IT SAYS IT RIGHT THERE on the powder blue business card: "One of the largest Ostomy Dealerships in the Tri-State area."

But the slogan that used to characterize Anne Kollar's business, Komfort & Kare in Oaklyn, N.J., now is a reminder of how much things have changed in the once-lucrative ostomy/urological products market.

"Reimbursement is so awful now that nobody wants to carry ostomy products," says the company president. "I'm still in it because my heart is still in it, but there's not a lot of profit out there. I can't believe it's gotten as bad as it is as fast as it has."

Many independent home medical equipment providers are cutting back or even cutting out these products. But a good number are also staying in the market-despite the margins. Kollar, for one, says she continues to stock ostomy products as a courtesy to loyal customers. Yet others consider them loss leaders that are just one component in their overall business strategies.

TESTING THE LIMITS ROBERTO Roman, director of operations at Westside Home Medical Equipment in Los Angeles, says he remains committed to his ostomy/urological business because his store is designed to be a one-stop shopping resource. "Only a small percentage of our customers buy ostomy, but they also buy other things, so we don't lose money on them," he notes.

Making the call to keep these products has been a little tougher for Bill McCullough, president of Western Rehab in Benicia, Calif. "My wife asks me why every day," he says. "At some point in time, I'll take a harder line because it's not a good business proposition. But we carry the products as a convenience to our customers. It's a compassion thing.

"If reimbursement gets any worse, who knows what I'll do?" he continues. "I'd say 80 to 90 percent of the ostomy products sold have allowables less than the cost, and we can't provide them. I still carry ostomy supplies, item by item, if the allowable covers it, but the margins are lower than in any other part of my business. Ostomy used to be my fourth-best item, now it's seventh or eighth."

The problem, according to McCullough, is that "the costs to the manufacturers go up, but the reimbursement goes down." What's more, he says, the allowables are often based on outdated products nobody uses anymore.

THE SERVICE DISTINCTION FIVE years of tightened reimbursement from Medicare and private insurance companies, coupled with the burden of stocking a wide range of ostomy products, can make this market an extremely difficult one for almost any business.

But when the competition includes chain drug stores and discount megastores that have high-volume purchasing power-not to mention national mail-order houses that control an estimated 40 percent of the market-the independent HME provider is especially challenged.

One way some are trying to win back a viable percentage of the market share is by offering the convenience of home delivery. "The ones who'll steal this business are the Rite-Aids and Sav-Ons, but they won't deliver like we do," reports Roman. "We do deliveries every two to three months to customers for free. If an order is under $30, then I will charge $10 to cover my costs, but I have even shipped supplies to Florida and Mexico for my customers when they travel."

When it comes to competition with mail-order houses, Kollar finds that timing can also make a difference, even if it doesn't win her all the available business. "I get customers' orders when they get disgusted waiting three weeks for supplies and have to wrap paper towels around the ostomy," she says. "But it is only out of desperation they turn to us."

As a specialist, you can also offer your expertise as an added value, she continues, but here again, the financial reality can be harsh. "The part that bothers me most is when people come to me with problems because the mail-order houses can't help them," says Kollar. "They buy one tube of paste and ask a million questions."

HELP FOR PROVIDERS THERE are suppliers in the industry that are determined to find a way to provide these products to patients-like Mike Perry, vice president of Holliston, Mass.-based distributor Suburban Ostomy. A wholly owned subsidiary of Invacare Corp., Suburban Ostomy is not only one of the largest distributors of HME products, it is also a loyal supporter of HME providers.

Suburban Ostomy's strategy is to turn loss-leader products into at least break-even propositions for providers by doing some of the work for them-warehousing and then drop-shipping products on users' doorsteps, complete with providers' shipping slips.

"Most dealers see these products as a necessary evil to the one-stop shop," Perry says. "The efficient home care model for dealers to make any money requires them to shift services to other people who can do them better than they can. Our policy is, we want the providers as healthy as they can be. The providers can still offer three value-added services-product and technical support with our assistance, a virtual inventory with 24-hour delivery capability and the billing."

It's a support strategy that seems to be paying off. "Our delivery business has tripled over the last six months," he reports. "I've had a dozen dealers in the last two months say if we don't take over the delivery, they can't afford to stay in the ostomy business."

Volume allows Suburban to ship at costs lower than an independent provider could, but even Perry concedes that the noose is tightening. "I don't know if what we're doing is enough to stop the tide," he says. "I don't know that I can see the future. We see some distributors taking dealers out of the supply chain. We aren't prepared to do that. We're not in the game of taking providers out of the picture. We just have to be so good at what we do that we can still have the providers involved and still offer them some level of return. There are enough efficiencies out there to at least break even."

Parry also knows the assault on some traditional HME is spreading. "The market is experiencing declining profitability for ostomy, urological, diabetes and wound care," says Perry. "All four are going through the same thing."

"To paint a pretty picture is not possible," says Jim Stupar, product manager for Hollister, a Libertyville, Ill.-based manufacturer that with ConvaTec shares roughly 90 percent of the ostomy product market, according to Theta Reports. "Given the chain of distribution, there is not enough margin to share. Business is being driven to the nationwide suppliers. The dealers are squeezed and a number have decided not to carry the products anymore, although there are still opportunities for mail order and for those who can buy in larger quantities."

CHECKING THE STATS IN assessing the viability of the retail ostomy market, it's important to look at trends in product demand. Early cancer detection and a shift toward alternative surgical techniques have reduced the number of ostomy procedures over the past 10 years, but the market for ostomy products is balanced by more people living longer and needing more of the products. According to Theta Reports' 1997 Products for Home Health Care Markets, sales of ostomy products were $210 million in 1996, with five percent expected annual growth to a target of $252 million in 2000.

To generate these sales, some manufacturers court hospitals, usually the first link in the chain to the patient, while others focus on enterostomal therapy nurses. The HME providers also remain an option, but more direct and cost-effective competition is encroaching, especially on independents.

As noted above, HME providers complain that ostomy allowables are based on outdated products, with many products grouped under one code that pays based on the price of the least-expensive product in the group, whether or not anyone uses it.

"There are products where the allowable is less than my actual cost," confirms Kollar. "It amazes me."

"Nobody believes us," adds McCullough, of Western Rehab. "The beneficiary has to speak out."

PATIENT DEMAND INTERESTINGLY, some patients are now looking to take a more active role in shaping the marketplace. To hear them tell it, they are facing physical, psychological and financial challenges that apparently don't show up on the radar of decision-makers at the Health Care Financing Administration or private insurance companies. But a support group that represents the estimated 500,000 American ostomy patients is trying to change that.

The United Ostomy Association believes the current situation is approaching crisis proportions, depriving ostomates of basic health care. Earlier this year, the UOA made its case for improved reimbursement and more liberal maximum usage guidelines to HCFA officials. "Unfortunately, from my observations and the comments that have come back to me, they were not impressed," says UOA President Dan Tyrrell.

Tyrrell and other UOA representatives were no bearers of good news: According to the research they presented, the average age of ostomy patients is 69-and two-thirds are Medicare beneficiaries. Yet, their research also shows that Medicare cuts have resulted in the United States' having one of the lowest reimbursement levels for ostomy products in the developed world, reducing beneficiary access to the products and increasing patient financial hardship with out-of-pocket purchases when Medicare coverage falls short.

Over the last 10 years, Medicare reimbursement prices have increased by 16 percent, while the consumer price index has increased by 33 percent. The UOA has also found the trend for not accepting assignment at the Medicare price so troubling that it took a list, compiled by HCFA, of providers who accepted assignment and had organization members call to verify the list's validity.

UOA ON ASSIGNMENT THE group's survey found that only 20 percent of the providers they contacted accepted Medicare assignment on all ostomy/urological products, including none of the top 10 mail-order providers. What's more, they found, only 23 percent of participating providers even handled any ostomy products. UOA estimates that a beneficiary's contribution to paying for ostomy products is almost tripled if assignment is not accepted.

"I turned 65 last month, and my supplier of two years called to say now that I was on Medicaid, he would no longer supply me," says Tyrrell, who lives in Detroit. "He said he couldn't make enough money. This is how reimbursement absolutely affects access to proper care."

Patients on fixed incomes then must search for HME providers who accept assignment, which puts providers in a bind: Accept assignment and lose money on the transaction-or don't accept assignment and lose the business.

"We tried to get into ostomy a few years ago with a lot of advertising, but we don't accept assignment, and we didn't get the business," says Robbie Becker, general manager of American Home Care in Phoenix. "Now we just keep enough product on hand for our 12 regular customers. But we're not getting any new customers. The first words from customers are, 'Do you accept assignment?' We have to say no, and then we don't get their business."

Equally troubling to the UOA is the pattern of claims denials for amounts of products over the usual maximum quantity, which when taken to its inevitable conclusion leads the distribution chain to quasi-regulate how many times a month a beneficiary may change an ostomy appliance. The UOA points out that HCFA's rigid rules do not recognize the fact that not all patients are alike and that their use patterns differ.

By comparison, notes the UOA, the Department of Veterans Affairs provides beneficiaries with the amount and type of product they need with no restrictions. Reimbursement is by individual product, not clustered into general categories as in the Medicare HCPCS coding system.

A MATTER OF COMMITMENT WHEN the dust settles, what will the ostomy/urological landscape look like?

Internet and mail-order companies figure to continue increasing their market share, while local chain drug stores will keep chipping away at many independent HME providers.

"I don't want to say it's bleak, but everybody has to be concerned, or they're missing the boat," says Perry of Suburban Ostomy. "Still, I believe it's doable. And if you think it looks bleak, it becomes a self-fulfilling prophecy."