The Future Landscape of the Sleep Apnea Diagnostic Market

Gary Burk, Research Analyst

Healthcare

February 25, 2010

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Focus Points

• Introduction

• Market Segmentation and Device Definitions

• Revenue Forecast Overview

• Challenges

• Market Drivers

• Market Restraints

• Future Landscape

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Introduction

• Obstructive sleep apnea (OSA) is a common disorder resulting from the collapse of the pharyngeal airway during sleep.

• OSA is estimated to occur in 2-4% of the adult population, with a higher prevalence in men.

• Estimates of prevalence are in excess of actual numbers currently being diagnosed and treated.

• Even in countries where the condition is widely recognized, population-based studies and community surveys indicate that many symptomatic individuals remain undiagnosed.

• Untreated OSA is a highly symptomatic condition associated with significant long-term negative health, social and quality of life consequences.

• Sleep apnea occurs in two main types: obstructive sleep apnea and central sleep apnea. Additionally, some people have complex sleep apnea, which is a combination of both obstructive and central sleep apneas.

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Introduction to the Market

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Introduction

• The U.S. sleep apnea diagnostic devices market will continue to grow due to increased awareness of sleep disorders among the general public and healthcare professionals. This exploding number of CPAP users over next decade will require the mandatory diagnostic evaluation needed to ensure an accurate diagnosis, reimbursement, and compliance.

• The current sleep apnea diagnostic market has positioned itself to address a rapidly expanding patient population that is becoming increasingly more diverse as its use and acceptability rapidly expands.

• Success in this segment of the market and the competitive advantage has not always been centered on technology. Preparation and proper planning to navigate the future landscape of this environment will directly compete with future cutting-edge technology.

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Overview of the Market Segmentation

• Manufacturers segment the diagnostic device market based on the mobility (fixed or portable), power source (AC or battery), number of signal channels (partial or full-channel), and place of application (lab or home).

• The diagnostic device market is segmented in this briefing based on the depth of testing and the environment in which it can be performed. The major segments in this briefing are the clinical PSG, ambulatory PSG, and the screening devices segment.

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Diagnostic Device Definitions

• The clinical PSG refers to fixed and portable PSG units used forattended sleep studies within a hospital or non-hospital based sleep facility. These devices are full-channel (16 or more channels) PSG units that use either a desktop or a laptop platform depending on the customer's mobility preferences.

• Ambulatory PSG is a full-channel (16 or more channels), battery powered diagnostic unit. It has all the capabilities of clinical PSG units, but can be used in attended or unattended settings. The data gathered with an ambulatory PSG can be stored and retrieved when needed. A majority of the ambulatory devices available in the market have the capability to transmit data wireless.

• Screening devices have limited a number of channels (less than 12). They can be used unattended at homes or in a lab, and are used primarily for screening purposes.

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Centers for Medicare & Medicaid Services Device History

• The Centers for Medicare & Medicaid Services (CMS) has addressed the coverage of continuous positive airway pressure (CPAP) in three separate decisions in October 2001, April 2005, and March 2008. In each of those decisions, CMS limited coverage of CPAP in patients with OSA to those patients whose diagnosis was based on specific testing modalities. Initially, it limited coverage to OSA diagnosed withpolysomnography (PSG). In the latest decision, it expanded coverage to OSA diagnosed with several types of home sleep tests.

• Centers for Medicare & Medicaid Services (CMS) currently allows for coverage of specified sleep tests for adults based upon clinicalevaluation of obstructive sleep apnea.

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Centers for Medicare & Medicaid Services Device Definitions

• Due to the reimbursement consequences of CMS and their decisions, the diagnostic segmentation in the future will more than likely follow CMS's segmentation based on reimbursement schedules. CMS currently allows for coverage of the following:

• Type I PSG when used to aid the diagnosis of OSA in beneficiaries who have clinical signs and symptoms indicative of OSA if performed attended in a sleep lab facility.

• Type II or Type III sleep testing device when used to aid the diagnosis of OSA in beneficiaries who have clinical signs and symptoms indicative of OSA if performed unattended in or out of a sleep lab facility or attended in a sleep lab facility.

• Type IV sleep testing device measuring three or more channels, one of which is airflow, when used to aid the diagnosis of OSA in beneficiaries who have signs and symptoms indicative of OSA if performed unattended in or out of a sleep lab facility or attended in a sleep lab facility.

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Revenue Forecast Overview

Source: Frost & Sullivan (2010).

Total Diagnostic Devices Market

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Some of the Diagnostic Industry Participants

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Market Drivers

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Market Restraints

Highly Competitive

Compliance

Healthcare Reform & Reimbursement Trends

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Future Landscape

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Next Steps

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For Additional Information

Antonio Garcia

Industry Manager

Healthcare – Patient Monitoring

antonio.garcia@frost.com

Gary Burk

Research Analyst

Healthcare – Patient Monitoring

gary.burk@frost.com