AFTER SEVERAL YEARS OF INCREASING COMPETITION, PRICE WARS AND MEDICARE OXYGEN REIMBURSEMENT CUTS, MANUFACTURERS OF OXYGEN CONCENTRATORS ARE FINALLY STARTING TO BREATHE A LITTLE EASIER.

"MANUFACTURERS HAVE BEEN UNDER TREMENDOUS MARGIN PRESSURES FOR ABOUT THE LAST THREE YEARS," SAYS ED RADTKE, VICE PRESIDENT OF MARKETING FOR SEQUAL TECHNOLOGIES. INDEED, MANUFACTURERS SAY THE DEVICES THAT ONCE SOLD FOR $1,200 NOW SELL FOR ABOUT $600. THE REASON? WITH ITS STRONG DEMOGRAPHICS-AN AGING POPULATION, A STEADY INCIDENCE OF RESPIRATORY DISEASES AND POTENTIAL SALES OF $285 MILLION IN 2000, ACCORDING to Theta Reports-the market has drawn a large number of players and seen many price wars. Oxygen reimbursement cuts-25 percent in 1998 and another 5 percent this year-have also spurred home medical equipment providers to demand less expensive products.

But now, with no more cuts on the horizon and a playing field that seems to have leveled off, manufacturers can concentrate on what has been the mantra of providers: "We need it to be reliable and compact, have reasonable power requirements, be quiet and be inexpensive." That's what one engineer told Tom Steinhauer he had heard from providers several years ago. "And nothing has changed," says Steinhauer, oxygen product manager for Sunrise Medical Home Healthcare Group.

It's a tall order-especially the reliable part. Concentrators frequently run 24 hours a day. And when they break, it's often at 2 a.m. on a Sunday. To providers, that spells multiple dollars in overtime for the driver, not to mention the cost of a truck. So manufacturers are continually striving to produce concentrators that require less maintenance.

"The most expensive part of maintenance is sending the guy out in the truck," says Mary Scanlon, Invacare Corp. marketing manager for stationary oxygen products. "How would you feel about spending $50 to change a $5 filter?"

Such costs drive up a provider's expenses, says Lisa Vogt, product marketing manager of Mallinckrodt Inc.'s oxygen therapy respiratory group. "People need to take a look at lifetime costs and repair costs, and they need to factor that [into the cost of the concentrator]," she says. "If you take that over five years, you'd find it varies significantly among vendors."

Steinhauer says 85 percent of a provider's costs are for things other than equipment. "So the biggest challenge is to address that 85 percent," he says. "If we can save dealers trips to the patients' houses, that really affects their bottom line-and that is what we need to focus on."

That's also not as easy as it sounds. Concentrators have hundreds of parts, so it's tough to make them easier to maintain, let alone smaller, quieter and more energy-efficient, which patients are demanding. "You're always looking for other suppliers and trying to find that one component you can buy for a cheaper price and still keep the quality," says Gregg Gaskins, vice president of sales and marketing for Nidek Medical Products.

Even as manufacturers continue to grapple with the many demands of providers and patients, they remain optimistic about the market. "Oxygen concentrators provide the lowest-cost delivery mechanism for supplemental oxygen with today's technology," says Todd Campbell, product manager for oxygen and oximetry products for Respironics Inc.

"The demographics are in our favor," adds Scanlon. "The population is still aging, and our average customer is over age 60 and has a history of smoking. So the population for oxygen is increasing."

Joe Priest, president and chief executive officer of AirSep, agrees, but is still cautious. "It's not a market for the faint of heart," he says. "I would expect we'll see a little more whittling out, particularly of some of the less-than-large players. It's hard to hang in there. It's not a niche market."