Stable orthopedic softgoods market offers avenues for growth.
by Larry Anderson

Anyone doing business in orthopedic softgoods faces ongoing
competition from big box retailers and pharmacies, for sure, but
HME companies can still compete by offering solid product knowledge
and a broader variety of products, say category experts. Even as
consolidation continues at the store level, and to a certain extent
among manufacturers, demographic trends point to a growing demand
among consumers who need these products.

An example of manufacturer consolidation is the purchase of
Bell-Horn Orthopedics by DJO Global, which also offers the DonJoy
brand. The acquisition combines Bell-Horn's strength in lower-end
orthopedic softgoods with DonJoy's strength in providing
reimbursable, higher-end products. It's an opportunity to expand
and increase presence in the category as a whole, says Bell-Horn's
Todd Katz.

"Once the store is well known, you get referrals in both
categories," says Katz. He says that physicians concerned about
Stark law restrictions increasingly do not carry or dispense
orthopedic products and are looking to HME providers and pharmacies
to fill in the gap.

Katz, Bell-Horn CEO, contends that orthopedic cash sales should
generate 10 to 15 percent of a store's business. The fact that most
HME companies do considerably less points to an optimistic outlook
for growth. If a provider is not selling the category at all, Katz
says, there's more good news because it's easy to get involved.

Plugging the Reimbursement Gaps

In situations involving insurance or Medicare/Medicaid
reimbursement, providers tend to choose less expensive products
with less regard for quality, according to Mike Murphy, national
account manager for Alex Orthopedic. But quality matters much more
in a cash sale situation that depends on repeat business.

"Lower quality products are migrating toward the reimbursable
arena because it's the only way to make a profit [given low
allowables]," says Murphy. "Traditional DMEs that may not have been
so interested in these products in the past are looking to expand
their lines with more cash items, especially if they are currently
heavily dependent on reimbursements."

Because orthopedic softgoods are relatively inexpensive, they
lend themselves to cash sales in lieu of the reimbursement hassle,
he notes. For more expensive, custom-fitted items, reimbursement
makes more sense, and margins can be larger. "The mid-range is the
place to be," says Murphy. "There are decent margins, decent volume
and less competition from big chains."

Ron Renchard of Best Orthopedic agrees that cash sales tend to
dominate orthopedic softgoods business among HME companies that
don't want to deal with reimbursement on a relatively inexpensive
product. He points out that it's simply a question of how much
effort any provider wants to put into the category — and how
much business they want.

"As far as I'm concerned," he says, "[providers] know their
market. We focus on … how we can keep up the quality up."

Price? Quality? Even Color? Consumers Want It All

In today's market, Renchard says, companies that focus only on
less expensive products could actually lose customers who might
venture beyond the standard items in a pharmacy aisle. He recounts
a story he heard about a customer who purchased a back brace and
then realized the materials were inferior after it was washed.

Renchard says Best, which manufactures products in eight groups
with a total of 300 in all, uses foam cushions that meet the more
stringent California and European standards related to fire
retardancy and chemical content. The products are also latex-free,
hypoallergenic and free of polybrominated diphenyl ethers (PBDE),
chemicals that have been associated with health hazards. The
company also provides product displays and packaging and offers
privately labeled or customized products.

In a nod to the country's raised fashion sense, Best offers its
cervical collars and arm slings in a variety of colors, which is a
plus for customers who want to match their clothes or outfit,
Renchard says. "If your wife is going to put on a dark blue dress
or suit, she doesn't want a white collar," he says. The approach
enables sales of more than one collar to a client, he adds, and
showing off an assortment of colors appeals to shoppers.

As far as product design, Alex Orthopedic's Murphy says he sees
few changes, usually no more than a variation in padding, for
example. As for growth in specific products, he says, those for
knee injuries are fast becoming more important as aging baby
boomers seek to remain active.

"Down the road, the growth will be in knees and ankles," he
says.

The manufacturer's products fall in the lower middle range in
terms of price. "There are some super-cheap products we don't even
try to compete with," Murphy says, adding that there is no shortcut
for HME providers looking to assess the quality of orthopedic
goods. "The only thing they can do it is to look at it and compare
the product, the stitching, the seams and the quality of
workmanship," he says.

Opportunities To Increase Business

With customers ranging the gamut from weekend athletes to office
workers with back problems to those aging baby boomers, marketing
of orthopedic softgoods requires a two-pronged approach, says
Katz.

First, providers should reach out through direct mail or
TV/radio advertising to build awareness. Second, in addition to the
normal referral sources, providers should ensure their business and
product lines are well known among nearby chain drugstores and
large retailers. Consumers often start their search for orthopedic
products at chain stores and then find the selection is
incomplete.

"If a customer walks into a Walgreens or CVS and they know they
can't handle a request, they are going to send that customer
somewhere," Katz says.

He also emphasizes the value of appealing packaging,
point-of-purchase displays and signage. Collateral material such as
marketing pieces within a planogram and physician reference guides
are also helpful, as are hanging signs, floor decals and location
near related products to promote sales. Bell-Horn offers an array
of POP materials and customizable planograms. Katz says, and each
retail packaged product manufactured by the company displays
fitting and sizing charts.

Murphy also points to product mix as a big factor in success
with this category.

"A partial mix provides partial results," he says. "If you can
handle 80-plus percent of the patients who walk in the door, you
can do well in the category. If only it's 50 percent, word will get
around and people won't look for that item in your store."

Murphy says larger retailers typically carry only the "top 2
percent" of available orthopedic softgoods items, which means there
are advantages for an HME provider who offers greater
selection.

Alex Orthopedic offers planograms in 2-ft. increments up to 8
feet, with smaller planograms geared toward higher-volume items and
additional sections with more specialized items that can be added
as the business grows.

"The only way to sell more product is to have more products
available," says Murphy. "You can't sell what you don't have. If
you have five or six items on your shelf, and you don't have what
the customer needs, they will go somewhere else." Being able to
order an item isn't good enough; consumers can order it themselves
over the Internet.

That's another aspect of doing well with orthopedic softgoods
sales, Murphy says. Consumers can now sit down at their computer
terminal and compare prices for five items at five different
outlets within seconds.

The Internet "has had a dramatic effect on non-technical items
that can be shipped inexpensively," says Murphy. Even so, an HME
provider has the advantage of immediate product availability. Also,
excess shipping charges can offset the price advantages of even the
most careful online comparison shopping.

"Another problem with the Internet is that you can't go in and
see the item, touch it, feel it and judge the quality," Murphy
points out.

Going After More

Despite the flood of changes coming at the industry's providers,
Best's Renchard says he isn't seeing many among his clients who are
trying anything different.

"They don't stick their heads up much," he says. "If I throw out
a good idea, they say it's good to know, but they don't make a
point to look around for something new."

The observation is telling, consultants say. The status quo may
not be a sufficient strategy given the more challenging business
climate for HME providers, and orthopedic softgoods is a category
ripe for growth.

"You may have fewer outlets, but you have more business at the
outlets," says Murphy. An aging population that seeks to remain
active throughout their lives represents a healthy and growing
market.

"It's a good time to get in the business," he says. "If your
market is geared right, it can be profitable."

Key Facts

  • In 2006, musculoskeletal symptoms were the No. 2 reason for
    physician visits.
  • More than one in four Americans has a musculoskeletal
    impairment.
  • Musculoskeletal conditions include injuries to the bones,
    joints, muscles, ligaments or tendons and conditions such as
    arthritis or osteoporosis.
  • Arthritis is the leading chronic condition reported by the
    elderly.
  • Back or knee injuries are the most prevalent musculoskeletal
    impairments.
  • Approximately 21 million visits were made to physicians'
    offices due to back problems in 2006, including more than 8 million
    visits for low back problems.
  • Approximately 12 million visits were made to physicians'
    offices due to knee problems in 2006.
  • Almost 7.5 million visits were made to physicians' offices due
    to shoulder problems in 2006.

Source: American Academy of Orthopaedic Surgeons

Experts Interviewed

  • Todd Katz, CEO, Bell-Horn Orthopedics (DJO
    Global), Carmel, Ind.
  • Mike Murphy, national account manager, Alex
    Orthopedic, Grand Prairie, Texas
  • Ron Renchard, manager, Best Orthopedic &
    Medical Services, Hickory, N.C.