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Support for a Changing Product Mix

Stable orthopedic softgoods market offers avenues for growth.

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.



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