Compounding Interest

Feb 1, 2001 12:00 PM, Richard Park

Manufacturers Are Banking on Growing Respiratory Market

Doing business lately in the home care respiratory market has not been easy. After Congress passed the Balanced Budget Act of 1997, the Health Care Financing Administration cut Medicare reimbursement for oxygen by 25 percent in 1998 and an additional 5 percent in 1999. That put a damper on growth, but the market has managed to rebound, and there are signs of continued expansion, manufacturers say. So while they are still skeptical about the reimbursement climate, they are optimistic about the market's prospects.

"The market outlook is good," says Rich Kocinski, vice president and general manager of respiratory at Sunrise Medical. "In spite of all the pressures, we've demonstrated already over the past couple of years that there was room in there for us to improve our efficiencies, and a lot of people have done that. So coming out of it, the companies that are in the industry are smarter, better and more efficient than they were."

Independent research supports such positive outlooks by projecting substantial growth in the respiratory market during the next few years. A report from Mountain View, Calif.-based Frost & Sullivan concludes that revenue will rise from more than $608 million in 1999 to more than $1.07 billion by 2006 - a compound annual growth rate of 8.4 percent (see table, page 74). Contributing to this growth are patient demographics.

"Certainly one of the trends is an increase in respiratory ailments brought on by smoking, pollution and asthma," says Gary Troilo, director of marketing at Pulmonetic Systems. "So that's certainly going to drive a need for respiratory care products. An aging population is another trend we're seeing. So there's an increased need for respiratory care equipment to care for this larger group of elderly people."

Attracting Attention

A new development emerged at the American Association for Respiratory Care's 46th International Respiratory Congress held in October 2000. Driven by current trends and demand, the meeting's agenda featured a greater number of lectures related to home care issues compared with previous years.

"There is a combination of reasons, such as timeliness, following up the BBA, continued downsizing in hospitals and the continued shift toward home care," says Joe Lewarski, chairman of the AARC's home care specialty section. He adds that many therapists today have different work experiences than in the past. "Many of them are former hospital folks, former department heads, and some of the cream of the crop are now working in home care. So in response to that, there were more demands asked of the AARC to pay attention to this sector of the membership."

In all, according to Lewarski, about 21 lectures focused on clinical and business issues related to home respiratory therapy. Subjects included long-term oxygen therapy, updates on clinical research, new devices, home mechanical ventilation, home infant monitoring and a debate on the appropriateness of home oxygen therapy. Various business issues were also explored, such as the cost-effectiveness of new technologies, asset management, determining appropriate staffing levels, managed care negotiations, capitation and other risk models.

Lewarski says he is confident that this focus on home care will continue. "We may not always have a disproportionate number of lectures for our section," says Lewarski. "But we're going to continue to see this be a focus area for the AARC. There's still significant focus on education, academic medicine, acute care medicine, pediatrics and neonatal. We're simply becoming an equal to those sections, whereas we were a minority in the past."

For more information about the AARC, access its Web site at www.aarc.org, or call (972) 243-2272.

Several manufacturers have been getting more involved in supporting research that investigates ways to improve respiratory care. One such study under way relates to sleep disorders and their link with diseases such as hypertension, stroke and congestive heart failure. Manufacturers hope the study's results will show that further business opportunities exist in the sleep disorder market.

Another study that could affect the respiratory market includes multicenter trials to determine whether positive airway pressure affects heart performance. Yet other studies are looking at noninvasive ventilation and the chronic obstructive disorder population as well as other patient populations.

"It is encouraging that there are manufacturers out there that are involved in research," says John Frank, director of marketing at Respironics. "And it is the wise thing to do if we want to continue to expand and grow this market. As these studies conclude, we are optimistic that the results will show that these markets provide even greater opportunities for us than we have today."

As the respiratory market continues to grow, companies will seek to improve their products, manufacturers say - and telemedicine could be one way of doing that.

"On the forefront is telemedicine, which allows being able to just better manage patients without physically having to go and see them," says Ron Richard, vice president of marketing for the Americas at ResMed. He adds that telemedicine also offers diagnostic and trouble-shooting capabilities and could allow health care workers to submit reports via modem or over the Internet.

Telemedicine has so far been implemented primarily in certain continuous positive airway pressure machines, where it has effectively tracked patient compliance, most manufacturers agree. But some say it still has a way to go before the home care industry completely embraces it.

"Telemedicine is something that's going to have to be accepted very much like the Internet," says Tim Clark, executive director of global sales and marketing at Precision Medical. "Many of the providers that I've talked to don't see that becoming a trend, either, until a few more years. It's getting back to the old issues of whether people will like getting health care like that. So I don't know that people will accept it immediately."

Besides providers and patients, manufacturers say that payer sources also have to be convinced of telemedicine's utility. And then there are its costs.

"Depending on how much compliance is pushed by the payers will determine how readily adapted telemedicine is," says Mitch Barton, director of respiratory product management at Invacare.

"In addition, in order to provide compliance or diagnosis data off your machine with telemedicine capabilities, it's going to add cost," he says. The question then is do you see enough opportunity in gathering that information remotely to offset the capital costs of the equipment. So part of it is the payers, part of it is can you use the data efficiently enough to offset the costs."

In announcing the winning bidders in the second competitive bidding project, in San Antonio, the Health Care Financing Administration projected that the demonstration will result in "savings estimated at 17 percent for oxygen supplies and equipment." To find out which oxygen products are included in the project, access the information on HCFA's Web site at www.hcfa.gov/ord/dme2hcpc.htm. These oxygen products are the same as those in the first competitive bidding project, in Polk County, Fla.

Experts Interviewed:

Mitch Barton, director of respiratory product management, Invacare, Elyria, Ohio; Tim Clark, executive director of global sales and marketing, Precision Medical, Northampton, Pa.; John Frank, director of marketing, Respironics, Pittsburgh; Rich Kocinski, vice president and general manager of respiratory, Sunrise Medical, Carlsbad, Calif.; Joe Lewarski, chairman, American Association for Respiratory Care's home care specialty section, Dallas; Marcia Nusgart, executive director, Coalition of Respiratory Care Manufacturers, Bethesda, Md.; Ron Richard, vice president of marketing for the Americas, ResMed, Poway, Calif.; Gary Troilo, director of marketing, Pulmonetic Systems, Colton, Calif.; Tom Tucker, vice president of sales and marketing, Sharps Compliance, Houston.