CPAP providers turn to outsourcing to build their resupply business.
by Greg Thompson
January 1, 2011

By now, CPAP providers are chomping at the bit for a chance to
embrace the full potential of the resupply business. Many know
there is money to be made, but an equal number soon find out it is
not easy money.

Most insurances reimburse two to four masks per year, and
copayments are relatively minor — so how tough can it be?
Sporadic phone calls, disorganized databases and inefficient
shipping are just three elements that can complicate what seems
like a straightforward mission to replace aging equipment such as
CPAP masks.

Officials from major manufacturers such as San Diego-based
ResMed have taken notice of the growing resupply phenomenon, but
they, too, recognize the limitations. "Clearly there are some
players that see resupply as an opportunity to backfill the loss in
revenues they have seen at the DME level," says Donald Darkin,
ResMed senior vice president. "It's not that some of them don't
want to do it, it's that they are not prepared to do it yet."

At Somerset, Pa.-based DeVilbiss Healthcare, Mike Marcinek, vice
president of sales and marketing, sleep solutions, agrees that
while many providers understand the importance of resupply, they
soon realize it takes considerable resources to provide the desired
level of service. "The best advice to our partners is to start
exploring the options that are available in the marketplace,"
Marcinek says, noting DeVilbiss' new keystone services such as
Adhere and Replenish protocols. "We were listening to our provider
partners and developed these unique services to match the
customer's needs," he says.

Almost 90 percent of all CPAP patients at Progressive Medical, a
thriving home care business in Carlsbad, Calif., become part of the
provider's resupply program. Helen Kent, RRT, CEO of Progressive
Medical, uses Brightree software to track when supplies are due.
"All we have to do is populate it when the patient is initially set
up," says Kent, who has been called the "grandmother" of sleep.

Sounds easy, but Kent's success is hard won through trial and
error. Other providers are increasingly relying on outside help,
and companies such as Atlanta-based PAP Supply are springing up to
fill the need. Started in 2009 by home care provider Andy Simmons
Sr., the relatively new venture relies on a database management
system to help with follow-up, order processing, shipping and
additional compliance calls.

As founder of Cornerstone Medical with eight locations
throughout the Southeast, Simmons honed the system on the 3,000
patients served by his HME company. "PAP Supply takes the burden
off the home care company," says Simmons. "They don't have to have
the staff for this process, which can be cumbersome and require a
lot of people. We enable companies to keep patients in compliance
and create a revenue source that they might not have had due to
insufficient time to manage the process."

Calling after hours and on weekends is a critical aspect of
Simmons' offerings because a lot of patients are working 8 to 5,
and daytime calls can be fruitless. "All of our calls are live
operators, because that is the most effective way to ensure that
patients get the service they need," adds Simmons. "People don't
want to talk to a machine. If you want to inform someone you can do
that by voice recorder or in writing, but if you want to influence
someone you must have a conversation."

Jeremy Stolz, program director for VGM Fulfillment, recognized
the need to help member companies back in April 2009. About 75
companies now take advantage of the resupply help, and many of
these VGM members particularly rely on the Waterloo, Iowa-based
organization for aid with shipping. Within the resupply program,
shipping labels reflect the provider's return address, and provider
logos can be added to the packing slips. Patients are notified via
email when items are shipped so they can track the package. "The
goal is to make it appear as though the package is coming from the
provider," Stolz notes. "It's really expensive for people to try to
do this on their own," says Stolz. "They don't take all the pieces
into consideration — such as warehouse space, freight,
employee costs, insurance, utilities, packaging and equipment.
Based on volume, we can do this cheaper than almost anybody."

Market Fundamentals Are There

Assessing other aspects of the sleep market, for those
unfortunate enough to be ensnared in the tentacles of Round 1.2 of
competitive bidding, bid prices went into effect just this month.
Few believe these prices will be sustainable. Time will tell, and
the final chapter may ultimately be written by the so-called
losers.

"There are plenty of theories saying that winners of the bid are
in bigger trouble than losers of the bid," says Darkin. "We are in
a watch-and-wait mode, and I can easily see this lasting for at
least another 12 months. The fundamentals of the market, however,
are still there."

Several locations within Simmons' Cornerstone Medical are
involved in Round 2 of the controversial federal program, and he is
grudgingly preparing for the bid. Despite the uncertainty, the
veteran of more than 20 years in the home care business is
confident that creative ways can be found to keep participating in
the sleep market.

"We haven't given up hope on getting competitive bidding changed
between now and then," says Simmons. "There is still an opportunity
in the sleep business, and a lot of companies are putting together
subcontracting arrangements. It still provides an opportunity for
companies to have a replenishment program. If they don't get a bid,
then they are going to move toward non-Medicare business. More and
more patients have insurance instead of Medicare because it's a
younger population base."

Taking care of non-Medicare patients is nothing new for
Progressive Medical's Kent, who always aims for compliance rates
that please both private and public funding sources. Just as the
manufacturers are educating PCPs, Kent educates patients with zeal
and know-how.

"We all talk about compliance, but you cannot have compliance if
patients are not on effective therapy," says Kent. "You cannot have
compliance without the right mask. How do you know if it is the
right mask? You must download patient results from their machine
and look for leaks."

Not everyone continues on CPAP, but those that do represent the
long-term future of the market. For Kent, no analysis of the market
can be complete without a realization that the sleep industry's
overall health depends on an unwavering commitment to each patient.
"That patient you are putting on therapy is a lifelong patient,"
she says. "That is money coming down the road. It is not instant
gratification, but it is bound to keep coming. From a business
perspective, if you think of patients as $1,000 a year in supplies
— before competitive bidding — you would be crazy not
to follow them."

Manufacturers Still Smiling

Darkin characterizes 2010 as an "up" year that continued
ResMed's streak of 63 consecutive quarters of growth. The company
released its new Quattro FX full-face mask in the United States
early this month, so patients will soon have the opportunity to
experience what company officials characterize as a less obtrusive
and more acceptable mask. Offering a clear field of vision with no
forehead support, the design brings together new frame and cushion
technologies to create an alternative support system. "It is almost
identical in size to a large nasal mask," says Darkin.

"Overall," he continues, "we consider ourselves a lot more
nimble and maneuverable in today's changing market. Everyone else
is doing well, and that is healthy … clearly the organic
growth is still there."

At DeVilbiss, 2010 ended with "strong and growing" PAP and mask
sales, says Marcinek, who attributes the positive results to market
acceptance of the company's IntelliPAP line. "We are seeing
increased pull through of our mask and interface line," he says,
"specifically the EasyFit nasal and full face masks."

Sales figures and demographic projections continue to give
manufacturers reasons to smile. Maura Weis, director of sleep
marketing North America for Philips Respironics, is optimistic that
better business practices — partially fueled by technology
— can preserve the viability of the sleep market.

"Enhancements to our System One sleep therapy platform, coupled
with our Internet-based patient management system, EncoreAnywhere,
and our wireless modems for monitoring, have been well received,"
says Weis. "In the last decade, we've gone from looking at data on
the machine to a Web-based system where the device stays in the
patient's home, and information is bidirectionally transferred
daily for easy access and intervention anytime and anywhere by the
entire care team.

"We are entering a new era in sleep therapy," adds Weis.
"Technology is enabling a high level of care, while also helping to
streamline business operations that benefit the clinician/patient
relationship and contribute to long-term compliance."

Earlier this month, Philips announced its acquisition of
Pittsburgh-based MedSage Technologies, which offers a voice and
email application that providers can use to interact with patients.
As part of the Sleep business within Philips Home Healthccare
Solutions, the addition gives the company a web-based program that
HME companies can use to manage ongoing compliance and supply
replenishment for OSA patients, as well as those with diabetes,
respiratory and other conditions.

Says Philips Healthcare CEO Steve Rusckowski, "We believe the
need to manage chronic diseases by an aging population, coupled
with health economics, will continue to drive a greater need for
health care delivery at home."