Why Are Telemedicine Systems So Expensive?

Like many other enabling-technologies in healthcare, telemedicine has vast unrealized potential.

If we make location completely irrelevant and can deliver care virtually, we can address the supply and demand imbalance plaguing healthcare. The benefits to patients would be enormous: lower costs and improved access in ways that are unimaginable in the analog era.

However, one of the many roadblocks to adoption is the cost of the legacy technology powering clinical telemedicine use. In this post, I’ll outline why the telemedicine systems are so expensive, even in the era of Skype and other free video-conferencing systems.

The Telemedicine Industry Is Old…School

Telemedicine as an industry has existed for about 15 years, although uses of telemedicine certainly predate that by another 10-20 years. A decade and a half ago, the foundational technologies that enable video-conferencing simply weren’t broadly available. Specifically, early telemedicine companies had to:

1) Develop and maintain proprietary codecs
2) Design and assemble hardware (e.g. proprietary cameras) and device drivers
3) Deploy hardware at each client site and train end users on its management
4) Build an expensive outside sales force to carry these systems door-to-door to sell them
5) Endure long, grant funding-driven sales cycles

Though some of these challenges have been commoditized over the years, many of the legacy players still manage and maintain the above functions in-house. This drives up costs, which in turn must be passed onto customers. Since many customers initially paid for telemedicine systems with grant money (that telemedicine technology companies helped them write and receive), the market has historically lacked forces to drive down prices. Funny how that seems to be a recurring theme in healthcare!

But, there’s a better way

Today, many startups are building robust telemedicine platforms with dramatically lower cost overhead by taking advantage of a number of technologies and trends:

1) Technologies such as WebRTC commoditize the codec layer
2) The smartphones, tablets, and laptops already owned by hospitals (and individual providers) have high quality cameras built into them
3) Cloud providers like Amazon Web Services make it incredibly easy for young companies to build cloud-based technologies
4) Digital and inbound marketing enable smaller (and inside) sales forces to succeed at scale.
5) To reduce the cost of care, providers are increasingly seeking telemedicine systems now, without wading (and waiting) through the grant process of yesteryear.

In short, telemedicine companies today can build dramatically more cost-effective solutions because they don’t have to incur the costs that the legacy players do.

Why don’t the old players adapt?

The simple answer: switching business models is exceedingly difficult. Consider the following:

1) Laying off hardware and codec development teams is not easy, especially given how tightly integrated they are to the rest of the technology stack that has evolved over the past decade

2) Letting go of an outsides sales force to drive crafty, cost-effective inside sales is an enormous operational risk

3) Lobbying the government to provide telemedicine grants provides an effectively unlimited well to drink from

Changing business models is exceedingly difficult. Few companies can do it successfully. But telemedicine is no different than all other businesses that thought they were un-disruptable. Like all other technologies, telemedicine must adapt from legacy, desktop-centric, on-premise solutions to modern, cloud based, mobile and wearable-first solutions.

About the author

Kyle Samani

Kyle Samani

Kyle is CoFounder and CEO of Pristine, a VC backed company based in Austin, TX that builds software for Google Glass for healthcare, life sciences, and industrial environments. Pristine has over 30 healthcare customers. Kyle blogs regularly about business, entrepreneurship, technology, and healthcare at kylesamani.com.

3 Comments

  • Kyle,

    1) Technologies such as WebRTC commoditize the codec layer

    Unless medical devices and software can integrate with a WebRTC client, all you have is site-to-site videoconferencing.

    2) The smartphones, tablets, and laptops already owned by hospitals (and individual providers) have high quality cameras built into them

    But they need a secure method to store or forward images away from the camera, tablet or laptop because the images are PHI. Although many physicians take photos with their smartphones and email them to colleagues, this practice is a HIPAA violation waiting to happen.

    3) Cloud providers like Amazon Web Services make it incredibly easy for young companies to build cloud-based technologies

    A cloud-based technology is only one piece of the puzzle. If it were that easy, there would be hundreds of companies producing telemedicine systems that are interoperable, not proprietary silos.

    4) Digital and inbound marketing enable smaller (and inside) sales forces to succeed at scale.

    Physicians and other healthcare providers don’t warm up to those who are only marketers. They want to see peer-reviewed case studies, use cases, white papers, testimonials from colleagues.

    5) To reduce the cost of care, providers are increasingly seeking telemedicine systems now, without wading (and waiting) through the grant process of yesteryear.

    That’s if they’ve already thought out their programs and have developed a return on investment plan with sustainability.
    They also want products that are easy to use, that work from companies that will be there tomorrow, that don’t add steps to their workflow but do provide peace-of-mind warranties. Until physicians have a monetary incentive (reimbursement from Medicare and private insurance companies across the board), many will have to rely on the grant process and worry about sustainability later.

  • Telemedicine sector is very important but yet untapped with a huge potential inside. With growing mobile and Smartphone usage in healthcare, telemedicine system can greatly contribute to healthcare reforms. The government should give more grants and support to boost telemedicine technology and the cost would definitely be at par once more attention is given to it.

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