We are hearing small practices as small as one practitioner saying things like, "I found a great deal on building my own iPhone app." Their intention may be to offer a value-add to their patients while making their practice operations and communications more efficient. Unfortunately, many of these practices do not realize the true long-term costs of such an undertaking.
With the dizzying amount of business-to-business healthcare apps coming online each month, there is talk about regulation, certification and vetting of apps. What none of these proposed oversights address is the financial viability of standalone apps to service the complex operational requirements of medical enterprises and the ever-evolving ways in which patients and providers choose to communicate (e.g., Facetime, Snapchat, etc.).
Singularly built medical apps may suffice for certain tools such as drug reference information, but apps such as patient communications or mobile medical consultations require systems built on a multi-tenant architecture with the capability to scale and become extensible by third parties through application programming interfaces (APIs). In other words, mHealth apps for medical organizations will soon evolve into app platforms whose functions can be rented as a cloud-based service and not built as a one-off IT project.
We should build our own iPhone app?
It’s too early to quantify the success rate of newly emerging apps, but one only has to look at the cost and pricing structure of mHealth-as-a-Service (mHaaS) applications versus building them internally as standalone applications. Consider the following costs of in-house or outsourced application development for a single app:
500 hours of development time at $100/hour = $50,000
First year of bug fixes and maintenance = $18,000
Cost of quality assurance, testing and load balancing = $15,000
Usability testing and beta rollout = $35,000
HIPAA compliance and network security audit = $15,000
Servers, storage and data = $24,000 annually
Technical support = $24,000 annually
(Assumed interoperability with other systems = little to none)
Total first year cost to provider organization = $181,000.
Total gross profit to developer and consultants assuming 35 percent margins = $63,350.
Following the money
Now consider a mobile software development company that specializes in building such applications and is able to do so on a multi-tenant architecture that could bring on hundreds or thousands of different customers on its own cloud-based servers:
- Let’s assume that medical provider organizations are willing to pay $1,500 per month in subscription fees to access and deploy a cloud-based mobile health application as a rented service.
- Let’s also assume that a mobile software vendor is able to get 1,000 customers on its mHaaS platform.
The total first year cost to a medical provider organization falls significantly to $18,000.
Total gross annual revenues assuming 1,000 customers for an mHaaS vendor is $18,000,000.
If one were to purely “follow the money,” it becomes a viable theory that small software vendors and consultants that currently constitute the “app development ecosystem” in mobile health will not in and of themselves remain viable as entities that can generate the financial muster to continue to attract investors, hire engineers, grow management, a distribution channel, etc.
It also shows much bigger revenue potential for a single software vendor to move from an outsourced IT development shop to one that provides the same mHealth app over and over again as a service.
A platform for all
As the Mobile Health industry continues to grow and take shape, many of us can look to the early days of SaaS (Software as a Service) almost a decade ago, when companies such as Salesforce.com not just overtook the small independent IT shops who were building one-off CRM systems, but built well documented APIs so that any small IT vendor with a good idea could integrate to Salesforce’s platform.
With all of the disparate billing, EHR, EMR and enterprise workflow applications as legacy systems in medical provider organizations, mHaaS is not only coming - it’s the only viable way our industry will grow.
In the early days of CRM it was well documented that most in-house CRM projects failed to achieve operational objectives in a timely or cost effective manner. This phenomenon of failure became so widespread that Salesforce.com eventually adopted the tagline “Experience Success.”
In the current landscape of mHealth applications launched by medical provider organizations, there is much anecdotal evidence that suggests most of these initiatives fail to achieve their originally stated performance and cost objectives. Fortunately, the money and math add up quite nicely for those who can execute on the approaching mHaaS future -- it’s much more revenue for a software vendor and it significantly decreases the costs and risks for medical organizations to move their mHealth IT initiatives forward.
The simple math says the economics of mHealth apps for medical enterprises aren’t actually about the apps -- it’s about the app platform.
John Sung Kim is CEO of DoctorBase.com, a mobile Health 2.0 company based in San Francisco. He is the former CEO and founder of contact center communications company Five9 and has consulted to various VC-backed companies and government organizations within the state of California.