The two largest mobility, rehabilitation and homecare trade events will be held in October 2008. Either meetings are must attends for anyone interested in this growing industry, whether it is purely for information, seeking new business partners or getting an update on the competitive environment.

Rehacare will take place in Dusseldorf, Germany from 15-18 October 2008.

Medtrade will be held from October 27-30 in the usual venue in Atlanta, Georgia, USA.

Sibaya LifeScience will be attending the Düsseldorf Rehacare show. Sibaya contact details are here.

New consumer company parent Phillips will no doubt be pleased with the recently announced direct ship to consumer program that Respironics has instituted in the United States for several of it’s obstructive sleep apnea consumables.

Full details are available from their sleepapnea site which lists their business provider services.

The service provides suppliers the opportunity of having sleep apnea supplies shipped directly to consumers homes, thus eliminating one additional step in the supply chain. The local supplier simply places the order online, elects to have the goods shipped directly to the consumers point of use – and that’s it. The supplier retains their customer without having to bother with inventory, logistics and other unwelcome costs.

Smart innovative move in the current industry environment where innovation in some cases seems to have taken a back seat to Medicare and competitive bigging squabbles.

(Update below)

Or perhaps, why has it taken so long.

The homecare market has several business segments, ranging from care services to ambulatory home dialysis, lower value home patient aids, wheelchairs as well as higher margin and faster growing segments like respiratory and diabetic care.

One of these segments is sleep therapy. Sleep apnea is being increasingly diagnosed (and increasingly easier to be diagnosed) in larger numbers of patients. The principle treatment is a CPAP (and variations) machine which essentially minimizes periods of apnea during sleep – a syndrome that not only effects a persons ability to function 100% during the day but also has been clearly shown to increase the risk of heart disease and premature death.

Some companies that sell respiratory products into the home, segment their business according to oxygen therapy and sleep therapy. CPAP falling into the later category.

Oxygen therapy (oxygen concentrators, liquid oxygen) is slower growing and tends to follow population growth while sleep therapy is fast growing.

At the end of 2007 Phillips acquired Respironics – a leading full line respiratory products company – to enter the homecare space. This provided them the opportunity of entering the homecare medical business at the higher value end. Speculation immediately followed as to how long it would take for Resmed, Respironics prime competitor in the sleep business to be snapped up.

According to this press report out of Australia (the home of Resmed founder – Peter Farrell), Linde, German gasses multinational is rumored to be in talks to acquire Resmed.

Synergies are clear – combine the medical gasses business with the high growth and margin medical homecare segment and strengthen their homecare presence.

If this one does not happen another one will – soon.

Update July 1, 2008:

Resmed have reacted to the market rumor by issuing the following statement on on the Australian stock Exchange:

“ResMed notes the comments in the Age and Australian Financial Review newspapers published today, 1 July 2008 to the effect that the company “is being stalked by German industrial and medical gases giant the Linde Group” (Age) and to “rumours of an agreed
cash bid” (AFR) under the headline “Sceptics doubt ResMed rumour”.The company confirms that it is not aware of any information that would require disclosure to the ASX in terms of listing rule 3.1.

Further, the company has a policy of not commenting on market rumours.”

The market likes the rumor anyway??

Resmed is trading at $38.34 up 7.7% at time of writing July 1, 2008

http://finance.yahoo.com/q?s=RMD

Blackstone group has bid a 33% premium to take homecare services and distribution company Apria private. The Blackstone investment is $920 million which is big in the homecare industry although relatively modest in Blackstone terms.

All this despite the homecare industry cries of Medicare foul over the what is clearly the biggest pressure on pricing and reimbursement in recent history – especially through the much hated new National Competitive Bidding program.

This investment is clearly good for the industry (however there must be some lawmakers and lobbyists scratching their heads as to how to explain why such a supposedly handicapped industry is attracting investors like Blackstone).

Of course the argument will be made about unlocking the value in Apria which has suffered from some self inflicted wounds in recent years – true – but it also makes great strategic sense as well.

About two years ago I blogged about the coming changes in the industry “(Why) Would You Invest In The Home Healthcare Industry?”

It’s a fairly lengthy analysis however one of the key take aways was that National Competitive Bidding and the future environment would benefit distribution owned groups (like Apria) – looks like Blackstone might be in agreement.

As always the market tells the story. We note that in smaller private deals investors are paying 4 to 6 times multiples for manufacturing companies while distribution companies are fetching double digit multiples today.

In the above analysis the summary takeaway applies even more today than it did then.

Just to be upfront the recommendation is going to be to invest in “change”. Identify what the change will be and buy into it. Divest companies (or management) that believe “nothing much will change”. It is not a place for the faint hearted. It is certainly not business as usual. Past performance is definitely not a reliable indicator in the homecare business today – or rather tomorrow.

Just a few days ago we referenced and commented on the changing face of the distribution channel in the homecare industry in the US and Europe.

In that article we highlighted by way of example Merits (a general homecare manufacturer) and Shoprider (predominantly a scooter manufacturer).

Kymco, a motor cycle manufacturer based out of Taiwan has now established Kymco Healthcare in the UK where they will now have a direct local presence – in fact they are busy recruiting a sales organization.

From OEM product introduction to direct in about 3 years or so. Not bad.

So what? Well it is just another example of where an OEM relationship established by healthcare companies that have shared their product and market expertize has led to a direct market entrance by the Asian manufacturer.

Innovate in the distribution channel or else.

After all the trauma of the recent deep reimbursement cuts by Medicare, the Office of Inspector General in the United States has found that Medicare, in certain cases pays 35% to 45% more than internet advertised prices for certain power wheelchairs.

The industry is quick to protest and will argue “the higher bar” that Medicare providers have to attain accounts for the difference in cost.

Nevertheless – here is the recommendation of the Office of Inspector General.

RECOMMENDATION
We found that consumers could have purchased most power wheelchairs over the Internet at prices lower than the Medicare fee schedule amounts. We recommend that CMS: Consider performing additional reviews to determine whether the current Medicare power wheelchair fee schedule amounts for certain groups and procedure codes are appropriate.

And Medicare agrees:

AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL
RESPONSE
CMS concurred with our recommendation. In addition, CMS noted that, in mid-2008, Medicare payment amounts for power wheelchairs in 10 large metropolitan statistical areas will be based on power wheelchair suppliers’ competitive bids. CMS further noted that it has the authority in future years to use payment information from the competitive bidding program to adjust payments in areas not included in the program. OIG work is continuing in this area. We plan to conduct further evaluations to compare Medicare fee schedule amounts to actual prices paid by suppliers.

The report goes on to estimate a total saving to Medicare and consumers of close to $40 million in the first quarter of 2007.

Again there will be a counter argument from the industry which will point to the extra regulatory and service hurdles that Medicare imposes.

The fact of the matter is that – pricing (and reimbursement) on Power mobility products is under strong review (again). CMS is looking to their newly established national competitive bidding process to lower prices – and it, together with other measures it will take, will again reduce the price of power wheelchairs to the government and consumers.

The full OIG (smallish pdf download) report can be found here.

Following shortly on the heels of Sunrise CEO Mike Hammes statement that Sunrise was focusing resources elsewhere in terms of the traditional Medtrade “Spring” show, significant rumor abounds in Europe this week that some “big” companies are seriously considering their options to exhibit at Rehacare – traditionally the largest rehab exhibition outside of the US.

Last year (2006) especially, as far as I can see, was the year where industry heavyweights invested heavily in Medtrade hoping to gain a competitive advantage in the looming reimbursement and NCB challenged marketplace. An additional observation however is that most of the companies chose to address the typical “new improved product” strategy instead of addressing the needs of the new order marketplace. There were of course some notable exceptions.

Then came RehaCare – same thing, except US companies flocked to the show either for the first time or with bigger exhibition booths, hoping for geographic sales (and profits..) expansion – not understanding that the rules of engagement in Europe have also changed. In fact the biggest market outside the US, Germany has announced changes that make the new order US look like a Sunday school picnic.

There are still great opportunities for the homecare / mobility /rehab industry – just don’t look at what has always worked in the past.