After an endocrinologist in Walnut Creek, California, diagnosed a middle-aged male patient with hypertension, she put him on a regimen of Diovan, a medication that lowers blood pressure, and sent him home with supplies: a waterproof stick-on patch and a bottle of microchips.

The patch adhered like a Band-Aid to the patient's abdomen and measured body temperature and other vital signs. The microchips, which were stuck to the outside of otherwise ordinary-looking pills, sent a signal to the patch when stomach fluids activated them, indicating that they'd been swallowed. Then, whenever the patient got within range of his smart phone, data collected by the patch was uploaded to the Internet over a Bluetooth connection. The data was aggregated and fed into a user interface, and with the patient's permission, the results were made available to the doctor.

The physician saw that her patient was taking his Diovan with near-perfect consistency, every morning at almost the same time. Until, suddenly, he stopped. When she discovered that, she gave him a call. "Is anything wrong?" she asked.

"It's funny you should ask that," the patient said. "My dog just died."

Andrew Thompson is cofounder and CEO of Proteus Biomedical, the startup behind the smart-pill system, and his voice speeds up with excitement as he relates the incident and its implications. The dog's death represents "a significant change in someone's ability to manage their disease because of a completely unrelated life event that's causing stress," Thompson says. "It shows that people aren't robots. They need help. They need tools."

Such tools could have a major impact on health care, helping people avoid the need for pricey hospital stays. They could help people with chronic diseases take control of their health and share their vital signs with their physicians in real time. The result could be a gradual decrease in medical costs. Eric Topol, director of the Scripps Translational Science Institute in La Jolla, California, believes that extending the reach of the primary-care physician is the key to cutting costs, and he thinks wireless technology is the best way to do it. "It's the beginning of an era of remote monitoring," says Topol. "What do we need hospital beds for except for the highest-acuity intensive-care setting?"

In short, these technologies could help avert a looming disaster. Hospitals have limited space and cash, and primary-care physicians are stretched to the limit at a time when the wave of aging baby boomers is poised to swamp the health-care system. The best solution is to prevent as many hospital visits as possible. Says Don Jones, vice president of business development for the health and life sciences division of wireless-technology company Qualcomm: "It's only through wireless connectivity that you'll create that opportunity."

Proteus is just one of a growing number of startup companies with monitoring technologies that address conditions from congestive heart failure (Corventis, CardioMems) to asthma (PHT, Cambridge Consultants) to diabetes (DexCom, Airstrip).

Monitoring devices have the potential to act as the human equivalent of a car's instrument panel: the more gauges and indicator lights there are, the more warning you have that something is off kilter, so you can take the steps that forestall engine breakdowns and emergency roadside assistance. Continuous glucose meters allow diabetics to check their blood-sugar levels by consulting a display on their smart phones the way drivers can glance at the gas gauge. Sensors that monitor sleep apnea—which increases the risk of heart disease and stroke—are like an air-filter warning light. A peak-flow meter that attaches to an inhaler, transmitting data about an asthma patient's exhalation, is analogous to an exhaust-system indicator.

Hospitals are especially interested in technology that detects warning signs of heart failure. Most cases of congestive heart failure are entirely manageable with the right medications and lifestyle changes (exercise more, eat less salt), yet more than a third of patients released from the hospital after treatment for this condition are readmitted within 12 months. A single readmission can cost $10,000 to $40,000 or more. And starting in 2012, Medicare and Medicaid will stop reimbursing hospitals for heart-failure readmissions that occur within 60 days. The policy change has prompted some hospitals to look harder at preventive measures such as wireless health monitoring. After all, their survival could depend on it.