Amcom was built through a series of acquisitions, including messaging middleware vendor CommTech Wireless.  The CommTech Wireless solution provides event notification, including alarm notification that is called out in the final MDDS rule by FDA for enforcement discretion. Amcom’s plans regarding potential FDA regulation or limiting marketing claims (to exclude alarm notification) are not known. The company was undecided when asked about it at HIMSS in 2010. One would hope that this issue arose during USA Mobility’s due diligence.

UPDATE (3/7/11): Ron Wenaas for Amcom Software writes, “as one of the leaders in this space, Amcom Software is absolutely pursuing compliance with the recently published FDA regulations.”

Amcom’s strength in health care lies with their operator console products. This PC-based software integrates with the hospitals PBX and ADT system via HL7, presenting a user interface to operators who can easily look up and connect calls to hospital patients.  Amcom is one of the few vendors to offer an operator console with ADT and HL7 integration. ADT stands for “admission, discharge and transfer,” the “hotel” function of the hospital information system that identifies and tracks patients throughout their hospital stay.

USA Mobility estimates Amcom’s revenue for calendar year 2011 at between, “$239 million to $255 million, operating expenses (excluding depreciation, amortization and accretion) would be in a range of $175 million to $183 million, and capital expenses would be in a range of $6 million to $9 million.”

USA Mobility is by far the largest wireless paging provider in the US, with over half the market. But the best years for the paging business are behind us. The worlds best-selling pager, Motorola’s Bravo, was introduced in 1986, and two-way paging was introduced (also by Motorola) in 1991 (source).   As a side note, CommTech Wireless competitor Emergin (acquired by Philips) was built on a messaging engine built for Motorola in the 1980s. World wide, paging subscribers peaked in 2000 at almost 180 million and have declined since. According to paging industry analyst Brad Dye, US Mobility’s experienced a net unit erosion over the two year period between 2004 and 2005 from 7.4 million to 4.9 million units in service, a 21.5% rate of decline.

Coming out on top of a declining market is tough, and making the transition to growth markets is even tougher. It seems that US Mobility has taken an important step in that transition to growth markets with the acquisition of Amcom. Here are some of the key reason’s US Mobility made the acquisition from their press release:

• Acquisition of a growing business that aligns well with USA Mobility’s market segment focus.
• Comparable operating margins to those of USA Mobility, while materially enhancing USA Mobility’s revenue growth profile.
• Complementary products and services with a market segment focus around the Healthcare, Government and Large Enterprise business segments, allowing compelling cross-selling opportunities.
• Strong and growing installed customer base with very high maintenance renewal rates providing strong revenue transparency.
• Mitigation of erosion in USA Mobility’s installed paging base and establishment of a strong foundation for long-term growth.
• Immediate accretion to operating cash flow for USA Mobility shareholders. For calendar year 2010, Amcom’s stand-alone unaudited revenues were approximately $51 million, an increase of approximately 19 percent from 2009 levels, while its stand-alone EBITDA (earnings before interest, taxes, depreciation, amortization and accretion) was approximately $12 million, up approximately 54 percent from 2009. We expect continued growth in revenue and EBITDA from Amcom.

Photo from Commtech Wireless exhibit at HIMSS 09

According to Brenda the implementation of ConnexALL was initiated to better align with their hospital’s patient and staff safety goals.  After installation they were able to consolidate much of the management and interaction of these three event driven systems into an automated and consolidated system using ConnexALL. Specific benefits included, improved reliability, managed group notification, reduction in manual interventions, automatic alarm escalation, increased mobility (no sitting at a workstation or watching a panel), quicker decision making, and a consolidated auditing capability.

WatchMate is used for wandering, patient elopement and infant abduction. The hospital’s security is based on the premise that it’s easier to contain (a potential security situation) than retrieve, and that it’s easier to catch someone in the act than is to try to find them after the fact. WatchMate provides notification to a user at a workstation. The hospital used  switchboard operators to monitor WatchMate, since they’re usually at their desks. They had to recognize the alarm, look up who to notify, and ensure that notification is made. Now, ConnexALL automatically receives alarms, notifies appropriate staff, ensures alarm delivery (including necessary automatic retry), and escalates alarm notification when necessary. (After some googling, it seems that GlobeStar integrated with WatchMate even though the product is no longer sold by the manufacturer, Xmark.)

Delta Controls monitors building boilers, air conditioning, lighting and other basic building systems. Like with WatchMate, a user at a computer display has been replaced by automated notification through ConnexALL. Also like with WatchMate, alarms are received by appropriate staff more quickly and reliably. Unlike with WatchMate, interactions and dependencies among building systems can result in multiple subsystems generating alarms on the same change in conditions — essentially duplicate alarms. The ConnexALL system analyzes these multiple alarms and filters out duplicate nuisance alarms.

The Siemens fire control panel monitors both elevators and fire alarms. The application and benefits are similar to the building systems automation system. Because ConnexALL is integrated with both the building automation system and fire control panel, alarm analysis and management takes co dependencies and interactions between the two system, consolidating alarms and reducing nuisance alarms.

Their legacy alarm monitoring solution for these three systems was custom engineered and was no longer supported by the original vendor. The system only consolidated  alarms in a central location (the switchboard) but alarm notification remained a manual process. Alarm escalation was dependent on a switchboard operator monitoring alarm notification success and responses to alarms, and escalating alarms manually. And of course, if the switchboard operator was busy or not present, alarms could be missed. Because alarm management was completely manual, auditing alarm responses was difficult, at best.

A variety of notification devices were contemplated. Many wanted to use pagers, but their pagers were not two way pagers and thus could not ensure alarms were received by the device or send back acknowledgments from those responding to alarms. Many users Blackberrys, wireless phones and desk top phones. Everyone’s desk top computer also has a client application that pops into focus when an alarm condition occurs.

Grand River Hospital’s lessons learned were the importance of weekly team meetings and the proper involvement with the vendor. Due to the impact of automating (and thus changing) workflows, getting all the operational issues and changes worked out and agreed to prior to implementation is essential. In their case, the Facilities department didn’t want to be responsible for alarms, they liked having the switchboard having this responsibility. Once they understood that ConnexALL would automate the alarm process they were agreeable. Issues like this are important to work out as early in the process as possible.

They ended up having to reconfigure their building automation and fire control systems during the implementation. They didn’t realize that a comprehensive assessment of alarm notification would result in decisions to optimize the other systems to improve overall processes.

Susan Bisaillon, with Trillium Health Centre leveraged ConnexALL for a house-wide process reengineering effort in a hospital new-construction project, the West wing project. The new wing is designed for decentralized care, rather than the conventional large central stations on large nursing units (30-40 beds). The new wing has 12 bed pods, 3 pods per floor. Each pod has what is effectively a mini central station, with more technology at the bed side. Computers on wheels located outside patient rooms are used by staff rather than workstations at the pod, or mini central stations. This minimizes time at the central station and provides caregivers more time at the bedside.

The underlying concept driving the design and implementation of the new West Wing was patient centered care. A big part of this was leveraging technology to realize a more patient centric view. The existing hospital has stand alone (that is, not integrated) wireless LAN, phone system and nurse call. The new building has combined wireless VoIP phones and wireless LAN from Cisco, and the nurse call is Rauland-Borg — both are integrated using ConnexALL.

In a decentralized nursing environment, relying on the central station as a hub for workflow automation does not work — there is no central station, and nurses spend little time at the decentralized pods that replaced central stations. As a result, workflow changes included the move of nurse call  from central stations to calls dispatched by ConnexALL directly to the caregiver’s phone that is responsible for that patient.

They evaluated Ascom, Blackberry, Vocera and Cisco 7921 phones. They had a cross functional team evaluate the phones. The evaluation was accomplished in a two day beauty contest. There were 60 participants, 6 two-hour sessions where vendors presented their solutions and how they would perform in specific scenarios. The hospital chose the Cisco 7921 IP phone.

Interestingly, while the Blackberry was a popular device among caregivers, the hospital could not justify the monthly cellular bill that came with them. Until Research In Motion, the maker of the Blackberry, figures out a distribution channel for enterprise Wi-Fi deployments, they will see limited adoption in hospitals.

The hospital ultimately chose to support 2 devices: Blackberry and the 7921 Cisco handset. The carrier cost of the Blackberry was the barrier to adopting this device for the nurses.  They use a plastic sleeve on the Cisco phones to improve ruggedness, make them easier to clean and protect the plastic from the detrimental effects of disinfectants. (After the presentation, there was some discussion about the potential for an increased risk of infection from the phone sleeves, an issue that will require more study.)

Besides the integration of their nurse call with the new phones, ConnexALL also drove large automated displays that replaced manual white boards to reflect patient status, staff assignments, attending physician, etc.

Trillium did a pilot to ensure integrations worked and were configured properly for optimal workflow. The pilot served as a major shake out for the wireless LAN. There were a lot of wireless LAN issues. The wireless LAN was engineered for wireless data. The addition of wireless VoIP represented a major change in performance requirements for which the initial network was not designed.

Not surprisingly, they found they had to reengineer their wireless LAN to realize sufficient performance for their new application. After initial problems during the pilot, their Cisco VAR (value added reseller), FlexITy, did a comprehensive site survey and revised the wireless LAN (upgrading existing access points,  adding and moving access points) to achieve the required performance. There are presently no medical devices on the wireless LAN. The issue for them is, “what devices need to be wireless to facilitate patient centered care?” And when the time comes, the hospital will be well served to review the specifications for any wireless medical devices, do another site survey, and reengineer their network as needed — before the pilot.

Nurse managers on each unit are responsible for developing a process for managing, deploying and retaining wireless devices. So far only one Blackberry has disappeared. Another customer in the audience noted that they’d lost 30 phones out of their ED. While many of these phones don’t work outside the facility, they can be sold on eBay and other places.

A lot of effort went into preparing the staff in the new units for the differences in the care environment (especially no central stations), the new workflows, and new devices — automated display panels, phones, COWs, etc. Human factors engineers were also brought in to ensure proper body mechanics.

With the implementation of more direct and efficient communications, Susan noted increased communications between patients and the interdisciplinary team. ConnexALL is used to integrate messaging to caregivers assigned to individual patients, backup caregivers, and MET team for responding to patients with a deteriorating clinical condition.

The new technology has created a more quite care environment. Communications, nurse calls and alarms are communicated directly to the responsible caregiver without disturbing patients and coworkers. Patients have noted the more quite environment, and are complimenting nurses at a higher rate than in the existing hospital units.

Susan notes that they’re still on the learning curve with ConnexALL and working with mobile technology. Staff is still making some adjustments to the decentralized care delivery model. Staff sometimes feel isolated, especially at night.

Throughout the project hospital leadership was very supportive, a critical success factor according to Susan. All the vendors involved collaborated effectively. The planning and implementation teams met weekly to discuss strategy, planning and evaluation.

Loookin to the future, they want to integrate telemetry and their PBX. The next big project is to retrofit the units in their existing hospital. Those units will retain their central stations, but they will use the same technology as was deployed in the West wing. Longer down the road, they’re working on EMR adoption and broader more comprehensive workflow automation.

Farrah Hirji with Markham Stouffville Hospital spoke on The LEAN Evolution at Markham Stouffville Hospital: Transforming Care. After an introduction to LEAN fundamentals, Farrah launched into the application of LEAN at her hospital and the results they have realized. Their hospital was built to serve about a population of 100,000 but they serve almost double that.

Their incentives for embarking on LEAN were a rapidly growing population (24% in past 3 years) and the resulting need to improve throughput, and also the need to improve patient safety and outcomes.

Culture change is required for success with any focused process reengineering methodology. LEAN is a continuous quality improvement methodology that identifies and eliminates muda (Japanese for waste) in processes. Muda is any activity that uses resources without creating value. Most importantly, it is the patient that defines value.

The major tools are the process, implemented with people, post-it notes and butcher paper to do affinity grouping and process documentation to document the initial state. From this a value stream analysis is done that results in a strategic improvement plan. These tools are used within a specific framework called a Kaizen. A Kaizen event is a 7 week cycle centered on a major 5 day Kaizen event. The first day of the Kaizen documents the current state. Day two does rapid experiments considering process and workflow changes. Day three is focused on defining implementation changes. Day four is centered on trails and testing and creating standard work. The last day is a review and briefing the rest of the hospital staff.

Markham Stouffville targeted the ED for their first LEAN project. Their initial changes included the creation of a Rapid Assessment Zone, EMS protocol, and volunteer greeter. The result of these changes reduced triage to physician assessment interval, reduced ED LOS, and fewer patients left without being seen. In Canada, ED wait times are publicly reported, and these changes have helped the hospital meet their provincial performance targets.

Success factors: a balance of top down and bottom up innovation, collaborative leadership, and treating front line staff as the experts in the work being done. LEAN and Kaizen are cross functional teams, and this process creates the expectation of the need to change — sort of a built in change mangement process. They’ve also adopted the “Vegas” rule: whatever’s said in the Kaizen meeting, stays in the Kaizen meeting. A further technique, the “Gemba” walk takes the team to where the actual work is done and places them in the patient’s perspective. They can also see what their colleagues in different roles have to deal with and how they get their work done.

Typical change in health care takes 6 to 18 months. LEAN results in a much quicker time line, with immediate measurements of results to optimize and reinforce the positive change. The challenge is of course, resistance to change. People also ask why front line staff are making the changes. Hospital’s traditional silo organizational structures are also a barrier. Front line managers need to understand how to manage in a LEAN environment; they no longer call all the shots, but faciliate a broader group process for planning and realizing positive change.

The requirement to collect real time data to measure initial states and documents the impact of changes is a big issue. Without operational data, the LEAN process can’t analyze the current state, nor test and verify that new processes are an improvement. Finally, some operational data is needed going forward to ensure that reengineered processes don’t slip back into the comfortable old way of doing things.

LEAN thinking needs to be integrated into everyday patient care.

Farrah next laid out how to get started in LEAN process. The first things needed are a change agent and lever. This is typically a new requirement imposed on the department or oganization. An executive sponsor is also critical. This is someone who will provide appropriate commitment and “head banging” when required. Physician involvement is important, if difficult to achieve. Use an external consultant to facilitate the initiation of the project. Sustaining positive change is key; follow up meetings and audits are essential to sustaining change. Steal shamelessly from other organizations who have dealt with similar problems or implemented interesting innovations. Develop a long term strategy for transforming your organization.

Brent Maranzan from Thunder Bay asked about gaining physician involvement. Brent presented on Monday, describing how they improved OR workflow. Farrah described a couple of techniques. First she nicely but persistently asked for physician involvement. The catalyst for physician involvement in her project was letting physicians know that improved ED throughput would allow them to see more patients, and thus increase their income.

Getting started in LEAN: a very few hospitals have the luxury of their own process improvement department. At Farrah’s hospital, senior management wanted to try the LEAN methodology. Farrah also had a personal interest in LEAN techniques and was quickly drafted to lead this effort. LEAN process improvement is only part of Farrah’s full time job. Their hospital heavily relies on line staff to implement the LEAN process.

Markham Stouffville is not a GlobeStar customer; Farrah was invited to present based on GlobeStar’s recognition of the necessity of changing workflow to realize operational improvements — whether facilitated by technology or not.

Closing Thoughts

As the conference came to an end, several thoughts came to mind. Messaging middleware deployments are usually point to point types of purchases. They’re focused on a small portion of the organization. Such systems are of modest scope, complexity and cost. The rub is that automating workflow through improved messaging is a need that spans the enterprise. Consequently, manufacturers in this market segment have enhanced their products and repositioned them as enterprise wide solutions. While they may still be implemented in a department by department or application by application fashion, an enterprise architecture is more cost effective and is easier to manage than a series of disparate messaging products.

It also struck this observer that there are several market segments targeting the point of care that may eventually merge into one market. These markets include nurse call, wireless phones, real time location systems, patient flow optimization applications, messaging middleware, and medical device connectivity. Much of the meta information used by these systems is common, and there is a frequent tussle between niche vendors as to who will control things like nurse to patient associations and patient to device associations. Workflow automation that impacts direct care, care coordination, therapy delivery and point of care diagnostic testing frequently bleeds across these niche markets, creating additional systems integration work for vendors, and additional complexities for buyers.

The challenge for vendors is to figure out the best ways to position and sell their solutions. While these solutions are highly flexible, hospitals want to buy solutions rather than tools. But when your product can be configured or implemented in many different ways, to create a variety of solutions, do you try to market each solution separately? Or is it best to offer a tool that can be used to realize several solutions?

Hospitals are even more challenged than vendors. There is almost nothing at the point of care that can be changed without impacting something else. The increasing overlap and integration between these six market segments has transformed a simple phone or nurse call decision into a broader workflow automation decision that impacts existing and future systems used at the point of care. Hospitals that don’t consider this new complexity, and think longer term will end up foregoing important workflow automation or face unanticipated costs in replacing or upgrading something they recently bought.

Of course supporting all these market segments, and more, is the enterprise network — specifically the wireless network. There is a general lack of appreciation among both buyers and sellers that wireless LANs must be designed to meet the specific requirements for the application at hand, whether it be wireless handsets, indoor positioning systems, or wireless medical devices. Some of these repeated site survey and reengineering costs can be mitigated with longer range planning. But in any event, a realization is needed that with each change in networking requirements, there must be a change in the network.

What impressed me most about the case studies presented by customers at this event, was their ability to apply the capabilities of the ConnexALL system to their operational requirements in thoughtful and creative ways. Sometimes this was done with the full support and involvement of GlobeStar Systems. More impressively, this was sometimes done by the hospital on their own.

Shawn Sicard, CEO of PiiComm in Toronto, Canada lead the customer presentations with a discussion about putting togeter complete solutions.  PiiComm is a systems integrator targeting the health care vertical market, with a long term relationship with GlobeStar. As an event sponsor, PiiComm has an exhibit demonstrating many of the products they support. Sean highlighted the Motorola CA 50 wireless VoIP phone with built-in barcode scanner. Built orignally for Home Depot, the phone has found some interest in health care. The phone has push to talk (PTT), a 1D barcode scanner in a small size (4.37″x 1.81″ x 1″ and about 4 ounces). The CA 50 is rather like a large Vocera pendant, there is no phone keypad. The phones are configured based on user profiles and voice input and text based menus on the phone to place calls. He also talked about the new Motorola EWP 1000/2000 wireless VoIP smart phones. The Moto phones were prominent in the Vocera/Motorola announcement at HIMSS, and is only one of two wireless phones that meet all the basic hospital requirements — ruggedized, water resistant and impervious to hospital disinfectants. (The other phone is the also new Ascom DECT IP phone, the d62.)

Shawn described asset management, preventive maintenance, temperature monitoring, patient and staff safety and workflow and resource management as key applications supported by AeroScout. PiiCommis also an Ascom reseller. Shawn noted that going wireless, including wireless VoIP is hard; part of his company’s mission is to help with that transition. He positioned Ascom as a DECT wireless phone solution that doesn’t require Wi-Fi.

Patient Monitor Integration

After the break Stephen Rocha with St Vincent Heart Center of Indiana presented Patient Monitoring Integration.  Stephen described the corporate culture and noted that Siemens/Draeger are the predominate medical device vendors (Hospira too). They also have Dukane for nurse call, Hill-Rom beds and Siemens (the Chantry Networks acqusition?), Meru and InnerWireless provide wireless networking. ConnexALL is used as messaging middleware.

The Draeger monitors are installed using Pick and Go docking stations. When docked at the bedside, monitors are connected via Ethernet. When the patient is transported, the monitor is removed from the dock, moved with the patient and then docked again upon reaching their new location. When the monitor is docked again, data acquired during transport is uploaded to Draeger’s server. Alarm notification is only available through ConnexALL to the Cisco handsets when the monitor is docked; during transport local alarms are the sole means for alarm notification.

St Vincent uses ConnexALL for messaging nurse call and patient monitor alarms to nurses via Cisco 7921G wireless VoIP handsets. The hospital defined a requirement that a waveform snippet accompany patient monitor alarms, so nurses can easily filter out false positive arrhythmia alarms.

They looked at Blackberry’s, but the only channel available to them was Verizon who wanted $20,000 per month in “service fees” — which was  a non-starter for the hospital. They also looked at Spectralink, Ascom and others, but they could not support waveforms.

They purchased the ConexALL Notification Server (the basic system), Device Assignment Client (nurse to patient and nurse to phone assignments), Wireless Telephony Client (to integrate with the Cisco handsets), and the Standard Input Client (integration to Draeger monitors and nurse call).

During configuration Stephen configured a test environment into the system, for verification testing at installation, and with subsequent hardware and software upgrades. This is an important process that takes real discipline to complete. Good practice for IEC80001!

The alarm classifications they defined are Advanced (battery, leads off, etc.), Serious (things like heart rate and non life threatening arrhythmias) and Life Threatening. Initially, during their pilots, they had some issues with alarm fatigue that they resolved by adjusting alarm categories and escalation to better match the unit’s patient profile. They started their rollout in lower acuity units, and when they implemented higher acuity units, adjustments were needed to optimize alarm notification to match the different requirements of each unit.

One of the things on Stephens list of todo’s is to define callpoints for when ventilators are connected to their Draeger monitors, and then configure specific workflows for respiratory therapy. GlobeStar’s already done implementations like this in other sites. Stephen also would like to be able to access and display near real time surveillance waveforms on their Cisco handsets. This is a capability that ConnexALL has not yet implemented.

Detailed ROI Analysis

Jeremy Wyatt with Valley Medical Center presented Workflow Before and After the Wonders of ConnexALL.  Their ConnexALL implementation centers on improved messaging and automation for common communications workflows in surgery. The scope of the project is comprehensive, including admitting through discharge, including support for exceptions during surgical cases (like equipment that wasn’t initially specified as need for a particular surgical case). Their implementation also addresses room turnover.

Jeremy started this project a few years ago doing direct observation of existing workflows. He documented the workflow processes and the times associated with each step of the process. After the ConnexALL implementation, he repeated his observations to document the savings resulting from the system. This is an important process that takes real discipline to complete. It’s really no fun until you get to document all the money you’re saving at the very end.

Benefits: real time data distributed immediately, noise reduction (little or no overhead pages), increased staff satisfaction, improved surgical throughput, improved staff deployments. Main productivity improvements came in maintaining whiteboards (2 hours nightly), admitting, starting and ending cases, and reducing unnecessary case delays. The annual hard dollar savings came to $2, 428,873, plus value added “soft” dollar savings. Not included in the analysis is the incremental revenue from the increase surgical cases.

In talking with other ConnexALL users, it was reported that at least in the OR, pay back for a complete ConnexALL system is less than a year — sometimes a lot less. Like many similar point of care systems, ConnexALL requires certain infrastructure a hospital may or may not have. A hospital starting from scratch, and assuming infrastructure costs like wireless phones, and RTLS and the Wi-Fi network into the ConnexALL system, reaches payback  in closer to a year. Hospitals who already have all or most of the required infrastructure reach payback much quicker.

Valley’s next goal is to incorporate an RTLS with ConnexALL (a key feature in the new version 4.0 announced yesterday) as well as their EMR (also enhanced in the new 4.0 release). They also plan to automate workflows around on-call emergency surgical cases. Another planned extension of the system will select the surgeon, generate automated text to speech calls, ensuring the proper equipment for the emergency case, and integrating with their Kronos staff scheduling system.

Pictured above is Nokia’s E65, a $100 Symbian cell phone with Wi-Fi, GSM and SIP connectivity. That certainly gets my imagination going, doesn’t it?

UPDATE: You can read the first day’s post here, and the last day here.

The messaging middleware market is transitioning from middleware to an enterprise application. GlobeStar has been in the business just over 10 years. Unlike Emergin, who started in paging messaging,  GlobeStar got their start in the 1990s integrating Austco nurse call and Nortel’s Companion (the first wireless phone system in North America). Over the years, the company (and the market) have evolved from a single nurse call/phone integration to a platform supporting many different systems and devices both on the input and output sides — and incorporating workflow automation through rules, alert initiation, and escalation.

The conference kicked off with introductory presentations from David Tavares, CEO of GlobeStar; Dr Teresa Sustelo, President of Centro Hospitalar de Lisboa Central (a large multi hospital system); and Dr Miguel Correia, Regional  Secretary of  Health, Azores. During his opening remarks, Miguel Correia noted the broad applicability of improved messaging. He spoke to the extension of messaging systems to tracking and eventually orchestrating complext processes and tasks. This is a vital requirement in health care delivery.

GlobeStar’s technology has been applied outside health care too. They monitor automobile painting production lines and “man down” systems in mining. Miguel Correia mentioned that they’re using ConnexAll in CO2 monitoring at volcanos in the Azorres. Now they’re moving further into workflow automation.

Keynote Presentation

My keynote presentation theme was, “everything is connected” and contrasted this with provider’s tendency to only focus on the immediate problem — or what they think is the problem.

Putting the health care IT market aside, the point of care market is divided into 6 separate market segments: wireless phones, patient flow applications, medical device connectivity, messaging middleware, nurse call, and real time location systems (RTLS), not to be confused with indoor positioning system infrastructure vendors like Sonitor and CenTrak. For some time, buyer’s haven’t been able to buy a product from one of these segments without impacting one or more of the others. Connections to medical devices, and the nurse-to-patient assignment process are common points of contention.

Another complication is the pervasive silo organizational structure in health care. Both providers and vendors have long had stove piped organizational structures. Groups not used to working together have to collaborate on things that cross both products and silos. Medical device connectivity should be common across product lines from the same vendor (a standard approach across vendors is needed but a different kind of problem). Workflows should be patient centric and common across the different products and departments in the hospital.

Another cause of the above problems is the way most health care providers make purchase decisions. Decisions are often made to solve the immediate problem, with no regard to the fact that everything at the point of care is connected. A solid RFI/RFP process is worthless if insufficient consideration is given to the full range of needs that will impact the entire planned life of the product.

A common victim of insufficient needs assessment is medical device connectivity. Many hospitals are looking at this for automated documentation into the EMR. Besides the obvious complications of spot versus continuous data, wired verus wireless devices, and dealing with legacy devices versus new(er) devices with built in connectivity, there are broader complications. Connectivity is also used for alarm notification. Another wrinkle is improved support for wireless medical devices and the significant requirements they can create for the enterprise network. Decisions based on the immediate need (like connectivity for EMRs) result in future unanticipated costs to replace technology that met initial requirements but can’t meet the requirements that arise in 18 to 24 months.

Vendor’s don’t have the luxury of starting from scratch every time they plan a new product release. They design their products so that future features can be built on previously developed features, rather than reworking major portions of the product to support new features. To do this they use roadmaps, both for entire product families and individual products, to visualize all the moving pieces and how/where they fit. Vendors use this to look ahead and figure out what future capabilities are best acommodated in advance.

The key take aways from the keynote were 1) break down the organizational silos to acquire and manage systems at the point of care, and 2) use roadmaps to look at the bigger picture and coordinate technology management at the point of care.

New Product Release Announced

The 6 market segments mentioned above are breaking down. Increasingly vendors in each niche are looking at broader market requirements and extending their value proposition outside their traditional market segment. Examples include Ascom and their Unite messaging middleware, and nurse call vendors Rauland-Borg and Austco automating workflow. GlobeStar is also following this trend.

GlobeStar used this user group meeting to launch Version 4.0 of ConnexAll. (It’s interesting to note they didn’t choose to launch 4.0 at HIMSS.) The big new features in this release are:

• High availability configurations (active/passive ConnexAll server clustering)
• Location based services (location as a new data element and event trigger with rules engine and scripting)
• Voice integration client (inbound IVR and text to speach nofication to any telephony device)
• Health care informatics client (extends workflow automation through HL7 integration with rules engine and scripting)
• Database input client (extends workflow automation with rules engine and scripting connections to external databases)
• New reporting capabilities (mostly custom reporting)

Don Hennessey, product marketing and Raul Sinimae, senior software engineer talked about the new location based services and how they enable identification of the locations of objects in real time. This provides accurate location of the object during an alarm (when you really want to know where someone or something is located) and the ability to generate new alarms based on location. These can include things like staff duress notification, patient wandering, infant security, or access control to an area. This was done in conjunction with the introduction of the concept of “class” into the system, especially classes of employees.

They’re already working with AeroScout, CenTrak, Ekahau and Versus — and are looking to integrate additional indoor positioning system vendors. Interestingly, ConnexALL can integrate with and fully support multiple different positioning systems to provide a common application overlay that encompasses different positioning vendors in the same enterprise. An adjunct to LBS is the ability to grab images from IP security cameras, and send those with an alarm to staff. Images can be acquired in a variety of ways (stills, series of images, timing relative to event) and store them in a database for inclusion with messages and retrospective review.

ConnexAll takes positioning data from any vendor’s RTLS system, blending that information into their messaging and alerts. They can also receive data from tag buttons or slide switches. Butttons can be used for a variety of ways. It seems to this observer that the absence of a user interface on the tag to manage button use limits the value of tag buttons. Besides location, the system can trigger an event based on a tag being in motion, or when a tag is not moving for a certain period of time.

Clinical Tracks

After lunch two customers presented their experience using ConnexALL. Brent Maranzan from Thunder Bay Regional Health Sciences Centre talked about OR and Hospital-Wide Bed Status Management, and Bill Burley presented Reducing Wait Times in the Emergency Department: A patient Access and Flow Initiative at London Health Sciences Centre. Both were great examples of how lines are blurring between niche products (like SIS and Tele-Tracking) and an application with a more enterprise wide perspective.

Thunder Bay has MediTech that is responsible for admission and discharge transactions, ConnexALL is responsible for the workflow automation between. They’ve expanded out of the OR and are starting to manage bed turnover house wide. Pre sugical delays have been reduced, and patient care in the OR and staff/patient satisfaction have improved.

Bill Burley described the situation at LHSC. Their ED length of stay (LOS) was 5.4 hours, 5% left before being seen, 2.8 hours bed turn over, 6% of discharges by 11 am, and 37% discharged by 2 pm. They’re a Cerner IT shop, have Cisco 7929 and 7921 wireless VoIP phones, and ConnexALL. The first task they tackled was patient transfers from ED to admitting unit, and then bed management.

Their original admit/transfer process had 15 steps involving 7 different people. With just these two areas of focus, they shaved 3 hours off their average admission time, reduced patients who left before being seen fell to 2%, and LOS fell 17% shaving an hour to 4.5 hours.

Interestingly, nursing came to Bill who repurposed their ConnexALL system to include these ED applications. The capital costs for the hospital was zero; operating costs covered both existing hardware and systems, in addition to Bill’s time.  Further, this was not an application that GlobeStar used to sell their system to the hospital. Faced with the operational problem, Bill simply applied what he knows about ConnexALL’s capabilities to solve the problem — although they did bring in a consulting firm to reengineer the admit/transfer workflow. (The consulting firm spent 4 months gathering observational workflow data, then the hospital took 2 weeks to configure the solution.)

They use Cerner for ADT and EMR, and use ConnexALL for admissions messaging into multiple separate buildings and  Next phase they’re going to integrate Cerner and ConnexALL and

After the break Jose Manuel Teixeira with Hospital do Divino Espirito Santo in the Azores, talked about their implementation. They have used ConnexALL for 2 years, integrating nurse call, risk notification, managing patient transport (i.e., porters), on-duty team notification, and building monitoring. For tracking patient visits, ConnexALL prints barcode tags at admission and scans the card upon discharge. They also use it for messaging in the outpatient clinic to increase throughput. He showed several displays representing user interface dialogs created by the hospital to automate various messaging workflows.

Down the road, the hospital is targeting nurse call integration, accident alarms, blood bank monitoring, server farm monitoring, and on-call team messaging. These projects are awaiting product upgrades or the replacement of products reaching end of life. The hospital’s implementations to date include 2,000 callpoints (what GlobeStar calls events that can be both real and virtual, and paired activation/cancellation events).

Teresa Ferreira talked about their use of ConnexALL at the Azores Center for Volcanology and Geological Risk Assessment. The Azorres archipelago is made up of 9 vocanic islands located where three major tectonic plates meet. They currently have 16 active volcanos. The risks associated with this environment include earthquakes, vocanic erutions, landslides and tsunamis, which can occur individually, in combination, or all at the same time.

ConnexALL is used to integrate seismic, geodetic, geochemical, air quality and meteorological information systems and real time data acquisition.  The applications include support of prevention and forecasting of geological hazard, provide information to the Civil Protection department, and contribute to public awareness. ConnexALL reads the acquired data and generates the appropriate messages, alerts and alarms based on rules in the ConnexALL system.

OR Special Interest Group

Looking at the application of technology that’s used in health care in other industries can be most interesting.  These case studies offer a different perspective on technology application, workflows and problem solving that may be directly or indirectly into health care — sort of lateral thinking writ in real life. This application incorporates technical advisory (system failure notification), watch (alerts generated based in increased risk), and restriction/evacuation alarms.

After the official agenda ended an informal group met to discuss OR workflow. Some participants use ConnexALL in the OR, some have the system implemented in other areas of the hospital, and others are potential adopters. One scenario described was were an emergency initiates communications into the OR for some sort of emergency response. The group talked about potential ways to implement this workflow.

The involvement of surgeons in workflow optimization was noted, as was the difficulty in getting surgeons involved in almost anything.

Poorly implemented wireless LANs came up as a common barrier to adoption. It was noted that users frequently blame the application provider for what are symptoms of wireless LANs that are poorly designed, implemented and/or maintained.

Another interesting topic was how hospital’s traditional system acquisition process was poorly suited to the kinds of problems tackled by ConnexALL, like OR workflow automation. Brent Maranzan noted that, “You can’t just decide you need to buy an certain type of product, and then you’re done after it’s installed and running.” This goes back to my keynote where needs assessment is as important as the RFI/RFP process, and that roadmapping is needed to look at the bigger picture (because, you know, everything is connected).

Disclosure: I do not accept consulting engagements to write blog posts about a company or event. The blog is a noncommercial endeavor, focused on improving knowledge and awareness in the industry. GlobeStar did engage me to develop and present their keynote. Separately, GlobeStar and I agreed that they would cover my expenses so I could stay to the end of the meeting. GlobeStar gets exposure through my blog, I have an opportunity to learn more about what’s going on in the industry, and you, dear reader, hopefully learn something from the resulting blog posts — a win win win.

UPDATE: You can read the posts for day two here, and day three (and closing thoughts) here.

Software designed to support the application of clinical protocols has been in the works from various vendors. Patient monitoring examples include Philips Protocol Watch, soft-launched back in February 2007, and . These applications automate what are otherwise onerous manual calculations with data acquired from medical devices and integrated with data from other information systems. This is workflow automation of the most important kind, diagnosis and therapy delivery. These applications are typically regulated as Class II medical devices.

Last week I spoke with Philip Settimi, MD, vice president of global strategic marketing for Hospira. According to Settimi, “EndoTool replaces spreadsheets of physician preferences and worksheets full of manual calculations for managing patient glucose levels.” Such manual methods are obviously inefficient, but also susceptible to human error. This approach provides an effective tool to impose a controlled and centralized tool for managing tight glycemic control (TGC). Endo Tool comes with a specific protocol based on sophisticated algorithms to support glucose management. The key: taking all that complexity (the calcs) at the point of care and automating those 33 different non-linear equations.

In a typical use model, the end user selects the patient to establish patient context, enters one or two blood glucose data points, the software recommends dosing and when to test glucose again. The system, after a couple data points, creates a mathematical model of the patient’s physiology (physiological curve) and allows for the more effective and more rapid zeroing of the patient into the ideal zone. Thus the system constantly adjusting up and down the physiological curve.

It is easy to automate part of a workflow process with some computer software. To fully automate a workflow beyond calculations – to include patient demographics, orders, charting and reporting – that requires integration with bedside medical devices (sometimes more than one) and other information systems. Surprisingly, EndoTool already has interfaces with ADT (admission, discharge and transfer) for patient demographics. Currently the user has to manually enter glucometer test results.

System architecture is always a point of interest in products like this. EndoTool works on any standalone or networked PC in hospital and uses existing enterprise networks. In network configurations, clients communicate with a server. Unlike a product that automates a paper process, this system scales up to support a large patient population, and interfaces.The server runs a centralized database. Client applications can be installed remotely for lower operating costs. Hospira provides on site installation and training.

Moving the software to the pump is also a possibility. Settemi noted that he sees value in integrating EndoTool with MedNet and possibly the pumps themselves. “The notion of having decision support technology like this, embedded in the pump, is a potential productivity and patient safety enhancement,” said Settimi. One big caveat is the resulting user experience. Hospira’s new Symbiq pump’s large touch screen is well suited for an application like this. He expects to see a hybrid model like patient monitoring, where the user interface is on the device at bedside with some or all of the software running on a server somewhere on the network.

Infusion pumps are used to deliver many high risk meds; many of these are titrated and could benefit from both automated workflow for managing the titration, and medical device interoperability between the pump and protocol software.  Settimi noted that Hospira sees an opportunity to offer a more expanded menu of protocols in the future. The system manages a broad range of patients with their current protocol: peds, adult diabetic, non diabetic, DKA, etc. There’s an opportunity from a technology perspective, yet from a user perspective there’s a big benefit in a common approach. Hospira believes that Endo Tool represents a technology platform, beyond TGC, to include narcotics, coagulation therapy, and a broad array of infusion therapy administration.

I mentioned Philips’ Protocol Watch earlier as another example of automating protocols used in patient care. Another example is Visensia from OBS Medical. Visensia applies a proprietary algorithm for analyzing the physiological parameters from a patient monitor to identify patients with a deteriorating clinical condition. Unlike TGC protocols that are peer reviewed and published, the algorithm in Visensia is a trade secret – sort of like a black box.

Vendors and entrepreneurs are working on lots of different systems to support protocols of various types. Many of these vendors are approaching the problem from a specific diagnosis or other clinical domain. The protocol automation market will probably evolve like many others, where various solutions come to market targeting specific clinical applications. Over time, solutions will broaden in scope in an effort to apply their architecture to a broader array of tasks. Eventually there will emerge generalized protocol support systems that are used throughout a hospital.

Some protocol solutions will come from vendors, looking to extend their proprietary end-to-end solutions. Many new protocol systems will also come from software companies. Who knows, maybe even some existing health care IT vendors will bite the FDA bullet and enter the protocol automation market with their own regulated “medical devices.” In any event, this will be an interesting market segment to watch, and one with significant clinical value and impact on patient safety.

What started as a straight on asset management strategy has grown in scope.

“Any hospital administrator knows about the daily headaches caused by the logistical coordination of providing patient care. For each and every patient interaction, patient, clinician, staff, space, assets & supplies must come together at the same time. Agility’s visualization system is the one tool we’ve found that lets us visualize these interactions to predict and prevent bottlenecks before they occur,” said Jeffrey Burke, Vice President and Regional Chief Information Officer, Bon Secours Health System.

The RTLS (real time location system) market’s initial focus was asset management. The industry consensus at the time was that asset management was easy to understand and had an attractive ROI – most hospitals lease some of their equipment that ends up poorly utilized due to hoarding and misplacing equipment. An RTLS can significantly reduce the amount of equipment leased through increased visibility and thus, utilization. Sadly, the hospital market was not sufficiently compelled to adopt this application (regardless of the ROI) at the rate that entrepreneurs and venture capitalists expected.

The founders at Agility, being software guys from McKesson, started with software. After some initial experience in the market they decided to stick with software and resell whatever infrastructure best suited their customer’s application. And the applications the market pulled them to are the kinds of things Bon Secours is doing.

Frequently mentioned in the same breath as Awarepoint, Radianse, or AeroScout, Agility’s software sits on top of an RTLS vendor’s positioning engine and infrastructure. Agility started the current bifurcation of the health care RFID market into infrastructure vendors and software vendors. Some vendors, like Radianse, RadarFind and AeroScout offer both positioning infrastructure and software beyond the positioning engine. Recent entries in the software-only category, and direct competitors to Agility, include Intelligent InSites and SenseIQ. As an aside, another product that reminds me of Agility is Awarix, the patient flow visibility app that McKesson acquired last year – except they typically sell it without an RTLS.

These vendors represent another interesting market trend with regards to product software architectures. Agility and their competitors use an engine oriented architecture made up of a rules engine, messaging engine, interface engine, database, dashboard and web server.  I first noted this last year:

The industry is going through a transformation that is challenging both vendors and buyers. On the technical side, the emergence of middleware solutions and what I call the “enginification” of applications is causing waves and lots of new areas are seeing automation for the first time. The single vendor solution model is braking down, both because the level of automation in hospitals is starting to exceed the ability of any “single application” to address it (not to mention the ability of a vendor to cobble one together through acquisitions), and IT architectures like SOA and web services are making middleware a natural solution for enterprise-wide services (think Emergin and event management). Likewise it seems that every new application has an engine for this and an engine for that – rules engines, messaging engines, interface engines, positioning engines – geez, they’re everywhere.

From a business strategy perspective, GE states their objectives with this acquisition:

“Agility was one of the first companies to utilize RTLS to deliver workflow and resource management solutions to the healthcare industry,” said Rob Reilly, general manager, GE Healthcare Services. “By leveraging the AgileTrac solution and its integration with other hospital systems, GE Healthcare will be able to expand our capability to help hospitals proactively manage the unique needs of diverse patient populations.”

Besides asset management, GE will be able to address patient flow, hospital wide or in select areas like the ED and OR. Additional applications sure to receive attention will be things like observation patient management, infection control, and things like ventilator toilet to minimize ventilator acquired pneumonia.

In what looks like a tussle between Cardinal’s traditional supply chain services business and the young upstart CTS (clinical technologies and services) the two groups have decided to go their own way. With the retirement of Cardinal chair and CEO, Kerry Clark, the two vice chairs, George Barrett for supply chain services and David Schlotterbeck for CTS, are going separate ways. Barrett will take Clark’s position and Schlotterbeck will head the $4 billion global company to be headquartered in San Diego.

The new business’ offerings will include product lines in the areas of infusion care, medical and supply dispensing, respiratory care, infection prevention, diagnostics and surgical procedures.

The press reports the spin off is intended to deliver more stockholder value than the current company.

Analysts said the spinoff would allow a slimmed-down Cardinal Health to focus on turning around its underperforming drug distribution business, while potentially attracting a higher stock valuation for the publicly traded stand-alone med-tech company.

“The clinical technology side is really the crown jewel,” said Jeff Jonas, portfolio manager at Gabelli Health and Wellness Trust Mutual Fund, which owns Cardinal shares. “So that would presumably get a much higher multiple in the market as a stand-alone company.”

Apparently, declining revenue growth in the supply chain business is holding down the full valuation of CTS. The spinoff’s stock price should reflect the full value of the higher margin medical device business. 

This seems a sweet deal for Schlotterbeck – he doesn’t have to live in Dublin, Ohio (a suburb of Columbus) and he can run his own company again.  His last company was Alaris, formed out of the merger of pump vendors Ivac and Imed, and acquired (at a premium) by Cardinal. Schlotterbeck transformed Alaris from a second tier pump vendor into a market leader by leveraging connectivity and repositioning Alairis as a patient safety company. He’s one of the very few executives to have wrung substantial value out of a connectivity strategy.

Schlotterbeck seems well positioned for another connectivity strategy play with his current business unit. The workflow automation potential for infusion pumps, respirators, Pyxis and Care Fusion is most interesting. All they need to do is acquire a patient monitoring vendor…

To Cisco’s credit they have since made many substantive changes to their traditional approach to vertical market marketing in response to the special requirements of health care. During the AAMI conference this week in San Jose, I had a chance to meet with Erik Petersen, the Global Healthcare Solutions & Technology Partnerships Manager, to talk about what Cisco’s been doing in health care.

Health care has strategic importance to Cisco. After their run in with the FDA – a rite of passage for health care vendors – Cisco’s commitment to the market was confirmed by no less than CEO John Chambers.

As a corporation that has experienced enviable growth, the company is grappling with the transition from a $40 billion company to one doing $60 billion. “Cisco wants to offer a strong proactive value proposition in health care,” said Petersen, “rather than just providing a piece of infrastructure that the customer has to deal with for an overall project.” To meet their growth objectives, the company is shifting from a horizontal market company to one focused on vertical markets and applications. To us in health care, this means responding to the unique requirements of our vertical market.

Cisco – Registered Medical Device Vendor

In the past couple years, Cisco has established a health care regulatory affairs group and hired experienced regulatory folks. Cisco has registered with the FDA as a medical device vendor and has been audited by the FDA twice since this registration. More surprising, Cisco has submitted the 7921 wireless handset as a Class I medical device for use with nurse call systems, laboratory information systems, building alarms, and two imaging filings (here and here).

To this observer, embracing the unique requirements of the health care market is exactly what horizontal vendors must do – if they don’t want to become marginalized as technology continues to get closer to the point of care. With recent pronouncements by the FDA, regulatory requirements are clearly moving in this direction. I’m not aware of any other big infrastructure vendor (other network vendors, Microsoft, Dell or HP) who has stepped up like Cisco.

Time will tell how effectively Cisco can leverage this encouraging change into meaningful (and competitive) solutions to some of health care’s hardest problems. Early signs of this change can be seen in Cisco’s in-depth validation of health care applications.

Cisco Validated Designs

The CVD program takes specific applications (from one or more technology partners) and provides a validated reference design or implementation of the solution. To date, Cisco has validated two health care applications, the Imatis messaging system and Acuo Technologies DICOM Services Grid software. After presenting a description of the application and its architecture, CVD documents dig into design requirements specific to the application. For example, in the Imatis messaging CVD, design requirements for quality of service, high availability and wireless network are tested, validated and documented. The final product is a detailed implementation guide for resellers, systems integrators and customers. There is real value to validating a specific design and ensuring that important requirements are met.

Another CVD effort centers around integrating medical devices to Cisco networks. Cisco is presently developing a program, called AssureWave, that will result in validated network designs. AssureWave will emphasize redundancy, failover, resilience, and wireless performance for life-critical applications. The first group of vendors to go through this program include GE Healthcare, Philips, Draeger, and Welch Allyn.

The CVD process takes Cisco and the solution vendors months to complete, and must be updated when new releases of the products in the design become available. A similar program, Solution Reference Network Designs, provides detailed design documentation for specific applications like (all links to pdf documents) a High Availability Design Guide, Enterprise QoS Solution Reference Network Design Guide, Wi-Fi Location-Based Services Design Guide, and various documents on security and mobility (roaming across access points and subnets). The upcoming international standard for networked medical devices, IEC 80001, would make a great topic for a future Cisco reference document of some kind.

Ongoing Change

Managing this next stage of growth is a big challenge for Cisco. They are not the nimble company they were $30 billion ago, nor can they simply extend their considerable acquisition prowess into deeper vertical market support. Cisco will have to build industry business units with deep vertical market knowledge and tight integration into Cisco R&D to create network gear and applications that meet market requirements. It sounds like Cisco is moving in the right direction.

There is also a role in all this for providers. There are many hospitals world wide pushing the boundaries of technology in an effort to reduce costs and improve patient safety and outcomes. Providers can contribute by documenting requirements and facilitating vendor communications. Recently Rick Hampton at Partners HealthCare brought together a group of vendors to work through some problems with wireless medical devices on their Cisco network . These meetings have resulted in the first AssureWave project involving medical devices. Hampton’s efforts should eventually benefit both Partners and the health care industry as a whole. More hospitals need to step up like Partners, and bring vendors together to resolve connectivity and integration issues.

UPDATE: I have added links to Cisco’s filings in the FDA Registration and Listing database.

Obligatory chest thumping:

“This acquisition brings together two leaders in healthcare IT — Hospira has led the industry in barcoding medications and infusion technology; and St. Clair, through Sculptor, was the first hospital in the country to combine barcoding and RFID in a single mobile device for the real-time workflow needs of clinical staff,” said Richard Schaeffer, vice president and chief information officer, St. Clair Hospital.

Note the emphasis on workflow. Given the greater experience of Sculptor, this may end up being a better acquisition for Hospira than CareFusion was for Cardinal.

At HIMSS, Hospira indicated that their major product focus for 2008 is their integration strategy. Up to this point, Hospira has depended on third parties to provide much of the software for their pump connectivity. Early on Hospira worked closely with Bridge Medical and Cerner in developing their smart pump and meds administration capabilities. They have done similar integration with McKesson and Siemens. But according to Jeff Pelletier, vice president of global medical devices at Hospira, “The market expectation has evolved from just a great medical device to one with connectivity.” This expectation of course extends beyond the infusion pump market.

Hospira has segmented their server software into 3 levels:

1. Basic smart pump formulary and error detection (the core package),
2. The basics plus wireless network connectivity and integration with third party barcode meds admin, CPOE and EMAR applications (the extended package), and finally
3. Leveraging the previous integration to pre-populate the pump with infusion programming and feed pump data back to the system for validation, monitoring and alerts (the enterprise package).

Hospira has also developed their own component 802.11a/b/g radio. The radio supports key enterprise IT features like 802.1x authentication and 802.11i security. After Hospira determined what it would cost to have separate pump SKUs for devices with and without the radio they determined it was more cost effective to ship every pump with the radio.

Hospira’s early work with Bridge Medical and Cerner earned it a place among those with the most advanced applications. The move today to acquire Sculptor appears to reinforce Hospira’s market position by providing an all-Hospira platform that extends beyond the smart pump system itself.

Today Chinese medical device manufacturer Mindray announced that they reached agreement with Datascope to acquire Datascope’s patient monitoring business (PMB). The acquisition will launch Mindray into the ranks of leading international medical device vendors and create the third-largest player in the global patient monitoring device industry.

Mindray is paying Datascope $202 million cash, plus Datascope retains approximately $38 million of receivables generated by the patient monitoring business for a total of $250 million (I’m not sure about that extra $10 million, but these are Mindray’s numbers). The Datascope PMB did $161.3 million in sales in 2007. Mindray expects around $30 million of run-rate synergies in manufacturing, SG&A and R&D within 3 years. Mindray has rights to the Datascope brand until 2015.

From the press release:

“This transaction represents a unique combination of strengths that will help transform Mindray from a largely China-based company into a global leader, and substantially further our strategy of building a leading on-the-ground presence in the United States and Europe,” said Mr. Xu Hang, Mindray’s chairman and co-chief executive officer. “Datascope customers should also benefit from the combined company’s expanded product lineup and enhanced ability to tailor product functionality for specific end-user requirements, and Mindray’s customers in the United States and Europe will enjoy the support of an established direct sales and service network.”

Founded in 1991 in Shenzhen, China, Mindray has focused on designing and manufacturing high quality low cost medical devices. In 2006, Mindray captured the majority of the Chinese patient monitoring market in both unit volume and revenue. They also hold leading market share in China in the hematology analyzer, biochemistry analyzer and gray scale ultrasound imaging system segments. They began exporting products in 2000, and by 2006 revenue from international markets exceeded domestic sales. There are many US based medical device vendors who struggle to get low double digits in international sales.

The patient monitoring market has a growth rate of 2% to 3% annually; Datascope has carved out a growth rate of 6% to 7% by targeting niche markets like ambulatory surgery. Datascope PMB’s operates at a 45% gross margin. The Datascope patient monitoring acquisition is expected to add 53% to Mindray’s total 2007 revenue.

Mindray has been an OEM supplier to Datascope for 5 years, so the two companies know each other well. The company states their intention is to maintain Datascope’s facilities, management, staff, manufacturing and product lines. And David Gibson, the president of Datascope’s patient monitoring division & technology services division will stay on as president of the new Mindray division.

Based on the press release and investor conference call today, Mindray is looking to Datascope for some key strategic reasons. First is to capture an established and successful service and direct sales channel in the U.S. Datascope also offers the foundation of a service and distribution channel for Europe. With access to the Datascope brand for 8 years, Mindray also looks to ease their entry into the North American and European markets. Product wise, there appears to be a lot of product overlap. Both companies have telemetry, central station, anesthesia, vital signs, and multi parameter patient monitors. While essentially duplicative, Datascope has more advanced products in anesthesia, gas bench, central station and telemetry that will boost Mindray’s overall product line significantly. Not mentioned during the call was Datascope’s innovative new NetGuard low acuity monitor. Innovative products like NetGuard will be critical to gaining mind share and GPO contracts to significantly grow business in the U.S.

There’s no question that Asian vendors can create high quality medical devices at low cost – certainly lower cost than GE, Philips, Siemens, Spacelabs, etc. What Mindray and their Asian competitors have been missing is distribution (Nihon Kohden has struggled with this for years), and software. Medical device sales has become increasingly dependent on securing group purchasing organization (GPO) contracts – an area in which Datascope holds a somewhat weak position. Managing GPO contracts costs $250,000 to $350,000 per year even for second or third tier vendors. And hospitals in North America prefer to buy from vendors rather than resellers. While it does not seem that the acquisition of Datascope will do much to improve Mindray’s prospects with GPOs, Datascope’s distribution channel will be a big asset.

The second strategic value of the Datascope acquisition is software. The software that I’m referring to runs on general purpose computing platforms rather than embedded system software. This software provides workflow automation that extends medical device functionality (surveillance, alarm notification, full disclosure data storage and event review) and integrates medical devices with EMRs. Developing these types of software applications require detailed understanding of customer workflows and requirements, a difficult task for Asian based device manufacturers.

All medical device vendors heavily focused on embedded systems struggle with products based on general purpose computing platforms. Mindray may have over one thousand engineers (53% with PhDs) but it is unlikely they are experienced in product development for general purpose computing platforms. Datascope improves this situation, but not by much. Datascope released their very first in house developed telemetry system (with surveillance, alarm notification, etc.) just a few years ago – behind even smaller companies like Welch Allyn and MDE. And Datascope still pursues the unenlightened practice of manufacturing their own computers for running their software. Datascope is a great device company, but fitting with their relative position in the patient monitoring market they don’t offer much software or general purpose computing expertise – this will require additional investment by Mindray.

The advanced software applications demanded in North America, Europe and other markets has implications on the distribution channel. Installing a standalone medical device is easy, any manufacturer’s rep can unpack it, plug it in, and train users on “knobology”. And reliable embedded devices don’t really need much service, and foreign vendors can rely heavily on hospital biomeds for most repairs. Systems of medical devices, communicating with servers and software clients over hospital networks are a different kind of animal. Each installation is custom with a unique configuration and variations in computer hardware, operating systems, network hardware and software. Integration with EMRs requires customer specific configuration and testing prior to installation, and frequently more configuration and testing on site. Servicing solutions like this are also a challenge. Phone support and remote access to these systems must be available 24×7. Field engineers must be available to fly on site at short notice. Again, while Datascope will offer a great leap forward for Mindray, their relative position in the market is low.

During the call, an executive described Mindray’s objective to design and manufacture, “The most affordable medical device available anywhere.” Consequently, many follow up questions during the call focused on exactly how Mindray would maintain the value of Datascope’s distribution, manufacturing and product development while wringing out cost. Mindray identified 3 areas for cost savings: the supply chain, SG&A, and developing an integrated R&D platform.

Because Datascope PMB manufacturing is limited to final product assembly, Mindray plans to maintain the Mahwah NJ plant and cut costs by manufacturing components in China for assembly in Mahwah. This will surely reduce costs. Mindray probably lacks the expertise to manufacture products like the telemetry system in China, so products that include general purpose computing platforms best remain where they are.

The SG&A for Datascope’s PMB runs 34%, while Mindray runs at a spartan 18%. While this was an area mentioned for big savings, I’m doubtful. Managing GPOs represents a new SG&A cost for Mindray, and I see little opportunity to reduce costs or pay to sales reps, application specialists or service. Some administrative functions like finance could be moved to China to reduce costs. My guess is that over time, Mindray’s SG&A will move up closer to Datascope’s, rather than pulling the PMB SG&A down to the high teens or low twenties.

Perhaps Mindray’s greatest strength lies in R&D. With a large stable of highly educated engineers, Mindray has many strategic options. One option (best put in place sooner rather than later) is to create a product line architecture where basic components are shared across all or most products. Implementing such a strategy is expensive and time consuming, though Mindray’s R&D resources and low costs make this an attractive option. Success will depend on pulling Datascope’s best product components into the architecture and effectively leveraging the PMB’s engineering knowledge and experience. Such R&D alignment must also balance a common architecture with new products that are currently in the R&D pipeline. Move too far one way and alignment is postponed, too far the other way and new products may be greatly delayed and miss their window of opportunity. Any “not invented here” attitudes or bickering between organizational silos will doom a product line strategy to marginal success if not outright failure. While there is potential in R&D alignment, this is not an area in which to expect short term results.

Competitvely, GE Healthcare are both pursuing a strategy of tight integration between their embedded system medical devices and software applications running on general purpose computing platforms. GE is leveraging Centricty, and Philips is building on their initial success with ProtocolWatch with the acquisition of VisICU and Emergin. Besides integrating with software to add value and differentiate, a related trend is also showing potential for changing the competitive landscape. This trend is medical device virtualization. NetGuard is presently one of the few examples of device virtualization in acute care, where the embedded system components are miniaturized and software running on general purpose computing platforms plays a bigger role. The best examples of this trend are found in the ambulatory care market, where devices for physician offices are reduced to sensors with USB connectors and software that runs on laptop computers. Typically, what were once device functions like data analysis, display and reporting are now done on off the self computers. This virtualization trend may represent the first truly disruptive innovation in the medical device industry.

These new trends represent a considerable challenge for all Asian device vendors; if high quality and low cost was an effective strategy, Nihon Kohden would own several medical device markets in the U.S. To grow beyond the approximately 5% of the market that Datascope owns, Mindray will have to move beyond the value/quality strategy. Whether they recognize this, and how they respond will be most interesting.

Pictured above is Datascope PMB’s headquarters in Mahwah, New Jersey.