Will Philips' New Google Glass Project Shake Up the Health Care Industry?

Last month, I discussed the possible applications of augmented reality, or AR, in health care. The rising usage of tablets in hospitals indicated there's room for innovative developments in apps showcasing a tablet's cameras, motion sensors, touch screens, and cloud-based connectivity.

One augmented reality app truly stood out -- German research institute Fraunhofer MEVIS' Apple (AAPL +1.18%) iPad app, which used the iPad as an AR viewfinder during surgeries. The iPad was used as a digital overlay to view key blood vessels, and help doctors avoid accidentally cutting them. However, a major drawback was the fact that an assistant had to hold up the iPad for the surgeon.

If that kind of app were designed for Google (GOOG +2.53%) Glass instead, the surgeon could have a completely hands-free augmented reality view of the patient -- a huge leap forward that brings the modern operating room closer to the U.S.S. Enterprise sickbay.

Philips believes Google Glass is the future
Technology conglomerate Koninklijke Philips (PHG +2.95%) has noticed the possible future of Google Glass in hospitals, and has moved forward with an ambitious plan which could have far reaching implications across the health care industry.

After only two weeks in development, Philips recently released its first proof of concept for Google Glass, which allows doctors to receive patient vital signs from Philips' patient monitoring products wirelessly and view them on a heads-up display. Since the device is connected across the cloud, it allows physicians to effortlessly share their data with each other and provide assistance when necessary. The proof of concept was developed with Accenture (ACN 2.45%), the company that also helped Microsoft turn the Kinect into a cloud-connected remote health care device.

Philips is serious about finding more ways that Google Glass can connect its health care products, and has started a Digital Accelerator Lab to pursue goals such as accessing pre-surgery checklists, remotely monitoring recovering patients, and accessing their electronic health records, or EHRs, on the fly.

How will EHR companies be affected?
Besides Qualcomm's incubator and innovation lab, Glassomics, which I discussed in a previous article, Philips' project is a major vote of confidence for Google Glass as a serious tool in hospitals.

This could alter the outlook for EHR companies that have invested in iPad software, such as Allscripts (MDRX 4.23%), Cerner, and General Electric -- which all created "native" iPad EHR apps not tethered to a desktop-based system. In my opinion, this may have been a defensive move against a new generation of native iPad EHRs, such as drchrono, which arrived in June 2011 and emerged as the top iPad EHR app in Black Book Research's 2013 survey.

According to an article by CareCloud's Ahmed Mori, replacing a single computer on wheels with three iPads could save a hospital $6,000. That potential of savings, combined with the use of iPads in hospitals, creates a fertile growth market for leading EHR companies. A survey conducted earlier this year by Manhattan Research showed that 72% of physicians use tablets, with nearly half of them preferring the iPad over competing devices. 

However, Google Glass is scheduled to arrive for consumers in 2014 -- which could disrupt the market for iPad-based EHRs. Drchrono is apparently already preparing for this shift and has started posting Glass mockups on its website.

Allscripts, the largest publicly traded EHR company (by meaningful use attestations), could have a tough time shifting toward Google Glass. Allscripts has been steadily migrating its EHR products to iOS, first with Sunrise Mobile MD II for both the iPad and iPhone in 2010, and then again with its first native iPad app, Wand, in 2012. In August, the second version of the app, Wand 2.0, even added an app store aimed at promoting the development of more innovative iPad apps, strengthening its symbiotic relationship with Apple's tablet.

Last quarter, Allscripts reported a 26% decline in system sales, which accounts for 9.4% of its total revenue. To keep customers purchasing new systems, Allscripts and its EHR peers are under pressure to continue meeting customer demands for new technologies, such as iPad apps. This is a competitive, high growth market -- a survey from Black Book Rankings revealed that 122 EHR vendors would introduce mobile or native iPad EHR apps by the end of 2013, while 135 other vendors stated that they were planning on producing them.

However, Philips is working on its Google Glass initiative with Accenture, which could mean that its system could be adapted to be compatible with existing EHRs, without EHR companies having to create "native" Google Glass apps, in the same way Glass is designed to synchronize with a smartphone. For example, in Accenture's prior collaboration with Microsoft, it synchronized Microsoft's Healthvault to the Kinect without any modifications to the existing EHR system.

Will Google's voice recognition technologies make its way into hospitals?
Nuance (NUAN +0.00%) is another company that could have to rethink its long-term strategy if Google Glass gains popularity in hospitals. Nuance's Dragon speech recognition software is used by the majority of EHR providers, and its clinical language understanding software is used to fill out patient data templates via a naturally spoken physician narrative.

The popularity of Nuance's voice recognition software boosted revenue at its health care segment by 29.1% year-over-year last quarter to $238.1 million -- accounting for 17% of the company's top line. Google Glass, on the other hand, is powered by the company's own voice recognition engine which is widely considered Nuance's greatest rival. If Google gains traction with superior clinical language understanding, then Nuance could be in trouble if doctors start using Google Glass instead of the iPad.

Can Philips make health care exciting again?
Over the past several years, demand for new health care equipment has waned considerably, since hospitals are taking longer to upgrade systems due to budget concerns.

Philips, General Electric, and Siemens are all large conglomerates with a substantial interests in the health care industry. However, growth across the industry has been anemic, as seen in a comparison of these companies' most recent quarterly results.

Source: Company earnings reports.

While all three companies offer many similar products -- such as imaging devices, laboratory and surgical equipment, and clinical informatics systems -- Philips is notably much more dependent on the industry than General Electric and Siemens. Therefore, if Philips can connect its products with Google Glass, it could gain an advantage over its competitors when the time comes for hospitals to upgrade their aging equipment.

However, if Philips is intent on creating a smart hospital, it should keep an eye on Samsung, which has some big health care plans of its own. Samsung definitely has the mobile technology to create a rival to Google Glass, which would fit well with its plans to become a health care giant in seven years.

The Foolish bottom line
It will be interesting to see if Google Glass can replace the iPad in hospitals. Glass' hands-free, heads-up display could substantially alter how EHR companies approach the market and how large conglomerates like Philips view their health care equipment business.

For now, investors should keep an eye on Philips' Digital Accelerator Lab and Qualcomm's Glassomics for exciting glimpses into the future of health care.