Build vs. Buy - What health systems should know about the cost of building a mobile health solution

The question is no longer whether digital tools in healthcare can produce the anticipated results (look at digital therapeutics like Welldoc or Propeller Health), but the real obstacle is how these tools are deployed and ultimately paid for in the clinical setting.

Providers already face several challenges in how they do their business, even without having to think about how they pay for and innovate around new technology tools. These challenges often stem from preexisting low margins in delivering care, to massive investments in modernizing medical record systems, to even practical difficulties, like managing the challenges of introducing staff to new work flows.

One cannot ignore the fact that most health systems have invested in large technical teams to manage their EMR and online presence. With this IT talent in-house, health systems often question whether they partner with a 3rd party technology company to deploy a solution or leverage existing resources to capitalize on a certain opportunity or need that involves mobile/digital technology. For many entrepreneurs, this subtle fact often comes as a startling surprise when internal tech teams become a main point of competition, or barrier for a potential health system to ultimately adopt their solution.

Time and time again, we at Babyscripts have addressed the topic of build vs. buy. In each of these instances, the conversation ultimately gravitates around the actual cost of trying to stand up an independent technology vs the immediate deployment, transformation, and cost efficiency that a third-party company, like Babyscripts, can bring to the table.

Before a health system makes a decision to build or buy, it is important for them to consider a few crucial factors related to cost:

1. Developmental Cost
2. Maintenance Cost
3. Opportunity Cost

The goal of this overview is to help stakeholders understand the difference in cost between buying from a 3rd party organization or building a solution internally.


What do you need to build a mobile/virtual healthcare experience? At a minimum, you need the following:

1. A Mobile Developer (typically there are either Apple or Android developers, but let’s assume that you find someone that can do both, extremely well, and can work around the clock) whose salary is $75,000 (probably more expensive in a large city).
2. A Back-End Developer to create the data schema and code the integration between the mobile interface (the app) and the database. This again could cost $75,000 (probably more if you’re in a dense urban environment), if you’re fortunate.
3. A Part Time Designer: Who creates the user experience, app features, thinks critically about how to deploy the solution and engage patients for an extended period of time? You could outsource this function possibly to an outside firm for $4,000 a month. A total of $48,000 a year.
4. An Integration Engineer: To be truly valuable, a health system would want the data and all the interactions to flow back into the medical record. This would require someone to create an API or of HL7 interface through an integration engine. Additionally, this engineer would probably have to layer on some HIPAA related security protocols to pass a Security/IT risk assessment. Another $75,000.
5. A Project Manager: Who keeps the team on schedule, determines the priority of functionality, and makes sure expectations regarding functionality, timing and cost are being optimized? It’s crucial to have a PM act as the intermediary between app users, the ultimate users (OBGYNs) and the development team. A PM will cost you between $50K and $75K depending on the area and experience.

If you add up these initial costs, it would cost a minimum of $375K in just salary to get a program up and running. If this were a large health system, you would have to multiply the total by an extra 31.7% to account for benefits given to employees (health insurance, savings, other benefits). The total cost, on the conservative side would be close to $526K.


The second you have a product available, you then need to manage it and make sure that bugs are fixed, customer concerns are answered, and physicians are happy with whatever they are using that’s making them change their current workflow. We’ve identified the following 5 important parts to deploying virtual care and managing patients remotely:

1. Software Maintenance: What happens when there’s a bug in the system that needs to be fixed? Your app crashes because of a fringe case issue? Apple releases a new version of the iPhone with a new programming language? All of these issues need to be managed by an engineer in real time. So even if you have internal development resources, that cost will run you at least $75,000 a year.
2. Device Cost: If you’re going to automate certain parts of care and remote monitor patients, you’ll need physical hardware shipped to patients to be able to acquire the necessary amount of data and alter care pathways and protocols virtually. Let’s assume you buy a device that’s considered a middle of the road product, so $60 dollars (IOT devices are typically between $30 and $90 for scales and BP cuffs). That means for 1,000 patients, you need to invest $60,000 in working capital to have the equipment necessary to remote monitor patients.
3. Logistics: Now that you have purchased devices up front, how are you tracking inventory, storing that inventory, and delivering that inventory? If you’re storing it yourself, you need to find a place to keep that equipment. If you decide to outsource the storage and management of inventory, it will increase your per unit delivered cost. Let’s assume it costs you an extra $2 to store the device, an extra $2 for someone to manage that inventory, and then a shipping cost of between $4 to $8 a cuff to actually deliver the device. That means that on top of the $60K you’ve paid to purchase the devices, you now have to pay an extra $8,000 dollars to simply deliver the devices to where they need to go.
4. Customer Service: Probably the biggest cost that you’ll incur is surprisingly not in the purchasing or management of inventory but actually in the management of the patient and answering/settling concerns or troubleshooting problems. What happens when a patient has a technical issue? Or their device doesn’t work? Even if they forgot their password. All of these concerns are typical issues with any technology platform and are part of the “everything after dilemma” that a large health system would face if they built it themselves. You will likely need to hire additional staff to manage, meaning an additional $60,000 per support representative (salary with benefits).
5. Risk and Governance: If you are remote monitoring patients and automating certain parts of care, there is new risk inherent in any new process or care protocol. What happens if a data point is lost in the cloud, a missed reading, someone gets hurt, a hand-off does not occur, etc. Typically, a third party will assume that risk and indemnify your health system for that cost/problem. If there is no third party, you are now fully at risk. More risk means more insurance. You’ll have to increase your insurance premiums to adjust for that risk. Outside of the additional personnel needed, let’s conservatively say you pay an extra $10,000 a year in increased insurance.

To simply deploy and maintain your solution, at a minimum, you are paying $213,000 a year to keep your solution running. Add that to the initial $526K it took you to build the solution and after the first year of operation, you are now $739,000 in the hole.


The last area to consider is the opportunity cost of spending $739,000 on this program versus some other project or initiative - i.e. you could hire another physician, add more beds, or fix some other concern.

The most important area to think about as it relates to opportunity cost is the improvements/upgrades a third party, like Babyscripts, is incorporating into their solution as you are trying to build the first instance of your own product. Once you build a solution internally, you now are a competitor of this third party (and its health system clients). As a health system, your top priority is to theoretically provide the best care for patients. Meanwhile, a third-party technology company’s top priority is perfecting how they deploy their products. The real question becomes can you, a health system, with so many other priorities, keep up to the needs of the market?

As one can see, while the opportunities of digital health are real, so are the costs and complications of trying to build a solution yourself. At Babyscripts, we recommend health systems partner with companies like ours to not just deploy already completed solutions but build upon existing platforms and generate new, more significant IP and product lines that can benefit both parties.

The views, opinions and positions expressed within these guest posts are those of the author alone and do not represent those of Becker's Hospital Review/Becker's Healthcare. The accuracy, completeness and validity of any statements made within this article are not guaranteed. We accept no liability for any errors, omissions or representations. The copyright of this content belongs to the author and any liability with regards to infringement of intellectual property rights remains with them.

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