Hundreds of millions of dollars (euros) are about to be shaved off the homecare market as new government heathcare restructuring is implemented in arguably the worlds largest and most profitable homecare countries - the United States and Germany. Several other countries also have programs to restructure (read save money) largely at the expense of industry.

Having come shortly in the heals of power chair cuts and the respiratory quagmire - most readers here are aware of the confusion surrounding the implementation of National Competitive Bidding (NCB) in the US. What is not confusing is that it is going to happen - starting in the next several months. Don’t fool yourself NCB means just what it says. Your bid is going to have to be a lot more competitive - and that means prices down and in some cases - service up - or more simply put, margin squeeze. Here is todays update from HME NewsWire.

The following is the view of a homecare company executive in Germany, who comments on the hot off the press heathcare reforms in his country.

News from the German Healthcare -System…

Last weekend the new healthcare laws passed the “Bundesrat”, which means that the changes will be valid from April 1, 2007.

What does it mean?

• Homecare Dealers No Longer Require Accreditation

From the dealers point of view there will be a higher level of competition than it is even today, because everybody (who wants) can go and make contracts with Health-Insurances. There is no longer permission needed that approves a dealer as “Sanitätshaus”.
This opens the door for any company in the distribution and logistics business. They are perfectly in place to work all over Germany and provide the health insurance customers with e.g. all standard Patient aids, which are simple to use.

• Tenders For All Standard Patient Aids

Another fact is that the health insurance industry is forced to have tenders for all standard patient aids. So if this comes true, it will be very difficult for any dealer with a small location (stock) to stay in business. It is not yet clear if the insurance companies will have German wide or regional tenders. However a dealer has to have a huge stock when he wants to provide the insurance with products and service - and the price better be right.

• What Does This Mean For All The Buying Groups?

The winners are… Ergoh, Ortheg, Nowecor, TOP and all the others which have stock and members in their region or all over Germany. These buying groups can make offers for the tenders and they have, as members, a very good service and logistics structure.
Also winners are the two or three bigger independent dealers, that work already German wide.

So then -

What about Reha Team and Reha Vital? These are the biggest and most influent buying groups in Germany. In the moment it seems that they loose the game, but they have Germanys biggest dealers as members and they are well accepted by the insurance industry. So they will probably have one or more logistic centres in Germany and will also take part in tender business. But only if they understand what the new healthcare system means.

• Small Dealer In Trouble

Fact is that every small, local, independent dealer will be in trouble latest in 2008, when the “old” status of all dealers from today is not longer valid.

• What Does It mean For The Industry?

Lucky are all companies that do not deal with standard products (Congratulations to the Specialists etc.).

For all the others it means even faster price decreases, less market for every company that is not a good friend of the buying group or dealer that wins tenders.

Maybe some of the big companies will try to get more in special businesses which would mean that also in these segments the prices will decrease (Sorry to the Specialists.)

• Who Is The Customer?

The others will do what they always tried: be aggressive and manage their customer relation in a way they think it´s right. But who is the most important customer in future?

Will it be the dealer, the health insurance or the end user?

In the end it´s an open race, that’s been already started, which can only be won by the fastest – not the biggest…
…. To be continued

Oh - I nearly forgot to mention - the same Asian companies that have been supplying manufacturers and distributors in Germany are now making their own contracts with the health insurance companies - even by passing the dealer.

New RAMP report and Invacare, Respironics and Apria announce latest quarter earnings:

A new RAMP report has just been issued by the Power Wheelchair Industry:

Here’s the headline:

Government Data Refutes CMS Claims that Utilization of Mobility Benefit Is on the Rise - Utilization Sharply Declined Since 2003; No Support for CMS Claims of Increases.

Basically the industry is saying that CMS (Medicare) has got the numbers all wrong in terms of the growth in numbers of powered products over the years. Industry contends that the increases were in the years leading up to 2003 due to technology advances while also admitting that there were some provider organizations that had been involved in some fraudulent activity.

Full report here

Invacare announced their earnings today and while EPS had grown sequentially from prior quarter (excluding one time events), profits were down from prior year and the firm was guiding lower largely due to reimbursement insecurities (see above). The stock closed 5.3% down at 22.53. Full release here.

Respironics saw profits rise based on domestic sleep products and international revenues however they missed analysts expectations. They also guided revenues lower. The stocked took a hit and closed more than 7% down at 35.69. Full release here:

Apria said today that its earnings were flat (beating analyst estimates), and Q3 revenues were up 4%. Apria affirmed guidance but acknowledged that Medicare reimbursement cuts would affect margins. The stock closed up over 5% at 22.04.

Did you notice that both Invacare and Respironics reported positively on International?

In the latest HME News there is an interesting, if not curious write-up concerning the Office of Inspector General issuing a (its not clear) warning to an alleged wheelchair manufacturer that “providing dealers (my words) with advertising and reimbursement advice may not be a good idea - allegedly because of the possibility of “kickbacks”.”

Well this is interesting from a couple of perspectives. One is that manufacturers today represent to industry openly that they champion their (reimbursement) cause with the government, and that “cooperative” advertising that helps drive customers to dealers is also done openly on TV etc.

The authorities go on to state; “There is a substantial risk that the proposed arrangement would be a disguised kickback scheme having as one of it purposes the generation of business payable by a federal healthcare care program for the manufacturer.”

It’s good of the “manufacturer” to share this warning with industry…

From an ethics point of view a lot of us were brought up to believe that if you were confident enough about your position and published it on the front page of your newspaper you were probably not doing anything wrong.

Seems this may not be the case here.

(Right or wrong, for better or worse there are several major countries in the world that don’t seem to have an issue with the above practice) - do you?

It seems to be common sense that innovation is one of the most intelligent ways to flee the price war in the rehab industry. In two weeks we all will see a lot of innovative products at Europe’s biggest rehab show in Duesseldorf. But is the common sense also proven truth? I doubt as far as Germany is concerned.
Firstly, innovation is a brought term. I will use a pragmatic approach and take “any new product “ as an innovation. This includes also products which are only renewed in order to keep the pricelevel by adding additional features. Not very innovative from a technical point of view, but thecompanies have invested R&D capacity in these products. The goal was show something new to protect/enlarge the profitability.

On the German market the most innovative company over the last 7 years is without any doubt Invacare if you count newly launched products per year. There is also no doubt that it was not the most successful company. The lowest level of innovation during the same period showed Sunrise. Among the big players in Germany it is certainly the one which protected its position best.
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Again Germany could be a sample how to deal with the complexities of the rehab market sucessfully. If you take the right decision on the trivial question: Who is my customer?

To identify your customer is one of the basics in marketing. You do a segmentation or you “enlarge your pond”, it is a daily execise.

In the rehab industry of Western Europe the definititon of the customer is always a little bit complicated. You have the patient who uses your product, a therapist, who advises the patient and in most of the countries a dealer who buys from you. In the end the bill is mostly paid by a public healthfund. In the Nordic countries the scenario is a little bit clearer as a public health supplier decides about the products and you do not have dealers. In England you find parallel markets public and private. In Germany, however, we find the whole range of complexity: patient, of course, therapists, dealers and public insurances as payors of the party. Therefore you will find a lot of different but not always consistent answers who the customer is.

As far as I can see there are not many companies with a clear customer definition on the German market. Some have decided but they do not act consistently.

Example: Kuschall has a clear patient oriented marketing but the high-price super-designed chairs shall be paid by the public (bankrupt) health insurance.

Let’s look to an example of a consistent decision about the customer: Lifestand, the French manufacturer of verticalization wheelchairs! They decided that without any compromise the patient is their customer. They get him directly in the clinic, they support him with samples at home and they offer a lawyer service which helps to get the approval from the public insurance if necessary by a lawsuit. This system is so perfect that sometimes the customer did not even know that the company has sent its lawyer to put pressure on the health insurance. Dealers get only a finder’s and application fee because Lifestand is not allowed to apply directly to the insurances. - This little disadvantage will disappear next year. - This consequently worked out strategy helped Lifestand to focus the salesforce in competence and approach very effectively.

Lifestand enjoys strong double digit growth, took over 50% of the market share (manually propelled chairs) of the former quasi monopolist Levo and kept the prices up.

Do you remember my first update? This story does not work in a one stop shopping environment. So how can companies with more than one product line do it? Best (not perfect) example is Sunrise (Sopur). But this is another story.

Merkel postpones health reform by three months - sources - Forbes.com Postpones the central creation of “the Health Fund” structure but does not postpone increased employee contributions. “Lowering patient costs” equals lowering medical product acquisition cost? Also see this an insiders perspective.

From outside and far away the German homecare market seems to be very attractive. Biggest country in EU, strong economic basis and a long time established and accepted social system. As a result of this view nearly all producers of homecare products are trying to in the one way or the other to get a part of the cake.

But the results are quite sobering for the most of the companies including those who are German. So what could be the reasons for this disappointment?

At first, Germany is not one market. It consists in some respect of 16-30 markets. You say that platitude is true for every market? Yes, but here are the facts:

180 public health insurances using 4 different ways of buying and if they use the same way the use different prices, equipment or added services. Where in the world a wheelchair can be bought, leased, or only paid for use by the public health insurance? Where in the world would you find that there are > 25 contractual prices for one incontinence products by public health insurances? And where would you find >15 contractually defined standards for the equipment of one type of wheelchair?
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