Fitness Craze, Arthritis Boost Orthopedics Sector

Orthopedic products are a staple of the HME industry and, according to experts, the field is growing. From new materials that make use more comfortable to a burgeoning population of active seniors, these products are growing up along with an increasing number of people who need them.

“The orthopedic products category is growing due to lifestyle and demographic issues, specifically ‘early boomers’ in their mid-50s to mid-60s with active lifestyles sustaining injuries due to sports and exercise activities,” says Tim Pennington, director of national accounts for Surgical Appliance Industries, Cincinnati.

Mike Murphy, national sales manager, Alex Orthopedic, Arlington, Texas, adds that the market’s growth is also based on people’s interest in exercise and sports.

“The health and fitness craze continues unabated and creates increased demand due to injury or overuse problems,” says Murphy. “Demographics also continue to cause growth in this category due to the graying of America and all the associated joint and arthritis issues. I think this market will continue to grow for at least the next 15 to 20 years.”

According to a 2006 report from Frost & Sullivan, market value is likely to reach $1.83 billion by 2012, with the increasing number of Americans suffering arthritis fueling the sale of orthopedic braces and supports, especially osteoarthritis braces for the knee. The market for rehabilitative and preventive braces and supports is also likely to grow significantly as this and other musculoskeletal conditions continue to become more common.

“There is increased demand from clinicians for braces and supports that are injury- or surgery-specific, especially ones for the knee, ankle and shoulder,” cites Frost & Sullivan Senior Industry Analyst Charlie Whelan.

The report notes the use of assistive devices for mobility impairments has increased dramatically in the United States due to an aging population, technological advances and changes in the delivery and financing of health care, which has boosted not only the orthopedic brace and supports market but also the adjacent markets for orthotics and prosthetics.

Along with knee braces, successful segments include shoulder braces and supports and pneumatic and diabetic walkers. And ancillary products like cold therapy systems, disposable infusion pumps for pain management and spinal orthoses are additional products that are experiencing high growth.

Yet, as in any segment of HME, competition is on the rise for both manufacturers and providers.

“The market for orthopedic products has become more crowded in recent years with manufacturers expanding into orthopedic soft goods from related fields,” says Murphy, who also notes the increasing interest of drug chains and mass-market stores in the category could mean providers should proceed with caution. “As growth in this market accelerates, so will the interest of these groups. On the surface, this looks like trouble for the smaller independents,” he says.

Also as in other market sectors, reimbursement issues are a problem.

“Reimbursement pressures have and will continue to plague those providers who do not maintain a proper balance between third-party business and cash business,” says Pennington. He advises HME providers to bolster revenue by promoting more cash categories to offset third-party payer reimbursements.

Murphy agrees that a retail-focused approach is important.

“Another trend that has really taken over is the conversion to retail packaging for these products, particularly in the medium-to-low end of the pricing spectrum. This is good because it takes the emphasis off reimbursement on these items and places it on the retail sales aspect of the category. No one wants to file paperwork on an item selling for under $20,” he says.

At the same time, he urges providers to incorporate a retail focus into their overall business strategy and ensure they have a full line of products.

“Looking at the trends, the average HME provider that wants to cover this category needs to cover it completely. They should be as heavily retail-oriented as they can be, but still be able to supply those technical and expensive items that depend on reimbursement,” says Murphy. “If the chains and mass retailers do get involved, they will still only supply a small portion of the products in this category.

“A knowledgeable fitter is also important and could mean the difference between mediocrity and being known as the place to go for orthopedic products,” he notes.

Karen Lundquist, director of corporate communications for Otto Bock HealthCare, Minneapolis, says there are crossover products, such as prefabricated and custom orthotics, that HME providers can consider when looking to add to their product line.

“If I was an HME provider, I would want to look at these types products that would allow me to differentiate myself,” she says.

Murphy adds the diverse product offerings in this category also mean there is a balance of retail and reimbursed items.

“On the high end of the spectrum, expensive, custom-made products and products that are technologically advanced will continue to live or die by reimbursement,” he says.

Lundquist also points out that the market shows some division between low-cost commodity products and the more high-tech, customized products, which means providers need to determine which area they want to have as their specialty.

“First of all, whatever you choose to do should benefit the patient,” she says. “There are two different business models. If you want to do commoditized mass delivery that leads to big, broad contracts, or if you want specialize in high-end or unique product lines, you have to make the decision and be prepared with appropriate staffing.”

Product development is another boost to the market as materials become more sophisticated.

“New technologies and materials will always impact product development,” says Murphy. “Fabrics like neoprene have become very popular because of its ability to retain heat in the affected area. Synthetic elastics are making products lighter, stronger and more durable. Likewise, titanium used in bracing is making products stronger and lighter.”

Marketing to consumers and enhancing current relationships with referral sources also can help HME providers enhance their orthopedic supply business.

SAI’s Pennington encourages providers to maintain a “high-visibility” with referral sources and to develop and utilize a strong database of patients for marketing purposes. He also says it is prudent to look closely at product categories.

Providers should “search for annuity categories, such as compression stockings, that can bring in a repeat revenue stream for as long as they have a relationship with the customer,” he says.

New O&P Legislation Proposed

In September, Reps. Shelley Berkley, D-Nev., and Arthur Davis, D-Ala., both members of the House Ways and Means Committee, introduced H.R. 6878, the Medicare Orthotics & Prosthetics Improvement Act of 2008. The legislation’s intent is to “modify the designation of accreditation organizations for prosthetic devices and orthotics and prosthetics, to apply accreditation and licensure requirements to such devices and items for purposes of payment under the Medicare program, and to modify the payment methodology for such devices and items under such program to account for practitioner qualifications and complexity of care.”

The American Orthotic & Prosthetic Association, Alexandria, Va., issued this statement regarding the bill: “H.R. 6878 will link Medicare reimbursement to the complexity of the device needed by the patient and the qualifications of the provider. It also would assure that any deemed accrediting body appointed by Medicare must meet the standards already established in Section 427 of BIPA 2000, and would also establish that providers must meet state O&P licensure requirements (or the BIPA 427 standard in states without a licensing statute) as a condition of receiving Medicare reimbursement. Fraud and abuse and negligent patient care investigations reveal most offenders are not properly credentialed.”

In a Special Open Door Forum on Sept. 3, CMS announced that orthotists and prosthetists are exempt from the agency’s Sept. 30, 2009, mandatory accreditation deadline for DMEPOS suppliers — at least for now. The agency’s Sandra Bastinelli, division director of medical review and education in CMS’ Program Integrity Group, said CMS plans to publish a notice of proposed rulemaking in 2009 that will address quality standards for orthotic and prosthetic providers.

“In 2009, CMS will be issuing further qualifications or standards for orthotic and prosthetic suppliers that these suppliers will need to meet in order to bill for those supplies,” she said.

Bastinelli did not reveal what the NPRM would include, but said CMS would work with those professional groups regarding their services.

“You will have the opportunity to comment on the proposed rule,” Bastinelli said, urging one teleconference listener to submit comments on who is qualified to fit a brace once the NPRM is published.

Trend Watch

• In 2006, Medicare approved payment for nearly 2 million orthotic codes that accounted for more than $406 million in Medicare expenditures.
• In 2006, Medicare allowed nearly 2.5 million prosthetic codes for $628 million in Medicare expenditures.
• Medicare approved nearly 6 million pedorthic codes and $213 million in payments in 2006. The pedorthic code with the highest Medicare expenditure in 2006 was an off-the-shelf diabetic shoe. Medicare approved payment for over 1.5 million shoes for a payment of $89 million.
• More than 3,000 patient care facilities provide orthotic and prosthetic services and more than 800 facilities provide pedorthic services.
• More than $60 million in government funds has been earmarked for research related to orthotic and prosthetic needs by veterans.

Source: The American Orthotic & Prosthetic Association

Experts Included

Karen Lundquist, director of corporate communications, Otto Bock HealthCare, Minneapolis; Mike Murphy, national sales manager, Alex Orthopedic, Arlington, Texas; Tim Pennington, director of national accounts, Surgical Appliance Industries, Cincinnati; and Charlie Whelan, senior industry analyst, Frost & Sullivan