They have been such easy targets. Loud, unknowing and often overweight snorers have been the butt of countless jokes over the years. But the medical community today knows quite well that snoring is no joking matter. It could be a sign of obstructive sleep apnea.

In addition to direct and indirect financial costs that may total between $60 billion and $115 billion annually, OSA has many harmful side effects for those who suffer from it, including cardiac stress, depression, hypertension, impaired work performance and fatigue.

But what's most alarming is that, although the disorder was first identified in the mid-'60s, as many as 95 percent of those with OSA remain undiagnosed. The American Sleep Apnea Association estimates that 12 million Americans have the disorder-and approximately 10 million don't know it. According to New York-based Theta Reports, up to 30 million Americans may be afflicted. (For more detail, see the table on page 44.)

To date, hospitals and independent sleep labs have conducted most of the clinical tests that diagnose patients for OSA. But as the demand for such services rises, so does the number of home medical equipment providers setting up sleep study operations.

Awake to Opportunity The HME providers that have already broken into this new business niche are few, relatively speaking. According to a survey conducted last fall by HomeCare magazine, only 16 percent of providers currently offer any sleep studies although another 30 percent report that they are considering doing so.

Indeed, the involvement of providers in this market is still in its infancy. Of those providers surveyed that offer one-night sleep studies, more than 55 percent have been in this business for two years or less.

But even with diagnosis trailing so far behind the reality of the OSA patient population, market statistics point to an already thriving business niche. According to Theta Reports, the U.S. sleep study services market generated revenues worth nearly $1.6 billion in 1998 and will experience growth of about 12.5 percent through at least the year 2003 (see table on page 46).

"The sleep study services area is one of the few bright spots in health care services left," says Mike Thomas, vice president of sales and marketing, National Sleep Technologies, Arnold, Md. "It still has a lot of potential."

This potential has led some HME providers to begin offering sleep studies-alongside labs and hospitals. When asked why they entered this new market, more than half the providers surveyed by HomeCare magazine noted that they wanted to improve relations with or increase referrals from local sleep labs. Other reasons rated important include staying competitive with other local HMEs that offer these services, adding another profitable revenue stream to the business and believing that sleep studies will be a strong growth area. As many working in this field report, sleep labs are often booked several months out, so the need for more facilities that can offer sleep studies is great.

"There was definitely a need for another company to do sleep studies in my area," says Shawn Peters, owner, Home Sleep Diagnostics, Amarillo, Texas. "When I began, there was only one physician, and he was about nine weeks backlogged. Some other physicians even approached me suggesting I get something started."

Of course, when providers first started doing in-home sleep studies, the medical community did not embrace them with open arms. In fact, physicians often questioned the validity and quality of these studies. But over the years, while some degree of skepticism still remains, physicians have become more receptive to home sleep studies as a legitimate diagnostic tool for OSA.

"It took some time to change the physicians' minds about home studies," says Peters. "But when they saw that some of the [home] studies were more accurate than those done in a clinical setting because the patients were more comfortable being in their own environment and their own bed, physicians became more accepting."

Other providers agree. "There are essentially two benefits of home studies," says Thomas. "The costs to deliver such studies are a little better. And the quality of the study is a little better because the patient is in a familiar environment."

Are You Ready for Sleep? These market developments notwithstanding, entering the sleep studies market requires a significant level of homework and commitment.

"Whether [sleep services] will be the mainstay of your company or just another service offered is the real question," says Harry Lawrence, vice president of Fishkill, N.Y.-based Advanced Oxymed Services, which offers full 16-channel polysomnograms and fully attended titration studies. "If it is just another service to offer, it will be an awful lot of expense for something that will not bring in a lot unless you have volume. So if you do go into it, I suggest you consider it a major part of your business."

Just what does this business require? And is it practical for an HME business to get into sleep studies? One of the first issues to wrestle with is the start-up costs. In fact, nearly 65 percent of respondents to HomeCare's survey said that initial equipment costs being too expensive was an important or very important reason why they were not considering this service.

Setting up a sleep studies operation is not cheap, with reported start-up equipment costs ranging anywhere from $5,000 to $50,000 or more.

"All told, to set up a home study and to do it right will cost about $100,000," says Thomas. "You could cut corners and try to skimp and get away with maybe half the costs-but only if you can find a managed care organization that doesn't have many requirements or much competition."

Not all providers have found it necessary to make this much of an investment. Lawrence's initial equipment costs were approximately $50,000, while Peter's firm invested $30,000.

At VCM Inc., Downers Grove, Ill., equipment start-up costs were only $15,000, according to Brett Den Uyl, general manager. "We researched manufacturers and looked at a number of magazines and journals to find out what equipment was used in different areas of the country," he says. "We wanted to know what was performing well, what was not-all the pros and cons. We had to decide what equipment best suited our cost and ease of use needs, but we also had to make sure we could fulfill the needs of physicians and referrals sources."

These expenses aside, an investment in the appropriate staff education is in order to conduct the sleep studies properly. But while nearly 60 percent of providers in HomeCare's survey were concerned about the potential costs of training, such fears are somewhat unfounded.

"The training is not really all that expensive," reports Bruce Hunter, president of Action Medical, Billings, Mont. "In fact, today, a lot of the equipment has enough of its own technology built in that records and prints all of the data."

As a part of purchasing a system package, most manufacturers provide training programs to help buyers set up and use the equipment. "Vendors are very helpful," says Lawrence. "In fact, you can learn a lot just from shopping and having the vendors show you the capabilities of each machine."

Many educational institutions also offer an array of sleep-related courses. They will add to your start-up costs but can also help enhance your services and streamline your operations. Once you complete a sleep study, for example, you must score and summarize the results. But because specialized technical knowledge is needed for the scoring, you'll need some specialized training to learn how to do such evaluations. Some providers have even gone so far as to become registered polysomnographic technicians, a process that includes six months of classes and a final exam.

"More physicians are becoming knowledgeable about sleep medicine and the quality of the studies done," says Lawrence. "And with that knowledge, more and more doctors are looking for those persons who are qualified to do sleep studies.

"I highly recommend getting the education and taking classes," he continues. "Doing so speaks volumes of your business practices if you can back your work. Education and knowledge are essential."

Make Your Own Bed In addition to getting your equipment on hand and your staff trained and ready, you must decide where and how to conduct your sleep studies.

The test itself will be a polysomnogram, which is considered the standard for diagnosing OSA and creates a detailed physiological profile during sleep by recording various body functions, such as electrical brain activity, eye movement, muscle activity, heart rate, respiratory effort, air flow and blood oxygen levels.

But providers can customize the sleep studies they offer to meet the needs of the local patient population, as well as the needs of their businesses. Of the providers surveyed by HomeCare who offer sleep studies, 91 percent say they do unattended studies, while only 18 percent report doing attended studies. All told, 52 percent do their own patient hook-up, 36 percent do the scoring and 46 percent arrange for physician interpretation.

When the study is unattended at a patient's home, the provider takes the equipment to the home, hooks the patient up to the event-recording machines and then leaves once the patient has fallen asleep. "There are no special preparations for patients before a study, except to limit their caffeine and take their medications," notes Peters. "Once the patients are ready, we connect them and give them instructions on what to do in case they have any problems, such as if they have to get up inthe middle of the night."

The provider must then return in the morning to gather the equipment and begin the requisite post-study evaluations. In some cases, however, the patients get instructions on how to hook up the machine at the provider's office, take the equipment home, do the set-up and then bring everything back themselves. And how much do these studies cost? According to HomeCare's survey, one-night unattended, in-home sleep studies can vary in price between $50 and $1,100, with the average running $436.

For ambulatory sleep studies where the equipment is taken to the patient, Peter's average fee is between $850 and $1,200. "It depends on what the parameters are, what the physician wants monitored and how many channels are used," she notes.

With certain patients, physicians may also order tests to be attended throughout the night. Some providers have been able to arrange to conduct sleep studies at hospital labs. There, the patients check into the hospital for an overnight stay, and the hospital subcontracts to providers for their sleep study services. The hospital will then bill the appropriate payer source, while providers directly charge hospitals a fee. Peters, for example, says she charges $1,100 for a hospital study.

Yet other providers have even opened their own freestanding locations in which to conduct sleep studies. Studies in these facilities are done in much the same way as those in the home, except that they are attended the entire time.

Eyes Wide Open Every new line of business presents its own unique challenges-and one such challenge for HME providers is learning how to market sleep study services.

Providers get an overwhelming majority of their patient referrals from doctors, such as pulmonologists, family practitioners, primary care physicians, neurologists, general practitioners, and ear, nose and throat specialists. According to providers, these doctors often order a sleep study from a provider if they could not get authorization for a second night at a sleep lab or if they want additional data for titration purposes to gauge the proper level of pressure for a continuous positive airway pressure device.

"We market to doctors, and those doctors advertise to patients by making available our literature and hanging up our posters about the dangers of sleep apnea," says Lawrence. "By doing so, we reach a much larger number of people who are already in the doctor's office."

Once good relationships with doctors have been established, providers often generate new business from those doctors referring other doctors to them. But some providers have gone so far as to put together more sophisticated marketing programs that include a specialized sales force.

"We employ salespeople who go through an intense sales training program that is heavy on clinical," says Thomas. "These salespeople basically teach the physicians about sleep medicine and how to diagnose and treat patients with sleep apnea."

Many providers also get referrals from managed care organizations and hospitals. "We had a rather extensive network of referral sources," says Lawrence, "and we managed to get hospital contracts for sleep studies because we already had hospital contracts to provide durable medical equipment."

In general, providers report that they do not get many referrals from sleep labs. If anything, some sleep labs feel threatened by providers' entering the market, fearing that they will take away too much of their business. The HomeCare survey found that 65 percent of respondents recognize this concern and have not gotten into sleep studies because they do not want to compromise their business relationships with sleep labs.

"We have to be careful that we posture ourselves as an ally with, and not as a threat to, the sleep labs," says Hunter. "We don't want to do anything to disrupt that relationship. We are not trying to be competitive but are instead trying to be augmentative."

Maintaining existing referrals for equipment is a prime motivator for many cautious providers. "Once we run a test, if the patient needsfurther services after the test, we push hard to have the referral for the equipment come in our direction," says Den Uyl. "In fact, this is the main reason we do these tests: to increase our referral base and get more home rental revenues."

No Rest for the Weary At the end of the day, the final big issue is, of course, money. This market is not a Medicare market. "OSA is a disease of the young, afflicting primarily the 30-55 age group," adds Thomas. "So Medicare patients as a percentage of our business are probably in the single digits."

According to HomeCare survey, more than 85 percent of reimbursement for respondents' sleep study services came from either private-pay insurers or health maintenance organizations, with out-of-pocket cash payments taking up only 10 percent of sleep studies revenue. All of the providers interviewed for this article confirmed this reimbursement scenario, noting that a bulk of their payments come from billing insurance companies directly.

"In 99 out of 100 cases, the insurance companies are billed directly," says Lawrence. "In those cases in which the patient doesn't have coverage or the insurance company won't cover, the patient sometimes offers to come up with the money and pays in cash."

Attention must be paid, however, to the legitimate concerns of the 75 percent of respondents to HomeCare's survey who indicated that unreliable insurance reimbursement was an important reason that they were not considering sleep studies. Providers currently in this market niche are frustrated by the strict reimbursement regimens implemented by insurance companies.

"One big hold back is the insurance companies that simply do not want to pay for these [sleep] studies," says Lawrence. "Insurance companies are surprised that one out-patient night can cost $1,500, and they want to make sure that there is enough evidence that the patient needs a study. So they can take up to six weeks to approve a procedure."

Despite these irksome payment issues, sleep study services have been and continue to be profitable for providers. "Our sleep study services have absolutely been profitable, and they are growing," says Thomas. "During the past 12 to 18 months, the home studies part of our business has increased from 5 percent to about 20 percent of our overall business."

Looking again at the HomeCare survey results, more than 48 percent of respondents said their revenues have increased over the last 12 months-and almost half say the increase is in double digits. Finally, more than 57 percent of those surveyed say they expect their revenues to increase even more over the next 12 months.

Last Words of Advice But before placing an order for that sleep study equipment or signing up for those sleep classes, here are some final thoughts from providers already in this business.

Because sleep study services are so dependent on technology, providers believe that it is imperative to procure reliable equipment from a company that will offer top-notch service. "Buy the best equipment that you can afford and really research it because the technology has moved so fast," says Zeala Dunlop Miles, chief executive officer of Los Gatos, Calif.-based Clinical Monitoring Center, a company with its own free-standing test facilities. "And buy from a company that will give you good support because you can live or die by your equipment. If things keep crashing and you're repeating studies, you could end up running your business at a loss."

Providers also believe that it is important to conduct some market research by meeting with professionals in the medical community to establish what need exists for sleep study services. "You need to check the market in your area to see if sleep studies are a valid thing to do," says Den Uyl. "Find out what the needs of the area and the institutions are."

Peters agrees wholeheartedly. "You need to meet with physicians and medical directors of hospitals and insurance companies to get a feel for the market," he says. "You need to make sure that there is a demand for sleep studies in your area and thatdoing them can be lucrative."

Last but not least, he adds, make sure your payment is authorized before you do the work.

The American Sleep Apnea Association has developed a list of questions your customers can ask themselves to see if they should see a doctor to determine whether they have a possible sleep apnea problem.

1. Are you a loud, habitual snorer?

2. Do you feel tired and groggy on awakening?

3. Are you often asleep during waking hours?

4. Are you overweight?

5. Have you been observed to choke, gasp or hold your breath during sleep?

If your customers answer yes to any of these questions, they should discuss their symptoms with a physician. For more information, contact the ASAA at 202/293-3650, email asaa@sleepapnea.com or visit www.sleepapnea.org.

You can also complete an online assessment at www.sleepfoundation.org or by calling 877/BE-AWAKE.

While sleep apnea occurs in all age groups and both sexes, the National Sleep Foundation reports that the people most likely to have or to develop this sleep disorder include:

* men

* those who are overweight

* people who snore loudly

* people with high blood pressure

* individuals with a physical abnormality in the nose, throat, or parts of the upper airway.

For more information on OSA, visit

* American Sleep Apnea Association at www.sleepapnea.org

* American Sleep Disorders Association/Association of Professional Sleep Societies at www.wisc.edu/asda

* National Association on Sleep Disorders Research at www.nhlbi.nih.gov

* Sleep Foundation at www.sleepfoundation.org

If you would like to receive a copy of HomeCare's sleep study survey, contact HomeCare's customer service department at 800/441-0294.

To order Theta Reports' Sleep Apnea Markets report, call 212/262-8230 or visit www.thetareports.com.