Diabetes market in transition

Nowhere is the impact of Medicare competitive bidding more evident than in diabetes supply.

Round 1 ushered in the new reality of the market while Round 2, which includes a national mail order program, is expected to widen the influence of downward pricing pressure on blood glucose meters, test strips, lancets and insulin pump supplies.

The re-engineered Medicare model has sent financial concussions throughout the industry as the number of authorized providers is winnowed down and cellar-level bids become the standard price.

This unsettled environment has caused many to exit the business altogether, while others seek ways to work within its confines.

It is a time of confusion, soul-searching and risk-taking, says Greg Bosco, vice president of sales and marketing for Invacare Supply Group in Milford, Mass.

“There is a level of insecurity out there,” he said. “It has the industry paralyzed. Yet some companies have been very aggressive in going after new business, making the assumption they are going to win and, if not, they're going to make hay while they can.”

Bryan Sowards, president of Titusville, Fla.-based Infopia USA acknowledges that the business model as currently structured “is very difficult to support—not only are the suppliers affected by the drastic reimbursement compression, they are also experiencing a newfound focus by auditors challenging regulatory compliance.”

The compliance issues have spawned a ripple effect that is causing changes in standard operating procedures, he said, as well as threatening cash flow and financing for companies.

Decreasing reimbursement is an issue that the HME industry has had to deal with many times in the past, but this time could be considered the final straw for a majority of

providers.

Vendors concede that an exodus from the market is well underway as competitive bidding attrition and unprofitable pricing matrices have caused companies to seek opportunities elsewhere.

For those still around, the challenge is how to conduct an effective wholesale stripping of costs.

“Companies are getting very creative in investigating ways to reduce costs through a myriad of ways,” Sowards said. “It could be as minor as changing the existing quality retail design packaging to a generic black-and-white or reducing user features and options through automation of customer service and interaction. Suppliers used to market their businesses based on the level of professionalism and customer service they provided, but now their hands are forced to sacrifice any level of service to stay in business.”

'Cheaper' products

With their low overhead and mass production capabilities, the gigantic factories of the Pacific Rim have become the new producers of diabetic supplies in a U.S. market that is desperate to trim costs.

But is this juggernaut of imported products a viable alternative and are they safe for diabetic patients to use? Opinions are mixed.

“Products are flooding in from Korea, Taiwan and Japan—all at lower costs due to competitive bidding,” said Bret Morey, director of marketing branding and sales for Newbury Park, Calif.-based ForaCare. “It is killing the brands in the market and is causing an influx of low-priced strips that may not be the best products for diabetes patients.”

While Bosco agrees that there are a lot of cheaper products coming in, he isn't convinced that they are necessarily worse than the status quo.

“There really is a proliferation of low-priced brands—they aren't necessarily inferior, they just lack promotion,” he said. “We are carefully vetting these brands to make sure they are FDA-inspected and have 24/7 help lines. The brands we've approved so far have been of decent quality and we haven't had any complaints.”

'Last man standing'

At this juncture, the industry has taken what Sowards calls a “last man standing” approach to the market.

“Unfortunately many small and mid-sized companies will be eliminated,” he said. “But there are emerging markets with different reimbursements and companies should look to their local ACO and see if they can forge a partnership and provide more than just a few supplies to their patients.”

Accountable care organizations—better known as ACOs—are networks of community providers that band together to manage different episodes of patient care.

Usually anchored by hospitals, ACOs typically include post-acute care sites, long-term care facilities and home healthcare companies.

“Suppliers should shift their focus and offer a new solution—a remote home monitoring platform, which can help the ACO achieve population health management goals and perform patient risk stratification directly from the patient's home,” Sowards said.

Bosco is seeing an uptick in interest toward related markets, such as ostomy, urology and wound care, as temporary safe havens.

“For the first time in years these businesses are up for us,” he said. “Both the urology and ostomy businesses are up $4 million year over year.”

The renewed interest in ostomy and urology isn't due to improved reimbursement—it remains low.

But keeping a foot in the business is a way to maintain relationships with referral sources, Bosco said.

“Even though margins are slim to none, it keeps companies going while they transition their business to something else,” he said.