Two steps forward, three steps back

Two steps forward, three steps back

Recently we’ve seen a series of new product introductions that seem to indicate the diabetes device space is once again on the move. Over the past few months we have seen the approval of the Telcare glucose monitor, the iBGStar ™ from Sanofi (NYSE:SNY), the OneTouch® Verio ™ from Johnson and Johnson (NYSE:JNJ) and the FreeStyle InsuLinx from Abbott (NYSE:ABT), just to name a few of the newer devices.  While these monitors have several neat little features and all are squarely directed at insulin using patients, Diabetic Investor isn’t yet convinced they will have any major impact on the lives of patients with diabetes.

Although none of these companies or others in the space will publicly admit it, the real value today is not in the hardware – glucose monitors, insulin pumps, insulin pens and continuous glucose monitors – but in the software or system that interrupts patient data and provides feedback to the patient. With systems such as the Telcare monitor and iBGStar™, interconnected diabetes management systems are no longer a pipe dream but a very real possibility.  Whether it’s through an intermediary device such as the iPhone or using its own built in cellular chip, patients can now seamlessly transmit their data to a third party.

The Verio and InsuLinx do not seamlessly transmit patient data but they do make life easier for the sophisticated insulin using patient who understands items such as duration of insulin action, insulin to carbohydrate factors, etc.  While JNJ and Abbott would like everyone to believe otherwise their new offering really aren’t that new and all they have really done is take the bolus calculator off an insulin pump and put it on a glucose monitor.

Still none of these systems have solved some fundamental issues facing the diabetes device industry, particularly the glucose monitoring players. None will do anything to alleviate pricing pressure, take away competitive bidding, increase average testing frequency or turn the business back into a medical device rather commodity model. Try as they might all the BGM players cannot turn back the clock to the way things were years ago and no amount of fancy whiz bang technology can undo the damage they themselves largely created.

The general theory is that when interconnected diabetes management systems become the norm that patients will monitor their glucose more frequently because their healthcare team has been incentivized to produce better patient outcomes. Those physicians will no longer be compensated just to treat patients but actually to coach patients. While Diabetic Investor does see this day coming in the distant future, there are other reasons interconnected systems will see slow adoption rates the most important being the American legal system.

While everyone in the diabetes device world has become enamored with interconnected systems, no one has taken the time to ask physicians if they will actually use these new very slick systems. Although we would hardly say the physicians Diabetic Investor spoke with on this issue would be considered a representative sample of all physicians, the general consensus among the physicians we did speak with was no they would not use these interconnected systems and the reasons why may come as a surprise. The most pressing issues, brought up over and over, being sued for malpractice.

To help understand why physicians see this threat, consider some very real issues outlined for Diabetic Investor. For example what happens if the physician for whatever reason fails to contact the patient and the patient suffers a severe hypoglycemic event and dies from a diabetic coma? Or what happens if the physician does act, offers the patient advice on an issue only later to learn the advice was based on faulty data or a hardware malfunction? What happens if the physician offers advice but the patient does not implement the advice offered?

The simple fact is without tort reform, a huge hurdle, Diabetic Investor does not see physicians adapting or advocating interconnected systems, frankly there is just too much risk. Given that suing doctors is standard operating procedure when anything goes wrong and that physicians are already practicing defensive medicine it’s hard to imagine physicians want to increase their malpractice exposure which is exactly what they would be doing if they adopted interconnected diabetes management systems.

Frankly Diabetic Investor is somewhat surprised that JNJ introduced the Verio and Abbott the InsuLinx, as both products are just one death away from a major lawsuit.  A situation which is not as farfetched as one might think especially given the body of very real evidence on faulty medical devices.  It’s not difficult to see a patient’s family suing JNJ or Abbott for the death of a loved one who dosed too much insulin based on the data provided by their respective products.

The harsh reality is that while interconnected diabetes management systems are the wave of the future, that wave is still very far from land. Although the technologies for these systems exist today it will take years for them to see the light of day. Think of all the hurdles that must be overcome – tort reform- healthcare reform – insurance reform, do we need to go on? The simple fact is advances in technology move at lightning speed while structural change moves with glacial speed. For years Diabetic Investor has been hearing the drumbeat that physicians should be paid differently, that we need to get away from the model of treating diseases to preventing or managing diseases. Keep in mind that HMO stands for health MANTIENACE organization and HMO’s were created with the theory that their member physicians would help lower healthcare costs as they weren’t just treating patients but actually helping their patients prevent or manage their disease better.

Anyone who doubts just how difficult it is to achieve true structural change read the headlines and consider that at this very moment lawyers are arguing before the Supreme Court over whether or not the recently enacted healthcare reform remains in place.  Regardless of how one feels about the current healthcare law, the fight over its very existence should send a clear and distinct message to anyone who believes that interconnected diabetes management are the as answer to better diabetes management. The future will get here eventually but not in time to save the dismal state of affairs of the diabetes device industry.