How to stop Americans getting fat

With 60% of Americans classed as overweight or obese, the country's healthcare system is breaking under the strain. Tom Bulford looks at a small-cap tech company that's taking a radical new approach to getting America fit again.

I like America; I holiday there regularly. It's civilised, it's escapist, and I've found many a great investment opportunity there.

But in many ways America is a sick nation. And by sick, I mean in the sense that a lot of Americans simply don't look after their health. A study taken in late 2011 revealed 60% of American adults can be classified as obese or overweight. This is putting a serious strain on the healthcare system.

Tired of dealing with chronic diseases caused by the lazy habits of an ageing population, healthcare providers are trying something new.

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Modern technology has been called to the aid of a hamburger guzzling, Coca-Cola swilling nation. True to its form, the US is dressing this up with some fancy new jargon. The new buzzwords are connected health' and gamification' and if Fergus Kee and Paul Landau have anything to do with it, these two novel ideas could do something to alleviate the USA's chronic health problems.

America needs a radical new approach to healthcare

Kee and Landau are, respectively executive chairman and chief executive of Fitbug (AIM:FITB) and they believe that the time is ripe for a new approach to healthcare. The need is urgent. 17.5% of the USA's GDP is spent on healthcare. Even with the significant investment the American healthcare system incorporates, 16% of Americans lacked healthcare for the year. Insurance was either unaffordable or unavailable.

Consider this: health insurance for a family of four in the USA costs $17,500 - for just one year's cover. Much of this is paid by employers to health insurers, but president Obama's package of healthcare reforms is designed to make it easier to switch from one healthcare provider to another. So providers need to sharpen up their act, and that means offering a better deal. One solution is to offer discounts to individuals who do their best to stay healthy.

The prospect of a few hundred dollars in rebates at the end of the year might be enough to get some couch potatoes onto the exercise machine. Health insurers would happily hand back some cash in return for fewer medical claims. There is evidence that this approach can work. Those who go to the gym are 20% less likely to make a medical insurance claim although this may of course be because those who are healthy in the first place are more likely to go the gym.

Staying fit with a 'Fitbug'

But still, there is not much doubt that exercise is good for you, but the problem has been how to monitor our exercise levels. In the past the act of swiping a card to gain entry to the gym has provided some information. But now more sophisticated methods of data gathering are available.

One AIM-listed company that operates in this area is Toumaz (AIM:TMZ) whose smart plaster' monitors vital signs such as pulse rate and blood pressure and sends wireless signals to remote health monitors. The brainchild of the brilliant Dr Chris Toumaz and financially backed by Imagination Technologies (IMG) this is an interesting business, although this scarcely seems to justify its £96m stock market value.

Fitbug, on the other hand, has a stock market value of under £3m and a major contract or two could make that look very mean. Its product is a small device, about half the size of a mobile phone, which detects every step you take. You can put it round your neck or in your pocket and it will count your steps, classifying them as regular steps' or, if you kick up your heels, 'aerobic steps'.

It will then relay these to a database and thereby to your computer. There you can see how many steps you have totted up, you can input other details of your exercise swimming for example and, to make the whole procedure meaningful, you also tell the computer what you have eaten and drunk.

You can see where this is leading.

Could a rebate from an insurer help Fitbug launch gamification'?

Are you taking enough steps to burn off the calories? The system is designed to demonstrate your progress, and give you some messages of encouragement. It can also lead to gamification'. Here a group might be challenged to walk from Land's End to John O'Groats. They won't actually do this walk, but the number of footsteps will be monitored and their imaginary progress can be monitored against an online map. This could then take the form of a race or a group challenge, providing extra incentive to burn the shoe leather.

Connected health' is certainly seen as a business opportunity, and money has poured into start-ups, especially in the USA. But while most business plans target the consumer, Fitbug wants to sign deals with the health insurers and providers, who can then involve their insured customers.

Will it take off? I am happy to have my footsteps monitored but having to download my other personal habits sounds a bit of a chore. Perhaps though, the prospect of a rebate from the health insurer will launch this nascent industry into the mainstream. I am keeping an eye on Fitbug. Last week it announced further progress in Europe and is holding discussions with some very large health providers in the USA. It would not need many big contracts to make that £3m stock market value look ungenerous.

This article is taken from Tom Bulford's free twice-weekly small-cap investment email The Penny Sleuth. Sign up to The Penny Sleuth here.

Information in Penny Sleuth is for general information only and is not intended to be relied upon by individual readers in making (or not making) specific investment decisions. Penny Sleuth is an unregulated product published by Fleet Street Publications Ltd.

Tom worked as a fund manager in the City of London and in Hong Kong for over 20 years. As a director with Schroder Investment Management International he was responsible for £2 billion of foreign clients' money, and launched what became Argentina's largest mutual fund. Now working from his home in Oxfordshire, Tom Bulford helps private investors with his premium tipping newsletter, Red Hot Biotech Alert.

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