The Vertical Space

#54 Stuart Ginn, WakeMed: A physician's perspective on medical drone delivery

• Luka T

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Welcome back to The Vertical Space for a deep dive into the medical delivery use case, or I should say another deep dive into this interesting topic. We’ve had guests in the past – notably Justin Steinke from Spright – where we talked about the medical delivery use case from an operator and drone expert perspective. This time, we get to hear from Stuart Ginn who besides having a professional aviation background is also a physician and therefore looks at the drone opportunity through the lens of a healthcare professional – somebody engaged in delivering healthcare and intimately familiar with the complexities associated with it. 

 We’ve covered a lot of ground in this conversation, starting with a description of the existing internal logistics systems within a large healthcare system, and more importantly its current problems that drones might successfully address. And we do this in the context of macro factors that healthcare faces in providing access to clinical services to rural areas. We compare the B2B medical drone delivery business model to that of the B2C consumer delivery and have a lively discussion around which is more likely to become a killer app first. 

 The opinion that the B2B medical drone delivery use case is a promising market opportunity is commonly shared in the industry. However, what is not adequately discussed is exactly how this value will be realized, what matters to hospitals, and what the ultimate product needs to look like to ensure wide adoption. Here’s where Stuart’s insights really stand out. For instance, instead of thinking about drones as part of a transportation system, Stuart believes they should be considered as an extension of the infrastructure, not unlike pneumatic tubes in hospitals today. As usual, we go deep, ask tough questions, and uncover interesting insights not widely shared.

Stuart:

The real economics are not going to be driven around operations and cost savings on going head to head with vehicles. I think it's going to be all about, infrastructure costs. you can use tools like this to deliver services to more people in more places without spending an enormous amount of money on infrastructure and physical buildings, or technology having to be co-located in different places, just to provision those services. so those are the real economic drivers for this

Luka:

Hey everyone. Welcome back to The Vertical Space for a deep dive into the medical delivery use case, or I should say another deep dive into this interesting topic. We've had guests in the past notably Justin Steinke from Spright, where we talked about the medical delivery use case from an operator and drone expert perspective. This time we get to hear from Stuart Ginn, who besides having a professional aviation background is also a physician and therefore looks at the drone opportunity through the lens of a healthcare professional, somebody engaged in delivering healthcare and intimately familiar with the complexities associated with it. We've covered a lot of ground in this conversation, starting with a description of the existing internal logistics systems within the large healthcare system. And more importantly, its current problems that drones might successfully address. And we do this in the context of macro factors that healthcare faces in providing access to clinical services, to rural areas. We compare the B2B medical drone delivery business model to that of the B2C consumer delivery and have a lively discussion around which is more likely to become a killer app first. The opinion that the B2B medical drone delivery use case is a promising market opportunity is commonly shared in the industry. However, what is not adequately discussed is exactly how this value will be realized what matters to hospitals and what the ultimate product needs to look like to ensure wide adoption. Here's where Stuart's insights really stand out. For instance, instead of thinking about drones as part of a transportation system,Stuart believes they should be considered as an extension of the infrastructure, not unlike pneumatic tubes in hospitals today. As usual we go deep ask tough questions and uncover interesting insights, not widely shared. Stuart is an ENT head and neck surgeon and innovation leader at WakeMed Health and Hospitals in Raleigh, North Carolina where he also leads system wide innovation efforts as the medical director of WakeMed Innovations. At WakeMed Innovations, he led the inception and implementation of the nation's first drone based medical package delivery system. WakeMed innovations has also developed a novel hospital, integrated health venture model, the WakeMed innovations venture fund, which Stuart leads in partnership with regional venture partners. Stuart is also the co-founder and president of CAHM the coalition for advanced health mobility, a nonprofit working to drive innovation and impact for emerging mobility technologies and human health. Stuart received his medical training at Wake Forest university school of medicine and completed his specialty training in ENT Head and Neck surgery at Stanford university. Prior to his medical and surgical training.

He was a flight instructor and airline pilot, and remains an active aviator. He is the co-founder of LEEP mobility systems working at the intersection of emerging advanced mobility, infrastructure development, and healthcare delivery innovation. Thank you Stuart for being on The Vertical Space.

Luka:

Stuart, thank you very much for being on the podcast. It's a real pleasure to have you on.

Stuart:

Thanks for having me. I'm really excited to speak with you guys about this topic.

Luka:

first question, what is it that very few in the industry agree with you

Stuart:

on? so, in some ways that's pretty easy. for one thing, just to qualify all this, I tend to think my lens on this industry and this technology, advanced air mobility, drones, tends to be driven through an aviation mindset, but more recently, definitely through the lens of a healthcare person, somebody engaged in delivering healthcare and the problems we face in delivering care and the tools we use to try to do that. if we're thinking about drones as an example, that's something that I don't really agree with others on. I don't think the killer app is necessarily retail and consumer delivery. I think some version of, B2B healthcare related Operation and service may be the killer app, but it's obviously a biased, a heavily biased perspective. when I go to conferences and when I hear other people talk about this, I'm just always looking at this through the lens of an unmet need in healthcare. the second thing is, and I'll just briefly say that this is sort of not related, but obviously there's a lot of concern around Using drones is an example that there's going to be a significant public backlash around, the presence of drones in airspace and in communities. And based on what we've seen, and we'll get into this later, I'm sure, based on what we've seen, in my healthcare system as we use drones, it's just not something we saw. I don't think there's going to be much of a significant backlash. I think we should be mindful of it, but I don't think it's going to be. we're sort of post privacy as a society. And so I think it might not be as big of an issue for companies as others might believe.

Luka:

This will be a very interesting conversation based on opening remarks. So, how about this? let's start framing the conversation, towards the unmet need in healthcare that you just surfaced. tell us why did you and your hospital WakeMed get involved with drones? What is it that is either broken or slowly breaking in healthcare that drone technology is uniquely suited to fix. Give us a bit of a high level context before we start going into more about the current way of moving things in the healthcare system and how drones can then improve that.

Stuart:

Right, so that's a great question. When I started, when I came to WakeMed, we started organizing what we now call WakeMed Innovations, which is sort of a division inside Our healthcare system that looks at innovation capacity and resourcing internally, does a lot of strategic partnerships and thinks about technology, onboarding, all that kind of healthcare related stuff. And when I arrived, they were looking at several large problem sets that The healthcare system is facing in delivering care. We're a growing healthcare system in a really fast growing market, multiple hospitals, multiple freestanding, facilities and physician locations, just a big expanding footprint, and we are a big level one trauma center that is community facing, and takes care of everybody in our region, and our region is blended between urban and semi urban and even rural to a certain extent, but one of the big problems that we were having was our courier network and essentially our internal, logistics and supply chain. they were very unhappy with the level of service and visibility they were getting. They knew they were spending too much money on it. They were wondering, is there a way we can do this better? They were unhappy they had gone through several vendors, third party vendors to try to fix the courier operations and they were just unhappy. So at the time they were considering, bringing it in house and standing up their own operation. that provided sort of a framework for us to start thinking about other ways to provision those services. How do we face our footprint growth and deliver new services and care economically? That's a very tricky set of problems for a healthcare system. But, at the time, and this is 2015 to qualify that in terms of timing, I had a parallel interest in drones and aviation because of my aviation background. And so we started spitballing what it might look like. So theoretically, what does it look like if we provision that service? what if we could connect our facilities through a simple connected drone network? and at the time we knew this wasn't legal or possible, but we also knew that there was progress being made, at least there were hints of progress being made on the regulatory front. So we kind of endeavored to put together a theoretical network. What would this look like, if we, instead of pneumatic tubes inside of our walls, which are ubiquitous for our healthcare system, like many others, connecting, you know, nursing departments and internal to our facilities, connecting people. What if we could do that with drones connecting our other facilities. So we looked at what we're carrying what are the payloads and they were mostly small blood samples, about two thirds of what our couriers were carrying between our facilities were very small, high value packages such as blood samples and small devices, and even inter facility mail. So it was a fit in terms of potential payload. And so we built this theoretical network. what would this look like? And then can we go find partners, who might be willing to model this with us, and who might be willing to, you know, someday in the future when this is possible, provision this with us. And we found Matternet, who I had a relationship with, when I was doing my training in California. And, they were interested in addressing healthcare as a vertical. And so together, we put together this theoretical network. And this was around the time that the IPP, the Integration Pilot Program was being discussed. And eventually when it was published and opened, we had assembled this group of partners, including the North Carolina DOT aviation division and other partners. And so we proposed this network as a pilot site and then were selected and then later UPS joined, as a potential operator. So, essentially, we started with what we've found to be a really sticky, difficult problem for a growing healthcare system. It started in a very theoretical realm, and then we had this opportunity to do it and run a pilot operation for a few years.

Luka:

And Stuart, what is it about the existing internal hospital logistics and supply chains that makes

Stuart:

the customer so unhappy with? Can you tell us a little bit more about that? that's a great question. so I'm going to qualify this as, it's highly variable. I always say this saying healthcare, sort of big H healthcare, U. S. healthcare implies that all these healthcare systems are the same and they're just not, they're very heterogeneous and, there's a lot of market dynamics, a lot of consolidation and regionalization and mergers with healthcare systems. But the bottom line is that most healthcare systems face a growing demand, if they are in sort of urban areas or areas with fast population growth. they are engaging in lots of consolidation where they're onboarding new facilities and trying to figure out how to integrate operations And if they're in rural areas, they're facing the opposite problem. Hospital and facility closures because of the economics of it, so they're further and further away from their patients, and their patients are having trouble accessing services. So the pressure and the demand for courier services and sort of specialty delivery services to link all these facilities together both near and far is increasing. as sort of a tailwind, the industry is very fragmented, meaning, healthcare couriers and logistics are, as an industry, are highly fragmented. The service levels are traditionally very poor, they are often third parties, and their business models are not very strong, they're probably low margin businesses, and so they can't often provide a very strong value proposition for the healthcare system, and they can't make their customers happy. There's very little visibility for the healthcare system inside that supply chain, that internal supply chain and logistics provision. So we don't know where things are, where they're going. it's hard to pull data because of that, and so... there's limited data into what you're sending where, and so there's a lot of decentralization of control and it's a very catch as catch can as an, as a system and as an operation. reliability is low, costs are high. It's all the things you'd expect. It's a system that's just begging for disruption. and, maybe one dimension that's important here is as healthcare systems are under this increasing pressure, they're also getting serious that for years they could ignore this kind of, you know, logistics and supply chain were just a side function and it was all about delivering care. Over the last 20 years, it's become clear that healthcare systems have to get really good at back of house, functions like supply chain and logistics to stay competitive. So there's an increasing focus on them, but most healthcare systems don't know where to start. Mine, for instance, did not have even a single, there was no division or person whose job was to look at supply chain and logistics internally. They were using a finance guy because he was good with numbers. So, so for all those reasons, the levels of service in the industry are poor, and there's just a lot of fragmentation and high cost.

Peter:

the description of the pain points that hospitals today are experiencing. if we look into the future and we imagine that, drone technology and operations are pushed forward against this pain point in this use case, what do you see as the ideal solution that drones grow into to address this? And what would the value proposition of the drone system look like at that point?

Stuart:

Oh, yeah, that's a great question. there's so many caveats. Well, I mean, this is probably a pretty sophisticated audience on this pod, who's very familiar with the roadblocks and the hurdles facing drone operations as an example from a regulatory standpoint, but in a future state where the regulatory environment has matured, where distributed beyond line of sight operations are feasible and somewhat scalable, then what is needed is a shift in mindset away from, these are components of our transportation system and provision towards, these are parts of our buildings and infrastructure. where we got traction internally at WakeMed as we were pitching this and populating this idea around was it was very difficult to get folks on board when we were just talking about cannibalizing, courier operations using a drone. I mean, obviously, there's a lot of uncertainty from a technology and regulatory and safety and social license standpoint around that tech, especially in 2015. But the bigger question was the economics. I mean, does this make any sense? I mean, how much cheaper is it going to be? Is it going to be reliable? But as we started operating the system, even on a very meager, sort of modest scale, connecting two facilities, the questions that started pouring in and the thinking for the organization was Well, when we can expand this becomes a tube system, this becomes a new pneumatic tube system, and it's flexible and nodal and we can push it around to, different facilities, you know, on an as needed basis. So what we want is sort of a distributed network of routes and drone operations that we can use more like an open system and less like a, okay, these are drones that are here to move blood samples. What we need, in its highest form would be an open system that's accessible by lots and lots of people inside the healthcare system which, basically creates an opportunity to connect all those different locations and allows us to then provision new services at these new locations. For instance, there's lots of places we could draw blood samples. for our patients, but, transporting those samples back to our central lab is expensive. and, essentially, we then have to tell the patients, well, instead of us moving your blood sample, we're going to have you move yourself to that facility and have your blood drawn, well this kind of technology obviates the need for that and it moves the things and the goods around instead of the people, when we're talking about drones, I think in its best form, it's an open, accessible network that connects infrastructure and allows for sort of a flexible use over time.

Peter:

So in a way you're saying that the demand for using this system is going to come from lots of different parts of the organization and it needs to be really low friction, in order to provision a movement of something from point A to point B, kind of analogous to the pneumatic tube that, anybody can walk up and use it, right?

Stuart:

That's right. I think it's all about access to this system. And obviously when you're planning operations in the early stages, and we'll probably talk about this as, as well, but you need to model your economics and your operation around some Quote, use case. All right. What is it? How do we compare the cost of moving blood samples with a drone versus with a van? Or, you know, there's lots of examples, but the real value is this pent up hidden demand. And what you really want is to provide an open, accessible system and then let the users within the healthcare system help teach you how they're going to use it. and not for nothing, the data that will generate would be substantial and very valuable to our healthcare system. Again, we have very little, sort of perspective, understanding, and visibility for what we're moving where. And that ties very closely to the services we're delivering in those places. And that kind of insight could be incredibly valuable to us. As we try to shape our delivery services and serve our patients in all the different places where they live. It's

Peter:

interesting on the last mile delivery side to consumers, companies are working on a very easy, seamless way to provision a movement. But it's people who are, consumers who have their phone and they're using an app just like they would use DoorDash or the equivalent, to have something, be delivered to them. And they're working to make that very seamless. But what you're talking about in this context is, provisioning a movement that is, you know, come and pick this thing up, or I need to move this sample from where I am to a lab or to a hospital. and... It's a little more heterogeneous, the set of different, movements that people are going to initiate, and really how that use case integrates in with all the different parts of the hospital system. and I wonder, is this going to standardize? Is this going to... become a system that, is copied, across different hospital, groups in very similar form, or will it be different, from, from hospital system to hospital

Stuart:

system? Oh, I said, that's like the million dollar question. I hope there's an opportunity for it to be different Because that means that the companies and innovators who are trying to drive use of this technology in healthcare are delivering, accessible systems and letting the healthcare users define their use in ways that are unique to their needs and communities. I know it's difficult to model a system when you're going to just say out loud, well, our assumption is that we don't know what's going to be used for. I'm not saying it has to be that clean, but I do think it will be different based on the demographics of the system, where they are, how it's configured geographically. Is this a rural spacing system, is it an urban system, is it a hybrid like mine? there's so much heterogeneity inside healthcare delivery, it'll depend on what services they're trying to deliver. I mean, the big picture is, what you want is this to be a set of tools that moves us further down, directionally, aligned towards decoupling services from locations, right? You want to be able to deliver more services in more locations. And by the way, that impacts the economics. I mean, the big picture on the economics for this. Now, this is maybe another thing that others don't agree with me or, I know I'm not alone in this thought, but. The real economics are not going to be driven around operations and cost savings on going head to head with vehicles. I think it's going to be all about, infrastructure costs. you can use tools like this to deliver services to more people in more places without spending an enormous amount of money on infrastructure and physical buildings, or technology having to be co-located in different places, just to provision those services. so those are the real economic drivers for this. Obviously, that's hard to model, and it's the kind of thing that has to develop over time.

Peter:

Yeah, it's interesting, you describe, really there needs to be a period of operational experimentation with, drone deliveries in a medical context, in order to figure out how each use case works most efficiently, or how it works with each of the different hospital systems, based upon their history. And right now, we're in the early stages of that. we're working on, making the movements technically possible, operationally safe and compliant, but figuring out how to integrate them to that use case in the way that really works the best for the stakeholders seems like another chapter and, you know, it just raises questions about, okay, how quickly can this scale, for companies that are going into medical deliveries and making a bet on building a business around that if each hospital system is its own different thing, and if the end customers still have a lot of learning to do on their own in terms of how they want to interact

Stuart:

with it. Yeah, I very much agree. I'm obviously an apologist for this technology in healthcare, but what we've seen at WakeMed and, you know, just as somebody like you who watches this industry very closely is obviously the time, the timelines have not contracted. They have been protracted. And some of that is tied up in regulatory, Constraints and inertia, but we're still on step one. Like you said, we're just trying to figure out how to move these things safely around, facilities and cities and communities. We really haven't had to address the deeper integration pieces that one is community and social license. We have and there's a lot of activity on that front and we're thinking about the environmental impact and the noise impact. That's all great. Some of that's tied up in the regulatory pathway as well, but we really haven't had to face okay well, how do you integrate this, and provide sort of a platform that the end user can direct and use. If it's top down, this is one of the mistakes a lot of people in the industry are making. If you're trying to run it like an airline, okay, we're going to come in, the FAA told us we're an airline, and we are regulated like an airline, so now we're going to operate like an airline, and you just call us when you need us to move something. That is not going to work. so there'll be an another set of steps around integration technology and how do you provide a user interface for these technologies and they will probably like a lot of other advanced mobility technologies need to work in sort of a multimodal integrated system they need to be able to, be able to be integrated into a healthcare systems transportation network seamlessly. and in fact, maybe a significant source of potential for this industry will be that once those problems are solved and there are companies that are addressing integration and interface I think it will probably end up improving the overall transportation mix and multimodality for healthcare systems in general and may move the needle on some of those other adjacent, transportation place.

Luka:

can you give us a little bit more insight into the types of movements that currently exist? what types of cargo, what are the distances, what are the endpoints? walk us through that chain of movement for all the goods today.

Stuart:

Yeah, okay, great question. and I'll qualify this right up front. With one of the problems is, this is... Poorly understood, even among healthcare systems. I mentioned earlier. That there's very poor visibility and often healthcare systems as groups and organizations who are now trying to manage internal or contracted logistics, function, the precision of the data around this is poor and highly variable, in the U. S. at least. So to, to qualify this is we're guessing frankly, now there are healthcare systems that probably have much more insight and increasingly so. For instance, I bet if you get somebody from Kaiser or Intermountain Healthcare, they have a much more sophisticated view of what's being moved around their healthcare system and when. And I'm, I would be willing to bet, in fact, I know that for those large integrated ground up systems, they think very hard and carefully about, logistics provision when they think about new services. All that said... based on the data, for instance, at my hospital system, so we're about a 1. 6 billion per year system, we have about a thousand beds across three hospitals, a level one trauma center, we have four or five freestanding ERs slash multi, imaging facilities, with clinics, and then we have 70 or 80 position practices that we either own or partner with in our community. And that's spread across, Roughly 20 miles in diameter from our central hospital. in our system, what's moving around two thirds of the time is blood samples. A small additional percentage is inter office mail, and rarely large, one off, unpredictable, imaging equipment, and then obviously in the small parcel, piece is pharmacy. So. we don't have a large transportation footprint on pharmacy currently because we're not a pharmacy distributor, but certainly there is a demand for that inside of our system, but I don't have data to support how much of the lift that accounts for. let me use a blood sample as a, as an example. So say a patient is seeing a physician and the physician or NP or PA decides I'm working this patient up and I need a blood test of a certain type. They're typically going to be doing that and delivering that care out in the community in a practice, or increasingly in a retail pharmacy, or in a minute clinic in your Target, or in a physician's office. they may have the ability to draw the blood sample there, but often they do not, and the reason they don't is because there's no point in drawing the blood if they don't have a way to provision transportation of that, sample back, to the laboratory for processing. If it's a integrated practice like the ones I work in a practice owned by my healthcare system. Well, if I need, a sample moved from my office, then there's a courier that's going to pick it up, but they're typically going to pick that up on an optimized schedule, you know, where they stop at my facility a couple of times during the day, or maybe once during the day, if it's really important, I can call for a stat courier and just have a courier drive out and pick it up and ship it back to the lab as a one off. the costs obviously increase as you move up. So you move from highly inefficient to highly expensive across that spectrum. the blood sample either way will eventually make it back to my central lab, which for us is located at our main hospital. It will then get processed, probably in a batch, at some point, and then the result will get entered into the electronic medical record. This process takes, On an outpatient basis, getting the data that the doctor needs from the decision of ordering the lab to getting the data is too long. It is often a day or sometimes more, and it often depends on the patient's ability to travel into a place where they can have their blood drawn. obviously, if we could draw that blood sample reliably on site, because we knew we had a reliable system, a pneumatic tube system, where we could just draw the sample, put it on the drone and send it back to the main campus on demand, and it arrives 10 minutes later, and we can see that device moving through a system. and it's safe and accounted for. all of those things are probably going to be improved with drones. Then the turnaround time on that. A clinical data reaching back to the ordering physician, and therefore a decision being made, will be markedly improved.

Jim:

Stuart, let me ask you a question on that. So you've described then, if I may, I'm at a doctor's office, I had my blood drawn. The blood work is often centralized at the end of the day, and it's brought to a centralized So, you have your hospital system has their own lab, as opposed to, you know, some other, larger national labs.

Stuart:

Quest or LabCorp. We do both, but yes, that's correct. We actually do both. Yes.

Jim:

and you just described one of the major values of this, I love your pneumatic

Stuart:

tube system. I love that analogy.

Jim:

when you were answering some of Luka's initial questions, you were initially describing a cost advantage. Right. And then you described a data advantage. partly, we don't even know what we don't know as it relates to the samples and where they're going and the like. But when you gave him more specifics, you described a clinical value advantage. Yes. The turnaround time. So which is it? what's the biggest driver here? The cost I'm having a little hard time with, unless you get to rural communities, that the cost of the drone is going to be more effective than the carrier. However, you did say reliability as well, and I know the courier networks, there's almost nothing nationalized, and I'm sure they're very unreliable. But are you saying the principal value is the clinical value of the faster turnaround for the blood test? Because for all intents and purposes, it doesn't seem that the turn time for 90 percent of the blood work is that critical. What's the biggest driver that gets you most passionate about the use of drones for the movement of blood samples?

Stuart:

Yeah, that's a great question. So, obviously as a, maybe the way I'm speaking of this and thinking about it, it's just kind of, Implied, I realize that I take it for granted that at the bottom of this, there's just like, as a doctor trying to deliver care, I want systems that really support that and give me what I need and what my patient needs as quickly as possible. I think it's sort of taken for granted, potentially, for me as an on the ground doc, that The driver for this would be faster turnaround. I'd like to believe that's going to be the driver, for purchasers of these services. And I believe that, actually, from an economic standpoint, it will certainly look a lot different than, for instance, retail, you know, point to point delivery or direct to consumer delivery for retail. meaning the appetite for a healthcare system, the willingness to pay for a system that promotes improved turnaround time and improved care and improved throughput through, for instance, our lab, maybe decreases batching phenomenon, improves turnaround for healthcare. But, you know, for better or for worse, our administrators are operating on our behest. if we want it and we need it faster, they're going to be willing to pay up to a certain point. So I do think that the economics will drive it, like every other purchase decision that gets made in the healthcare system, but the appetite and the willingness to pay for delivering a better experience for the patient and a better quality of care will be significant in the economics of drone delivery in healthcare. I hope I'm not wrong about that. I saw it at my healthcare system when to qualify this answer, I'll say that, you know, we were doing a really relatively high profile innovation project that included this at its core. but we paid for it and we funded that. My healthcare system funded that there was no outside funding for our, provisional drone operation that we did with the IPP. we funded it because we see significant. potential for the future of our operation and our ability to expand, into new areas. I will say that, tied to that clinical turnaround and quote speed, of data sort of return is that idea that we talked about earlier, which is in a world where this technology exists in my healthcare system, they're going to think differently. I've seen them do it. They're going to think differently about what services they can provide where. That opens up service. provision in new locations, and the economics of that are typically positive. So, I do think it's a little nuanced, but I definitely think that the big picture driver will be better care delivery and new services in new locations. So,

Luka:

Stuart, your opening remarks underlined your belief in the killer application being a B2B healthcare, use case. And so as we're having this conversation, I have a couple of question marks bouncing around in my head. So here's the trouble that I'm having in this conversation. It seems like the bar is fairly low in terms of the overall dissatisfaction with existing methods of moving things around in a hospital environment. It also seems like the demand is clearly there. There are structural tailwinds that are supporting new technologies and drones. Yet you're describing a very complex, heterogeneous system in which there is no clear way to, to come up with a solution that can scale. And I can see how the entrepreneurs in our audience might be. You know, weary of, jumping into something that doesn't really have a straight line to scaling. So, at the same time, the airspace integration problem is a lot easier in a B2B environment. You de risk a few routes as opposed to, ad hoc routes of delivering to consumers. Yet, when we look at the reality of the market, the last mile consumer delivery market is, getting to a point of fair level of maturity. And yet, in the medical delivery... Use case, not really have advanced meaningfully past, POCs. So, what's rooted in your belief that B2B medical delivery is the killer app and how do we get to that point, given everything that we've discussed so far?

Stuart:

Yeah, well, that's a. That's an impossibly large question. I love that question. No, I think that is the difficult question that's sort of the elephant in the room. So, thinking about this, as somebody looking at, I mean, we spend a lot of time in the healthcare system looking at healthcare technology very broadly. And to qualify this, Look, this is one of the mistakes a lot of people are, are making, is that this is a tool, like using drone delivery as an example, a tool in the emerging advanced mobility stack, this is the classic chicken and egg, just like it is for multimodal transportation systems in cities. If healthcare systems are sort of microcosmic in that sense, then, the value has to be driven by very flexible, multi modal systems with a deep level of integration. how do you... Justify those costs and does that offset the scale required all those issues you just brought up. I will say this, part of this is sort of in terms of why would healthcare, big H, be a potential killer app or a really productive place to experiment and to build business in this industry. Is there for one thing, the definition of health care is changing and it contains B2B, which in the short term helps mitigate some regulatory risk And, you know, because it's predictable networks and, it helps, connect the operations to a public benefit, which could be helpful from a standpoint of when you get down to the local, regional level of governments and citizens trying to justify the presence of this technology in the public domain, I think that B2B healthcare application mitigates some of that, but increasingly healthcare, it means B2C. I mean, I look at what's happening in retail pharmacies where patients are getting healthcare in more and more locations, often at their retail pharmacy. But these retail pharmacies, despite, the Minute Clinics and the CVSs who are investing heavily in healthcare, they still can't manage a patient's full spectrum of disease and healthcare need. Those patients still have to be connected to the integrated healthcare systems in their communities. And this is an example of a technology that can bridge that gap, that connects traditional healthcare models to emerging B2C models, and your pharmaceuticals could be delivered, and blood sample kits could be delivered and retrieved. Lots of potential in the future. but I think it's important to say that out loud, that it's not going to necessarily have to stop in terms of scale at, okay, this is a hospital network, they have five locations, you're going to put drones on those five locations. I think that as regionalization and distributed healthcare. systems emerge, and as new business models emerge in healthcare, the traditional brick and mortar healthcare systems are going to have to learn to partner with those kinds of companies, and you're going to see much more emphasis on pushing this out into the community, and this is a set of tools that can sort of help facilitate that.

Luka:

okay, I'm still not convinced, I still didn't get the main reason, in your opinion, why we're observing this relative immaturity of medical drone deliveries relative to consumer deliveries. And, you know, perhaps something that you raised earlier, which I thought was very interesting that, maybe is the answer And that is that some people make a mistake of operating the service as an airline, and you say, hey, call us when you need something to be moved. Whereas, you're highlighting the importance of finding the right interfaces and right integration points. Is that the primary challenge needs to be overcome, or is it something else? I don't think it's regulation. I don't think that it's BVLOS. I think, that's becoming an increasingly

Stuart:

easier thing to do. So, so that's interesting. I think I agree that the regulatory part of, so maybe then, I know maybe we can unpack that a little bit. So in your view, the regulatory side is not enough of a constraint to explain why healthcare applications have not grown faster. Is that what you mean? Is that what I'm hearing?

Luka:

yeah, I think it's a lot easier for a sophisticated operator to go in front of the FAA or EASA and present safety case for, the combined air and ground risk over

Stuart:

a few routes. Right, right. But are we seeing legitimate progress in terms of beyond line of sight operations? So, so can a drone company, any drone company or operator in today's environment approach a healthcare system, say, show me a map of your facilities and I will develop a network connecting all these locations, and that will allow me to develop an operational model, and that will allow me to calculate the economics, and that will allow me to determine how much I need to charge you for this service. I don't think we're there. I don't think the companies in the space are in a position to offer sort of a rational, scaled network, even on a pretty modest scale. so I don't know. I think that there's a component of this where nobody is able to sell the product off the shelf quite yet at least in the United States. Now, I'm much less familiar and up to date on what's going on internationally.

Luka:

it comes back to, when somebody comes up in front of the healthcare, leadership team, and, pitches something like the drone delivery network, is this currently understood as something that is a nice to have, or is it a must have?

Stuart:

Yeah, no, that's a great way to put it. Now, in its current state, it's absolutely not a must have. Part of that, I think, is because, I mean, this is literally why WakeMed, my system, shut down our pilot, because our initial plan was to connect multiple facilities, and we understood that economics of it were... Going to need to be developed with our partners as we went. It was very early. and so they didn't have their model, ironed out. But after three years operating the same route with no prospect of even adding a single beyond line of sight route, in front of us, the internal optics were, well, We're done with the innovation project. This needs to move towards ROI. and the model said, well, until we can add three or four different hospitals, we can't justify this. As a customer, we can't justify its expense. so I think that's constraining things a lot as we have an alternative, right? I mean, couriers exist. it's not a great system. the industry will have to mature to the point where companies can come in and do what I said earlier, offer a relatively. affordable, off the shelf option, to connect multiple facilities and then operate them, and or, and even better, let the healthcare system operate them, in air quotes. so I don't disagree with you. I mean, I think that... Currently, in its current form, and what is available in terms of product and service, it's not a must have. It's a nice to have. how do we get there, was the second part of the question, and gosh, I don't know. I think it's progress on multiple fronts, you know, like death by a thousand cuts. it's slow progress on regulatory, and it's BVLOS. It's, the ability of, operators and drone providers to develop their own productive business models so that they can reasonably charge healthcare systems, something that, that they're willing to pay. but I don't know if there's, I don't have the answer, I don't think, for that, for how do we get, you know, it's a classic chicken or egg, but undeniably additional pilot projects, and each time there's a step forward in operational capability, either regulatory or technology wise, a step needs to get taken by somebody, in some capacity, and the tools need to get increasingly put into the hands of the healthcare users. And customers, or else, will never cross that chasm.

Peter:

Stuart, so, digging in a little bit to the economic question, for operators to come forward with, if we assume that, BVLOS gets done, we step into a scenario where that's there, and where multiple hospitals can be networked together with these routes. from the three years that you were... Operating the pilot. Did you get a feel or, supporting data from that experience that would, tell us what the utilization level of drones in this type of a future network would be? Because the utilization throughout the day is going to be a big driver to the economics and to the cost of it. In consumer operations, we have data from the pilots that have been run that allow us to look ahead and extrapolate. In this case, what do you see? Because on the one hand, lightly utilized drones, Are, going to be expensive on a variable operating basis, obviously, but if the system is heavily utilized, then the system needs to be tolerant to, capacity limitations at a certain point. And I don't know if these movements, can tolerate those types of delays. Or contingencies and failures and things like that.

Stuart:

Yeah. Yeah. Yes. So, great question. Now, our utilization, we connected one freestanding outpatient surgery center slash clinic slash imaging center across a major road, to our hospital, which as the crow flies was a third of a mile so not a long distance, but, every blood sample, we had some exclusions because we didn't want critical samples such as pathology samples where the cost of loss of one would be high just because we were in a sort of a pilot phase, but every blood sample between those two facilities instead of being carried and being batched onto the couriers three times a day was delivered on an hourly and later every half hour basis by our operator, which was UPS. Again, this was configured more like a scheduled airline. It was every half hour or hour during business hours, that drone flew a payload across so our utilization was very high. We were finding that we were able to cover all of the lab samples in a given day that needed to move between those two facilities, with a little bit of additional payload room left, but that's because of the nature of the payload, which was small blood samples, even on a small drone. so I think that the utilization will be high if it's available. And again, the caveat is that this is a scheduled scenario, the real answer to that question is what is utilization when it's not scheduled and it's just available for use when it's a pneumatic tube system. So I don't know that answer

Jim:

So at the end of the day, let's say a given day, Stuart, during your trial, you had the hourly service being run by the drone versus the accumulated courier service at the end of the day. so first of all, how did the cost compare, one

Stuart:

versus the other? Yeah. So, yes. and to be a little bit more precise. I think the way it was set up that courier stop, I think it was three or four pickups per day, or three pickups per day. versus hourly. the cost data is Artificial. it was an innovation cost. We were paying, um, UPS, or more specifically, Matternet, to operate the, in other words, it wasn't the result of sort of a real operational set of costs. But even, so, my point is, I don't think it was, economically feasible for the operator. They were losing money. For one thing, they had human beings on both sides of the route, and so the automation or autonomy piece was not there, which is probably key to the, to this. So, the cost data is artificial. They were not making money on this contract they were using it to feed their growth as a company and their, funding cycle and all those things. I don't know if I have an honest answer for that. I'll tell you that on a per delivery basis we obviously knew what it cost. for routine deliveries between those two facilities, we were looking at something on the order of$15 per delivery. For stat on demand deliveries, it's like$50 per delivery over that third of a mile and the average, we have data on the average delivery time and with huge variability because of the batching phenomenon the average was still. two to four hours. And with the drone operation, it was ten minutes.

Jim:

Let me jump on that, if I may, just for a minute. you mentioned pathology was removed, because clearly, there can be a time component in pathology, like for a cold section or something like that, where there's enormous time implications. But, most pathology, even if it's... You know, one to two, two to four days, not a lot is going to be done different, whether I get it in a day or four days. I know there's exceptions to that. But even blood work, when you're saying non critical, the, blood work, how much is going to be done different because I get it at ten o'clock rather than I get it at four in the afternoon? what's outcome is going to be different as a result?

Stuart:

Right, so that's a good question. The belief inside my healthcare system was that yes, batching phenomenon is significant, it's a problem they're trying to solve, and a theoretical system where you could smooth out, and make the cadence of drop offs at the lab more predictable and even across the day would have significant impact into turnaround times And probably the economics and the efficiency of the use of those machines And at least internally it was believed that was addressable with a system like drones putting aside the fact that we didn't understand yet what the cost would be and probably still don't but we knew Where the highest volume of labs were coming in and we knew when, so we, would know how to target that as an intervention. So there is a belief that smoothing out of batching phenomenon will have significant clinical and economic benefits. Again, the thing that our system got most interested in was okay, if we have excess capacity, and to some extent we're always going to have batching, then if we have the ability to send blood samples more fluidly from more locations using something like a drone system that was economically, tolerable, that would improve both the services we could deliver in our community, the locations where we could do it, and then... That could be used to improve the operations of our commercial lab. I mean, that's a revenue generating business for my healthcare system. So the more labs we can put through the system, and the more smoothly and reliably we can do them and the more efficient we can be, the better. Now the hard economics of that are still TBD, obviously, because we've never had to, Negotiate with a drone company around what the cost of this service will be and that's where all the uncertainty is currently

Jim:

if you're going to create kind of the perfect scenario for The type of sample that would be moved whether it be tissue versus blood and let's say the community for which it is for let's say rural versus urban What's the perfect scenario that you would say you would lay out for the use of drone delivery for medical samples?

Stuart:

right, so The pressing healthcare need. So what I'm hearing is what's the best use case for drones for, and we're still talking about blood samples, or you said any potential use. Right. Okay. Got it. Yeah. So, so that's a great question. I think that, so the most pressing clinical need we face maybe as a country, is access to clinical services for folks in rural locations. And obviously the more distance that's interposed between patients and the services, the higher the cost of movement between them and the higher the cost of provisioning that care and the poorer quality of care because they are less likely to access health care when they need it. so my answer would be, delivering, even basic, preventative services in rural areas. I do think that blood samples are a great way to do that, on the cheap. and so again, I think it's less likely, for instance, we mentioned pathology samples, well that means there's a surgeon operating in that rural location, and that's not going to happen, because Those surgeons are all consolidated back in the central location. But patients being able to access basic preventative and maintenance services like laboratory services. or, sort of reversing that provision of lightweight but important medical supplies such as test kits to more locations in rural communities and the practices that serve them. I think that is the most valuable potential, use case for drones in the U. S. healthcare system as it stands now. all of this is about drones. We're not even touching... Movement of people, which Advanced Air Mobility can touch on, you know, in the future, but in terms of goods and, provision of services, it's obvious that the greatest need is in rural locations.

Luka:

So we've addressed this from a few angles already, but, how would you summarize what will it take to succeed as a drone operator serving the healthcare community for the movement of goods?

Stuart:

for one thing, like you would tell any startup in any space, when you're thinking about the product and service you're trying to deliver, you need to really understand those customers and what they need from you. I think a lot of what it will take is people really digging in and understanding how health care provision works, how chaotic it can be, how the businesses behind them struggle to provision care, including the pieces like logistics. I think these companies and entrepreneurs need to be razor focused. If they're going to go into a niche like health care, they need to be razor focused on those customers. and what they need and what are the jobs that they need done. they don't need more technology. They don't care about more technology. They care about the services they deliver and the patients they're taking care of. So, just deep focus on the healthcare customer will help shape the offering and I think also will be competitively very important for companies that want to engage in the healthcare space. I know that's a common answer, but it's really not something that we're seeing. Again, it's still small as an industry, and the healthcare portion is even smaller. But the interactions we've had with various drone operators and companies are really looking at this. A lot of them are looking at it as a piece of technology and they're shopping around for the best way to use it. and healthcare looked good to some of them early on because... Of the dimensions we've already discussed, the regulatory dimension, the public benefit dimension, all of those things. And I'm glad for their involvement, but in the end it will require deeper focus on the actual customers and what they need.

Luka:

you highlighted earlier a mistake that people often approach the problem as if they were an airline. Can you elaborate on this a little bit and perhaps add a few other common mistakes that you see when operators are pitching

Stuart:

hospitals? Yeah, so, the top down approach, it touches on what we just discussed and that, and going back to your first question, what's something I disagree about this industry is that, well, one thing is that this is actually an aviation technology. It's not. it's closer to the ground robots than they are to aircraft in my opinion, in terms of how they operate and how they should be approached. But coming in and telling a healthcare system that we have this new fancy technology, call us when you need it is not going to be a productive approach. And ironically, it's because they need it more than you can potentially deliver it right now. they need to move stuff around frequently and unpredictably. So I guess what I'm saying is the approach has to sort of be get on the ground level with the healthcare providers. And when I say that, I mean the healthcare systems and the people designing healthcare services and the people delivering the healthcare services really provide them access to the technology right there at the point of care as deeply integrated and distributed within a healthcare system as you can. there should be like somebody, maybe Luka, you said before, just as little friction as possible between these people, like the nurses and the doctors and these drones, as is possible or feasible. I think that will mitigate a lot of the top down thinking, because it puts the user in the driver's seat. It delivers them access to a sort of more of a platform technology that they can then... I use the way they want to use it and I'm a believer that there will be sort of hidden and pent up and maybe induced demand for the technology based on personal experience and my healthcare system, but it's speculative and not exactly data driven.

Luka:

so what does the ultimate product look like in your opinion? from a user perspective, should it be the same as walking up to that window in the wall, opening up that pneumatic tube, punching a code to... the pharmacy or whatever, should that be the same kind of interface, except that punch the code for a location that is 20 miles out and then somehow one of those, pneumatic tube branches go off into the drone and it flies away and it's that level

Stuart:

of abstraction of all the complexity.

Luka:

What does the product need to look like? And that obviously has implications of how easy it is to integrate and

Stuart:

scale, et cetera, et cetera. Yes. So yes, that's a great question. So yes, I would love all those things to happen. we even engaged AEC firms to look at this and they developed plans for us. We looked at putting on, A drone port on a roof of one of our hospitals, and then, finding a way to connect it to the pneumatic tube system directly, that, that's a big lift. That would require some, probably, robotics, and some transfer stations, and things like that. So, while that sounds great, yes, I would like it to be a tube station everywhere that somehow interfaces with the drones, which are now a part of the building. I mean, in its most perfect form, The drone system is like an HVAC system. It's just a part of the building. it's just, it's built into the infrastructure, and it's a little bit more flexible than that because it's accessible, and it's not literally built into the infrastructure, but it's integrated physically into the infrastructure. Now, I do think That is a significant lift, and that has significant impact on the economics, as you mentioned before, and the other trade off is the deeper you integrate into the physical space and building, the less flexible it could become, but the thing that is discounted, and then the final product, I think, will be Something that is populated in the consciousness of the people in the health care system. So even if you have to walk outside, I think people discount the human component. what we need is a system that is relatively accessible to our people on the ground. I should be able to, or our clinical nurses or medical assistants should be able to understand that if they have a lab sample that is given to them, the option now is either batch it with the courier or you have to call a courier stats. They need to understand that a third option is, or I could just walk it downstairs real quick and out in the parking lot, there's a little drone station that I can stick this thing on and then send it across with the user interface that I'm familiar with. that would be a very effective system. It's relatively lightweight in terms of integration. It's accessible, but it requires that final human component. I also think that... that will be critical. it's, in terms of getting the lab sample, the final meter, from the drone, wherever the drone is interfacing with the system, say, analogous to a tube station on a nursing unit, to where it needs to go. It's the people that work in the healthcare system and in the clinics who understand, have all the tacit knowledge, who understand where all this stuff needs to go. If you can just teach them very quickly and easily how they can access the system, I think that's the perfect answer. The perfect way to drive you use it. It doesn't have to be right next to them, but it has to be reasonably accessible and they have to know how to interface with the system. In other words, The user interface has to be very simple.

Peter:

So Stuart, who are the groups that are the most natural fit for figuring this out, figuring out how to integrate this technology into this type of an operational use case? Is it the hospital system itself that does this evaluation and integration and adoption? Or, I don't imagine that many of the drone operators are going to, take it all on themselves. Perhaps, one or two of the pioneers would, but is there a segment, that sits in the middle where there's a natural fit, where there are companies that do this as part of their business, or is this something that needs

Jim:

to be filled?

Stuart:

That's a great question. So, healthcare systems as customers are notorious for having a hard time figuring out if they want to build or buy across multiple products and domains. I mean, virtual care services are a great example as they're trying to figure out how to deliver virtual care to patients. Some are buying off the shelf, and that's driving a new corner of the industry. And some are saying, you know, it makes more sense if we just build this ourself and do tech partnerships and sort of assemble versus build. I don't know, which will occur here. I do think the way that healthcare systems buy products and services, it will certainly be easier if that interface and integration is done with them, but through the delivery of technology, meaning I do think there is going to be space for companies whose job it is to come in and say, we're going to optimize your logistics and your transportation networks through this technology, and we're going to add drones as a component of that. I do think, from an economic standpoint, they will probably need to address more than just, we're going to add drones to your system. The hope is that Those companies in the middle may help optimize against the growing demand for provision of logistics and transportation services that I mentioned early on in this discussion. And so there may be ways they can provide a broader value proposition around transportation and logistics that includes drones as a component, but isn't only aimed at drones, if that makes sense. Another way to put that is drones alone are... attractive and valuable for all the reasons we've discussed, in my belief, for healthcare systems. But all the better if we're optimizing for a larger transportation and logistics need that is poorly provisioned currently. So I do think there may be space for that, to emerge, sort of integration platform providers that focus on things like B2B healthcare systems, to what extent that will be integrated into sort of what, you know, maybe there will be like you mentioned some drone companies or operators who decide that level of technology and service is necessary to satisfy their customers. it seems as likely that happens as it is that a third set of companies will come in and optimize for it. but, but I don't know. I do think that interface needs to exist.

Jim:

I'm guessing there are rural healthcare systems that have a considerable cost of couriers and they are not reliable where they would say there's a great value once drones are at scale of plummeting my delivery costs and keeping my labs consistently busy, as you mentioned, that's one of the values that the lab would be busy throughout the day. I'm assuming that lowers costs as opposed to, I'm not quite sure why they just can't wait for the next day and evenly distributed throughout the day. But at the end of the day, my guess is there will be major rural health care systems that would say I may be able to reduce two to four percent of my costs with a reliable, less expensive drone delivery service. My guess is that's probably the low hanging fruit, Stuart. But I'm not sure.

Stuart:

No, I agree with you on that. and for instance, like you mentioned, why do they not mitigate their batching phenomenon? Well, those labs run 24 hours a day. The reason they don't do that is because there's another batch coming in. Like they just have not been able to, effectively do that. But I agree with you. I think that is the low hanging fruit. and it's a good place to start. It's also addressable from a standpoint of, modeling. I mean, maybe one of the issues here is, and you folks probably have a much better idea about the, what is emerging in the economics of drone operation and delivery, more broadly. But these companies don't know how much to charge, and they don't know how to price their service. They don't even know what their costs will be at scale, necessarily. they've never had to do that. It's just still very early is maybe the takeaway. I think that everybody's struggling to figure out exactly how the economics, like sort of a unit of economics will work for this kind of a delivery network based on this technology.

Jim:

One thing that was mentioned by, one of our guests once was the potential of organ movement via drone, and I know weight is a big issue right now, but is there any sense of if only this could be moved by drone It would make a huge difference whether it be cost or a clinical

Stuart:

Yeah, it's a great question. I have an answer, that I have an opinion. it's people. And I want to qualify the use of the term drone. Drone, as we're discussing it now, probably implicitly means small fully automated vehicle that can carry small packages, 10 to 50 miles, but advanced air mobility. I think the tipping point is people. You can move expertise and you can move patients and they can carry cargo. But the transportation footprint for human beings, even on a non emergent basis, for healthcare system is much, much larger than most people think. As an example, my mid sized healthcare system, as already discussed, manages about over 20, 000 patient transfers per year. It's almost all regional within 50 miles. And the vast majority of that is not emergency or critical care. It is just inter facility transport of people. that is a large transportation footprint. and it's expensive and it's highly inefficient. and I think when we get to the point where we're able to move, if we're able to move people, so, so if drones or pneumatic tube systems and let's say eVTOLs are elevators, If we're able to do that, it doesn't have to be automated even, it can be piloted, but if we're able to do that and move people back and forth between, rural areas and, and health care facilities, for instance, then I think there's a giant impact on the way health care systems are configured. As an example, the entire trauma system in this country It's implicit in the way that trauma systems work is transportation provision, helicopters and ambulances, but it's not efficient, and it's very expensive. And essentially, we're willing to make those cost tradeoffs in their current form, because human lives are at stake but even for the more routine aspects of healthcare, I think when you can move people sized cargos or people themselves, that's a tipping point. Organs are great, but they're very specialized. It could be a very nice, addressable target for a company. but we're talking about... a very specialized group of hospitals, and in, in terms of scale and impact on health care, it's a tiny piece of health care, is organ transplant. So while I think it's very attractive to think about it, They'd help improve clinical care, changing outcomes for organ transplantation, which is by the way, all that any healthcare system cares about. They don't care if it's a drone. They would like to be able to provide the best transplant service they can. That requires large teams of surgeons to be moving around. That requires lots of infrastructure on the ground, clinical care, co operative and post operative services. The idea that you would move the needle clinically with a drone on that because you could move the organ faster is laughable to me. And I think that anybody who's seriously engaged on the ground with healthcare understands the complexity of that kind of work. And so it could be a very great way to generate, sort of pilot opportunities and have a lot of exposure. And yes, it would improve care, but is it going to move the needle on healthcare outcomes in the world of transplant? That's harder to imagine. So I think it needs to be aimed at less critical functions and more routine kinds of service where distance, is a factor, and where infrastructure is lacking. I think that's the great promise of this technology very broadly, drones, eVTOLs, all of it, is that it represents a new layer of configurable, flexible infrastructure that could be used to design and deliver services.

Luka:

Stuart, anything else that you'd like to, perhaps mention or summarize the conversation with?

Stuart:

I don't think so. Gosh, we, I feel like we covered a lot of ground. it was excellent. By far the most, by far the most ground I've ever, you guys asked really good, tough questions. I'm, you had me on my heels. It's great.

Luka:

It's excellent. No, it was a fantastic conversation. A sobering view Of a great opportunity that not a lot of people understand well. So thank you.

Stuart:

I'm very happy. We can discuss it. Thanks Stuart. Thanks Stuart. Thanks everybody.