital based stage relative to other
ER
Medical Devices, IVD sectors such as finance,
tests and patient ICU transport, retail, etc.
PULSE OXIMETRY
monitoring
capabilities to more • EMRs are replacing

H
decentralized Paper-based records in
healthcare western healthcare
POC INFECTIOUS DISEASE
locations systems, however, US
adoption remains low

• Most US
• DRIVERS: implemented EMR
REMOTE PATIENT MONITORING
Improved portability, systems are only
accuracy, ease of use used for
and faster turn- administrative
around-time (TaT) purposes

Source: Scientia Analysis, OpenClnical.com - 10 -

The traditional method for diagnosis and treatment of
common infections can take over two days

Total Time
Total Cost*
Traditional Model
2+ Days
$250

Drive to
Return home pharmacy

Home Doctor’s Office: Tested at lab Dr. calls in Pick up Rx at pharmacy
Drive to
Throat culture prescription (Rx)
doctor’s office

30 minutes 1-2 hours 24- 48 hours 2-4 hours 1 hour

Source: Scientia Analysis, CDC.gov, Wall Street Journal; Minnesota Council of Health Plans,
2005; MinuteClinic.com, CheckUpsUSA.com;
*Total Cost represents actual cost, not co-pay or out of pocket cost. All materials copyrighted and can not be used without explicit permission
- 11 -

Rapid clinics
Diagnosis and treatment of common infections are made faster and easier

Total Time
Total Cost*
Rapid Clinics Model
02:00
$100

Patient shops until Patient notified
test results are in that Rx is ready

Drive to Clinic Return home

Home Rapid clinic: Tested on site Dr. calls in Rx to Return home
Throat Culture Rapid Strep Screen on site pharmacy

20 minutes 20 minutes 30 minutes
30 minutes 20 minutes

Source: Scientia Analysis CDC.gov, Wall Street Journal; Minnesota Council of Health Plans, 2005;
MinuteClinic.com, CheckUpsUSA.com; - 12 -
*Total Cost represents actual cost, not co-pay or out of pocket cost.

Urgent care centers
Provide care and treatment historically restricted to the emergency room
Waiting room
Traditional Model Total Cost* Total Time
08:00
$2,000 +

Average waiting
time is 1 hr
If more tests
are needed
Injury Arrive at Triage
Emergency Room
Most serious cases

Treatment Discharge
30 minutes 30 minutes 1-4 hours 2-3 hours

Total Time
Rapid Clinics Model
02:30
Average wait:
<15 minutes

Total Cost*
<$200
Injury Arrive at Urgent Care Treatment Discharge
Center

30 minutes 15 minutes 1-2 hours

Source: Scientia Analysis, CDC.gov, Wall Street Journal; Minnesota Council of Health Plans, 2005; Solantic
*Total Cost represents actual cost, not co-pay or out of pocket cost, All materials copyrighted and can not be used without explicit permission
- 13 -
ER cost is estimate for broken arm and simple cast

Telemedicine oncology clinics
Quick turn around time on biopsy results and local clinics decrease time to
treatment
TOTAL:
Traditional Model
6 WEEKS

Processing Scheduling Scheduling Processing
Consult Biopsy Biopsy
Mammography at Mammography Surgical Consult Biopsy Consolidated
imaging department of Result Pathology Report
hospital
1 Week 1 Week 1-2 Weeks 1-2 Weeks

TOTAL:
Rapid Clinics Model
6 WEEKS

Processing Scheduling Scheduling Processing
Consult Biopsy Biopsy
Mammography at Mammography Surgical Consult Biopsy Consolidated
specialized imaging Result Pathology Report
center
1 Day 1 Week 1 -2 Weeks 1 Day

Source: Scientia Analysis, Ultraclinic.com, Breast Care Critical Pathway-Lopez A.M et al All materials copyrighted and can not be used without explicit permission
- 14 -
2008, IBM report

Electronic medical records
Emerging patient-centered approaches to medical record keeping will propel the
decentralization of healthcare

Traditional Model Patient-Centered EMR Model

Clinics Clinics

Hospitals
Pharmacies Hospitals
Pharmacies

Diagnostic
Dentists Labs Diagnostic
Dentists Labs

Remote Patient
Insurance
Remote Patient
Monitoring
Providers
Insurance
Physician’s Office Monitoring
Providers
Physician’s Office

Source: Scientia AnalysisMicrosoft, GoogleHealth, Insurance All materials copyrighted and can not be used without explicit permission
- 15 -
Journal

Relevant device and diagnostic healthcare segments
Market segments exposed to decentralization trends will outperform relative to
others

MD/IVD MARKET EXPOSED TO
DECENTRALIZATION

US$ MM

400
$354 B
WW MEDICAL DEVICES WW IN VITRO DIAGNOSTICS
350
MARKET MARKET
300 31%
US$ MM US$ MM
$297B $229 B CAGR: $57B
250
300 60
15%
9% 9%
22%
200
50
250
150 $37 B
$192 B 69%
40
200 CAGR:
100 78% 6%
30
150 50
20
100 0
10
50 2007 2012
0
0 Decentralized
2007 2012
2007 2012 Centralized
Other^ MDx
Anatomic Pathology POC*
Cardiovascular Diabetes
Immunoassay Microbiology
GI/Urology Orthopedics
Hematology Clinical Chem
Neurology Hospital Supplies
Respiratory Dental and Orthodontics ^ Includes coagulation, flow cytometry, drug of abuse, therapeutic drug
Patient Monitoring & Assessment ENT monitoring, nephlometry, advanced lipid testing, and others
Opthalmology Surgical Equipment * Includes OTC blood glucose and pregnancy testing
Medical Imaging
Source: Scientia analysis, company reports/filings and presentations - 16 -

Medical community views on decentralization
Experts stress impact of decentralization on healthcare system

“I think it (ICD remote monitoring) is one of
the best technologies to come down the road
ELECTROCARDIOLOGY
for device management in a long time…need
to make it simpler and more efficient…”
PULMONARY CRITICAL Electrocardiologist, MGH
CARE

“Instead of coming into the lab
INTERVENTIONAL
CARDIOLOGY (for sleep study), you can now
do it at home…removes
bottleneck at Sleep lab…might
RAPID CLINICS
result in more people needing
treatment and help the
market”
ALLERGISTS
Director of Sleep Disorder
program: B&W, HMS
HOSPITAL DIRECTORS
“We use rapid Strep test, rapid influenza, urine dipsticks,
urine pregnancy… we plan to bring pulse oximeters
ETC.
soon…right now looking at what devices to include”
Nurse Practitioner, Little Clinic
Source: Scientia analysis - 17 -

Strategic acquisitions to position players at the forefront of
decentralization
Traditional players are preparing for a growing decentralization market

Siemens acquired Dade Behring and Bayer Healthcare’s diagnostic division to
become the first global full-service diagnostics company (2006-07)

GE’s enhances health IT capabilities through IDX Systems Corporation acquisition,
but were unsuccessful at acquiring Abbott’s IVD and POC diagnostics businesses
(2006-07)

Inverness improves its health management expertise by acquiring Matria Biosite,
Hemosense, Inc., Alere Medical, Inc. , Matritech, Paradigm Health, and forming a
50/50 joint venture with Procter&Gamble to develop diagnostics (2007-08)

Roche signed a licensing deal with 454 Life Sciences and acquired Ventana to
broaden its diagnostics business through Ventana’s tissue diagnostics expertise
(2005-08).

Philips takes steps to become world leader in the home healthcare market by
acquiring Lifeline Systems, Inc., Health Watch, Raytel Cardiac Services, and
Respironics (2006-07)
Source: Scientia analysis, IVDT, and company press releases , company All materials copyrighted and can not be used without explicit permission
- 18 -
annual reports

International decentralization overview
Western nations have established signs of decentralization while the eastern
nations have strong growth plans

Western nations (US and Europe) Japan
• Experiencing affects of • Highly centralized form of
decentralization with healthcare delivery
numerous rapid care clinics, • Japan’s doctor offices have
POC diagnostics, remote limited POC, but hospitals are
patient monitoring, and increasing uptake of rapid POC
EMR tests for emergency and
critical care
India • Japan is the largest market for
rapid flu tests
• Due to a mostly patient self-pay system
(86% of health financing is out-of-pocket) China
and many small primary care clinics, the
healthcare system is predominantly • Has an evolving dual-natured healthcare
decentralized. system, presently highly centralized but has the
• There is an increasing number of health potential to become more decentralized. China
insurance companies entering that can is currently hospital centric and is expected to
affect the healthcare landscape by introduce numerous primary care centers,
expanding health coverage and access to growing from 23,000 to 60,000 (2006-2011).
timely health care.
Source: Scientia analysis, company presentation, IBEF market review,
KPMG presentation, www.ehealthnews.eu, Kalorama report - 19 -

Traditional players initiated decentralization with POC devices
and telehealth solutions
Players have revolutionized care management and clinical monitoring for home use

Siemens –
GE Philips
Draeger Inverness
Healthcare Healthcare
Medical
• In GE’s extensive • Philips has cardiac and • Siemens and Draeger • Inverness
portfolio, patient monitoring division, have a joint venture manufactures and
monitoring systems home health, and company that markets consumer and
have various point telehealth divisions manufactures professional medical
of care (POC) medical point of care diagnostic products
• Philips acquired
devices for for emergency care
• Acquired Alere
ambulatory, clinic, Respironics (2007), and home care
and home care use which increases home Medical, Inc. (2007)
• Home technology
health portfolio to which remotely
• Patient monitoring include home oxygen includes a series of monitors patients
systems intended technologies clinical ventilation through a unique
for hospital use, systems combination of at-
• Philips Lifeline is an
specifically to home monitoring,
effectively transfer easy-to-use personal patient education, and
information from response service for nurse-patient
the bedside to remote patient relationships
caregiver monitoring

Source: Scientia analysis, company websites, press releases - 20 -

Non traditional players are easing the decentralization transition
New players are empowering the consumer and integrating hospital informational
technology

• User health • Health Monitoring • Personally controlled • Healthcare division
information database System that is health record that devoted to creating
hospital grade FDA empowers people and technologies for data
• Explore online
Class II medical their doctors to be integration across
health services
device active partners for healthcare and
• Create an health by providing patient spaces
• Product offering can
extensive medical secure, convenient • Recently (July 2008)
take vital signs (heart
record access to lifelong
rate, blood pressure, received FDA market
• Find a doctor health information
etc.) and securely clearance on in-home
transmit data medical device for
management of
health conditions

• Connects user with • Integration of data and • Online community for
doctors, hospitals, software for Picture physicians to
personal health and Archiving Communication exchange
fitness devices and Systems (PACS), EMR, observations and
dozens of health sites electronic prescribing, knowledge in real
on the Web to help and wireless mobility time
achieve health goals • Wireless mobility enables
POC data access
Source: Scientia analysis, company websites - 21 -

Players affected by decentralization
Changing roles for traditional and non-traditional players sets the stage for new
market dynamics
Traditional Non traditional

New paradigm of
decentralization
will cause shifts in
Insurance companies Rapid care clinics
the healthcare
market

Source: Scientia analysis - 22 -

Regulatory and reimbursement issues
Primary adopters of POC products will need to overcome key regulatory and
reimbursement hurdles.

Hospital

Reimbursement: POC vendors
have not been able to
demonstrate the big picture
cost savings to hospitals and
Physician’s office
insurance organizations
Reimbursement: Vendors must justify the costs
Regulatory: Approval will of instituting POC products at the physician’s
depend upon meeting safety, office over sending the patient to centralized
efficacy, sensitivity, and hospitals already equipped to better handle
specificity profiles of these procedures
established products on the
Regulatory: Approval depends upon achieving
market
results equivalent to those achieved through
products traditionally used in hospitals
Home
Reimbursement: Vendors of POC products for use at home must
establish adequate support for the extent of coverage, coding rationale,
and value proposition for the product
Regulatory: With a lack of predicate devices to establish equivalency,
new POC products will see rigorous regulatory scrutiny in order to
address safety and efficacy concerns
- 23 -
Source: Scientia analysis, Kalorama, Abbot I-stat website

Value of decentralization
Decentralization creates different incentives for each healthcare player

HOSPITALS

• Reduce readmissions, patient
process times, and test duplications
INSURANCE PROVIDERS PHYSICIANS

• Reduce costs from treatment, • Access comprehensive patient
hospital length of stay, personnel data and history for improved
need, and overall efficiencies decision making and diagnosis

Decentralized
DIAGNOSTIC AND MEDICAL DEVICE
Healthcare PATIENTS
COMPANIES
• Need for smaller, faster, easier • More informed of personal
to use devices for use in remote health, reduced treatment
settings by patients and times, and better health
healthcare professionals management

ELECTRONICS AND HEALTH IT
RAPID AND URGENT CARE CLINICS
COMPANIES

• Demand for chips in devices, EMR • Demand will rise as consumers
software capabilities, remote seek fast, efficient healthcare
patient monitoring will provide catered to their lifestyle
new growth opportunities
- 24 -

Decentralization will change the dynamics of healthcare
Success will depend on strategic positioning and understanding market needs

HOSPITALS
PAYORS PHYSICIANS

DIAGNOSTIC
REGULATORS
COMPANIES

PHARMACEUTICAL
PATIENTS
COMPANIES

URGENT CARE MEDICAL DEVICE
CLINICS COMPANIES

HEALTH IT ELECTRONICS
COMPANIES COMPANIES
RAPID CLINICS

Source: Scientia Analysis All materials copyrighted and can not be used without explicit permission
- 25 -

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VIEWPOINTS BY SCIENTIA ADVISORS

THIS IS NOT MEANT TO BE A STANDALONE DOCUMENT ON WHICH TO BASE THE
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Scientia Decentralization Of Healthcare Presentation Fall08

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