Skip to Content

Cost, quality duke it out in diabetes market

Cost, quality duke it out in diabetes market

To say diabetes is a hardscrabble market is to make a major understatement about the current state of business affairs. Co-opted by the Medicare competitive bidding program, drained of any sustainable profit margin and basically exiled as a legitimately covered medical product category, the diabetes market is hovering in limbo for many HME providers.

These developments are ironic given the projected huge growth in demand for diabetes products as the baby boom generation ages. The uncertainty regarding this market has left providers with some tough choices, says Jace Nelson, marketing coordinator for Edina, Minn.-based Arkray USA.

“The churning Medicare tides seem to be pushing business owners to a mentality of quality products or profits, rather than quality products and profits,” he said. “There is no way around it—the margins of years past are gone. Diminished reimbursement rates are causing many HME owners to take a long hard look at their products and services. For many, these reductions have providers undertaking unsustainable margins or considering leaving the diabetes market altogether.”

The writing has been on the wall for years, with the provider community braced for a harsh impact, added Amgad Girgis, president of Deerfield Beach, Fla.-based Home Aide Diagnostics.

“As we are all aware, since the introduction of the competitive bidding program and prior to its inception, many providers were starting an exit plan, while other smaller companies already left the business,” he said. “It was very obvious that with the prior allowable set in previous bidding contracts, providers saw where the market was heading and that it would not sustain a sound business model. Obviously, for a provider to maintain a profit or even a break-even point, quality and service will be greatly compromised.”

CMS now reimburses providers $10.41 for a 50-count box of test strips, roughly a 72% decrease from years past. This, among other things, has led to a disruption in supply, a change in the market, and an influx of new meter systems and supplies, Nelson said.

Quality vs. price

The through-the-floor price drop for diabetic supplies has opened the floodgates for lower-priced goods, which could be seen as a lifesaver or fatal blow, depending on the perspective.

Girgis sees it as the latter: “With cheaper products flooding the market, the only way for a manufacturer to compete is by reducing production costs, which involves lesser quality or eliminating certain accessories. These changes are an effort to offer a lower wholesale price to providers so they can manage the lower fee schedules. In the end, it is coming down to price more than quality.”

Even so, Rick Admani, COO for Charlotte, N.C.-based Prodigy Diabetes Care, maintains that lower prices should not be viewed as negative.

“For a long time the 'Big Four' held more than 95% of this market in the USA,” he said. “In the last decade, a number of companies have introduced high-quality products at far less cost. Perhaps the question should be: Why have payers and patients paid so much for meters and test strips all these years?”

Consumers will play a role in the price-versus-quality issue because if product efficacy suffers, they will revolt. Yet Admani doesn't believe customer backlash will happen.

“Just the opposite—I expect that consumers will appreciate that good quality diabetes products are available at a reasonable price,” he said. “That is the feedback we get from the vast majority of patients.”

Accentuate the positive

Despite having tremendous odds against them, manufacturers contend that providers can still attain market success by adhering to sound business fundamentals and through symbiotic relationships with vendors.

“Providers who meet the needs of their customers will build their customer base and enter into agreements with manufacturers for quality products at a fair price,” Admani said. “While some manufacturers cannot provide the pricing that providers need, there are a number of manufacturers that will—and Prodigy is one of them.”

Differentiating themselves from the competition by offering value-added services is another way that providers can gain customer volume, Nelson said.

“Utilize the free products and programs available from your vendors,” he said. “Diabetes wellness kits have become increasingly popular, not only for their overall health benefits, but for customer retention assistance—all at no cost to business owners.”

Providers should seek a vendor partner that is reputable, regulated and has 24/7 customer support, Nelson said.

“This helps ensure that individuals receive the trained support they need and allows you to spend less time fielding calls and more time in front of your customers, as well as exploring new markets,” he said.

Comments

To comment on this post, please log in to your account or set up an account now.