Direct to consumer, push-pull, twisted…Who is your customer?

Monday, June 30, 2003

In the past it seemed everyone on the HME supply chain had a solid and defined role. It was actually quite simple:

- HME had a defined group of customers, which included the patients, the discharge planners, the physicians and the insurance companies. These were clearly our customers.

- Manufacturers and distributors had a defined customer, the HME provider. We were their customers. Life was good for all…or so it seemed!

Market Changes

But today, medical devices are entering the market at a very rapid pace. Although some are innovative, many of these devices are often only slightly improved models of versions or technologies previously available, but these come with higher price tags. Because of the modest regulation of this class of medical devices, many arrive with little or no objective or scientific evidence to support the marketing claims. In addition, the devices often fall into the brand-less and feature-less world of HCPCS codes, a system often very contradictory to this aggressive marketing and sales process. As a result, many HME providers have become very skeptical about embracing these new product improvements and the associated increased costs.

In contrast, manufacturers are working harder than ever to shift sales to the “new and improved” devices. In many cases the new devices offer higher margins and/or help prevent erosion or commodity shifts for products maturing or nearing the top of the life cycle.

This new dichotomy has created some division between manufacturer and HME provider, both trying to serve their own self-interests, grow their businesses, and compete in this ever-challenging environment. Some manufacturers seem to view the HME as an obstacle to their sales and success. Some HME providers are concerned that the manufacturer is shifting from a supplier/partner to competitor. These push-pull marketing tactics clearly demonstrate that some manufacturers see their customer as the end-user and the HME provider simply a means to an end.

One of the culprits or agent of change (depending on your perspective) is direct- to-consumer (DTC) marketing and sales efforts, which is assisted by the incredible growth in information mediums, including cable television and the Internet. First introduced by the pharmaceutical industry after policy and law changes from the FDA, DTC marketing has found its way to the world of HME. Previously considered unethical and in some cases illegal, many healthcare goods and services are now marketed directly to the end-user - the patient. This begs the question, “Who is your customer?”

The Conflict

The HME industry is now facing active DTC marketing in the form of television and print campaigns. New devices are being marketed directly to potential consumers, often with little supportive information (i.e., insurance criteria, medical appropriateness, cost). Payors do not identify products by brand name, color, logo, etc. Instead, HME items are identified by generic product descriptions and HCPCS codes. Payors have established fee schedules based on the average or lowest cost of goods and services, not through branding and device popularity.

Many HME companies base their selection of product on clinical benefit, cost-benefit and purchasing economies. In health care, a little bit of information can be dangerous. Without detailed explanations, patients are often mislead by such advertising and end up very disappointed when they learn that they don’t have a medical need or insurance coverage for a particular item. Often the patient blames the HME provider for failing to give them “what they want.” This is teased along by manufacturers who suggest to referral sources and patients that a company that doesn’t provide their premium products is operating below the standard of practice or is too focused on profit.

Patients do have a right to information and choice. However, if a manufacturer chooses to employ DTC tactics, they have the responsibility for full disclosure of information, including insurance coverage rules, cost, medical appropriateness, functional limitations of the equipment and the fact that most insurance companies don’t recognize brand names. This doesn’t look good on an ad slick and is a near impossible task for a marketing department.

The basic supply chain for HME goods is Manufacturer-HME Provider-Patient. The HME provider is the entity that assumes the greatest financial risk, tolerates long DSO’s, accepts insurance assignment, providing free delivery and 24-hour service, and assumes the majority of the liability. Inappropriate marketing tactics are another barrier to success that HME providers cannot afford in today’s already difficult healthcare environment. It is also straining the relationship between manufacturer and provider and forcing some of us to take sides.

Bob Fary is corporate director of respiratory service for Apria. Joe Lewarski is president of Hytech Homecare & Medical Supply.