What’s Happened in the Sleep Market Since 2001?

This year, more providers reported participating in the sleep market than ever before. Whereas more than one-third of the respondents did not sell or rent sleep-disorder products in 2001, only 12 percent are not participating in this market now.

Providers continue to sell and rent CPAP units, headgear, masks and filters–and they are increasing the sale and rental of CPAP moisturizers and gels.

The biggest change in the market since 2001 is the percentage of providers’ revenue that sleep-disorder products represent. Chart 1 shows that, in 2001, two-thirds of respondents reported that sleep-disorder products represented 10 percent or less of their revenue. In 2003, however, nearly two-thirds of the respondents reported that sleep disorder products account for more than 10 percent of revenue.

As the market has grown, providers have shifted the types of therapists they employ. Since 2001, providers have begun to hire more full-time employees. Most of the shift occurred last year. Respondents appeared to be adjusting the level of part-time certified respiratory therapy technicians. Consequently, the drop in the percentage of respondents employing these therapists made up the decline in the percentage of respondents employing part-time therapists.

Revenue during the past 12 months from sleep disorder products has been stable, with more than nine out of 10 respondents reporting stable or increasing revenue. The future looks similarly rosy. In fact, not one respondent expected sleep disorder revenue to decline during the next 12 months.

Whereas 39% of the 2001 respondents did not know how many sleep labs existed in their market area, more than 4 out of 5 respondents in 2002 and 2003 did know. Chart 2 shows how the number of sleep labs has grown since 2002.

The proliferation of sleep labs may contribute to the fact that a minority of respondents offers in-home sleep study services. Less than one-third of respondents offers or plans to offer such services.

However, the providers that do offer in-home sleep study services are becoming more seasoned. The average number of years respondents have offered in-home sleep studies has increased since last year, from 2.4 years to 3.1 years. Apparently, there is a drop-off after 1 to 2 years, which would indicate that respondents who offer these services give them less than one year to “take off” before dropping them. Almost all services outside of the studies themselves (like interpretation, scoring and billing) have shown a decline since 2001.

While the largest segment of respondents reported deriving increased revenue from sleep-disorder products during the past 12 months, the number of respondents reporting a decline in revenue from these products increased significantly, from 15 percent in 2002 to 7 percent in 2003.

The future for in-home sleep studies looks rosy, with 70 percent of respondents expecting stable or increasing revenue from these studies during the next 12 months. But this number has decreased since 2001, when 95 percent of respondents expected such an increase.

Sleep services generally account for only 1 percent to 2 percent of providers’ revenue. Lower revenue increases probably were due to the fact that charges have declined. Chart 3 illustrates how the charges have changed over the years. Additionally, health insurers are more likely to cover sleep services, which probably also has contributed to the decline in charges. Respondents in 2003 derived an average of 95 percent of their sleep-related reimbursements from HMOs and private-pay insurers, compared to 58 percent in 2001.

Finally, the investment required to enter this market has declined significantly since 2001. Whereas the average initial investment in 2001 was more than $16,000, 2003’s average was only about $6,000. Chart 5 shows the changes, most of which occurred between 2001 and 2002.

In conclusion, although there is more competition in the sleep market, there is money to be made. Because of the relatively low investment and low number of employees required to add in-home sleep study services, respondents can abandon these services if the services aren’t quickly successful.

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