Just how overheated can the U.S. e-health and telemedicine business get?

Jacksonville 09 February 2000As health care Internet stocks continue to demonstrate heated activity, everyone is asking how "dot.com" companies can be so grossly overvalued, especially when nothing is being sold. The Feedback Research Services team has investigated to which extent the recent e-health, home care and telemedicine market projections within the United States can actually be substantiated.

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Despite the ongoing discrepancy in the traditional supply-and-demand model, market revenue estimates, by which is meant the money that will supposedly be spent on goods or services, are climbing. Some numbers seem stratospherically high. For example, one source is suggesting that the "telemedicine market" has reached no less than $13.0 billion in 1999. For comparison, the total worldwide x-ray products market generates "only" an estimated $11.0+ billion annually.

Other analysts forecast that there is at least a $25.0 billion Internet health care market, with home health care potentially accounting for $1.0 billion. The catch is that, at this point in time, there exists no established means of reimbursement for non-traditional delivery of home care services. In other words, who is ultimately going to pay for the devices and services? The usual sources are third parties, including federal and state governments, such as Medicare and Medicaid programmes; insurance companies; managed care organisations; and, more rarely than ever before, patients themselves.

Without any outside sources to pay for services, the only other reason for a health care provider to implement electronic delivery of home monitoring would be to achieve cost savings in the form of:

  • Administrative efficiencies, involving decreased driving expenses, less off site supervision of visiting nurses, etc.
  • Increased productivity, like for instance the home care nurse who is able to "see" more patients each day, or visits which are automatically documented without additional data entry, etc.
  • Reduced unnecessary use of expensive or scarce medical services, such as earlier intervention with chronically ill patients to eliminate emergency room visits or hospitalisation.
Unfortunately, before any cost savings or a substantial return-on-investment can be achieved, a lot of capital is needed to buy monitoring devices. Perhaps even more importantly, time and training are required to ensure acceptance among staff members.

Because of recent widespread news coverage and internal industry debate, Feedback Research Services has taken the CyberCare company, located in Boynton Beach, Florida, as an example for determining what the actual sales potential might be for a newly introduced home health monitoring product. Any analysis, of course, is highly dependent upon certain company claims, but large efforts have been made to use conservative rather than aggressive assumptions.

CyberCare's offering constitutes the Electronic House Call, a device and/or service that has been in development since 1995. Company representatives state that "about 2000 machines" have been ordered, but actual sales will not take place until the United States Food & Drug Administration (FDA; Rockville, Maryland) approval is granted. This is not to be expected for approximately three months, in other words, not before May 2000.

The following is a simple, straightforward assessment based on device sales only. While waiting for FDA approval, first quarter product revenues will be zero. Unless shipments begin immediately after the marketing clearance is granted, sales in the second quarter will probably be minimal. So, all 2000 units would end up being "sold" during the last half of the year. At $5000 per device, this accounts for $10.0 million, a figure which could represent a realistic estimate for all of 2000.

Ongoing marketing efforts and increased manufacturing capabilities could contribute to higher revenues by year-end, depending upon how well the product is received by early adopters. It is unlikely, however, that there will be the nearly four-fold increase to $48.0 million in 2000 suggested by one analyst. For comparison, the commercial availability of a highly anticipated drug might achieve this level of growth.

Historical data indicates that U.S. direct-to-consumer introduction of the hair re-growth product Rogaine has generated an estimated $50.0 million in first-year sales. This somewhat mild response occurred despite a massive national advertising campaign and product launch in the traditional health care segment of pharmaceuticals, which is not a new technology category.

Further information on CyberCare's Electronic House Call product and the 1999 telemedicine market figures, provided by Feedback Research Services, are available in VMW's January 2000 issue. Please, read the articles CyberCare granted patent on patient-friendly tele-monitoring system and Enhanced telemedicine market growth in 1999 still no billion dollar deal.


Leslie Versweyveld

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