The orthopedic market benefits from a multi-tendril supply chain, with manufacturers supplying products to the gamut of health care outlets from mass discounters to the orthopedic surgeon. Basic products sell at the Wal-Marts and chain drugstores of the world, while high-end, custom orthotics get to patients through doctors' offices and specialized orthotics and prosthetics companies. So where does the HME provider fit in?
Between the chain pharmacy and the O&P specialist, says Rhonda Machin, vice president of marketing for FLA Orthopedics. “The HME dealer is unique, more approachable than an O&P provider. You get a more professional product than you'd find in a [chain] pharmacy, but they won't be as high-end as [products found] at an O&P dealer.”
“The orthopedic marketplace is enormous,” says Pat Schelf, vice president of marketing and general manager of OrthoRehab, a division of Otto Bock. “It includes an enormous array of hospital orthopedic supplies, implantables, instrumentation used during surgery, supplies used by orthotists in their offices, therapy equipment and diagnostic tools. And historically, orthopedics has been a relatively modest piece to the overall home care equipment supply portfolio.”
Schelf adds that, for reimbursement purposes, Medicare has organized all these products into four groups: custom-fit, off-the-shelf high-fit, off-the-shelf low-fit and softgoods. The last two, he says, are where most HMEs do business, although he adds that with the right investment, some providers have crossed over into higher-end products and built a solid business model around them.
According to Mark Francois, vice president of investor relations for Dj Orthopedics, the rehab orthopedic market — which includes knee, back and upper extremity supports, fracture boots and other products — alone produces about $1.6 billion a year. Those numbers come from various bracing and other orthopedic alternatives that offer “a noninvasive solution to relieving pain,” he says.
HMEs, by and large, see only a small portion of that billion. Machin estimates that orthopedic supports — including back supports and other softgoods — sold in HMEs generate about $100 million annually.
But most experts believe the O&P market in home care will grow by a few percentage points each year, and perhaps more for those willing to bypass third-party payers and go retail.
Tim Pennington, national sales manager for Surgical Appliance Industries, attributes the sector's push toward retail to the continual squeeze on reimbursement by Medicare and other payers. “In the past, many of these products were routinely paid for by insurers,” he says. “Not anymore.”
Otto Bock's Schelf agrees. “I see the delivery process for [this market] continuing to be more and more a consumer reality,” he says, “self-selected, self-paid.”
Softgoods: Cash Is King
“More dealers are getting into cash sales,” says FLA Orthopedics' Machin. “We're finding a lot of dealers that may have started a small [softgoods] section just to get something on the wall. Now, the average opening order [covers] 10 to 12 feet [of wall space]. They're devoting more of an investment to softgoods. When they devote more space, they do a lot more business.
“If [providers] are concerned with cuts in oxygen and other areas of the business,” she continues, “[softgoods] are something very easy for them to get into to generate cash sales.”
And unlike an HME's core offering that may focus solely on the Medicare population, softgoods “appeal to a broader demographic … from the elderly person with arthritis to the young athletes who've had a sprain,” Machin says.
Some providers entering the market do have their concerns, she continues. Most of the worry centers on competition from drug chains and mass retailers. But a drugstore's softgoods section — often in aisles near the back of the store, behind the cards and makeup — gives consumers only limited selection, she says. “You won't even see 2 feet [of aisle space] devoted to orthopedics. They can sell more shampoo in 8 feet than softgoods.”
So where should providers seeking to enter this market start? First, sketch out space for a planogram, “a schematic of what your display would look like,” advises Machin, adding that providers should first display products that sell well. Though top sellers differ from local market to local market, nationally softgoods for knees “are the biggest selling product by far [for HMEs],” she says, followed by products for wrist conditions.
“The product mix will change depending on what demographics [a branch serves],” she says. If an HME already serves primarily a Medicare population, then products geared toward alleviating pain from arthritis and similar ailments would be a good initial product mix. On the other hand, businesses serving younger clientele — HMEs with a sports medicine or rehab specialty, for example — might carry a completely different mix.
“And know that it's not ‘If you build it, they will come,’” adds Pennington. “It's ‘if you build it — and do all the other things that are required — they will come.’”
Pennington says those “other things” involve a strong marketing strategy with literature and small catalogs for physician groups, health fair participation, in-service days and other kinds of community involvement.
“Retailers must create awareness of their services,” he says, adding that such efforts aren't expensive. “Many who fail to include that piece of marketing in their retail strategies have a misconception that the orthopedics business is weak. But if their ducks are in a row, and their marketing and displays are well-positioned, the business will come.
“The home care market has far-reaching effects in all of the retailers, from grocery stores to chain pharmacies to general merchandisers,” Pennington continues. To compete with “eight-dollar wrist orthoses” and other softgoods in such retail outlets, providers should “have a good fundamental balance in orthopedic product mix, and steer it toward the quality side … If you go to a mass retailer, you're going to get a lesser-quality product than you'd find in a home health store.”
For many softgoods purchases, “you're going to see the patient only once,” he continues, “so you're much better off if a patient is given a quality product.”
Orthotics: Staff Is Key
Hiring a fitter may pave the way for an HME to bring on a high-fit orthotics product line, according to Otto Bock's Schelf, who adds that providers with qualified technicians on staff can build relationships with area physicians and orthotists who want the equipment they prescribe applied carefully and correctly.
To compete in the orthotics sector, “you need to make an investment in training,” Schelf advises. For many HMEs, he notes that hiring an orthotist wouldn't make economic sense, but he adds that setting up a broader O&P program has worked for some. What has made such programs successful, he says, is a properly certified staff — such as through the Board for Orthotist Certification — trained to fit the proper technology to the right patient.
“For instance, for most bracing products to work well, they have to have some significant value added to them,” Schelf explains.
“If you take a typical knee brace out of the box and don't apply it correctly, you don't have it positioned correctly, you don't have the right size, you don't have it fitting appropriately, you don't instruct the patient in appropriate donning and doffing on their own — it's worthless.”
During the coming years, experts say the O&P marketplace will grow alongside other sectors of HME, seeing the effects of baby boomers who need equipment to stay active longer than ever before. But continuing activity has a side-effect that could increase demand in this area even further — those working in O&P call it “boomeritis.”
Dj Orthopedics' Francois says the buzzword, first coined by the American Academy of Orthopaedic Surgeons, describes a situation that bodes well for the market's future.
“Demographically, the population is moving in our direction,” he says, explaining that “boomeritis” affects a patient population “that is living longer. They're exercising more — and they're wearing their joints out doing it.”
Experts Interviewed
Mark Francois, vice president of investor relations, Dj Orthopedics, Vista, Calif.; Joe McTernan, assistant director of reimbursement, American Orthotics and Prosthetics Association, Alexandria, Va.; Rhonda Machin, vice president of marketing, FLA Orthopedics, Miramar, Fla.; Rick Neptune, Ph.D., assistant professor, University of Texas at Austin; Tim Pennington, national sales manager, and Christine Voet, Airway product manager, Surgical Appliance Industries, Cincinnati; Mimi SanPedro, president, ContourMed, Little Rock, Ark.; Pat Schelf, vice president of marketing and general manager of OrthoRehab, a division of Otto Bock, Minneapolis.
Market to Post-Mastectomy Patients with a Personal Touch
About two million women in the United States wear post-mastectomy prostheses, according to Mimi SanPedro, president of ContourMed, and each year about 100,000 join their ranks. And as the market size grows, she says more traditional HME businesses are moving in.
“HME [providers] are really increasing their role in post-mastectomy. When it comes to a custom breast form, there's no outside cost, there's no inventory involved, and it carries an aggressive profit margin,” says SanPedro.
She adds that post-mastectomy prosthetics are moving beyond companies that specialize only in women's health. In fact, she sees “more interest from HMEs than [from] the traditional boutiques.”
If an HME enters this prosthetics area, providers should know they will be “servicing all age ranges, so they should be aware of the differences between someone who has a 20-year-old surgery and someone who had a lumpectomy six weeks ago,” says Christine Voet, product manager of Airway, a division of Surgical Appliance Industries.
She adds that providers must also “market to feminine attributes with a personal touch, one-on-one consultations … and private space for fittings.”
Providers should also learn to ask lifestyle questions, she says. “In a very friendly way, a provider can ask if [customers] are athletic. Do they participate in sports? Aerobics? What limitations in mobility do they have? For example, if a woman with a prosthetic breast form has arthritis, that issue can be resolved very easily by, say, providing a front-closure bra instead of a back-closure bra.”
Most importantly, according to SanPedro, “many women hold the key to medical equipment,” she says, explaining that many are the primary purchasers of DME for themselves and their loved ones. She says that women's products offered within a broader medical equipment setting “expose women [in younger age groups] to DME, and as you know, we will need [such equipment] in the future.”
Lassoing In the L Codes
O&P suppliers have faced a coding conundrum strikingly similar to problems in the mobility sector: the L codes for these products haven't reflected the latest technologies, leading — at least in part — to increased fraud and abuse from some “stock-and-bill providers that have used existing coding to bill beyond what's appropriate,” says OrthoRehab's Pat Schelf.
“L codes are really old,” says Rhonda Machin of FLA Orthopedics, adding that some codes “define products that were made 70 years ago.”
So over the past several years, CMS has tweaked the codes to match available technology, starting with back bracing products in 2003. “The existing [new] codes have more anatomically based descriptors,” explains Joe McTernan, assistant director of reimbursement for the American Orthotics and Prosthetics Association. At press time, CMS had scheduled a public meeting June 8-9 to cover more than 45 preliminary decisions answering requests for a host of new, targeted orthotics and prosthetics HCPCS codes.
“This is the first time we've had pubic involvement in the process,” McTernan says. “This represents a much more open process. I was surprised; this wasn't something you'd see in the past.”
The final coding changes are scheduled to take effect Jan. 1, 2006.
Customizing Prosthetics, Layer by Layer
Imagine an engineer designing a prosthetic limb on a computer, then transferring that information and having the prosthesis built, layer by layer, with material properties customized for a specific patient.
Dr. Rick Neptune of the University of Texas at Austin has made this concept a reality through a manufacturing process called selective laser sintering, or SLS, to improve components in ankle-foot orthosis, amputee prosthetic socket and foot-ankle devices. Last year, the professor of mechanical engineering won a da Vinci Award from the Engineering Society of Detroit and the National Multiple Sclerosis Society for his efforts.
Starting with a computer model, the technology creates patient-specific, lower-limb prosthetic and orthotic devices with the utmost accuracy, using a laser to melt, or “sinter,” a special nylon powder that builds up a prosthetic one layer at a time.
Cutting-edge prosthetics and orthotics, particularly those for ankles and feet, use complex carbon-fiber material with stiffness properties that make the device more comfortable and easier to move for patients. SLS — originally invented for quick development of prototypes in manufacturing — takes the concept a step further, building a refined orthotic or prosthetic with stiffness tailored for a particular patient. Neptune calls this “stiffness tuning.”
The process, he says, improves functional mobility, increases patient comfort, significantly reduces the number of fittings — saving patients time and aggravation — and, at the same time, reduces cost. For example, while sophisticated carbon-fiber ankle-foot orthotics can cost up to $7,000, SLS can produce the same product, only with better material properties, for a price tag of less than $800.
Prototypes, currently being tested, are set to undergo clinical evaluations at the National Institutes of Health this summer. On the horizon, Neptune sees this technology being used by a kind of clinical O&P service bureau. “Somebody would send a scanned image of a limb,” he says, “and we could develop an orthotic or prosthetic device just for them.”
