It’s Not Just About Invacare And The Scooterstore And Competitive Bidding

It’s also about Asian sourcing, low barriers to product development and market entry - and who takes what and how much in the value chain.

Invacare has just announced (HME News) that they will no longer sell powerchairs to the Scooter Store. This follows last weeks announcement from the Scooterstore recommending that higher end rehab power chairs be included in the the (divisive - according to the majority of the industry) - national competitive bidding process (pdf download).

While the reason for the split from the Invacare perspective is related to their commitment to individual independent homecare dealers this is symptomatic of a much bigger issue.

What are the key factors…

The power wheelchair manufacturers (and others) have seen dramatic cuts in Medicare reimbursement in this category. Furthermore the new competitive bidding process is also sure to have a negative impact on margins. It also pits traditional manufacturers against the dealer distribution channel as to who and how will both parties participate in this new (coming -already here) environment.

In fact, everything that the major payers (reimbursement agencies, governments and de facto “consumers”) desire.

In order to deal with prices that continue to fall, the major manufacturers, started a few years ago, outsourcing heavily to Asia - as other industries have done when confronted with cost issues (or to increase their margins).

The issue for the manufacturers however is that they outsourced products with little or no intellectual property attached to them - only manufacturing know how. As one would expect, now that Asia has learned (with the help of the manufacturing industry) how to make rehab products - these same Asian companies are doing two things:

• Firstly they are establishing their own operations in the US and other markets. Some examples being Shoprider and Merits. Of course what these Asian companies have is products largely developed with the help of the US domestic manufacturers over the years - but what they still don’t have a great deal of is dealer and direct consumer customers.
• Still no big surprise - except that these (and several others) not only supply the traditional manufacturers with power chairs and other products, now have their own US direct operations, but they also supply national and / or large distributors with product, competing with the self same traditional manufacturers that essentially put them in business.

What’s next.

The competitive bidding process and the lines between manufacturer, importer, distributor and dealer are going to become increasingly blurred.

Companies like The Scooter Store, essentially breaking conventional ranks is a sign of things to came, not only in the US but also in other big rehab markets, like Germany - in fact its already started.

So, unless rehab “manufacturing” companies have IPOD (r) type patents and distributors of enhanced OEM rehab products have lifetime guaranteed customers - be ready for rapid change.

Or better yet be the change maker - and prosper.

Update January 28, 2007: Doug Harrison from the Scooter Store getting more isolated - maybe not. Lou Slangen from Invacare notes

“This is the most defining moment we’ve had in our industry on rehab products”.

Invacare and Scooter Store Heat Up Rhetoric - hmetoday