Fitbit becomes HIPAA compliant as it eyes more business customers

Fitbit Wellness is a business-to-business unit that could diversify the wearable device maker and protect it from price wars. HIPAA compliance checks off a key enterprise concern.

Fitbit said Wednesday that its wellness programs for corporations will be HIPAA compliant. That move is a key hurdle for Fitbit as it aims to grow its business via enterprises, health plans and benefits providers.

HIPAA refers to the U.S. Health Insurance Portability and Accountability Act (HIPAA), which governs privacy for patient data.

The news comes amid reports that Fitbit will work with Target to offer trackers, health competition and wellness programs to employees. Target, which has 335,000 employees, would be Fitbit's largest wellness customer.

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The wearables market faces stiff competition, pricing wars and smartwatches such as the Apple's Watch. For a health-focused wearable device maker like Fitbit, enterprise accounts can provide a moat around the business. Fitbit's corporate services business is only about 10 percent of sales, but the profit margins over time are likely to be more secure.

Fitbit won't see a huge business-to-business bump from being HIPAA compliant. However, HIPAA compliance does check off one key hurdle for enterprises.

According to Fitbit, its wellness unit can use HIPAA compliance to work better with health plans, hospitals and other entities that are regulated.

Fitbit has about 50 Fortune 500 companies as wellness customers.

It remains to be seen how Fitbit's enterprise wellness effort plays out, but analysts are applauding the company's move to diversify. In a research report, Pacific Crest analyst Brad Erickson said:

Fitbit has concrete opportunities to diversify its revenue channels away from strictly direct-to-consumer through corporate wellness channels--a $100 million revenue run-rate business today with the chance to grow significantly larger.

Erickson also argued that Fitbit Wellness could grow as a business due to the proliferation of the Internet of things. Employees may not want to share their health information with their companies, but may be engaged for discounts, perks and a little gamification. Erickson said:

Our thesis is that connectivity stands to massively improve user engagement for corporate wellness programs, which could cause Fitbit's products to be become increasingly compelling for sales through both corporate health plan channels and other insurance related entities.

While corporate wellness channels struggle with user engagement, we think the characteristics of connectivity could stand to improve this, which could provide tailwinds for wearables in general, and Fitbit specifically as the category leader.

The key element is our driving principle in how value is created in the Internet of Things landscape, providing a utility that people (or companies, in some cases) come to require. Incentivizing employees to go in for a biometric screening or a preventive visit to the doctor are fine programs, but they are transactional by nature and, therefore, do little to give incentive for a behavior change--the ultimate goal of wellness programs.

This combination of sensors, connectivity and bandwidth is now enabling a person to show ongoing progress in terms of health and activity, which holds massive value for companies and insurance companies and, of course, the people who use them. The obvious counterargument here is that people will not want to share their data with their insurance companies or their employers, and we acknowledge that part could be tough, but maybe not as tough as shifting the cost of health care to employees if they don't participate.