POC manufacturer goes direct, wins six bidding contracts

GOLETA, Calif. - When most HME providers said "No thanks" to Inogen's portable oxygen concentrator, the company said, "Okay, we'll do it ourselves."

The result: Inogen won competitive bidding contracts in six cities: Cleveland, Cincinnati, Pittsburgh, Charlotte, Dallas and Riverside.

"The industry will probably say, 'We hate those guys because now they have opened a Pandora's Box and other manufacturers are going to compete with us," said Inogen CEO Ray Huggenberger. "But what am I supposed to do? Just walk away?"

In the six competitive bidding areas (CBAs) where Inogen won contracts, the company has provider partners who can supply its POC, the Inogen One, and all other oxygen modalities. In the three CBAs where the company didn't bid, those partnerships did not exist, Huggenberger said.

The company developed its current business model because, from the start, sales of the Inogen One never took off. Providers listened to Inogen's pitch that a non-delivery model using POCs made economic sense, but too few bought the units, which can cost more than $3,000. Providers either lacked the financial resources and/or the expertise to change their business model, said Huggenberger.

As a result, Inogen started selling the Inogen One direct to consumers for cash in 2008. The company eventually got a Medicare supplier number and become an accredited provider, Huggenberger said.

"We were a little disheartened back in 2008," he said. "We were staring opportunity and demand in the face and realizing that there was no outlet. We said, 'We are going to drive demand. We are going to run commercials on TV, and where we have (HME) partners we are going to channel the demand to the partner, and where we don't we are going to do it ourselves.'"

Where there are no HME partners, Inogen uses a courier service to deliver the Inogen One to a patient.

In 2009, Inogen ranked as Medicare's seventh largest provider of POCs. The company received $88,544 in total reimbursement for 519 allowed beneficiaries, according to data HME News requested from CMS.

"The goal and purpose of the company was to provide oxygen users with a degree of freedom and the ability to be active that was unprecedented," said Bob Fary, Inogen's vice president of strategic alliances. "What we've done here as a business is help fulfill that original mission."

Huggenberger said Inogen is not competing with providers, but "if you are not going to be an outlet for my product, then you are competing with me."

"We look at ourselves as the back-up fulfillment option," said Scott Wilkinson, executive vice president of sales and marketing. "We look for an (HME) partner first. But if there is no outlet in a market, then we are the outlet."