Among the effects of our current societal focus on health care has been more awareness of health-related costs. In the case of orthopedic softgoods, this trend is evidenced by a consumer who tends to be both better educated about a product and more sensitive to its expense.
Health care reform is also creating a general sense of uncertainty among patients and providers alike, all wondering how various ramifications may play out. But Mike Murphy, national accounts manager for Alex Orthopedic, expresses an optimistic view: "When and if all the health care changes take place, if more people are covered, then more people would have access to the products."
Advantage HME
Customers often get access to orthopedic softgoods through their local home medical equipment provider. Although drugstores and some mass merchants provide a limited number of these items, HME providers are uniquely positioned to offer a broad selection along with a level of expertise about the products that is sorely lacking at the neighborhood Walmart.
Those who sell orthopedic softgoods are more likely to employ qualified employees to fit the products, says Murphy, and they should take advantage of that advantage.
A lot has to do with regulations (which vary by state) about who can measure and fit these kinds of products, Murphy says. For traditional retailers, given personnel turnover and the trend to self-service, it is harder to have qualified people on hand. "HME providers are likely to have a more stable workforce, and the owner or a long-term employee can be certified to fit the products," he says.
He adds that certification training can cost up to $1,200 in some states. "A patient can walk into a retail environment and buy an item, but if that same person walks in and someone takes a measurement, it is illegal [unless the employee is certified]," Murphy reminds.
Another advantage HMEs offer is variety — a whole aisle of products rather than a handful likely to be displayed at the local mass retailer. "People are going to need orthopedic softgoods, so they are going to get them somewhere," says Murphy. "Mass retailers cannot stock, and don't want to stock, the number of items the category requires."
Walmart, for example, has high expectations about how many turns a product can provide. With planograms available from manufacturers such as Alex Orthopedic, providers can tailor a selection to meet the specific needs of their market or choose the most popular products. The basic two-foot planogram from Alex includes the most sellable items, and each additional two feet increases customer choice.
The variety of orthopedic products falls along a continuum. On one end of the spectrum are custom-fabricated devices that require fitting by specialized orthotists or prosthetists. At the other are low-end, off-the-shelf products such as those sold by discounters and drug chains. Levels within that continuum, according to the American Orthotic and Prosthetic Association (AOPA) include off-the-shelf high-fit products (fitted by heating thermoplastics or by using screws or bending metal) and off-the-shelf low-fit (which might include minimal adjustment or specific measurements for an accurate fit).
Manufacturers say most HMEs find success working in between the highly specialized O&P companies and the retail chains, carrying an assortment of off-the-shelf softgoods for a variety of uses and some products that require minimal fitting. There are healthy margins on softgoods, Murphy notes, ranging from 50 percent at the low end to 70 percent on more expensive items.
Conditions that call for these devices don't have to be chronic or debilitating. For a condition such as plantar fasciitis or tears in a foot ligament, a simple orthosis placed in the bottom of a shoe can help, or a night splint can be used to keep the foot at a proper angle.
Many consumers are turning to the Internet for orthopedic products, but "if you're brand new to an item, the Internet can be a confusing place," says Murphy. Here again is where HME companies can offer the expertise and service that today's customers want, especially when it comes to medical products. Web-based purchases also don't provide any help with fitting, and returns can be difficult.
"When somebody shops on the Internet, they should consider the costs of shipping. On a $7 item, the shipping might be $5," says Murphy.
While cost is a consideration for consumers and part of the market is shifting to lower-priced products, experts point out the overall market for orthopedics will only grow, driven in part by an increasingly active and aging baby boomer population. In softgoods, for example, the emphasis may shift from use for sports injuries to use for geriatric issues such as arthritis.
"There are a lot of products, from softgoods items to more complex items, but there are also a lot of players. Everybody will see growth, but a lot will depend on your piece of the pie," says Murphy.
Cash, Anyone?
While some providers have built a solid business model around reimbursable, higher-end products, "more and more businesses are being successful by not emphasizing the reimbursement arena," says Barbara Mauss, sales manager of Swede-O, which offers orthopedic supports to prevent and rehabilitate sports injuries, arthritis, repetitive strain injury and soft tissue injuries.
"We have cash items and a significant number of items that are reimbursable because that's what the market has mandated," says Mauss, who notes that Swede-O has put a lot of effort into getting its products coding-verified.
But reimbursements can become moot for items under $250, a price point at which consumers are usually willing to pay out-of-pocket. Moreover, the need for a product doesn't go away if the reimbursement is decreased.
To succeed in the retail sector, HME providers should emphasize their expertise to consumers as a way of differentiating themselves in the market, suggests Scott Schneider, chief marketing officer, Otto Bock Healthcare, which provides a range of prosthetic, orthotic and rehab products. There may also be opportunities to expand the business to higher levels of the product continuum, whether through certifying employees or by employing a licensed professional.
A retail storefront is also an essential element in selling orthopedic softgoods, notes Murphy. Providers hiding in the back of a business park or specializing in larger equipment sales are less likely to find success in this sector. "You need a retail environment with walk-in traffic, whether it's in a medical complex, a doctor's building or a strip mall," he says.
"The tough market makes you more creative," adds Mauss. Providers should "try to give the market what they are looking for," and manufacturers are helping "with designs and materials to fit the marketplace."
Reach Out to Sell More
The key to growing business on both the retail or referral sides is to reach out to the community, whether through advertising or participating in a health fair or traditional sales calls on referral sources. Physical and occupational therapists are likely to see people who need these items, so providers should be sure local professionals are familiar with their business and product line.
"If a patient walks out and doesn't know where to get these items, he or she may go to a drugstore, which might have three different items," says Murphy.
"Of the stores I have gone into, the ones that are most successful are the ones where floor staff is knowledgeable and actively selling. They aren't waiting for the customer to come in and choose a product from the wall," notes Mauss. "There should be interaction with the consumer."
The best strategy for HME providers moving forward is to carry a mix of reimbursable and cash items, she suggests. To promote retail merchandising, Swede-O has developed retail packaging for some of its products; others are packaged in basic polybags. HME providers have the option of choosing the packaging they want.
"Finding new customers requires having a sales force in the marketplace looking for referrals," says Mauss. "Go to local high school sports teams. Have a relationship with the local hospital. Go into the community looking for potential customers, and don't just rely on Medicare. It's a continuous effort to aggressively build business. You can't just do it for a month; you need to be constantly out there."
Product Trends
Product changes in the softgoods area include less use of latex (because of allergies), with Spandex and similar products taking over much of the market. The use of Neoprene closed cell foam has leveled off, Murphy says. The most significant development in the orthopedic field was the invention of Velcro, which is now ubiquitous in a product line that formerly depended on laces. There are also some other product design changes, but they tend to be minor variations.
"A back brace or a collar provide the same function regardless," says Murphy.
Mauss cautions providers to look at product quality. "You want to get a quality product for your patients," she points out. "Products are changing, with more and more being made in China. The quality varies depending on the product. In some situations, the quality is noticeable, but in other situations it is good enough, especially if the product is only being used for three or six months."
Schneider of Otto Bock sees materials changing for the better, getting stronger, lighter and able to make more complex shapes easily. New materials contributing to better products include polymers, plastics, strong and lightweight carbon fibers and more use of electronics and sensors.
Especially in the O&P sector, he notes, there have been a variety of technical advances that can either simplify a device (and lower cost) or make it more complex (with added functionality related to sensors, microprocessors, etc.). For example, Otto Bock's stance-controlled knee-ankle-foot orthosis (KAFO) called the E-MAG uses mechanisms that allow the leg to be stable or swing.
The E-MAG Active controller actually calibrates itself to capture the user's unique gait pattern and can easily be reprogrammed for changes. That feature adds a new dimension of functionality for people who previously have had limited bracing options, such as a locked knee brace or a manual device.
O&P by the Numbers
- In 2008, Medicare approved payment for nearly 2 million orthotic codes that accounted for more than $482 million in Medicare expenditures.
- The orthotic code with the highest Medicare expenditure in 2008 was for a prefabricated lumbar, sacral orthosis (LSO) or back brace. Medicare approved payment for 40,000 braces for more than $35 million.
- In 2008, Medicare allowed nearly 2.3 million prosthetic services for $704 million in expenditures.
- The prosthetic code with the highest Medicare expenditure in 2008 was for a basic lower limb prosthesis. Medicare approved payment of more than $54 million for these components.
- Medicare approved nearly 6.4 million pedorthic codes for $257 million in payments in 2008.
- The pedorthic code with the highest Medicare expenditure in 2008 was an off-the-shelf diabetic shoe. Medicare approved payment for 1.6 million shoes for expenditures of $107 million.
- More than $60 million in government funds have been earmarked for research related to orthotic and prosthetic needs by veterans.
Source: American Orthotic and Prosthetic Association (AOPA)
Experts Interviewed
- Barbara Mauss, sales manager, Swede-O, North Branch, Minn.
- Mike Murphy, national accounts manager, Alex Orthopedic, Arlington, Texas
- Scott Schneider, chief marketing officer, Otto Bock HealthCare, Minneapolis
