Features
Support for a Changing Product Mix
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."
