If a physician’s goal is to alleviate patients’ suffering, then Richard Hassett has his dream job. A neurologist by background, Hassett is president and CEO of NovaSom, a manufacturer of home tests for obstructive sleep apnea based in Glenn Burnie, MD. An alternative to sleep lab testing, the device enables patients to assess themselves in the comfort of their homes at a fraction of the cost of in-center tests, Hassett says. If NovaSom’s extended overnight testing delivers a positive diagnosis, then the patient can get treatment and eventually get to sleep restfully, perchance to dream through the night.

NovaSom appeals to the physician in Hassett. “What got me excited about NovaSom, frankly, was the fact that first of all there’s this undiagnosed public health epidemic that is coming into focus, and it’s big,” he says. “Finding these patients and treating them produces real health benefits for individuals and real savings, and that’s very motivating to me.”

Prospects for the 100-employee company have also motivated bullish investors. In June 2011 the company raked in $35 million in equity financing, said to be one of the top 10 VC hauls of the year. NovaSom has also attracted big names. Michael Coppola, president and chief medical officer of the American Sleep Apnea Association joined the company in April 2012 as chief medical officer and vice president of medical affairs. Before Hassett became chief executive, Thomas Fogarty had helped the company, founded as Sleep Solutions in 1992, with the product’s design. Last year NovaSom released a new wireless version of the FDA-cleared device, called the AccuSom.

Hassett says the outlook for home sleep testing “changed dramatically” in the four years since Medicare “published a favorable coverage decision.” United Healthcare will begin authorizing use of the home tests this year. Aetna and other insurers have already endorsed prior authorization or are about to follow suit, Hassett notes.

Hassett began his medical career in solo practice before taking up a full-time academic neurology residency in Philadelphia. He began his transition to business and technology side of healthcare in the late ‘90s. Most recently, he served as president and COO of Matria Healthcare. Hassett also served previously as CEO of Coordinated Care Solutions, CEO of Vivra Asthma & Allergy, and CMO and executive vice president of operations for Accordant Health Services.

Hassett’s discussion with MX encompasses NovaSom’s outreach efforts, the growing recognition of sleep apnea’s spread, lab-versus-home testing, comorbidity questions, a key Waste Management study, and internal discussions about what instructional voice to use for the new device.

MX: NovaSom has received $75 million in equity funds since 2008, and the company’s business strategy has shifted to convincing insurers and employers to support the use of home tests. How smoothly has that gone? I understand that United Healthcare has agreed to pay for the tests for its subscribers.

Richard Hassett: That’s correct. This is a big year for NovaSom. United Healthcare is rolling out prior authorization this year, meaning that they will be inserting themselves into the process in order to determine whether or not a patient for whom sleep apnea is suspected really needs to go to a facility to have the more complicated but also more expensive test or is appropriate to be tested at home with the NovaSom [device]. Similarly, Aetna has installed prior authorization nationwide. Several other regional payers have done the same. By the end of the year we expect that most of the Blues will have done so.

In our minds this use of prior authorization has been helpful in getting the ball rolling. The truth is, most primary care physicians and patients have not heretofore been aware that there was an opportunity to test at home if sleep apnea was suspected. I think the introduction of prior authorization here is critical in terms of driving awareness and driving clinically appropriate utilization of home sleep testing. Not everybody should be tested at home, but many can be. It’s private, it’s comfortable, it’s inexpensive, it’s accurate, it doesn’t require childcare or travel, and you don’t have to live in a big city where there are facilities.

MX: Are there cases where a lab test is preferable, and what determines that?

RH: Definitely. I’m in the business of what’s referred to as “out-of-center” sleep testing, or home sleep testing. I’d be the first to admit that there are many patients for whom a sleep center is exactly where they need to go. To begin with, out of a hundred patients who walk in the front door of a sleep center they are not all there to rule out sleep apnea. There are other sleep conditions, and NovaSom does not test for narcolepsy or nocturnal seizures or movement disorders or anything like that. Out of a hundred people who walk in the front door of a sleep center, maybe 10 or 15 of them are there for other reasons entirely, and we would never test to rule out those conditions.

MX: And those would be the reasons that lab tests are called for?

RH: Sure. And then there are patients who have advanced heart or lung disease, so if someone being tested for sleep apnea has end-stage emphysema, for instance, and is oxygen-dependent, or has advanced heart failure, those patients deserve to be under the watchful eye of the sleep center.

Having said that, the vast majority of patients who are being tested in sleep centers are clinically appropriate for home sleep testing. Frankly, the capacity and the access that is enabled by home sleep testing is exactly what the doctor ordered, if you’ll pardon my pun, because the number of undiagnosed patients with sleep apnea is staggering.
 

MX: The company says that 85% of the 18 million or so who have this condition have yet to be treated for it.

RH: That 18 million refers just to the patients who have moderate to severe sleep apnea. Those are the patients for whom the literature is clear that treatment is required and beneficial.

MX: If they’re undiagnosed how do they know they even have this problem? How do you reach them?

RH: You’ve asked the million-dollar question there, because most of those patients right now think they snore loudly and it’s a bit of a punch line around the dinner table on a Sunday night.

MX: What if you live alone and have no one around to hear you snore?

RH: Snoring is one obvious example. Many patients will also complain of being drowsy during the day, falling asleep at work, falling asleep every time they sit in front of the TV, being inattentive, distracted, showing poor productivity, and having a lot of work-life challenges. These are the kinds of things where you say, “Gee, that makes sense that chronic sleep deprivation would produce those symptoms.” What happens is, every time you get into REM sleep, you’re choking, you’re strangling, and you get aroused from that restful sleep.

Frankly, it’s the primary care physicians of America who need to rise to the occasion here.

MX: How do you connect someone with this problem with the doctor who could diagnose it and suggest a home sleep test?

RH: To be clear, we alone are not doing this, because we’re a small company. There are 40 million sufferers of sleep apnea, if you include mild [cases], and there must be 300,000 primary care physicians. The sleep specialty community, the relevant academies of internal medicine, family [practitioners], even pediatricians, the payers, employers, health and wellness companies [have to be involved]. Frankly, the awareness of sleep apnea is increasing every day. Although this condition is massively underdiagnosed now, I will tell you that 20 years ago it was essentially unheard of. Nobody talked about it; nobody knew about it. Now because I’m in the business I’m in when I tell people about NovaSom they say, “You know, I never heard of this five years ago, but my dad has it, my brother just got tested, and my boss has it.” People are becoming aware of it.
One of the ways that sleep apnea rears its head is through the effect that it has on other health conditions. For instance, [if there is] unexplained high blood pressure or high blood pressure that is refractory or resistant to multiple medications, odds are it’s sleep apnea. New onset of atrial fibrillation, a very common arrhythmia? Good chance it’s sleep apnea.

One of the ways that sleep apnea is resonating with the doctors of America, consumers, health plans, and employers, is because there’s an increasing awareness now of the overlap between diabetes and sleep apnea, high blood pressure, heart failure, heart attacks, strokes, obesity, [and] depression. In fact, with each of those diseases there’s roughly a 50-50 overlap, meaning if you have sleep apnea what’s the chance you have x? And if you have x what’s the chance you have sleep apnea? We’re realizing now that sleep apnea alongside hyperlipidemia and tobacco and diabetes and hypertension is really one of the drivers of this whole ischemic crisis that we have, where strokes and heart attacks are driving so much cost and morbidity and mortality in our healthcare delivery system.

So what got me excited about NovaSom, frankly, was the fact that first of all there’s this undiagnosed public health epidemic that is coming into focus, and it’s big. Finding these patients and treating them produces real health benefits for individuals and real savings, and that’s very motivating to me. Furthermore, there’s an opportunity to make the diagnosis at a fraction of the cost in a way that’s highly accurate and that’s exactly what’s necessary if we’re going to get after this big public health epidemic.

I’m trying to focus on how this 85% know to have this condition checked out and then be directed to your product.
RH: There isn’t any one channel. I wouldn’t say, “Oh, we’re advertising on TV, or we’re advertising in Redbook,” or anything like that. There are lots of commercial and noncommercial interests aligned around driving the awareness campaign among consumers, whether it’s celebrity spokespersons like Shaquille O’Neal getting on his soapbox and talking about his diagnosis and the NFL talking about sleep apnea. There’s the American Sleep Apnea Association, which is the largest, nonprofit advocacy group. There are the various professional societies that are now redoubling their efforts to educate primary care physicians to ask the right questions. Of course, we’ve invested in our Apnea.com Web site, which is a consumer-education Web site. We have field resources; these are people who are out calling on primary care physicians, cardiologists, pulmonologists, ENTs, other sleep specialists, and making them aware of the signs, the symptoms, and the screening tools for sleep apnea, and the availability of the NovaSom home sleep tests.

Frankly, the payers are playing a big role here as well, because their soapbox is big and their bullhorn is bigger. They play a big role in member communications and provider communications in trying to educate patients just like they do about hyperlipidemia and lifestyle changes such as smoking cessation—a major driver of adverse health events.

MX: Speaking of United Healthcare and Aetna, has it been fairly smooth sailing getting them to agree to pay for home sleep tests? What kinds of questions did you get?

RH: The world has changed dramatically in the last four years or so. In 2008 Medicare published a favorable coverage decision about home sleep testing. Before that, most payers did not acknowledge home sleep testing, or, if it was performed, wouldn’t pay for it. On the heels of Medicare making its decision in 2008 and then the Blue Cross/Blue Shield Association, which is considered a bellwether opinion leader, in 2009 opining that home sleep testing was for real and was accurate and cost effective and what was necessary to address this public health epidemic. On the heels of that most payers have come around and have adopted positive policy for home sleep testing. The world is a very different place now.

MX: The groundwork was laid, in other words, and you’re approaching receptive ears.

RH: Yes.

MX: You mentioned the American Sleep Apnea Association. I understand that Michael Coppola, the president and chief medical officer of the association, has joined NovaSom as the company’s chief medical officer. Was it a long process? How did that come about?

RH: Once we made the decision that we wanted to bring in an industry thought leader, it unfolded pretty quickly. I would say it took less than three months from the time we made the decision until the time we shook hands with Michael. He has been thinking about, and writing about, and lecturing about at-home testing for a long, long time. There are so many things in medicine that take a while to gather momentum. You’ve probably heard the same statistic as me that the average good idea takes 17 years to achieve momentum, and [with] the American healthcare system, as shameful as it is, you hear those words. The time has come, and it certainly felt to us like the tipping point was upon us. And frankly, this also coincides with the sleep community—the sleep centers and the sleep specialists—getting behind out-of-center sleep testing and realizing it was the right thing to do. That it’s accurate, it’s consumer-friendly, and it’s scalable, while it’s not been easy in the short run for them economically because every home sleep test represents a patient who might otherwise have been in their sleep center.

It’s also in the grand scheme of things—and I think they’ve gotten comfortable with this—the way that we can do this more cost effectively so that the payers of America and the employers of America and the consumers of America will feel comfortable about finding the other 15 million people and getting them taken care of, too.

MX: Of 10 patients with a possible sleep apnea problem how many could use your home sleep test and how many would need to go to a sleep clinic?

RH: Almost eight out of every 10 patients that we test turn out to be positive. Our device is unique in that it has the capacity for multiple nights of testing. The virtue of that is there is a false-negative effect associated with any one-night test of sleep apnea. If a holter monitor were only an 8-hour test and you went back to the doctor, and he said, “Well, I didn’t see any ventricular tachycardia,” but then the next time he did it for 24 hours, he’d say, “Yup, I found it.” The first one was a false negative, and it had to do with sample size. [It has to do with] test duration.

We test for three nights more often than not. It depends on what the doctor orders and what the health plan will agree to. But given the fact that the test is comfortable and people are willing to wear it for multiple nights, and frankly there’s not a lot of incremental cost associated with leaving the device in the home for two extra nights, the false-negative rate is relatively low. Very low, in fact. It is not common that patients have to be retested. I won’t say that it never happens, because there are times that patients exhibit the signs and symptoms for sleep apnea, and just like one negative holter test it doesn’t mean you can’t have ventricular tachycardia. But it is not a common problem after multi-night testing.

Before we achieved any traction in the marketplace we published two studies showing night-for-night [testing] compared with an in-facility test that the NovaSom test was equally accurate. When we married that up with the fact that 9 times out of 10 the patients test for 3 nights…we feel very good about the accuracy of our test against any one-night test, be it at-home or in-facility.

MX: What does it mean to have someone of Thomas Fogarty’s stature backing your company?

RH: I’ll tell you what: 30 years ago when I was an intern I was using Fogarty catheters never imagining I’d be doing business with Dr. Fogarty. I don’t have to tell you he is a heavyweight in the device world. In the early days of the company especially when [we were] getting the device right, and all the engineering and manufacturing aspects of this [right], Tom was hugely helpful to the company. Most of that engineering hard work was done before my watch, but it’s the foundation on which our business is built right now.

We’ve been testing patients for 10 years now. The device is tried and true; the patients have a wonderful experience. Their satisfaction scores are extremely high. We’ve never had a significant adverse event with the test. I feel confident in saying that had Tom Fogarty not been involved through those formative years that it’s unlikely that the pathway would have been as smooth once the environment was right and scale was achieved.

MX: During those 10 years and 100,000 or so tests was there anything the company learned that led to product upgrades or improvements?

RH: We did something very significant last year, which is we introduced our next-generation device, the AccuSom. The AccuSom is the first and still the only wireless device used for testing for sleep apnea at home. Unlike every other FDA-approved device, which requires that the device be returned in order for the data to be downloaded and analyzed, we receive that data each morning. What that allows us to do is to help patients through the testing period so if there are any difficulties with testing, or if they simply don’t test despite the doctor’s instructions that they do so, it allows us to be on the ball and make sure the test is completed and that good results are obtained.

Then, on a near real-time basis the physicians can initiate therapy. If the patient completes the test by 7 o’clock, that test can be interpreted by 10 o’clock and that patient can be on the way to getting the therapy he needs. Therapy is like justice. Justice delayed is justice denied. This is an important step in accelerating a critical pathway to the therapy that’s needed.
Is the diagnosis a binary one—in other words either you have sleep apnea or you don’t? Are there comorbidities that need to be ruled out as well?

The diagnosis rests on how many times per hour you observe that a patient is attempting to ventilate unsuccessfully. In our case there’s a belt that goes around a chest wall, and you see that somebody’s chest wall indeed is moving out and they’re trying to breathe. Airflow at the face is reduced or altogether absent, because the airway has collapsed and the oxygen level goes down. How many times an hour does that occur during a recording period? You get a score. That’s called the “apnea-hypopnea index.” There is a score that emerges. Sleep specialists have devised a sliding scale, so you would say 5 to 15 is considered mild, above 15 is moderate, and so on and so forth.

The presence or absence of comorbidities has an important effect on what sleep specialists typically recommend for patients in the mild category. If somebody had no hypertension, no diabetes, no other risk factors, and had an AHI of 6, it’s very likely that a specialist would say, “Let’s keep an eye on this. Here are some things that you could do short of going on CPAP [continuous positive airway pressure] and I’m going to see you again in a little while, and we’ll keep an eye on this.” On the other hand somebody who has an AHI in the mild range but has a family history of heart attacks and has a BMI of 35 and is a Type 2 diabetic, they are likely to say, “No, for you we can’t afford this incremental risk.” The comorbidities do fit into the care plan, which is not to say…the AHI is a number like the BUN [blood urea nitrogen] and creatinine and the heart rate are numbers. What you do with it [depends] on clinical judgment.

MX: Going back to the business side of things, NovaSom is not yet profitable. When do you expect to be in the black?

RH: We think within the next year we’re likely to achieve profitability. Fortunately, we’re very well capitalized right now; we have some great investors. And we have made and are continuing to make a lot of investments in our infrastructure, in our technology, in our sales and marketing effort, so we could control our spend rate right now if we chose to. But given the magnitude of this opportunity that’s available to us and the enthusiasm that our investors have, which is exactly why we raised as much money as we did, we think it’s important for us to step out and step out and try to create this marketplace.

MX: Will you need any more equity funds, going forward?

RH: We think that’s unlikely.
 

MX: A 2010 Frost & Sullivan report says the market for sleep apnea devices is $1.35 billion in 2008 and growing, but there’s a high level of competition. You say NovaSom is the market leader, is that correct?

We do. That reference you made is to the therapy side, so let’s separate diagnosis from therapy. On the diagnosis side most people estimate that there are around 3½ million tests being done a year in this country. [There’s] somewhere near $4 billion, maybe on the outside $5 billion, that’s being spent on those tests. That’s just on the testing side. On the therapy side, which if you add all the money that’s being spent on the CPAP devices and the masks and disposables, that’s probably $2 billion, give or take. One of the funny ratios that you notice is that the diagnosis right now is more costly than the therapy. How bizarre is that? It just speaks to the need to make the diagnosis less of an impediment to patients and to payers alike.
Are there any hard figures or good estimates how much an early diagnosis of sleep apnea could hold down healthcare costs?

There’s a lot of research about this, and we played an important role in one of the most recent publications. Waste Management did a study recently. The primary author was Dr. Ben Hoffmann.

MX: Waste Management?

RH: Waste Management, yes. And I’ll tell you why in just a second. Because they have a lot of truck drivers, and that is an occupational hazard for truck drivers to have sleep apnea. A lot of these guys are big and husky. [Waste Management] undertook the study in which they screened a group of drivers and identified undiagnosed sleep apnea patients and got them on therapy. They published this last year in the Journal of Occupational and Environmental Medicine. What they found is that their paid claims once they went on therapy went down on average about $2800 a year. Those savings came, as you would expect, from strokes and heart attacks. That’s per patient identified.

The interesting part—and this matters a lot to employers—is that they also found five fewer days of absenteeism per year once they went on therapy and about $500 less a year in short-term disability payments for these drivers. That’s just one of many studies. The prevailing thinking about how this all works is the following: When you’re sleeping and you get into REM, or you’re starting to get into the most restful sleep, and your oxygen level goes down, your body reacts to that with adrenaline and cortisol. Knowing what we do about adrenaline and cortisol, that’s not very good for your blood pressure, your heart rhythm, or for your diabetes or your glycemic control. It stands to reason that diabetes, hypertension, strokes, heart attacks, and arrhythmias would be a natural consequence then.

On the other hand, you’d say, “Well, what does that mean for somebody who night in and night out and night in and night out never gets a restful night’s sleep?” It’s no surprise that they would be having on-the-job injuries, accidents, absenteeism, short-term disability, et cetera. There’s a lot of evidence that shows important savings.

MX: I was trying to get a concrete sense of how much those savings might be. Speaking of figures, you’re quoted in the Baltimore Business Journal saying the test costs about 75% to 85% less than a lab test, which you say costs up to $2000. Is that an accurate quotation?

RH: Yes. It’s very unusual for us to not be able to offer a payer 75% or 85% savings per test over a lab test.

MX: You touched on this briefly and I know you weren’t at the company for the development of the home test, but do you recall any developmental challenges for the device?

The challenge that we’ve responded to now has to do with comfort and adoption and usability. I pointed out to you that we…got FDA approval for the AccuSom, which is a next-generation device. The AccuSom is a fraction of the size of its predecessor, so it’s comfortable to sleep with. It’s not much bigger than an iPhone. It straps on to your arm. It can speak 12 different languages. When you turn it on, it will tell you how to set itself up, how to connect the sensors, and what to do so that you’re ready to sleep and test. As I mentioned, it’s wireless. Those are things that we were responding to on the strength of 10 years of feedback from the marketplace.

MX: As an aside, is it a male or a female instructional voice on the AccuSom? Or is it a text?

RH: No, it’s a voice, and it’s female. It’s so funny you should say that because there were a lot of running jokes about exactly what kind of voice we should put into it when we were reengineering this new one. There were a lot of guys in the shop here who wanted Rachel Hunter’s voice or someone like that. It was a running joke. (Laughs.)

MX: I can imagine. And there would be women who want George Clooney’s voice or someone like that.

RH: Absolutely. We went back and forth with that.

MX: As a product development decision, how did you settle on what type of voice you did finally use?

RH: We just got somebody with a voice that was clear and not laden with any particular diction. So they didn’t sound like a Boston Brahmin or a southerner, [for instance]. It was just a generic, clear, comforting voice.

MX: Regarding your background, what led you to your current position as CEO of NovaSom?

RH: All of the businesses that I’ve been involved with since I stopped practicing have been technology-enabled service businesses that were solving a big problem. That’s the common thread in all of them. Here’s an ecosystem where there are 40 million sleep apnea sufferers but the vast majority of them are as yet unidentified. It’s costing us $4 billion-plus a year to test them, and we should be doing it for a fraction of that. This is a big problem for everybody. There are patients out there having strokes and heart attacks and, frankly, dying who don’t need to. There are employers and payers suffering the economic consequences of that. Spouses and children and what-not, so that’s very exciting to me—to have an opportunity to have such a big impact.

MX: What I’m hearing is that this appeals to you as an MD because you can help so many more people combat what you call an epidemic.

RH: No question about it.